UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
Commission file number: 001-16853
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-22490
FORWARD AIR CORPORATION
(Exact name of Registrant as specified in its charter)
Tennessee
(State or other jurisdiction of
incorporation or organization)
1915 Snapps Ferry Road, Building N
Greeneville, Tennessee
(Address of principal executive offices)
62-1120025
(I.R.S. Employer
Identification No.)
37745
(Zip Code)
(423) 636-7000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. o
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting Company o Emerging Growth Company o
If an emerging growth company, indicate by checkmark 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1,695,536,388 as of June 30, 2018.
The number of shares outstanding of the Registrant’s common stock (as of February 14, 2019): 28,788,556
Documents Incorporated By Reference
Portions of the proxy statement for the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.
Table of Contents
Forward Air Corporation
Page
Number
Part I.
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Part II.
Item 5.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Part III.
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Part IV.
Item 15.
Exhibits, Financial Statement Schedules
Signatures
Index to Financial Statements
Financial Statement Schedule
Exhibit Index
2
3
11
19
20
20
20
20
22
22
56
56
56
56
59
59
60
60
60
60
60
61
F-2
S-1
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Introductory Note
This Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (this “Form 10-K”) contains “forward-looking
statements,” as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). 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-K, forward-looking
statements include, but are not limited to, any projections of earnings, revenues, payment of dividends, or other financial items or related
accounting treatment; any statement regarding the availability of cash; any statement of plans, strategies, and objectives of management
for future operations; any statements regarding future insurance, claims and litigation; any statements concerning proposed or intended,
new services or developments; any statements regarding our technology and information systems, including the effectiveness of each; any
statements regarding competition, including our specific advantages, the capabilities of our segments and our geographic location; any
statements regarding intended expansion through acquisition or greenfield startups; any statements regarding future business, economic
conditions or performance; 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 creditworthiness of our customers and their ability to pay for services rendered, the availability
and compensation of qualified independent owner-operators 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, the cybersecurity risks related to our information technology systems, changes in fuel prices, our inability to
maintain our historical growth rate, including because of a decreased volume of freight or decreased average revenue per pound of freight
moving through our network, loss of a major customer, whether our service offerings gain market acceptance, increasing competition and
pricing pressure, our ability to secure terminal facilities in desirable locations at reasonable rates, labor and employment concerns, our
inability to successfully integrate acquisitions, claims for property damage, personal injuries or workers’ compensation, changes in our
self-insurance and third-party insurance, seasonality, enforcement of and changes in governmental regulations, environmental matters, the
impact of certain accounting and tax matters, and the handling of hazardous materials. As a result of the foregoing, no assurance can be
given as to future financial condition, cash flows or results of operations. Except as required by law, we undertake no obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Part I
Item 1. Business
Overview
Forward Air is a leading asset-light freight and logistics company. We provide less-than-truckload (“LTL”), truckload, intermodal
and pool distribution services across the United States and in Canada. We utilize an asset-light strategy to minimize our investments in
equipment and facilities and to reduce our capital expenditures. Forward Air was formed as a corporation under the laws of the State of
Tennessee on October 23, 1981. Our common stock is listed on the Nasdaq Global Select Market under the symbol “FWRD”.
Services Provided
Our services are classified into four reportable segments: Expedited LTL, Truckload Premium Services (“TLS”), Intermodal and
Pool Distribution. For financial information relating to each of our business segments, see Note 10, “Segment Reporting,” in the Notes to
consolidated Financial Statements included in this Form 10-K.
Expedited LTL. We operate a comprehensive national network to provide expedited regional, inter-regional and national LTL
services. Expedited LTL offers customers local pick-up and delivery and other services including shipment consolidation and
deconsolidation, warehousing, final mile solutions, customs brokerage and other handling. Because of our roots in serving the deferred air
freight market, our terminal network is located at or near airports in the United States and Canada. During the year ended December 31,
2018, Expedited LTL accounted for 56.6% of our consolidated revenue.
TLS. We provide expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-
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controlled logistics services in the United States and Canada. During the year ended December 31, 2018, TLS accounted for 14.6% of our
consolidated revenue.
Intermodal. We provide first- and last-mile high value intermodal container drayage services both to and from seaports and
railheads. Intermodal also offers linehaul service within the LTL space as well as dedicated contract and 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. 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. During the year ended December 31, 2018, Intermodal accounted for 15.2% of our
consolidated revenue.
Pool Distribution. We provide high-frequency handling and distribution of time sensitive product to numerous destinations within
a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States. During
the year ended December 31, 2018, Pool Distribution accounted for 14.7% of our consolidated revenue.
Strategy
Our strategy is to take advantage of our core competencies to provide asset-light freight and logistics services in order to grow in
the premium or high service level segments of the markets we serve. Principal components of our efforts include:
•
•
•
Expand Service Offerings. We believe we can increase freight volumes and revenues by offering new and enhanced services
that address more of our customers’ premium transportation needs. In the past few years, we have added or enhanced LTL
pickup and delivery, customer label integration, expedited truckload, temperature-controlled shipments, warehousing,
drayage, final mile solutions, customs brokerage and shipment consolidation and handling services. These services benefit
our existing customers and increase our ability to attract new customers.
Enhance Information Systems. We are committed to the development and enhancement of our information systems in order to
provide us competitive service advantages and increased productivity. We believe our information systems have and will
assist us in capitalizing on new business opportunities with existing and new customers.
Pursue Strategic Acquisitions. We continue to evaluate and pursue acquisitions that can increase our penetration of a
geographic area; add new customers, business verticals and services; and increase freight volume. For example, we acquired
Central States Trucking Co. (“CST”) in 2014, which created the foundation for what is now our Intermodal segment. Since
our acquisition of CST in 2014, we have completed eight additional intermodal acquisitions including Multi-Modal Transport
Inc. ("MMT") and Southwest Freight Distributors (“Southwest”), both acquired in 2018.
Operations
The following describes in more detail the operations of each of our reportable segments: Expedited LTL, Truckload Premium
Services, Intermodal and Pool Distribution.
Expedited LTL
Overview
Our Expedited LTL segment provides expedited regional, inter-regional and national LTL and final mile services. We market our
Expedited LTL services primarily to freight and logistics intermediaries (such as freight forwarders and third-party logistics companies)
and airlines (such as integrated air cargo carriers, and passenger and cargo airlines). We offer our customers a high level of service with a
focus on on-time, damage-free deliveries. Our terminals are located on or near airports in the United States and Canada and maintain
regularly scheduled transportation service between major cities. Our Expedited LTL network encompasses approximately 92% of all
continental U.S. zip codes, with service in Canada.
Shipments
During 2018, approximately 30.8% of the freight handled by Expedited LTL was for overnight delivery, approximately 55.4%
was for delivery within two to three days and the balance was for delivery in four or more days.
The average weekly volume of freight moving through our Expedited LTL network was approximately 50.2 million
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pounds per week in 2018. During 2018, our average shipment weighed approximately 614 pounds. Although we impose no significant size
or weight restrictions, we focus our marketing and price structure on shipments of 200 pounds or more.
Expedited LTL generally does not market its services directly to shippers (where such services might compete with our freight
and logistics intermediary customers). Also, because Expedited LTL does not place significant size or weight restrictions on shipments, we
generally do not compete directly with integrated air cargo carriers such as United Parcel Service and FedEx Corporation in the overnight
delivery of small parcels.
The table below summarizes the average weekly volume of freight moving through our network for each year since 2004.
Average Weekly
Volume in Pounds
(In millions)
28.7
31.2
32.2
32.8
34.2
28.5
32.6
34.0
34.9
35.4
37.4
47.2
46.5
49.5
50.2
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Transportation
Our licensed property broker places our customers’ cargo with qualified motor carriers, including our own, and other third-party
transportation companies. Expedited LTL licensed motor carrier contracts with owner-operators for most of its transportation services. The
owner-operators own, operate and maintain their own tractors and employ their own drivers. Our freight handlers load and unload our
trailers and vehicles for hauling by owner-operators between our terminals.
We seek to establish long-term relationships with owner-operators to assure dependable service and availability. We believe
Expedited LTL has experienced significantly higher average retention of owner-operators compared to other over-the-road transportation
providers. Expedited LTL has established specific guidelines relating to safety records, driving experience and personal evaluations that we
use to select our owner-operators. To enhance our relationship with the owner-operators, Expedited LTL seeks to pay rates that are
generally above prevailing market rates and our owner-operators often are able to negotiate a consistent work schedule for their drivers.
Usually, owner-operators negotiate schedules for their drivers that are between the same two cities or along a consistent route, improving
quality of work life for the drivers of our owner-operators and, in turn, increasing the retention rate of owner-operators.
As a result of efforts to expand our logistics and other services, and in response to seasonal demands and volume surges in
particular markets, we also purchase transportation from other surface transportation providers to handle overflow volume (including TLS).
Of the $360.7 million incurred for Expedited LTL's transportation during 2018, we purchased 46.5% from the owner-operators of our
licensed motor carrier, 3.7% from our company fleet and 49.9% from other surface transportation providers.
All of our LTL Expedited independent contractor tractors are equipped with in-cab communication devices, which enable us to
communicate with our drivers, plan and monitor shipment progress and monitor and record our drivers’ hours of service. We use the real-
time global positioning data obtained from these devices to improve customer and driver service.
Other Services
Expedited LTL customers increasingly demand more than the movement of freight from their transportation providers.
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To meet these demands, we continually seek ways to customize and add new services.
Other Expedited LTL services allow customers to access the following services from a single source:
•
•
•
•
•
mile
customs
brokerage;
final
solutions;
warehousing, dock and office
space;
hotshot or ad-hoc ultra expedited services;
and
shipment consolidation and handling, such as shipment build-up and break-down and reconsolidation of air or ocean
pallets or containers.
Customers
Our wholesale customer base is primarily comprised of freight forwarders, third-party logistics (“3PL”) companies, integrated air
cargo carriers and passenger, cargo airlines and steamship lines. Expedited LTL’s freight forwarder customers vary in size from small,
independent, single facility companies to large, international logistics companies. Our dependable service and wide-ranging service
offerings also make Expedited LTL an attractive option for 3PL providers , which is one of the fastest growing segments in the
transportation industry. Because we deliver dependable service, integrated air cargo carriers use our network to provide overflow capacity
and other services, including shipment of bigger packages and pallet-loaded cargo. In 2018, LTL's ten largest customers accounted for
approximately 41% of its operating revenue and had one customer with revenue greater than 10% of LTL operating revenue for 2018. No
single customer accounted for more than 10% of our consolidated revenue.
Truckload Premium Services
Overview
Our TLS segment is an asset-light provider of transportation management services, including, but not limited to, expedited
truckload brokerage, dedicated fleet services, as well as high security and temperature-controlled logistics services. We market our TLS
services to integrated air cargo carriers, airlines, freight forwarders and LTL carriers, as well as life-science companies, and their
distributors and other shippers of high value cargo. TLS offers long haul, regional and local services through a dedicated fleet and third-
party transportation providers. TLS also utilizes a wide assortment of equipment to meet our customers’ critical on-time expectations in the
United States and Canada.
Operations
TLS’ primary operations are located in Columbus, Ohio. TLS also has satellite operations in South Bend, Indiana; Greeneville,
Tennessee; Grand Rapids, Michigan; and Sacramento, California.
Operating Statistics
The table below summarizes the average weekly miles driven for each year since 2004.
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Average Weekly Miles
(In thousands)
260
248
331
529
676
672
788
876
1,005
1,201
1,185
1,459
1,756
1,902
1,547
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Transportation
TLS utilizes a fleet of owner-operators, company drivers and third-party transportation providers in its operations. The owner-
operators own, operate and maintain their own tractors and employ their own drivers. We also maintain a fleet of company drivers, which
primarily serve our life science and high value cargo customers. In many instances, our customers request team (driver) service. Through
team service, we are able to provide quicker, more secure, transit service to our TLS customers.
We seek to establish long-term relationships with owner-operators and company drivers to assure dependable service and
availability. To enhance our relationship with the owner-operators and our company drivers, TLS strives to set its owner-operator and
company driver pay rates above prevailing market rates. TLS has established specific guidelines relating to safety records, driving
experience and personal evaluations that we use to qualify and select our drivers (leased and employed).
In addition to our owner-operators and company fleet, we also purchase transportation from other surface transportation providers
(including Expedited LTL) to serve our customers’ needs. TLS’ brokerage operation has relationships with over 6,008 qualified carriers. Of
the $155.0 million incurred for TLS transportation during 2018, we purchased 28.5% from the owner-operators of our licensed motor
carrier, 6.6% from our company fleet and 64.9% from other surface transportation providers.
We have access to a pool of trailers and we utilize a variety of equipment in our TLS operations including dry van, refrigerated,
and roller-bed trailers, as well as straight trucks and cargo vans. We service our life science and high-security cargo customers with
industry-leading TAPA (Transported Asset Protection Association) Level 1 certified equipment that has layered security measures to
prevent theft, qualified and calibrated refrigerated trailers, and temperature systems that minimize the chance of damage to cargo caused by
temperature excursions. All of the TLS trailers have global positioning trailer-tracking technology that allows us to more effectively
manage our trailer pool.
All of our TLS company and independent contractor tractors are equipped with in-cab communication devices, which enable us to
communicate with our drivers, plan and monitor shipment progress and monitor and record our drivers’ hours of service. We use the real-
time global positioning data obtained from these devices to improve customer and driver service.
Customers
Our customer base is primarily comprised of freight forwarders, third-party logistics companies, integrated air cargo carriers,
passenger and cargo airlines, and LTL carriers, including our own LTL Expedited segment, as well as retail, life-science companies, and
their distributors. TLS’ customers include Fortune 500 pharmaceutical manufacturers and distributors, as well as transportation companies.
In 2018, TLS’ ten largest customers accounted for approximately 67% of its operating revenue and had three customers with revenue
greater than 10% of TLS operating revenue each. No single customer accounted for more than 10% of our consolidated revenue.
Intermodal
Overview
Our Intermodal segment provides high value intermodal container drayage services. We market our Intermodal services primarily
to import and export customers. Intermodal offers first- and last-mile transportation of freight both to and from seaports and railheads
through a dedicated fleet and third-party transportation providers. Today, Intermodal operates primarily in the Midwest and Southeast, with
a smaller presence in the Southwest United States. We plan to expand beyond our current geographic footprint through acquisitions as well
as greenfield start-ups where no suitable acquisition is available. Intermodal also provides linehaul and local less-than-truckload service in
the Midwest, as well as CFS warehousing services (e.g. devanning, unit load device build-up/tear-down, and security screening) for air and
ocean import/export freight at five (5) of its Midwest terminals (Chicago, Cleveland, Milwaukee, Indianapolis and Detroit). Our Intermodal
service differentiators include:
•
•
•
Immediate proof of delivery ("POD") and Signature Capture capability via
tablets;
All drivers receive dispatch orders on hand-held units and are trackable via GPS;
and
Daily container visibility and per diem management
reports.
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Operations
Intermodal’s primary office is located in Oak Brook, Illinois. Intermodal’s network consists of 20 locations primarily in the
Midwest and Southeast, with a smaller operational presence in the Southwest United States.
Transportation
Intermodal utilizes a mix of Company-employed drivers, owner-operators and third-party carriers. During 2018, approximately
21.0% of Intermodal’s direct transportation expenses were provided by Company-employed drivers, 76.6% by owner-operators and 2.4%
was provided by third-party carriers.
All of our Intermodal company and independent contractor tractors are equipped with computer tablets, which enable us to
communicate with our drivers, plan and monitor shipment progress and monitor our drivers’ hours of service. We use the real-time global
positioning data obtained from these devices to improve customer and driver service and provide a high level of shipment visibility to our
customers (including immediate POD signature capture). We believe that our technology is a key differentiator and enables us to provide a
higher level of service than our competitors.
Customers
Intermodal’s customer base is primarily comprised of international freight forwarders, passenger and cargo airlines, beneficial
cargo owners and steamship lines. In 2018, Intermodal’s ten largest customers accounted for approximately 33% of its operating revenue
and had no customers with revenue greater than 10% of Intermodal operating revenue for 2018. No single customer accounted for more
than 10% of our consolidated revenue.
Pool Distribution
Overview
Our Pool Distribution (or “Pool”) segment provides pool distribution services through a network of terminals and service locations
throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States. Pool distribution involves managing high-frequency
handling and distribution of time-sensitive product to numerous destinations in specific geographic regions. We market these services to
national and regional retailers and distributors.
Transportation
Pool Distribution provides transportation services through a mix of Company-employed drivers, owner-operators and third-party
carriers. The mix of sources utilized to provide Pool transportation services is dependent on the individual markets and related customer
routes. During 2018, approximately 32.1% of Pool's direct transportation expenses were provided by Company-employed drivers, 35.0% by
owner-operators and 32.9% was provided by third-party carriers.
Customers
Pool Distribution’s customer base is primarily composed of national and regional retailers and distributors. Pool’s ten largest
customers accounted for approximately 77% of Pool Distribution’s 2018 operating revenue and had two customers with revenue greater
than 10% of Pool Distribution’s 2018 operating revenue. No single customer accounted for more than 10% of our consolidated revenue.
Competition
We compete in the North American transportation and logistics services industry, and the markets in which we operate are highly
competitive, very fragmented and historically have few barriers to entry. We compete with a large number of other asset-light logistics
companies, asset-based carriers, integrated logistics companies, and third-party freight brokers. To a lesser extent, we also compete with
integrated air cargo carriers and passenger airlines. Our competition ranges from small operators that compete within a limited geographic
area to companies with substantially greater financial and other resources, including greater freight capacity.
Our Expedited LTL, TLS and Pool Distribution segments primarily compete with other national and regional truckload carriers.
Expedited LTL also competes with less-than-truckload carriers, and to a lesser extent, integrated air cargo carriers and
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passenger and cargo airlines, while our TLS segment also competes with property brokers and 3PLs. Our Intermodal segment primarily
competes with national and regional drayage providers.
We believe competition in our segments is based primarily on quality service, available capacity, on-time delivery, flexibility,
reliability, security, transportation rates, location of facilities, and business relationships, and we believe we compete favorably with other
transportation service companies. To that end, we believe our Expedited LTL segment has an advantage over other truckload and less-than-
truckload carriers because Expedited LTL delivers faster, more reliable services between cities at rates that are generally significantly
below the charge to transport the same shipments to the same destinations by air. We believe our TLS and Intermodal segments have a
competitive advantage over other truckload carriers and drayage providers because we deliver faster, more reliable service while offering
greater shipment visibility and security. Additionally, we believe our Intermodal segment is one of the leading providers of drayage and
related services in North America today. We believe that our presence in several regions across the continental United States enables our
Pool Distribution segment to provide consistent, high-quality service to our customers regardless of location, which is a competitive
advantage over other pool distribution providers.
Marketing
We market all of our services through a sales and marketing staff located in major markets of the United States. Senior
management also is actively involved in sales and marketing at the national and local account levels. We participate in trade shows and
advertise our services through direct mail programs and through the Internet via www.forwardaircorp.com, www.forwardair.com,
www.forwardairsolutions.com, www.shiptqi.com, and www.cstruck.com. We market our services through all of our websites. The
information contained on our websites is not part of this filing and is therefore not incorporated by reference unless such information is
otherwise specifically referenced elsewhere in this report.
Seasonality
Historically, our operating results have been subject to seasonal trends when measured on a quarterly basis. The first quarter has
traditionally been the weakest and the third and fourth quarters have traditionally been the strongest. Typically, this pattern has been the
result of factors such as economic conditions, customer demand, weather, and national holidays. Additionally, a significant portion of our
revenue is derived from customers whose business levels are impacted by the economy. The impact of seasonal trends and the economy is
more pronounced on our Pool Distribution business, whose operating revenues and results tend to improve in the third and fourth quarters
compared to the first and second quarters.
Employees and Equipment
As of December 31, 2018, we had 4,362 full-time employees, 1,553 of whom were freight handlers. Also, as of that date, we had
an additional 1,007 part-time employees, of whom the majority were freight handlers. None of our employees are covered by a collective
bargaining agreement. We recognize that our workforce, including our freight handlers, is one of our most valuable assets. The recruitment,
training and retention of qualified employees are essential to support our continued growth and to meet the service requirements of our
customers.
We manage a trailer pool that is utilized by all of our reportable segments to move freight through our networks. Our trailer pool
includes dry van, refrigerated and roller-bed trailers, and substantially all of our trailers are 53 feet long. We own the majority of the trailers
we use, but we supplement at times with leased trailers. As of December 31, 2018, we had 6,182 owned trailers in our fleet with an average
age of approximately 4.3 years. In addition, as of December 31, 2018, we also had 465 leased trailers in our fleet. As of December 31, 2018,
we had 585 owned tractors and straight trucks in our fleet, with an average age of approximately 6.1 years. In addition, as of December 31,
2018, we also had 600 leased tractors and straight trucks in our fleet.
Environmental Protection Efforts
Forward Air is committed to protecting the environment and we have taken a variety of steps to improve the sustainability of our
operations. We are implementing new practices and technologies, improving our training, and incorporating sustainability objectives in our
growth strategies.
As a partner of the U.S. Environmental Protection Agency ("EPA") SmartWay program since 2008, Forward Air has continued to
adopt new environmentally safe policies and innovations to improve fuel efficiency and reduce emissions. For example, we actively seek to
utilize equipment with reduced environmental impact. We utilize trailers with light weight composites and employ trailer skirts to decrease
aerodynamic drag, both of which improve fuel efficiency. We are also increasing our use of electronic forklifts and transitioning to
automatic transmission tractors, which will decrease our fuel consumption.
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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 recognize the value in describing our sustainability focus and will continue to update our future
disclosures accordingly.
Risk Management and Litigation
Under U.S. Department of Transportation (“DOT”) regulations, we are liable for property damage and personal injuries caused by
owner-operators and Company-employed drivers while they are operating on our behalf. Additionally, from time to time, the drivers
employed and engaged by the third-party transportation carriers we contract with are involved in accidents, which may result in serious
personal injuries. The resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage
maintained by the contracted carrier. Although these drivers are not our employees, all of these drivers are employees, owner-operators, or
independent contractors working for carriers and, from time to time, claims may be asserted against us for their actions, or for our actions in
retaining them.
We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured
retention ("SIR") of $3.0 million per occurrence for vehicle and general liability claims and will be responsible for any damages and
personal injuries below that self-insured amount. We are also responsible for varying annual aggregate deductible amounts of liability for
claims in excess of the SIR/deductible. For the policy year that began April 1, 2018, we have an annual $6.0 million aggregate deductible
for claims between $3.0 million and $5.0 million. We also have a $2.5 million aggregate deductible for claims between $5.0 million and
$10.0 million. As a result, we are responsible for the first $7.5 million per claim, until we meet the $6.0 million aggregate deductible for
claims between $3.0 million and $5.0 million and the $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million.
We cannot guarantee that our SIR levels will not increase and/or that we have to agree to more unfavorable policy terms as a result of
market conditions, poor claims experience or other factors. This insurance covers claims for the LTL Expedited and Pool Distribution
segments. TLS maintains separate liability insurance coverage for claims between $0 and $5.0 million, and for the policy year that began
April 1, 2018, TLS had no SIR for claims in this layer. Intermodal maintains separate liability insurance coverage for all liability claims.
For the policy year that began April 1, 2018, Intermodal had an SIR of $50 thousand for each claim.
We may also be subject to claims for workers’ compensation. We maintain workers’ compensation insurance coverage that we
believe is adequate to cover such claims. We have a SIR of approximately $0.4 million for each such claim, except in Ohio, where we are a
qualified self-insured entity with an approximately $0.5 million SIR. We could incur claims in excess of our policy limits or incur claims
not covered by our insurance. Any claims beyond the limits or scope of our insurance coverage may have a material adverse effect on us.
Because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance
retainage could adversely affect our profitability. In addition, we may be unable to maintain insurance coverage at a reasonable cost or in
sufficient amounts or scope to protect us against losses.
From time to time, we are a party to litigation arising in the normal course of our business, most of which involve claims for
personal injury, property damage related to the transportation and handling of freight, or workers’ compensation. We do 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.
Regulation
We are regulated by various United States and state agencies, including but not limited to the DOT. These regulatory authorities
have broad powers, generally governing matters such as authority to engage in motor carrier operations, as well as motor carrier
registration, driver hours of service, safety and fitness of transportation equipment and drivers, transportation of hazardous materials,
certain mergers and acquisitions and periodic financial reporting. The trucking industry is also subject to regulatory and legislative changes
from a variety of other governmental authorities, which address matters such as: increasingly stringent environmental, occupational safety
and health regulations, limits on vehicle weight and size, ergonomics, port security, and hours of service. In addition, we are subject to
compliance with cargo-security and transportation regulations issued by the Transportation Security Administration and Customs and
Border Protection (“CBP”) within the U.S. Department of Homeland Security, and our domestic customs brokerage operations are licensed
by CBP. Additionally, our Canada business activities are subject to similar requirements imposed by the laws and regulations of Canada, as
well as its provincial laws and regulations. Regulatory requirements, and changes in regulatory requirements, may affect our business or the
economics of the industry by requiring changes in operating practices or by influencing the demand for and increasing the costs of
providing transportation services.
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Service Marks
Through one of our subsidiaries, we hold federal trademark registrations or applications for federal trademark registration,
associated with the following service marks: Forward Air, Inc.®, North America’s Most Complete Roadfeeder Network®, Keeping Your
Business Moving Forward®, Forward Air®, Forward Air Solutions ®, Forward Air Complete®, PROUD®, Total Quality, Inc.®, TQI,
Inc.®, TQI®, Central States Trucking Co.® and CSTSM. These marks are of significant value to our business.
Available Information
We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K. other reports and amendments to such reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended from time to time. We are an electronic filer and the SEC maintains
an Internet site at www.sec.gov that contains these reports and other information filed electronically. We make available free of charge
through the Investor Relations portion of our website such reports as soon as reasonably practicable after such material is electronically
filed with or furnished to the SEC. Our website address is www.forwardaircorp.com. Our goal is to maintain our website as a portal through
which investors can easily find or navigate to pertinent information about us. The information provided on the website is not part of this
report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.
Item
1A.
Risk Factors
The following are important risk factors that could affect our financial performance and could cause actual results for future
periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements
made in this Annual Report on Form 10-K or our other filings with the SEC or in oral presentations such as telephone conferences and
webcasts open to the public. You should carefully consider the following factors and consider these in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and
related Notes in Item 8.
Overall economic conditions that reduce freight volumes could have a material adverse impact on our operating results and ability to
achieve growth.
We are sensitive to changes in overall economic conditions that impact customer shipping volumes, industry freight demand and
industry truck capacity. The transportation industry historically has experienced cyclical fluctuations in financial results due to economic
recession, downturns in business cycles of our customers, interest rate fluctuations, inflation and other economic factors beyond our
control. Changes in U.S. trade policy could lead to ‘trade wars’ impacting the volume of economic activity in the United States, and as a
result, trucking freight volumes may be materially reduced. Such a reduction may materially and adversely affect our business.
Deterioration in the economic environment subjects our business to various risks, including the following, that may have a material and
adverse impact on our operating results and cause us not to maintain profitability or achieve growth:
•
•
•
•
A reduction in overall freight volumes reduces our revenues and opportunities for growth. In addition, a decline in the volume of
freight shipped due to a downturn in customers’ business cycles or other factors (including our ability to assess dimensional-based
weight increases) generally results in decreases in freight pricing and decreases in average revenue per pound of freight, as carriers
compete for loads to maintain truck productivity.
Our base transportation rates are determined based on numerous factors such as length of haul, weight per shipment and freight
class. During economic downturns, we may also have to lower our base transportation rates based on competitive pricing
pressures and market factors.
Some of our customers may face economic difficulties and may not be able to pay us, and some may go out of business. In
addition, some customers may not pay us as quickly as they have in the past, causing our working capital needs to increase.
A significant number of our transportation providers may go out of business and we may be unable to secure sufficient equipment
or other transportation services to meet our commitments to our customers.
• We may not be able to appropriately adjust our expenses to changing market demands. In order to maintain high variability in our
business model, it is necessary to adjust staffing levels to changing market demands. In periods of rapid change, it is more
difficult to match our staffing levels to our business needs.
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If we have difficulty attracting and retaining owner-operators or freight handlers, or are unable to contract with a sufficient number of
third-party carriers to supplement our owner-operator fleet, our profitability and results of operations could be adversely affected.
We depend on owner-operators for most of our transportation needs. In 2018, owner-operators provided 49.2% of our purchased
transportation. Competition for owner-operators is intense, and sometimes there are shortages of available owner-operators. In addition, a
decline in the availability of trucks, tractors and trailers for owner-operator purchase or use may negatively affect our ability to hire, attract
or retain available owner-operators. We also need a large number of freight handlers to operate our business efficiently. During periods of
low unemployment in the areas where our terminals are located, we may have difficulty hiring and retaining a sufficient number of freight
handlers. If we have difficulty attracting and retaining enough qualified freight handlers and owner-operators, we may be forced to increase
wages and benefits or to increase the cost at which we contract with our owner-operators, either of which would increase our operating
costs. This difficulty may also impede our ability to maintain our delivery schedules, which could make our service less competitive and
force us to curtail our planned growth. A capacity deficit may lead to a loss of customers and a decline in the volume of freight we receive
from customers.
To augment our fleet of owner-operators, from time to time we purchase transportation from third-party carriers at a higher cost.
As with owner-operators, competition for third-party carriers is intense, and sometimes there are shortages of available third-party carriers.
If we cannot secure a sufficient number of owner-operators and have to purchase transportation from third-party carriers, our operating
costs will increase. If our labor and operating costs increase, we may be unable to offset the increased costs by increasing rates without
adversely affecting our business. As a result, our profitability and results of operations could be adversely affected.
A determination by regulators that our independent owner-operators are employees rather than independent contractors could expose
us to various liabilities and additional ongoing expenses, and related litigation can subject us to substantial costs, which could have a
material adverse effect on our results of operations and our financial condition.
At times, the Internal Revenue Service, the Department of Labor and state authorities have asserted that owner-operators are
“employees,” rather than “independent contractors.” In addition, the topic of the classification of individuals as employees or independent
contractors has gained increased attention among the plaintiffs’ bar. One or more governmental authorities may challenge our position that
the owner-operators we use are not our employees. A determination by regulators that our independent owner-operators are employees
rather than independent contractors could expose us to various liabilities and additional ongoing expenses, including but not limited to,
employment-related expenses such as workers’ compensation insurance coverage and reimbursement of work-related expenses. Our
exposure could include prior period compensation, as well as potential liability for employee benefits and tax withholdings. In addition,
certain states have recently seen numerous class action lawsuits filed against transportation companies that engage independent contractors,
some of which have resulted in significant damage awards and/or monetary settlements for workers who have been allegedly misclassified
as independent contractors. The legal and other costs associated with any of these matters can be substantial and could have a material
adverse effect on our results of operations and our financial condition.
If we fail to maintain our information technology systems, or if we fail to successfully implement new technology or enhancements, we
may be at a competitive disadvantage and experience a decrease in revenues.
We rely heavily on our information technology systems to efficiently run our business, and they are a key component of our
growth strategy and competitive advantage. We expect our customers to continue to demand more sophisticated, fully integrated
information systems from their transportation providers. To keep pace with changing technologies and customer demands, we must
correctly interpret and address market trends and enhance the features and functionality of our information technology systems in response
to these trends, which may lead to significant ongoing software development costs. We may be unable to accurately determine the needs of
our customers and the trends in the transportation services industry or to design and implement the appropriate features and functionality of
our information technology systems in a timely and cost-effective manner, which could put us at a competitive disadvantage and result in a
decline in our efficiency, decreased demand for our services and a corresponding decrease in our revenues. In addition, we could incur
software development costs for technology that is ultimately not deployed and thus, would require us to write-off these costs, which would
negatively impact our financial results. Furthermore, as technology improves, our customers may be able to find alternatives to our services
for matching shipments with available freight hauling capacity.
Our information technology systems can also play an integral role in managing our internal freight and transportation information
and creating additional revenue opportunities including assessing available backhaul capacity. A failure to capture and utilize our internal
freight and transportation information may impair our ability to service our existing customers or grow
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revenue.
Our information technology systems are dependent upon global communications providers, web browsers, telephone systems and
other aspects of the Internet infrastructure that have experienced significant system failures and electrical outages in the past. While we
take measures to ensure our major systems have redundant capabilities, our systems are susceptible to outages from fire, floods, power loss,
telecommunications failures, data leakage, human error, break-ins, cyber-attacks and similar events. The occurrence of any of these events
could disrupt or damage our information technology systems and hamper our internal operations, impede our customers’ access to our
information technology systems and adversely impact our customer service, volumes, and revenues and result in increased cost. In addition,
we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
Our information technology systems are subject to cybersecurity risks, some of which are beyond our control.
We depend on the proper functioning and availability of our information systems in operating our business, including
communications and data processing systems. It is important that the data processed by these systems remains confidential, as it often
includes competitive customer information, confidential customer transaction data, employee records, and key financial and operational
results and statistics. Some of our software applications are utilized by third parties who provide outsourced administrative functions,
which exposes us to additional cybersecurity risks. Although our information systems are protected through physical and software
safeguards as well as backup systems considered appropriate by management, it is difficult to fully protect against the possibility of
damage or breach created by cybersecurity attacks or other security attacks in every potential circumstance that may arise. As cybersecurity
attacks are increasing in frequency and sophistication it becomes even more difficult to protect against a breach of our information systems.
Cybersecurity incidents that impact the availability, reliability, speed, accuracy, or other proper functioning of these information
systems could have a significant impact on our operations. Failure to prevent or mitigate data loss or system intrusions from cybersecurity
attacks, including system failure, security breach, disruption by malware, or other damage, could expose us or our vendors or customers to a
risk of loss or misuse of such information, interrupt or delay our operations, damage our reputation, cause a loss of customers, result in
litigation or potential liability for us and otherwise harm our business. Likewise, data privacy breaches by employees and others who access
our systems may pose a risk that sensitive customer or vendor data may be exposed to unauthorized persons or to the public, adversely
impacting our customer service, employee relationships and our reputation.
We may have difficulty effectively managing our growth, which could adversely affect our business, results of operations and financial
condition.
Our growth strategy includes increasing freight volume from existing customers, expanding our service offerings and pursing
strategic transactions. Our growth plans will place significant demands on our management and operating personnel. Our ability to manage
our future growth effectively will require us to, among other things, regularly enhance our operating and management information systems,
evaluate and change our service offerings and continue to attract, retain, train, motivate and manage key employees, including through
training and development programs. If we are unable to manage our growth effectively, our business, results of operations and financial
condition may be adversely affected.
Volatility in fuel prices, shortages of fuel or the ineffectiveness of our fuel surcharge program can have a material adverse effect on our
results of operations and profitability.
We are subject to risks associated with the availability and price of fuel. Fuel prices have fluctuated dramatically over recent
years. Future fluctuations in the availability and price of fuel could adversely affect our results of operations. Fuel availability and prices
can be impacted by factors beyond our control, such as natural or man-made disasters, adverse weather conditions, political events,
disruption or failure of technology or information systems, price and supply decisions by oil producing countries and cartels, terrorist
activities, armed conflict and world supply and demand imbalance. Over time we have been able to mitigate the impact of the fluctuations
through our fuel surcharge programs. Our fuel surcharge rates are set weekly based on the national average for fuel prices as published by
the U.S. Department of Energy and our fuel surcharge table. Our fuel surcharge revenue is the result of our fuel surcharge rates and the
tonnage transiting our networks. There can be no assurance that our fuel surcharge revenue programs will be effective in the future as the
fuel surcharge may not capture the entire amount of the increase in fuel prices. Additionally, decreases in fuel prices reduce the cost of
transportation services and accordingly, could reduce our revenues and may reduce margins for certain lines of business. In addition to
changing fuel prices, fluctuations in volumes and related load factors may subject us to volatility in our fuel surcharge revenue. Fuel
shortages, changes in fuel prices and the potential volatility in fuel surcharge revenue may adversely impact our results of operations and
overall profitability.
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Because a portion of our network costs are fixed, any factors that result in a decrease in the volume or revenue per pound of freight
shipped through our networks will adversely affect our results of operations.
Our operations, particularly our networks of hubs and terminals, represent substantial fixed costs. As a result, any decline in the
volume or revenue per pound of freight we handle will have an adverse effect on our operating margin and our results of operations.
Several factors can result in such declines, including adverse business and economic conditions affecting shippers of freight as discussed
above. In addition, volumes shipped through our network may be negatively impacted by lack of customer contractual obligations or
cancellations of existing customer contracts. Typically, we do not enter into long-term contracts with our customers. Rather, our customer
contracts typically allow for cancellation within 30 to 60 days. As a result, we cannot guarantee that our current customers will continue to
utilize our services or that they will continue at the same levels. Any one of the foregoing factors that results in a decrease in the volume
or revenue per pound of freight shipped will adversely affect our results of operations.
We derive a significant portion of our revenue from a few major customers, the loss of one or more of which could have a material
adverse effect on our business.
For the calendar year ended December 31, 2018, our top 10 customers, based on revenue, accounted for approximately 31% of
our revenue. Our Expedited LTL, TLS and Intermodal segments typically do not have long-term contracts with their customers. While our
Pool segment business may involve a long-term written contract, those contracts may contain cancellation clauses, and there is no
assurance that our current customers will continue to utilize our services or continue at the same levels. A reduction in or termination of our
services by one or more of our major customers could have a material adverse effect on our business and operating results.
We operate in highly competitive and fragmented segments of our industry, and our business will suffer if we are unable to adequately
address downward pricing pressures and other factors that may adversely affect our results of operations, growth prospects and
profitability.
The segments of the freight transportation industry in which we participate are highly competitive, very fragmented and
historically have few barriers to entry. We compete with a large number of other asset-light logistics companies, asset-based carriers,
integrated logistics companies, and third-party freight brokers. To a lesser extent, we also compete with integrated air cargo carriers and
passenger airlines. Our competition ranges from small operators that compete within a limited geographic area to companies with
substantially greater financial and other resources, including greater freight capacity. We also face competition from freight forwarders
who decide to establish their own networks to transport expedited ground freight, as well as from logistics companies, Internet matching
services and Internet and third-party freight brokers, and new entrants to the market. In addition, customers can bring in-house some of the
services we provide to them. We believe competition is based primarily on quality service, available capacity, on-time delivery, flexibility,
reliability and security, transportation rates as well as the ability to acquire and maintain terminal facilities in desirable locations at
reasonable rates. Many of our competitors periodically reduce their rates to gain business, especially during times of economic decline. In
the past several years, several of our competitors have reduced their rates to unusually low levels that we believe are unsustainable in the
long-term, but that may materially adversely affect our business in the short-term.
In addition, competitors may pursue other strategies to gain a competitive advantage such as developing superior information
technology systems or establishing cooperative relationships to increase their ability to address customer needs. Furthermore, the
transportation industry continues to consolidate. As a result of consolidation, our competitors may increase their market share and improve
their financial capacity, and may strengthen their competitive positions. Business combinations could also result in competitors providing a
wider variety of services at competitive prices, which could adversely affect our financial performance. These competitive pressures may
cause a decrease in our volume of freight, require us to lower the prices we charge for our services and adversely affect our results of
operations, growth prospects and profitability.
Our results of operations will be materially and adversely affected if our new service offerings do not gain market acceptance or result
in the loss of our current customer base.
One element of our growth strategy is to expand our service offerings to customers. As a result, we have added additional services
in the past few years. We may not succeed in making our customers sufficiently aware of existing and future services or in creating
customer acceptance of these services at the prices we would want to charge. In addition, we may be required to devote substantial
resources to educate our customers, with no assurance that a sufficient number of customers will use our services for commercial success to
be achieved. We may not identify trends correctly, or may not be able to bring new services to market as quickly, effectively or price-
competitively as our competitors. In addition, new services may alienate existing customers or cause
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us to lose business to our competitors. If any of the foregoing occurs, it could have a material adverse effect on our results of operations.
We have grown and may grow, in part, through acquisitions, which involve various risks, and we may not be able to identify or acquire
companies consistent with our growth strategy or successfully integrate acquired businesses into our operations.
We have grown through acquisitions, and we intend to pursue opportunities to expand our business by acquiring other companies
in the future. Acquisitions involve risks, including those relating to:
•
•
•
•
•
•
•
•
•
•
terms and
of
of
and
acquired
favorable
acquisition
businesses
appropriate
identification
candidates;
negotiation of acquisitions on
valuations;
integration
personnel;
implementation of proper business and accounting
controls;
ability to obtain financing, at favorable terms or at
all;
diversion
attention;
retention
customers;
non-employee
attrition;
unexpected
liabilities;
detrimental
diligence.
issues not discovered during due
management
employees
driver
and
of
of
Acquisitions also may affect our short-term cash flow and net income as we expend funds, potentially increase indebtedness and
incur additional expenses. If we are not able to identify or acquire companies consistent with our growth strategy, or if we fail to
successfully integrate any acquired companies into our operations, we may not achieve anticipated increases in revenue, cost savings and
economies of scale, our operating results may actually decline and acquired goodwill and intangibles may become impaired.
We could be required to record a material non-cash charge to income if our recorded intangible assets or goodwill are determined to be
impaired.
We have $113.7 million of recorded net definite-lived intangible assets on our consolidated balance sheet at December 31,
2018. Our definite-lived intangible assets primarily represent the value of customer relationships and non-compete agreements that were
recorded in conjunction with our various acquisitions. We review our long-lived assets, such as our definite-lived intangible assets, for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is
recognized on these assets when the estimated fair value is less than the carrying value. If such measurement indicates impairment, we
would be required to record a non-cash impairment charge to our consolidated statement of comprehensive income in the amount that the
carrying value of these assets exceed the estimated fair value of the assets.
We also have recorded goodwill of $199.1 million on our consolidated balance sheet at December 31, 2018. Goodwill is assessed
for impairment annually (or more frequently if circumstances indicate possible impairment) for each of our reporting units. This assessment
includes comparing the fair value of each reporting unit to the carrying value of the assets assigned to each reporting unit. If the carrying
value of the reporting unit was to exceed our estimated fair value of the reporting unit, we would then be required to estimate the fair value
of the individual assets and liabilities within the reporting unit to ascertain the amount of fair value of goodwill and any potential
impairment. If we determine that our fair value of goodwill is less than the related book value, we could be required to record a non-cash
impairment charge to our consolidated statement of comprehensive income, which could have a material adverse effect on our earnings.
We are dependent on our senior management team and other key employees, and the loss of any such personnel could materially and
adversely affect our business, operating results and financial condition.
Our future performance depends, in significant part, upon the continued service of our senior management team and other key
employees. We cannot be certain that we can retain these employees. The loss of the services of one or more of these or other key
personnel could have a material adverse effect on our business, operating results and financial condition if we are unable to secure
replacement personnel internally or through our recruitment programs and initiatives that have sufficient experience in our industry or in the
management of our business. If we fail to develop, compensate, and retain a core group of senior management and other key employees and
address issues of succession planning, it could hinder our ability to execute on our business strategies and maintain our level of service.
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Claims for property damage, personal injuries or workers’ compensation and related expenses could significantly reduce our earnings.
Under DOT regulations, we are liable for property damage and personal injuries caused by owner-operators and Company-
employed drivers while they are operating on our behalf. Additionally, from time to time, the drivers employed and engaged by the third-
party transportation carriers we contract with are involved in accidents, which may result in serious personal injuries. The resulting types
and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the contracted carrier.
Although these drivers are not our employees and all of these drivers are employees, owner-operators, or independent contractors working
for carriers, from time to time, claims may be asserted against us for their actions, or for our actions in retaining them.
We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured
retention ("SIR") of $3.0 million per occurrence for vehicle and general liability claims and will be responsible for any damages and
personal injuries below that self-insured amount. We are also responsible for varying annual aggregate deductible amounts of liability for
claims in excess of the SIR/deductible. For the policy year that began April 1, 2018, we have an annual $6.0 million aggregate deductible
for claims between $3.0 million and $5.0 million. We also have a $2.5 million aggregate deductible for claims between $5.0 million and
$10.0 million. As a result, we are responsible for the first $7.5 million per claim, until we meet the $6.0 million aggregate deductible for
claims between $3.0 million and $5.0 million and the $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million.
This insurance covers claims for the LTL Expedited and Pool Distribution segments. TLS maintains separate liability insurance coverage
for claims between $0 and $5.0 million, and for the policy year that began April 1, 2018, TLS had no SIR for claims in this layer.
Intermodal maintains separate liability insurance coverage for all liability claims. For the policy year that began April 1, 2018, Intermodal
had an SIR of $50 thousand for each claim. We cannot guarantee that our SIR levels will not increase and/or that we have to agree to more
unfavorable policy terms as a result of market conditions, poor claims experience or other factors.
We may also be subject to claims for workers’ compensation. We maintain workers’ compensation insurance coverage that we
believe is adequate to cover such claims. We have a SIR of approximately $0.4 million for each such claim, except in Ohio, where we are a
qualified self-insured entity with an approximately $0.5 million SIR. We could incur claims in excess of our policy limits or incur claims
not covered by our insurance. Any claims beyond the limits or scope of our insurance coverage may have a material adverse effect on us.
Because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance
retainage could adversely affect our profitability. In addition, we may be unable to maintain insurance coverage at a reasonable cost or in
sufficient amounts or scope to protect us against losses.
We face risks related to self-insurance and third-party insurance that can be volatile to our earnings.
We self-insure a significant portion of our claims exposure and related expenses for cargo loss, employee medical expense, bodily
injury, workers’ compensation and property damage, and maintain insurance with insurance companies above our limits of self-insurance.
Self-insurance retention and other limitations are detailed in Part II, Item 7, under “Self-Insurance Loss Reserves.” Our large self-insured
retention limits can make our insurance and claims expense higher or more volatile. Additionally, if our third-party insurance carriers or
underwriters leave the trucking sector, as was the case during 2017, or if they decline to renew us as an insured, it could materially increase
our insurance costs or collateral requirements, or create difficulties in finding insurance in excess of our self-insured retention limits.
Additionally, we could find it necessary to raise our self-insured retention, pay higher premiums or decrease our aggregate coverage limits
when our policies are renewed or replaced, any of which will negatively impact our earnings.
We accrue for the costs of the uninsured portion of pending claims, based on the nature and severity of individual claims and
historical claims development trends. Estimating the number and severity of claims, as well as related judgment or settlement amounts is
inherently difficult. This, along with legal expenses, incurred but not reported claims, and other uncertainties can cause unfavorable
differences between actual self-insurance costs and our reserve estimates.
Our business is subject to seasonal trends.
Historically, our operating results have been subject to seasonal trends when measured on a quarterly basis. Our first and second
quarters have traditionally been the weakest compared to our third and fourth quarters. This trend is dependent on numerous factors
including economic conditions, customer demand and weather. Because revenue is directly related to the available working days of
shippers, national holidays and the number of business days during a given period may also create seasonal impact on our results of
operations. After the winter holiday season and during the remaining winter months, our freight volumes are typically lower because some
customers reduce shipment levels. In addition, a substantial portion of our revenue is derived from customers in industries whose shipping
patterns are tied closely to consumer demand which can sometimes be difficult to predict
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or are based on just-in-time production schedules. Therefore, our revenue is, to a large degree, affected by factors that are outside of our
control. There can be no assurance that our historic operating patterns will continue in future periods as we cannot influence or forecast
many of these factors.
Our results of operations may be affected by harsh weather conditions and disasters.
Certain weather-related conditions such as ice and snow can disrupt our operations. Our operating expenses have historically been
higher in the winter months because of cold temperatures and other adverse winter weather conditions, which result in decreased fuel
efficiency, increased cold weather-related maintenance costs of revenue equipment and increased insurance and claims costs. Harsh
weather could also reduce our ability to transport freight, which could result in decreased revenues. Disasters, whether natural or man-made
can also adversely affect our performance by reducing demand and reducing our ability to transport freight, which could result in decreased
revenue and increased operating expenses.
We operate in a regulated industry, and increased costs of compliance with, or liability for violation of, existing or future regulations
could have a material adverse effect on our business.
The DOT and various state and federal agencies have been granted broad regulatory powers over our business in the United
States, and we are licensed by the DOT and U.S. Customs. Additionally, our Canada business activities are subject to the similar laws and
regulations of Canada and its provinces. If we fail to comply with any applicable regulations, our licenses may be revoked or we could be
subject to substantial fines or penalties and to civil and criminal liability. The transportation industry is subject to legislative and regulatory
changes that can affect the economics of our business by requiring changes in operating practices or influencing the demand for, and the
cost of providing, transportation services.
In December 2010, the Federal Motor Carrier Safety Administration (“FMCSA”) established the Compliance Safety
Accountability (“CSA”) motor carrier oversight program under which drivers and fleets are evaluated based on certain safety-related
standards. Carriers’ safety and fitness ratings under CSA include the on-road safety performance of the carriers’ drivers. The FMCSA has
also implemented changes to the hours of service (“HOS”) regulations which govern the work hours of commercial drivers and adopted a
rule that requires commercial drivers who use paper log books to maintain hours-of-service records with electronic logging devices
(“ELDs”) and will require commercial drivers who use automatic on-board recording devices (“AOBRDs”) to record HOS to use ELDs by
December 2019. The vast majority of our companies’ fleets utilize AOBRDs, and we are currently in the process of updating our fleets to
meet the ELD requirement deadline of December 2019. At any given time, there are also other proposals for safety-related standards that
are pending legislative or administrative approval or adoption. If additional or more stringent standards are adopted, such may result in a
reduction of the pool of qualified drivers available to us and to other motor carriers in our industry. If we experience safety and fitness
violations, our safety and fitness scores could be adversely impacted and our fleets could be ranked poorly as compared to our peers. A
reduction in our safety and fitness scores or those of our contracted drivers could also reduce our competitiveness in relation to other
companies that have higher scores. Additionally, competition for qualified drivers and motor carriers with favorable safety ratings may
increase and thus result in increases in driver-related compensation costs.
In addition, there may be changes in applicable federal or state tax or other laws or interpretations of those laws. If this happens,
we may incur additional taxes, as well as higher workers’ compensation and employee benefit costs, and possibly penalties and interest for
prior periods. This could have an adverse effect on our results of operations.
We are subject to various environmental laws and regulations, and costs of compliance with, or liabilities for violations of, existing or
future laws and regulations could significantly increase our costs of doing business.
Our operations are subject to environmental laws and regulations dealing with, among other things, the handling of hazardous
materials, discharge and retention of stormwater, and emissions from our vehicles. We operate in industrial areas, where truck terminals and
other industrial activities are located, and where groundwater or other forms of environmental contamination may have occurred. Our
operations involve the risks of fuel spillage, environmental damage, and hazardous waste disposal, among others. If we are involved in a
spill or other accident involving hazardous substances, or if we are found to be in violation of applicable environmental laws or regulations,
it could significantly increase our cost of doing business. Under specific environmental laws and regulations, we could be held responsible
for all of the costs relating to any contamination at our past or present terminals and at third-party waste disposal sites. If we fail to comply
with applicable environmental laws and regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.
In addition, as global warming issues become more prevalent, federal and local governments and our customers are beginning to
respond to these issues. This increased focus on sustainability may result in new regulations and customer requirements that could
negatively affect us. This could cause us to incur additional direct costs or to make changes to our operations in order
17
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to comply with any new regulations and customer requirements, as well as increased indirect costs or loss of revenue resulting from, among
other things, our customers incurring additional compliance costs that affect our costs and revenues. We could also lose revenue if our
customers divert business from us because we have not complied with their sustainability requirements. These costs, changes and loss of
revenue could have a material adverse effect on our business, financial condition and results of operations. Even without any new
legislation or regulation, increased public concern regarding greenhouse gases emitted by transportation carriers could harm the reputations
of companies operating in the transportation logistics industries and shift consumer demand toward more locally sourced products and away
from our services.
The FMCSA’s CSA initiative could adversely impact our ability to hire qualified drivers or contract with qualified owner-operators or
third-party carriers, meet our growth projections and maintain our customer relationships, each of which could adversely impact our
results of operations.
The FMCSA’s Compliance, Safety, Accountability initiative (“CSA”) is an enforcement and compliance program designed to
monitor and improve commercial motor vehicle safety by measuring the safety record of both the motor carrier and the driver. These
measurements are scored and used by the FMCSA to identify potential safety risks and to direct enforcement action. CSA scores are
dependent upon safety and compliance experience, which could change at any time. In addition, the safety standards prescribed in CSA
could change and our ability as well as our independent contractors’ ability to maintain an acceptable score could be adversely impacted.
Public disclosure of certain CSA scores was restricted through the enactment of the Fixing America’s Surface Transportation Act of 2015
(the “FAST Act”) on December 4, 2015; however, the FAST Act does not restrict public disclosure of all data collected by the FMCSA. If
we receive unacceptable CSA scores, and this data is made available to the public, our relationships with our customers could be damaged,
which could result in a loss of business.
The requirements of CSA could also shrink the industry’s pool of drivers as those with unfavorable scores could leave the
industry. As a result, the costs to attract, train and retain qualified drivers, owner-operators or third-party carriers could increase. In
addition, a shortage of qualified drivers could increase driver turnover, decrease asset utilization, limit growth and adversely impact our
results of operations.
If our employees were to unionize, our operating costs would likely increase.
None of our employees is currently represented by a collective bargaining agreement. However, we have no assurance that our
employees will not unionize in the future, which could increase our operating costs and force us to alter our operating methods. This could
have a material adverse effect on our operating results.
Our charter and bylaws and provisions of Tennessee law could discourage or prevent a takeover that may be considered favorable.
Our charter and bylaws and provisions of Tennessee law may discourage, delay or prevent a merger, acquisition or change in
control that may be considered favorable. These provisions could also discourage proxy contests and make it more difficult for
shareholders to elect directors and take other corporate actions. Among other things, these provisions:
•
•
authorize us to issue preferred stock, the terms of which may be determined at the sole discretion of our Board of Directors and
may adversely affect the voting or economic rights of our shareholders; and
establish advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be
acted on by shareholders at a meeting.
Our charter and bylaws and provisions of Tennessee law may discourage transactions that otherwise could provide for the
payment of a premium over prevailing market prices for our Common Stock and also could limit the price that investors are willing to pay
in the future for shares of our Common Stock.
Our financing costs may be adversely affected by changes in LIBOR.
LIBOR, the London interbank offered rate, is the basic rate of interest used in lending between banks on the London interbank
market and is widely used as a reference for setting the interest rate on loans globally. We use LIBOR as a reference rate in our revolving
credit facility to calculate interest due to our lender. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates
LIBOR, announced its intention to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new
methods of calculating LIBOR will be established such that it continues to exist after 2021. If LIBOR ceases to exist, we may need to
renegotiate our credit agreement with our lender. This could have an adverse effect on our financing costs.
18
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Item 1B. Unresolved Staff Comments
None.
19
Table of Contents
Item 2. Properties
Properties
We believe that we have adequate facilities for conducting our business, including properties owned and leased. Management
further believes that in the event replacement property is needed, it will be available on terms and at costs substantially similar to the terms
and costs experienced by competitors within the transportation industry.
We own our Columbus, Ohio central sorting facility which is used by our Expedited LTL and TLS segments. The Columbus, Ohio
facility is 125,000 square feet with 168 trailer doors. This premier facility can unload, sort and load upwards of 3.7 million pounds in five
hours.
We also own facilities near Dallas/Fort Worth, Texas, Chicago, Illinois and Atlanta, Georgia, all of which are used by the
Expedited LTL segment. The Dallas/Fort Worth, Texas facility has over 216,000 square feet with 134 trailer doors and approximately
28,000 square feet of office space. The Chicago, Illinois facility is over 125,000 square feet with 110 trailer doors and over 10,000 square
feet of office space. The Atlanta, Georgia facility is over 142,000 square feet with 118 trailer doors and approximately 12,000 square feet of
office space. We lease our shared services headquarters in Greeneville, Tennessee. During 2016, we renewed the lease through 2023. We
also lease our executive headquarters in Atlanta, Georgia.
We lease and maintain 143 additional terminals, office spaces and other properties located in major cities throughout the United
States and Canada. Lease terms for these terminals are typically for three to seven years. As a result of the Towne acquisition, we currently
have 2 idle facilities that we are still leasing. In addition, we have operations in 25 cities operated by independent agents who handle freight
for us on a commission basis.
Item 3. 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, property damage related to the transportation and handling of freight, or workers’
compensation. We do not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on
our business, financial condition, results of operations or cash flow.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our Common Stock trades on The Nasdaq Global Select Stock Market™ under the symbol “FWRD.”
There were approximately 638 shareholders of record of our Common Stock as of January 16, 2019.
Subsequent to December 31, 2018, our Board of Directors declared a cash dividend of $0.18 per share that will be paid in the first
quarter of 2019. 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.
There are no material restrictions on our ability to declare dividends.
None of our securities were sold during fiscal year 2018 without registration under the Securities Act.
20
Table of Contents
Stock Performance Graph
The following graph compares the percentage change in the cumulative shareholder return on our Common Stock with The
Nasdaq Trucking and Transportation Stocks Index and The Nasdaq Global Select Stock Market™ Index commencing on the last trading
day of December 2013 and ending on the last trading day of December 2018. The graph assumes a base investment of $100 made on
December 31, 2013 and the respective returns assume reinvestment of all dividends. The comparisons in this graph are required by the SEC
and, therefore, are not intended to forecast or necessarily be indicative of any future return on our Common Stock.
The performance graph and related information shall not be deemed “soliciting material” or be “filed” with the Securities and
Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or the
Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
Forward Air Corporation
Nasdaq Trucking and Transportation Stocks Index
Nasdaq Global Select Stock Market Index
$
$
100
100
100
$
115
139
114
$
98
117
121
$
108
142
130
$
131
178
167
125
161
161
2013
2014
2015
2016
2017
2018
21
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Issuer Purchases of Equity Securities
Period
October 1-31, 2018
November 1-30, 2018
December 1-31, 2018
Total
Total Number of
Shares Purchased
Average Price Paid per
Share
15,000
285,151
44,502
344,653
$
$
59.1
61.7
59.7
61.3
Total Number of
Shares Purchased as
Part of Publicly
Announced Program
15,000
285,151
44,502
344,653
Maximum Number of
Shares that May Yet Be
Purchased Under the
Program (1) (2)
1,039,048
753,897
709,395
709,395
(1) On July 21, 2016, the Board of Directors approved a stock repurchase program for up to 3.0 million shares of the Company's common
stock.
(2) On February 5, 2019, the Board of Directors canceled the Company’s remaining 2016 share repurchase authorization and approved a
stock repurchase authorization for up to 5.0 million shares of the Company’s common stock.
Item 6. Selected Financial Data
The following table sets forth our selected financial data. The selected financial data should be read in conjunction with our
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and
notes thereto, included elsewhere in this report.
Income Statement Data:
Operating revenue
Income from operations
Operating margin (1)
Net income
Net income per share:
Basic
Diluted
$
$
$
December 31,
2018
December 31,
December 31,
December 31,
December 31,
Year ended
2017
(As Adjusted)
2016
(As Adjusted)
(In thousands, except per share data)
2015
(As Adjusted)
2014
(As Adjusted)
1,320,886
122,031
$
9.2 %
1,169,346
108,757
$
9.3 %
1,030,210
59,703
$
5.8 %
$
987,894
81,674
8.3 %
824,654
96,325
11.7%
92,051
87,255
27,505
55,516
61,120
3.14
3.12
$
$
2.90
2.89
$
$
0.90
0.90
$
$
1.79
1.78
$
$
1.98
1.95
0.48
Cash dividends declared per common share $
0.63
$
0.60
$
0.51
$
0.48
$
Balance Sheet Data (at end of period):
Total assets
Long-term obligations, net of current
portion
Shareholders' equity
$
760,215
$
692,622
$
644,048
$
702,327
$
541,493
47,335
553,244
40,588
532,699
725
498,344
28,856
509,497
1,275
463,064
(1) Income from operations as a percentage of operating revenue
Note: Prior period balances have been adjusted to confirm with revenue guidance issued in 2014 (Accounting Standards Update ("ASU") 2014-09,
Revenue from Contracts with Customers). See additional discussion in Note 1, Accounting Policies to our Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview and Executive Summary
Our services are classified into four reportable segments: Expedited LTL, TLS, Intermodal and Pool Distribution.
22
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Through the Expedited LTL segment, we operate a comprehensive national network to provide expedited regional, inter-regional
and national LTL services. Expedited LTL offers customers local pick-up and delivery and other services including shipment consolidation
and deconsolidation, warehousing, final mile solutions, customs brokerage and other handling. Because of our roots in serving the deferred
air freight market, our terminal network is located at or near airports in the United States and Canada.
Through our TLS segment, we provide expedited truckload brokerage, dedicated fleet services, as well as high security and
temperature-controlled logistics services in the United States and Canada.
Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports
and railheads. Intermodal also offers dedicated contract and CFS warehouse and handling services. Intermodal operates primarily in the
Midwest and Southeast, with a smaller operational presence in the Southwest. We plan to grow Intermodal’s geographic footprint through
acquisitions as well as greenfield start-ups where we do not have an acceptable acquisition target.
In our Pool Distribution segment, we provide high-frequency handling and distribution of time sensitive product to numerous
destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest
United States.
Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our ability to
increase our earnings depends in significant part on our ability to increase the amount of freight and the revenue per pound for the freight
shipped through our networks and to grow other lines of businesses, such as TLS, Intermodal and Pool Distribution, which will allow us to
maintain revenue growth in challenging shipping environments.
Trends and Developments
Appointment of New President and Chief Executive Officer
Effective September 1, 2018 ("Effective Date"), Thomas Schmitt was named the Company's President and Chief Executive
Officer and Bruce A. Campbell, our then President and Chief Executive Officer, assumed the position of Executive Chairman. The
Company's Board of Directors (the "Board") appointed Mr. Schmitt to the Board as of the Effective Date. On February 5, 2019, Mr.
Campbell informed the Board of his intent to retire from his position as Executive Chairman of the Company and decision not to stand for
re-election to the Board immediately preceding the Company’s 2019 annual meeting of shareholders (the “2019 Annual Meeting”) which is
expected to occur on May 7, 2019. The Board and Mr. Campbell agreed that he will continue to serve the Company as a consultant for 24
months following his retirement. Following Mr. Campbell’s retirement, Tom Schmitt is expected to become the Chairman of the Board and
Craig Carlock is expected to become the Company’s Lead Independent Director, subject to their reelection to the Board at the Company’s
2019 Annual Meeting.
Intermodal Acquisitions
As part of our strategy to expand our Intermodal operations, in January 2016, we acquired certain assets of Ace for $1.7 million
and in August 2016, we acquired certain assets of Triumph for $10.1 million and an earnout of $1.3 million paid in September 2017. In
May 2017, we acquired certain assets of Atlantic for $22.5 million and in October 2017, we acquired certain assets of KCL for $0.7
million. In July 2018, we acquired certain assets of MMT for $3.7 million and in October 2018 we acquired certain assets of Southwest for
$16.3 million. These acquisitions provide an opportunity for our Intermodal segment to expand into additional geographic markets or add
volumes to our existing locations. The assets, liabilities, and operating results of these acquisitions have been included in the Company's
consolidated financial statements from the date of acquisition and have been assigned to the Intermodal reportable segment.
Goodwill
In 2013, we acquired TQI Holdings, Inc. for total consideration of $65.4 million and established the Total Quality, Inc. reporting
unit ("TQI"). In conjunction with our policy to annually test goodwill for impairment as of June 30, 2016, we determined there were
indicators of potential impairment of the goodwill and other long lived assets assigned to the acquisition of TQI Holdings, Inc. This
determination was based on TQI's financial performance falling notably short of previous projections. As a result, we reduced TQI's
projected cash flows and consequently the estimate of TQI's fair value no longer exceeded its respective carrying value. Based on the
results of the impairment test, during the second quarter of 2016, we recorded impairment charges for goodwill, intangibles and other assets
of $42.4 million related to the TQI reporting unit, which is part of the TLS reportable segment.
23
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Results from Operations
The following table sets forth our consolidated historical financial data for the years ended December 31, 2018 and 2017 (in
millions):
2018
Year ended December 31,
2017
Change
(As Adjusted)
Percent Change
$
Operating revenue:
Expedited LTL
Truckload Premium Services
Intermodal
Pool Distribution
Eliminations and other operations
Operating revenue
Operating expenses:
Purchased transportation
Salaries, wages, and employee benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income (loss) from operations:
Expedited LTL
Truckload Premium Services
Intermodal
Pool Distribution
Other operations
Income from operations
Other expense:
Interest expense
Total other expense
Income before income taxes
Income taxes
Net income and comprehensive income
$
747.6 $
192.6
201.0
194.1
(14.4)
1,320.9
613.6
300.2
75.7
42.2
35.2
23.1
108.8
1,198.8
96.4
5.1
23.3
5.9
(8.6)
122.1
(1.8)
(1.8)
120.3
28.2
92.1 $
655.8 $
201.7
154.7
168.5
(11.4)
1,169.3
545.1
265.8
63.8
41.1
29.6
16.5
98.6
1,060.5
88.0
3.2
13.0
6.4
(1.8)
108.8
(1.2)
(1.2)
107.6
20.3
87.3 $
91.8
(9.1)
46.3
25.6
(3.0)
151.6
68.5
34.4
11.9
1.1
5.6
6.6
10.2
138.3
8.4
1.9
10.3
(0.5)
(6.8)
13.3
(0.6)
(0.6)
12.7
7.9
4.8
14.0 %
(4.5)
29.9
15.2
26.3
13.0
12.6
12.9
18.7
2.7
18.9
40.0
10.3
13.0
9.5
59.4
79.2
(7.8)
377.8
12.2
50.0
50.0
11.8
38.9
5.5 %
Note: Prior period balances have been adjusted to conform with revenue guidance issued in 2014 (ASU 2014-09, Revenue from Contracts
with Customers). See additional discussion in Note 1, Accounting Policies to our Consolidated Financial Statements.
24
Table of Contents
Revenues
During the year ended December 31, 2018, revenue increased 13.0% compared to the year ended December 31, 2017. The
revenue increase was primarily driven by increased revenue from our LTL Expedited segment of $91.8 million driven by increased
network revenue, fuel surcharge revenue and other terminal based revenue over the prior year. The Company's other segments also had
revenue growth over prior year with the exception of the TLS Segment where revenue decreased due to deliberate shedding of lower margin
business.
Our fuel surcharge revenue is the result of our fuel surcharge rates, which are set weekly using the national average for diesel
price per gallon, and volume transiting our network. During the year ended December 31, 2018, total fuel surcharge revenue increased
49.5% as compared to the same period in 2017, mostly due to increased fuel prices, rate increases and increased volumes across the
network.
Operating Expenses
Operating expenses increased $138.3 million primarily driven by purchased transportation increases of $68.5 million and salaries,
wages and employee benefits increases of $34.4 million. Purchased transportation increased primarily due to increased volumes, increased
utilization of third-party transportation providers, which are typically more costly than owner-operators and rate increases to owner-
operators. Salaries, wages and employee benefits increased primarily due to increased personnel needs to support the additional volumes.
Operating Income and Segment Operations
As a result of the above, operating income increased $13.3 million, or 12.2%, from 2017 to $122.1 million for the year ended
December 31, 2018. The results for our four reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was $1.8 million for the year ended December 31, 2018 compared to $1.2 million for the same period in 2017.
The increase in interest expense was attributable to additional borrowings on our revolving credit facility.
Income Taxes
The combined federal and state effective tax rate for the year ended December 31, 2018 was 23.4% compared to a rate of 18.9%
for the same period in 2017. The effective tax rate for 2018 is primarily the result of the enactment of the Tax Cuts and Jobs Act, which
lowered the statutory federal income tax rate to 21.0% from 35.0%. The lower effective tax rate for 2017 is the result of the impact of
lowering the value of our net deferred tax liabilities as of December 31, 2017 following the enactment of the Tax Cuts and Jobs Act.
Net Income
As a result of the foregoing factors, net income increased by $4.8 million, or 5.5%, to $92.1 million for the year ended December
31, 2018 compared to $87.3 million for the same period in 2017.
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Table of Contents
Expedited LTL - Year Ended December 31, 2018 compared to Year Ended December 31, 2017
The following table sets forth our historical financial data of the Expedited LTL segment for the years ended December 31, 2018
and 2017 (in millions):
Expedited LTL Segment Information
(In millions)
(Unaudited)
December 31,
2018
Percent of
Revenue
Operating revenue
$
747.6
100.0 % $
Year ended
December 31,
2017
(As Adjusted)
655.8
Percent of
Revenue
Change
Percent
Change
100.0 % $
91.8
14.0 %
Operating expenses:
Purchased transportation
Salaries, wages and employee benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income from operations
$
347.4
163.8
41.4
22.5
14.3
6.2
55.6
651.2
96.4
46.5
21.9
5.5
3.0
1.9
0.8
7.4
87.1
12.9% $
290.1
146.5
36.7
22.1
15.4
3.8
53.2
567.8
88.0
44.2
22.3
5.6
3.4
2.3
0.6
8.1
86.6
13.4% $
57.3
17.3
4.7
0.4
(1.1)
2.4
2.4
83.4
8.4
19.8
11.8
12.8
1.8
(7.1)
63.2
4.5
14.7
9.5 %
Expedited LTL Operating Statistics
December 31,
2018
Year ended
December 31,
2017
(As Adjusted)
Percent
Change
255
254
0.4%
2,562,205
10,048
2,478,059
9,756
4,173
16.4
1,002
614
26.06 $
22.01 $
160 $
135 $
4,048
15.9
945
612
23.91
21.30
146
130
3.4
3.0
3.1
3.1
6.0
0.3
9.0
3.3
9.6
3.8%
Business days
Tonnage
Total pounds ¹
Pounds per day ¹
Shipments
Total shipments ¹
Shipments per day ¹
Total shipments with pickup and/or delivery 1
Weight per shipment
Revenue per hundredweight
Revenue per hundredweight, ex fuel
Revenue per shipment
Revenue per shipment, ex fuel
¹ - In thousands
$
$
$
$
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Table of Contents
Revenues
Expedited LTL operating revenue increased $91.8 million, or 14.0%, to $747.6 million for the year ended December 31, 2018
from $655.8 million for the same period of 2017. This increase was due to increased network revenue, fuel surcharge revenue and other
terminal based revenue over the prior year. Network revenue increased $37.7 million due to a 3.1% increase in shipments, a 3.4% increase
in tonnage and a 3.3% increase in revenue per hundredweight, ex fuel over prior year. The increase in tonnage was due to an increase in
class-rated shipments and the increase in revenue per hundredweight was due to increased shipment size and revenue per shipment. Fuel
surcharge revenue increased $39.1 million largely due to rate increases to our fuel surcharges and increases in fuel prices and tonnage
volumes. Other terminal based revenue, which includes dedicated local pickup and delivery services, warehousing and terminal handling,
increased $15.0 million, or 23.9%, to $77.4 million for the year ended December 31, 2018 from $62.4 million in the same period of 2017.
The increase in other terminal revenue was mainly attributable to increases in certain final mile, dedicated local pickup and delivery
revenues.
Purchased Transportation
Expedited LTL purchased transportation increased by $57.3 million, or 19.8%, to $347.4 million for the year ended December 31,
2018 from $290.1 million for the year ended December 31, 2017. As a percentage of segment operating revenue, Expedited LTL purchased
transportation was 46.5% during the year ended December 31, 2018 compared to 44.2% for the same period of 2017. The increase is
mostly due to an increase in our cost per mile as a result of increased utilization of third-party transportation providers, which are typically
more costly than owner-operators and rate increases to owner-operators.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits of Expedited LTL increased by $ 17.3 million, or 11.8%, to $163.8 million for the year
ended December 31, 2018 from $146.5 million in the same period of 2017. Salaries, wages and employee benefits were 21.9% of
Expedited LTL’s operating revenue for the year ended December 31, 2018 compared to 22.3% for the same period of 2017. The decrease
in salaries, wages and employee benefits as a percentage of revenue was primarily attributable to a 0.5% decrease in health insurance costs
as a percentage of revenue and a 0.2% decrease in Expedited LTL terminal and management salaries as a percentage of revenue. The
decrease in salaries as a percentage of revenue is the impact of additional revenue on fixed salaries and improved operating efficiencies.
These decreases were slightly offset by increased use of Company-employed drivers for transportation services.
Operating Leases
Operating leases increased $4.7 million, or 12.8%, to $41.4 million for the year ended December 31, 2018 from $36.7 million for
the year ended December 31, 2017. Operating leases were 5.5% of Expedited LTL’s operating revenue for the year ended December 31,
2018 compared to 5.6% for the year ended December 31, 2017. The increase in cost is due to a $3.8 million increase in tractor rentals and
leases and $2.2 million of additional facility lease expenses partly offset by a $1.4 million decrease in trailer leases and equipment rentals.
Tractor leases increased due to the increased usage of Company-employed drivers mentioned above and facility leases increased due to the
expansion of certain facilities. Trailer leases and equipment rentals decreased due to prior year rentals and leases that were replaced with
purchased units.
Depreciation and Amortization
Expedited LTL depreciation and amortization increased $0.4 million, or 1.8%, to $22.5 million for the year ended December 31,
2018 from $22.1 million for the year ended December 31, 2017. Depreciation and amortization expense as a percentage of Expedited LTL
operating revenue was 3.0% in the year ended December 31, 2018 compared to 3.4% for the year ended December 31, 2017. The decrease
as a percentage of revenue was due to lower amortization expenses partly offset by the purchase of new trailers during 2018. The lower
amortization expense was due to the completion of the useful life for an acquired customer relationship.
Insurance and Claims
Expedited LTL insurance and claims expense decreased $1.1 million, or 7.1%, to $14.3 million for the year ended December 31,
2018 from $15.4 million for the year ended December 31, 2017. Insurance and claims as a percentage of Expedited LTL’s operating
revenue was 1.9% for the year ended December 31, 2018 compared to 2.3% for the year ended December 31, 2017. The decrease as a
percentage of revenue was attributable to lower vehicle liability claims and insurance premiums. At a consolidated level, vehicle claims
reserves increased; see discussion in the "Other operations" section below.
27
Table of Contents
Fuel Expense
Expedited LTL fuel expense increased $ 2.4 million, or 63.2%, to $6.2 million for the year ended December 31, 2018 from $3.8
million in the year ended December 31, 2017. Fuel expense was 0.8% of Expedited LTL’s operating revenue for the years ended
December 31, 2018 compared to 0.6% for the same period in 2017. LTL fuel expenses increased due to higher year-over-year fuel prices
and increased Company-employed driver miles.
Other Operating Expenses
Expedited LTL other operating expenses increased $2.4 million, or 4.5%, to $55.6 million for the year ended December 31, 2018
from $53.2 million for the year ended December 31, 2017. Expedited LTL other operating expenses were 7.4% of operating revenue for
the year ended December 31, 2018 compared to 8.1% for the year ended December 31, 2017. Other operating expenses include equipment
maintenance, terminal and office expenses, professional fees and other over-the-road costs. The decrease as percentage of revenue was
primarily the result of lower owner-operator costs, such as tolls, and lower maintenance due to the increased utilization of brokered
transportation mentioned above. Additional decrease as a percentage of revenue was due to the year ended December 31, 2018 including
the recovery of previously reserved receivables, while the same period of 2017 included an increase in receivables allowance.
Income from Operations
Expedited LTL income from operations increased by $8.4 million, or 9.5%, to $96.4 million for the year ended December 31,
2018 compared to $88.0 million for the year ended December 31, 2017. Expedited LTL’s income from operations was 12.9% of operating
revenue for the year ended December 31, 2018 compared to 13.4% for the year ended December 31, 2017. The increase in income from
operations was due to increases in revenue due to higher shipments, tonnage and fuel surcharge revenue. These improvements were mostly
offset by increased utilization of third-party transportation providers, which caused the deterioration in income from operations as a
percentage of revenue.
28
Table of Contents
Truckload Premium Services - Year Ended December 31, 2018 compared to Year Ended December 31, 2017
The following table sets forth our historical financial data for the Truckload Premium Services segment for the years ended
December 31, 2018 and 2017 (in millions):
Truckload Premium Services Segment Information
(In millions)
(Unaudited)
December 31,
2018
Percent of
Revenue
Year ended
December 31,
2017
(As Adjusted)
Percent of
Revenue
Change
Percent
Change
Operating revenue
$
192.6
100.0 % $
201.7
100.0 % $
(9.1)
(4.5)%
Operating expenses:
Purchased transportation
Salaries, wages and employee benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income from operations
$
144.8
19.1
0.5
6.4
4.5
3.3
8.9
187.5
5.1
75.2
9.9
0.3
3.3
2.4
1.7
4.6
97.4
2.6 % $
153.7
20.4
0.9
6.3
5.4
3.3
8.5
198.5
3.2
76.2
10.1
0.5
3.1
2.7
1.6
4.2
98.4
1.6 % $
(8.9)
(1.3)
(0.4)
0.1
(0.9)
—
0.4
(11.0 )
1.9
(5.8)
(6.4)
(44.4 )
1.6
(16.7 )
—
4.7
(5.5)
59.4 %
Truckload Premium Services Operating Statistics
Total Miles 1
Empty Miles Percentage
Tractors (avg)
Miles per tractor per week 2
Revenue per mile
Cost per mile
December 31,
2018
Year ended
December 31,
2017
(As Adjusted)
Percent
Change
78,889
9.0%
315
2,178
96,598
9.6%
386
2,700
$
$
2.35
1.89
$
$
2.02
1.66
(18.3)%
(6.3)
(18.4)
(19.3)
16.3
13.9 %
¹ - In thousands
2 - Calculated using Company driver and owner-operator miles
29
Table of Contents
Revenues
TLS revenue decreased $9.1 million, or 4.5%, to $192.6 million for the year ended December 31, 2018 from $201.7 million in the
same period of 2017. TLS revenue decreased due to a 18.3% decrease in overall miles mostly offset by a 16.3% increase in average revenue
per mile. The decrease in overall miles was due to deliberate shedding of lower margin business as well as reduced fleet capacity versus the
prior year period. The increased revenue per mile was primarily driven by rate increases to existing customers, higher fuel surcharges and,
to a lesser extent, the aforementioned shedding of lower margin business.
Purchased Transportation
Purchased transportation costs for our TLS revenue decreased $8.9 million, or 5.8%, to $144.8 million for the year ended
December 31, 2018 from $153.7 million for the year ended December 31, 2017. For the year ended December 31, 2018, TLS purchased
transportation costs represented 75.2% of TLS revenue compared to 76.2% for the same period in 2017. TLS purchased transportation
includes owner-operators and third-party carriers, while company-employed drivers are included in salaries, wages and benefits. The
decrease in purchased transportation was attributable to an 18.4% decrease in purchased transportation miles mostly offset by a 14.6%
increase in cost per mile during the year ended December 31, 2018 compared to the same period in 2017. The decrease in TLS purchased
transportation miles was attributable to the revenue activity discussed above. The increase in cost per mile was due to increased utilization
of third-party carriers, which are more costly than owner-operators.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits of TLS decreased by $1.3 million, or 6.4%, to $19.1 million in the year ended
December 31, 2018 from $20.4 million in the same period of 2017. Salaries, wages and employee benefits were 9.9% of TLS’s operating
revenue in the year ended December 31, 2018 compared to 10.1% for the same period of 2017. The slight decrease in salaries, wages and
employee benefits as a percentage of revenue was mostly attributable to a decrease in Company-employed driver miles partly offset by an
increase in employee incentives and share-based compensation.
Operating Leases
Operating leases decreased $0.4 million, or 44.4%, to $0.5 million for the year ended December 31, 2018 from $0.9 million for
the same period in 2017. Operating leases were 0.3% of TLS operating revenue for the year ended December 31, 2018 compared to 0.5%
for the same period of 2017. The decrease was due to a decrease in trailer rentals, as TLS utilized purchased trailers during 2018 compared
to rentals in the same period in 2017.
Depreciation and Amortization
Depreciation and amortization increased $0.1 million, or 1.6%, to $6.4 million for the year ended December 31, 2018 from $6.3
million for the year ended December 31, 2017. Depreciation and amortization expense as a percentage of TLS operating revenue was 3.3%
for the year ended December 31, 2018 compared to 3.1% for the same period in 2017. The increase was due to increased trailer
depreciation on trailers purchased during 2018 and a full year of depreciation for new operating software placed in service during the fourth
quarter of 2017. These increases were partly offset by lower amortization expense following the completion of the useful life for an
acquired customer relationship.
Insurance and Claims
TLS insurance and claims decreased $0.9 million, or 16.7%, to $4.5 million for the year ended December 31, 2018 from $5.4
million for the year ended December 31, 2017. As a percentage of operating revenue, insurance and claims was 2.4% for the year ended
December 31, 2018 compared to 2.7% for the year ended December 31, 2017. The decrease was due to lower vehicle liability claims. At a
consolidated level, vehicle claims reserves increased; see discussion in the "Other operations" section below.
Fuel Expense
TLS fuel expense was $3.3 million for the year ended December 31, 2018 and 2017. Fuel expenses were 1.7% of TLS operating
revenue during the year ended December 31, 2018 compared to 1.6% for the year ended December 31, 2017. The increase as a percentage
of revenue was mostly attributable to higher year-over-year fuel prices partly offset by a decrease in Company-employed driver miles.
30
Table of Contents
Other Operating Expenses
TLS other operating expenses increased $0.4 million, or 4.7%, to $8.9 million for the year ended December 31, 2018 compared to
$8.5 million for the year ended December 31, 2017. TLS other operating expenses were 4.6% of operating revenue for the year ended
December 31, 2018 compared to 4.2% for the year ended December 31, 2017. Other operating expenses includes equipment maintenance,
terminal and office expenses, professional fees and other costs of transiting shipments. The increase in other operating expenses was due to
an increase in driver recruiting expenses.
Income from Operations
TLS income from operations increased $1.9 million, or 59.4%, to $5.1 million in income from operations for the year ended
December 31, 2018 compared to $3.2 million for the same period in 2017. TLS income from operations was 2.6% of operating revenue for
the year ended December 31, 2018 compared to 1.6% for the year ended December 31, 2017. The improvement in income from operations
was due to rate increases and higher fuel surcharges to existing customers, the deliberate shedding of lower margin business and lower
vehicle claims reserves.
31
Table of Contents
Intermodal - Year Ended December 31, 2018 compared to Year Ended December 31, 2017
The following table sets forth our historical financial data of the Intermodal segment for the years ended December 31, 2018 and
2017 (in millions):
Intermodal Segment Information
(In millions)
(Unaudited)
December 31,
2018
Percent of
Revenue
December 31,
2017
(As Adjusted)
Percent of
Revenue
Percent
Change Change
Year ended
Operating revenue
$
201.0
100.0% $
154.7
100.0% $
46.3
29.9%
Operating expenses:
Purchased transportation
Salaries, wages and employee
benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income from operations
$
77.1
38.4
63.6
41.1
13.5
21.2
43.9
15.9
6.3
5.8
6.6
22.1
177.7
23.3
21.8
7.9
3.1
2.9
3.3
11.0
88.4
11.6% $
34.0
13.5
5.8
4.2
3.9
16.7
141.7
13.0
22.0
8.7
3.8
2.7
2.5
10.8
91.6
8.4% $
9.9
2.4
0.5
1.6
2.7
5.4
36.0
10.3
29.1
17.8
8.6
38.1
69.2
32.3
25.4
79.2%
Intermodal Operating Statistics
December 31,
2018
Year ended
December 31,
2017
(As Adjusted)
Percent
Change
Drayage shipments
Drayage revenue per shipment
Number of locations
$
305,239
567 $
20
233,093
554
19
31.0%
2.3
5.3%
32
Table of Contents
Revenues
Intermodal operating revenue increased $46.3 million, or 29.9%, to $201.0 million for the year ended December 31, 2018 from
$154.7 million for the same period in 2017. The increases in operating revenue was primarily attributable to a full year of revenue from
Atlantic, which was acquired in May 2017, the impact of increased fuel surcharges and increased rental and storage revenues.
Purchased Transportation
Intermodal purchased transportation increased $13.5 million, or 21.2%, to $77.1 million for the year ended December 31, 2018
from $63.6 million for the same period in 2017. Intermodal purchased transportation as a percentage of revenue was 38.4% for the year
ended December 31, 2018 compared to 41.1% for the year ended December 31, 2017. The decrease in Intermodal purchased transportation
as a percentage of revenue was attributable to a change in revenue mix, as Intermodal had higher increases to revenue lines that did not
require the use of purchased transportation. This was partly offset by a higher utilization of owner-operators as opposed to Company-
employed drivers during 2018 compared to the same period of 2017, as Atlantic utilized more owner-operators than Company-employed
drivers.
Salaries, Wages, and Benefits
Intermodal salaries, wages and employee benefits increased $9.9 million, or 29.1%, to $43.9 million for the year ended
December 31, 2018 compared to $34.0 million for the year ended December 31, 2017. As a percentage of Intermodal operating revenue,
salaries, wages and benefits decreased to 21.8% for the year ended December 31, 2018 compared to 22.0% for the same period in
2017. The improvement in salaries, wages and employee benefits as a percentage of revenue was attributable to lower workers'
compensation and health insurance costs as a percentage of revenue partly offset by higher employee incentives and share-based
compensation.
Operating Leases
Operating leases increased $2.4 million, or 17.8% to $15.9 million for the year ended December 31, 2018 from $13.5 million for
the same period in 2017. Operating leases were 7.9% of Intermodal operating revenue for the year ended December 31, 2018 compared to
8.7% in the same period of 2017. Operating leases decreased as a percentage of revenue since revenue that does not require trailer rentals
increased at a faster pace than those that required trailer rental charges. The decrease as a percentage of revenue is also attributable to
utilization of owned equipment acquired from Atlantic and the increase in revenue out-pacing the increase in facility rents.
Depreciation and Amortization
Depreciation and amortization increased $0.5 million, or 8.6%, to $6.3 million for the year ended December 31, 2018 from $5.8
million for the same period in 2017. Depreciation and amortization expense as a percentage of Intermodal operating revenue was 3.1% for
the year ended December 31, 2018 compared to 3.8% for the same period of 2017. The increase in depreciation and amortization is due the
amortization of intangible assets acquired during 2017 and 2018. Depreciation and amortization decreased as a percentage of revenue since
revenue that does not require equipment increased at a faster pace than those that required equipment.
Insurance and Claims
Intermodal insurance and claims expense increased $1.6 million, or 38.1%, to $5.8 million for the year ended December 31, 2018
from $4.2 million for the year ended December 31, 2017. Intermodal insurance and claims were 2.9% of operating revenue for the year
ended December 31, 2018 compared to 2.7% for the same period in 2017. The increase in Intermodal insurance and claims was attributable
to higher insurance premiums for the additional volumes and higher claims reserves. See additional discussion over the consolidated
increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.
Fuel Expense
Intermodal fuel expense increased $2.7 million, or 69.2%, to $6.6 million for the year ended December 31, 2018 from $3.9
million in the same period of 2017. Fuel expenses were 3.3% of Intermodal operating revenue for the year ended December 31, 2018
compared to 2.5% in the same period of 2017. Intermodal fuel expenses increased due to higher year-over-year fuel prices and increased
Company-employed driver activity.
33
Table of Contents
Other Operating Expenses
Intermodal other operating expenses increased $5.4 million, or 32.3%, to $22.1 million for the year ended December 31, 2018
compared to $16.7 million for the same period of 2017. Intermodal other operating expenses as a percentage of revenue for the year ended
December 31, 2018 were 11.0% compared to 10.8% for the same period of 2017. The increase in Intermodal other operating expenses was
due mostly due to a $4.6 million increase in container related rental and storage charges associated with revenue increases discussed
previously. The remaining increase was due to increased equipment maintenance, facility costs and professional fees. These increases were
partly offset by a $0.5 million reduction in the earn-out liability for the Atlantic acquisition during 2018.
Income from Operations
Intermodal’s income from operations increased by $10.3 million, or 79.2%, to $23.3 million for the year ended December 31,
2018 compared to $13.0 million for the same period in 2017. Income from operations as a percentage of Intermodal operating revenue was
11.6% for the year ended December 31, 2018 compared to 8.4% in the same period of 2017. The increase in operating income as a
percentage of revenue was primarily attributable to the increase in high-margin storage and fuel revenues and a full year of the Atlantic
acquisition.
34
Table of Contents
Pool Distribution - Year Ended December 31, 2018 compared to Year Ended December 31, 2017
The following table sets forth our historical financial data of the Pool Distribution segment for the years ended December 31, 2018
and 2017 (in millions):
Pool Distribution Segment Information
(In millions)
(Unaudited)
Year ended
December 31,
2018
Percent of
Revenue
December 31,
2017
(As Adjusted)
Percent of
Revenue
Percent
Change Change
Operating revenue
$
194.1
100.0% $
168.5
100.0% $
25.6
15.2 %
Operating expenses:
Purchased transportation
Salaries, wages and employee
benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income from operations
57.4
29.6
47.5
28.2
9.9
20.8
71.3
17.6
6.9
4.6
7.0
23.4
188.2
5.9
36.7
9.1
3.6
2.4
3.6
12.1
97.0
3.0% $
62.7
13.3
6.8
4.7
5.5
21.6
162.1
6.4
37.2
7.9
4.0
2.8
3.3
12.8
96.2
3.8% $
8.6
4.3
0.1
(0.1)
1.5
1.8
26.1
(0.5)
13.7
32.3
1.5
(2.1)
27.3
8.3
16.1
(7.8)%
$
Pool Distribution Operating Statistics
December 31,
2018
Year ended
December 31,
2017
(As Adjusted)
Percent
Change
$
92,976
2.09 $
28
82,196
2.05
28
13.1%
2.0
—
35
Cartons 1
Revenue per carton
Terminals
1 In thousands
Table of Contents
Revenues
Pool operating revenue increased $25.6 million, or 15.2%, to $194.1 million for the year ended December 31, 2018 from $168.5
million for the year ended December 31, 2017. The revenue increase was due to increased volumes from previously existing customers,
new business and rate increases.
Purchased Transportation
Pool purchased transportation increased $9.9 million, or 20.8%, to $57.4 million for the year ended December 31, 2018 from
$47.5 million for the year ended December 31, 2017. Pool purchased transportation as a percentage of revenue was 29.6% for the year
ended December 31, 2018 compared to 28.2% for the same period in 2017. The increase in Pool purchased transportation as a percentage
of revenue was attributable to increased rates charged by, and increased utilization of, third-party carriers to cover the increases in revenue.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits of Pool increased by $8.6 million, or 13.7%, to $71.3 million for the year ended
December 31, 2018 from $62.7 million for the year ended December 31, 2017. As a percentage of Pool operating revenue, salaries, wages
and benefits were 36.7% for the year ended December 31, 2018 compared to 37.2% for the same period in 2017. The decrease in salaries,
wages and benefits as a percentage of revenue was the result of decreases in employee incentives, driver pay and group health insurance
costs partly offset by increased dock pay. Dock pay deteriorated as a percentage of revenue as increasing revenue volumes required the use
of more costly contract labor.
Operating Leases
Operating leases increased $4.3 million, or 32.3%, to $17.6 million for the year ended December 31, 2018 from $13.3 million for
the year ended December 31, 2017. Operating leases were 9.1% of Pool operating revenue for the year ended December 31, 2018
compared to 7.9% for the year ended December 31, 2017. Operating leases increased as a percentage of revenue due to increases in facility
lease expenses and tractor leases for the additional revenue discussed above and the use of leased tractors to replace old purchased
equipment. The increase in facility lease expenses is mostly due to a $1.0 million charge to vacate a facility.
Depreciation and Amortization
Depreciation and amortization increased $0.1 million, or 1.5%, to $6.9 million for the year ended December 31, 2018 compared to
$6.8 million for the same period in 2017. Depreciation and amortization expense as a percentage of Pool operating revenue was 3.6% for
the year ended December 31, 2018 compared to 4.0% for the year ended December 31, 2017. The decrease in Pool depreciation and
amortization as a percentage of revenue was due to the increase in leased tractors mentioned above instead of purchased equipment, partly
offset by increased trailer depreciation on trailers purchased during 2018.
Insurance and Claims
Pool insurance and claims decreased $0.1 million, or 2.1%, to $4.6 million for the year ended December 31, 2018 from $4.7
million for the year ended December 31, 2017. As a percentage of operating revenue, insurance and claims was 2.4% for the year ended
December 31, 2018 compared to 2.8% for the year ended December 31, 2017. The decrease as a percentage of revenue was due to a $0.5
million reimbursement of legal fees in the year ended December 31, 2018 for expenses incurred in prior periods. The decrease as a
percentage of revenue was also due to a decrease in vehicle liability claims. At a consolidated level, vehicle claims reserves increased; see
discussion in the "Other operations" section below.
Fuel Expense
Pool fuel expense increased $1.5 million, or 27.3%, to $7.0 million for the year ended December 31, 2018 from $5.5 million for
the year ended December 31, 2017. Fuel expenses were 3.6% of Pool operating revenue during the year ended December 31, 2018
compared to 3.3% for the year ended December 31, 2017. Pool fuel expenses increased due to higher year-over-year fuel prices, higher
revenue volumes and increased Company-employed driver miles.
36
Table of Contents
Other Operating Expenses
Pool other operating expenses increased $1.8 million, or 8.3%, to $23.4 million for the year ended December 31, 2018 compared
to $21.6 million for the year ended December 31, 2017. Pool other operating expenses were 12.1% of operating revenue for the year ended
December 31, 2018 compared to 12.8% for the year ended December 31, 2017. Other operating expenses includes equipment maintenance,
terminal and office expenses, professional fees and other over-the-road costs. As a percentage of revenue the decrease was attributable to a
0.6% decrease in equipment maintenance costs and a 0.3% decrease in agent terminal handling costs. These decreases were partly offset by
a 0.1% increase as a percentage of revenue in recruiting expenses.
Income from Operations
Pool income from operations decreased by $0.5 million, or 7.8% to $5.9 million for the year ended December 31, 2018 from $6.4
million for the year ended December 31, 2017. Pool income from operations was 3.0% of operating revenue for the year ended
December 31, 2018 compared to 3.8% of operating revenue for the year ended December 31, 2017. The deterioration in Pool operating
income was primarily the result of increased utilization of and higher rates charged by third-party carriers and increasing revenue volumes
required the use of more costly contract labor. Pool's operating income also decreased due to the one-time charge to vacate a facility during
2018.
37
Table of Contents
Other operations - Year Ended December 31, 2018 compared to Year Ended December 31, 2017
Other operating activity declined from a $1.8 million operating loss during the year ended December 31, 2017 to a $8.6 million
operating loss during the year ended December 31, 2018. The year ended December 31, 2018 included a $6.0 million increase in self-
insurance reserves related to existing vehicular claims and $0.8 million in self-insurance reserves resulting from analysis of our workers'
compensation claims. The loss was also attributable to $1.2 million in costs related to the CEO transition, comprised of recruiting fees and
retention share awards.
The $1.8 million operating loss for the year ending December 31, 2017 included a $1.2 million reserve for vehicle and workers'
compensation claims, $0.9 million of executive severance costs and $0.4 million of turn in costs from old Towne equipment. These costs
were partly offset by $0.7 million of indemnification funds received related to the Towne acquisition. These costs and benefits were kept at
the corporate level and not passed through to our operating segments.
38
Table of Contents
Results of Operations
The following table sets forth our historical financial data for the years ended December 31, 2017 and 2016 (in millions):
2017
(As Adjusted)
Year ended December 31,
2016
Change
(As Adjusted)
Percent Change
$
Operating revenue:
Expedited LTL
Truckload Premium Services
Intermodal
Pool Distribution
Eliminations and other operations
Operating revenue
Operating expenses:
Purchased transportation
Salaries, wages, and employee benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Impairment of goodwill, intangibles and
other assets
Total operating expenses
Income (loss) from operations:
Expedited LTL
Truckload Premium Services
Intermodal
Pool Distribution
Other operations
Income from operations
Other expense:
Interest expense
Total other expense
Income before income taxes
Income taxes
Net income and comprehensive income
$
655.8 $
201.8
154.7
168.5
(11.4)
1,169.4
545.1
265.8
63.8
41.1
29.6
16.5
98.7
—
1,060.6
88.0
3.2
13.0
6.4
(1.8)
108.8
(1.2)
(1.2)
107.6
20.3
87.3 $
596.5 $
181.0
105.7
151.9
(4.9)
1,030.2
460.8
242.3
60.5
38.2
25.4
13.2
87.7
42.4
970.5
83.1
(35.4)
11.1
3.6
(2.7)
59.7
(1.6)
(1.6)
58.1
30.6
27.5 $
59.3
20.8
49.0
16.6
(6.5)
139.2
84.3
23.5
3.3
2.9
4.2
3.3
11.0
(42.4)
90.1
4.9
38.6
1.9
2.8
0.9
49.1
0.4
0.4
49.5
(10.3)
59.8
9.9 %
11.5
46.4
10.9
132.7
13.5
18.3
9.7
5.5
7.6
16.5
25.0
12.5
(100.0)
9.3
5.9
NM
17.1
77.8
(33.3)
82.2
(25.0)
(25.0)
85.2
(33.7)
217.5 %
Note: Prior period balances have been adjusted to confirm with revenue guidance issued in 2014 (ASU 2014-09, Revenue from Contracts
with Customers). See additional discussion in Note 1, Accounting Policies to our Consolidated Financial Statements.
39
Table of Contents
Revenues
During the year ended December 31, 2017, revenue increased 13.5% compared to the year ended December 31, 2016. The
revenue increase was primarily driven by increased revenue from our LTL Expedited segment of $59.3 million driven by increased
network revenue, fuel surcharge revenue and other terminal based revenue over the prior year. Revenue also increased $49.0 million in our
Intermodal segment primarily attributable to the acquisition of Atlantic, Triumph and Ace and the impact of increased fuel surcharges.
Our fuel surcharge revenue is the result of our fuel surcharge rates, which are set weekly using the national average for diesel
price per gallon, and volume transiting our network. During the year ended December 31, 2017, total fuel surcharge revenue increased
41.9% as compared to the same period in 2016, mostly due to increased fuel prices and increased volumes in the Expedited LTL,
Intermodal and Pool Distribution segments.
Operating Expenses
Operating expenses increased $90.1 million primarily driven by purchased transportation increases of $84.3 million and salaries,
wages and employee benefits increases of $23.5 million, offset by a $42.4 million impairment discussed further in the TLS segment section
below. Purchased transportation increased primarily due to increased volumes and increased utilization of third-party transportation
providers, which are typically more costly than owner-operators. Salaries, wages and employee benefits increased primarily due to
increased personnel needs to support the additional volumes.
Operating Income and Segment Operations
As a result of the above, operating income increased $49.1 million, or 82.2%, from 2016 to $108.8 million for the year ended
December 31, 2017. The results for our four reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was $1.2 million for the year ended December 31, 2017 compared to $1.6 million for the same period in 2016.
The decrease in interest expense was attributable to principal payments made on the term loan partly offset by borrowings on our revolving
credit facility.
Income Taxes
The combined federal and state effective tax rate for the year ended December 31, 2017 was 18.9% compared to a rate of
52.7% for the same period in 2016. The lower effective tax rate for 2017 is the result of the enactment of the Tax Cuts and Jobs Act, which
lowered the value of our net deferred tax liabilities. Also, the 2016 effective tax rate reflected the impairment of goodwill in the second
quarter of 2016 that is non-deductible for tax purposes.
Net Income
As a result of the foregoing factors, net income increased by $59.8 million, or 217.5%, to $87.3 million for the year ended
December 31, 2017 compared to $27.5 million for the same period in 2016.
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Table of Contents
Expedited LTL - Year Ended December 31, 2017 compared to Year Ended December 31, 2016
The following table sets forth our historical financial data of the Expedited LTL segment for the years ended December 31, 2017
and 2016 (in millions):
Expedited LTL Segment Information
(In millions)
(Unaudited)
December 31,
2017
(As Adjusted)
Percent of
Revenue
Year ended
December 31,
2016
(As Adjusted)
Percent of
Revenue
Percent
Change Change
Operating revenue
$
655.8
100.0 % $
596.5
100.0 % $
59.3
9.9 %
Operating expenses:
Purchased transportation
Salaries, wages and employee benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income from operations
$
290.0
146.6
36.7
22.1
15.4
3.8
53.2
567.8
88.0
44.2
22.4
5.6
3.4
2.3
0.6
8.1
86.6
13.4% $
250.7
139.2
34.5
21.9
13.2
3.3
50.6
513.4
83.1
42.0
23.3
5.8
3.7
2.2
0.6
8.5
86.1
13.9% $
39.3
7.4
2.2
0.2
2.2
0.5
2.6
54.4
4.9
15.7
5.3
6.4
0.9
16.7
15.2
5.1
10.6
5.9 %
Expedited LTL Operating Statistics
December 31,
2017
(As Adjusted)
Year ended
December 31,
2016
(As Adjusted)
Percent
Change
254
255
(0.4)%
2,478,059
9,756
2,339,632
9,175
4,048
15.9
945
612
23.91 $
21.30 $
146 $
130 $
3,770
14.8
782
621
23.30
21.25
145
132
5.9
6.3
7.4
7.4
20.8
(1.4)
2.6
0.2
0.7
(1.5)%
Business days
Tonnage
Total pounds ¹
Pounds per day ¹
Shipments
Total shipments ¹
Shipments per day ¹
Total shipments with pickup and/or delivery 1
Weight per shipment
Revenue per hundredweight
Revenue per hundredweight, ex fuel
Revenue per shipment
Revenue per shipment, ex fuel
¹ - In thousands
$
$
$
$
41
Table of Contents
Revenues
Expedited LTL operating revenue increased $59.3 million, or 9.9%, to $655.8 million for the year ended December 31, 2017 from
$596.5 million for the same period of 2016. This increase was due to increased network revenue, fuel surcharge revenue and other terminal
based revenue over the prior year. Network revenue increased $30.9 million due to a 7.4% increase in shipments and a 5.9% increase in
tonnage, partly offset by a 1.5% decrease in revenue per shipment, ex fuel over prior year. The increase in tonnage is due to a growing
percentage of total volume from shipments with higher density attributes and a slightly lower length of haul than our traditional shipments,
driving the decrease in revenue per shipment, ex fuel. Additionally, fuel surcharge revenue increased $16.6 million largely due to the
increase in fuel prices and volume increases. Other terminal based revenues, which includes dedicated local pickup and delivery services,
warehousing and terminal handling, increased $11.8 million, or 23.2%, to $62.4 million in 2017 from $50.7 million in the same period of
2016. The increase in other terminal revenue was mainly attributable to increases in dedicated local pickup and delivery.
Purchased Transportation
Expedited LTL’s purchased transportation increased by $ 39.3 million, or 15.7%, to $290.0 million for the year ended
December 31, 2017 from $250.7 million for the year ended December 31, 2016. As a percentage of segment operating revenue, Expedited
LTL purchased transportation was 44.2% during the year ended December 31, 2017 compared to 42.0% for the same period of 2016. The
increase is mostly due to a 6.0% increase in our cost per mile, ex fuel. The higher cost per mile is due to increased utilization of third-party
transportation providers, which are typically more costly than owner-operators.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits of Expedited LTL increased by $ 7.4 million, or 5.3%, to $146.6 million for the year ended
December 31, 2017 from $139.2 million in the same period of 2016. Salaries, wages and employee benefits were 22.4% of Expedited
LTL’s operating revenue for the year ended December 31, 2017 compared to 23.3% for the same period of 2016. The decrease in salaries,
wages and employee benefits as a percentage of revenue was primarily attributable to a 0.7% decrease in direct Expedited LTL terminal
and management salaries as a percentage of revenue and a 0.2% decrease in health insurance costs as a percentage of revenue. The decrease
in direct pay as a percentage of revenue is the impact of additional revenue on fixed salaries and improved operating efficiencies.
Operating Leases
Operating leases increased $2.2 million, or 6.4%, to $36.7 million for the year ended December 31, 2017 from $34.5 million for
the year ended December 31, 2016. Operating leases were 5.6% of Expedited LTL’s operating revenue for the year ended December 31,
2017 compared to 5.8% for the year ended December 31, 2016. The increase in cost is due to $1.2 million of additional facility lease
expenses and a $1.1 million increase in truck, trailer and equipment rentals and leases. Facility leases increased due to the expansion of
certain facilities. Vehicle leases increased due to the replacement of older owned power equipment with leased power equipment.
Depreciation and Amortization
Expedited LTL depreciation and amortization increased $0.2 million, or 0.9%, to $22.1 million for the year ended December 31,
2017 from $21.9 million for the year ended December 31, 2016. Depreciation and amortization expense as a percentage of Expedited LTL
operating revenue was 3.4% in the year ended December 31, 2017 compared to 3.7% for the year ended December 31, 2016. The decrease
as a percentage of revenue was due to the increase in equipment leasing mentioned above instead of purchased equipment.
Insurance and Claims
Expedited LTL insurance and claims expense increased $2.2 million, or 16.7%, to $15.4 million for the year ended December 31,
2017 from $13.2 million for the year ended December 31, 2016. Insurance and claims as a percentage of Expedited LTL’s operating
revenue was 2.3% for the year ended December 31, 2017 compared to 2.2% for the year ended December 31, 2016. The increase was
partly attributable to a $0.7 million increase in insurance premiums associated with our insurance plan renewals and a $2.0 million increase
in vehicle accident claim reserves. These increases were partly offset by decreases in vehicle damage and cargo claims.
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Table of Contents
Fuel Expense
Expedited LTL fuel expense increased $ 0.5 million, or 15.2%, to $3.8 million for the year ended December 31, 2017 from $3.3
million in the year ended December 31, 2016. Fuel expense was 0.6% of Expedited LTL’s operating revenue for the years ended
December 31, 2017 and 2016. LTL fuel expenses increased due to higher year-over-year fuel prices.
Other Operating Expenses
Expedited LTL other operating expenses increased $2.6 million, or 5.1%, to $53.2 million for the year ended December 31, 2017
from $50.6 million for the year ended December 31, 2016. Expedited LTL other operating expenses were 8.1% of operating revenue for
the year ended December 31, 2017 compared to 8.5% for the year ended December 31, 2016. Other operating expenses includes
equipment maintenance, terminal and office expenses, professional fees, and other costs of transiting our network. The decrease as
percentage of revenue was primarily the result of a decrease in legal fees mostly related to indemnification funds received related to the
Towne acquisition and lower costs of transiting our network due to the use of third-party transportation previously mentioned. The prior
period also included a corporate event that did not occur in 2017. These improvements were partly offset by an increase in receivables
allowance.
Income from Operations
Expedited LTL income from operations increased by $4.9 million, or 5.9%, to $88.0 million for the year ended December 31,
2017 compared to $83.1 million for the year ended December 31, 2016. Expedited LTL’s income from operations was 13.4% of operating
revenue for the year ended December 31, 2017 compared to 13.9% for the year ended December 31, 2016. Deterioration in income from
operations as a percentage of revenue was due to an increased utilization of third-party transportation providers partly offset by higher
tonnage driving increased revenue. The fuel surcharge revenue increase was also due to increased fuel prices.
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Table of Contents
Truckload Premium Services - Year Ended December 31, 2017 compared to Year Ended December 31, 2016
The following table sets forth our historical financial data of the Truckload Premium Services segment for the years ended
December 31, 2017 and 2016 (in millions):
Truckload Premium Services Segment Information
(In millions)
(Unaudited)
Year ended
December 31,
2017
(As Adjusted)
Percent of
Revenue
December 31,
2016
(As Adjusted)
Percent of
Revenue
Change
Percent
Change
Operating revenue
$
201.8
100.0 % $
181.0
100.0 % $
20.8
11.5 %
Operating expenses:
Purchased transportation
Salaries, wages and employee benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Impairment of goodwill, intangibles and other
assets
Total operating expenses
Income (loss) from operations
$
153.8
20.4
0.9
6.3
5.4
3.3
8.5
—
198.6
3.2
76.2
10.1
0.4
3.1
2.7
1.6
4.3
—
98.4
1.6 % $
132.1
19.3
0.3
6.5
4.8
2.6
8.4
42.4
216.4
(35.4 )
73.0
10.7
0.2
3.6
2.7
1.4
4.6
21.7
1.1
0.6
(0.2)
0.6
0.7
0.1
23.4
119.6
(19.6 )% $
(42.4 )
(17.8 )
38.6
16.4
5.7
200.0
(3.1)
12.5
26.9
1.2
100.0
(8.2)
NM
Truckload Premium Services Operating Statistics
Total Miles 1
Empty Miles Percentage
Tractors (avg)
Miles per tractor per week 2
Revenue per mile
Cost per mile
December 31,
2017
(As Adjusted)
Year ended
December 31,
2016
(As Adjusted)
Percent
Change
96,598
9.6%
386
2,700
89,540
11.5%
437
2,565
$
$
2.02
1.66
$
$
1.98
1.56
7.9 %
(16.5)
(11.7)
5.3
2.0
6.4 %
¹ - In thousands
2 - Calculated using Company driver and owner-operator miles
44
Table of Contents
Revenues
TLS revenue increased $20.8 million, or 11.5%, to $201.8 million for the year ended December 31, 2017 from $181.0 million in
the same period of 2016. The increase in TLS revenue was attributable to new business wins which resulted in a 7.9% increase in miles
driven to support revenue.
Purchased Transportation
Purchased transportation costs for our TLS revenue increased $21.7 million, or 16.4%, to $153.8 million for the year ended
December 31, 2017 from $132.1 million for the year ended December 31, 2016. For the year ended December 31, 2017, TLS purchased
transportation costs represented 76.2% of TLS revenue compared to 73.0% for the same period in 2016. The increase in TLS purchased
transportation was attributable to a 7.2% increase in non-Company miles driven and a 7.2% increase in non-Company cost per mile during
the year ended December 31, 2017 compared to the same period in 2016. The increase in TLS miles driven was attributable to new
business wins previously mentioned. The increase in cost per mile was due to TLS utilizing more costly third-party transportation providers
to cover miles. The increase in TLS purchased transportation as a percentage of revenue was attributable to TLS revenue per mile not
increasing in proportion with the increase in TLS cost per mile.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits of TLS increased by $1.1 million, or 5.7%, to $20.4 million in the year ended
December 31, 2017 from $19.3 million in the same period of 2016. Salaries, wages and employee benefits were 10.1% of TLS’s operating
revenue in the year ended December 31, 2017 compared to 10.7% for the same period of 2016. The decrease in salaries, wages and
employee benefits as a percentage of revenue was mostly attributable to the increase in revenue outpacing the increase in pay to Company
drivers and office staff.
Operating Leases
Operating leases increased $0.6 million, or 200.0%, to $0.9 million for the year ended December 31, 2017 from $0.3 million for
the same period in 2016. Operating leases were 0.4% of TLS operating revenue for the year ended December 31, 2017 compared to 0.2%
for the same period of 2016. The $0.6 million increase in cost is due to additional trailer rentals for the new business wins mentioned
above.
Depreciation and Amortization
Depreciation and amortization decreased $0.2 million, or 3.1%, to $6.3 million for the year ended December 31, 2017 from $6.5
million for the year ended December 31, 2016. Depreciation and amortization expense as a percentage of TLS operating revenue was 3.1%
for the year ended December 31, 2017 compared to 3.6% for the same period in 2016. The decrease was due to the impairment of TQI
intangible assets in the second quarter of 2016 leading to lower on-going amortization expense. This decrease was partially offset by
increased trailer depreciation on trailers purchased during 2017.
Insurance and Claims
TLS insurance and claims increased $0.6 million, or 12.5%, to $5.4 million for the year ended December 31, 2017 from $4.8
million for the year ended December 31, 2016. As a percentage of operating revenue, insurance and claims was 2.7% for the year ended
December 31, 2017 and 2016. The increase was due to higher vehicle accident claim reserves. The increase was also attributable to higher
insurance premiums associated with our insurance plan renewals and higher cargo claims partly offset by a benefit from a prior period
insurance premium audit.
Fuel Expense
TLS fuel expense increased $0.7 million, or 26.9%, to $3.3 million for the year ended December 31, 2017 from $2.6 million for
the year ended December 31, 2016. Fuel expenses were 1.6% of TLS operating revenue during the year ended December 31, 2017
compared to 1.4% for the year ended December 31, 2016. The increase as a percentage of revenue was mostly attributable to higher year-
over-year fuel prices and the increase in Company driver miles.
45
Table of Contents
Other Operating Expenses
TLS other operating expenses increased $0.1 million, or 1.2%, to $8.5 million for the year ended December 31, 2017 compared to
$8.4 million for the year ended December 31, 2016. TLS other operating expenses were 4.3% of operating revenue for the year ended
December 31, 2017 compared to 4.6% for the year ended December 31, 2016. Other operating expenses includes equipment maintenance,
terminal and office expenses, professional fees and other costs of transiting shipments. The increase was attributable to a $0.2 million
increase in equipment maintenance and a $0.1 million increase in transit costs. These increases were mostly offset by a $0.2 million
decrease in losses on destroyed equipment.
Impairment of goodwill, intangibles and other assets
In the second quarter of 2016, we determined there were indicators of potential impairment of goodwill and other long lived assets
acquired in the TQI acquisition. Based on our analysis we recorded $42.4 million in total impairment charges related to TQI’s goodwill and
other long lived assets. During the year ended December 31, 2017, there were no impairment charges recognized.
Income from Operations
TLS results from operations increased by $38.6 million to $3.2 million in income from operations for the year ended December 31,
2017 compared to a $35.4 million loss from operations for the same period in 2016. Excluding the impairment charges, the deterioration in
results from operations was due to increased utilization of third-party transportation providers which led to the increase in cost per mile
outpacing the increase in revenue per mile.
46
Table of Contents
Intermodal - Year Ended December 31, 2017 compared to Year Ended December 31, 2016
The following table sets forth our historical financial data of the Intermodal segment for the years ended December 31, 2017 and
2016 (in millions):
Intermodal Segment Information
(In millions)
(Unaudited)
December 31,
2017
(As Adjusted)
Percent of
Revenue
December 31,
2016
(As Adjusted)
Percent of
Revenue
Percent
Change Change
Year ended
Operating revenue
$
154.7
100.0% $
105.7
100.0% $
49.0
46.4%
Operating expenses:
Purchased transportation
Salaries, wages and employee
benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income from operations
63.6
41.1
38.1
36.0
25.5
66.9
34.0
13.5
5.8
4.2
3.9
16.7
141.7
13.0
22.0
8.7
3.8
2.7
2.5
10.8
91.6
8.4% $
$
25.2
12.0
3.9
3.0
2.5
9.9
94.6
11.1
23.8
11.4
3.7
2.8
2.4
9.4
89.5
10.5% $
8.8
1.5
1.9
1.2
1.4
6.8
47.1
1.9
34.9
12.5
48.7
40.0
56.0
68.7
49.8
17.1%
Intermodal Operating Statistics
December 31,
2017
(As Adjusted)
Year ended
December 31,
2016
(As Adjusted)
Percent
Change
Drayage shipments
Drayage revenue per Shipment
Number of Locations
$
235,356
554 $
19
127,716
546
13
84.3%
1.5
46.2%
47
Table of Contents
Revenues
Intermodal operating revenue increased $49.0 million, or 46.4%, to $154.7 million for the year ended December 31, 2017 from
$105.7 million for the same period in 2016. The increases in operating revenue were primarily attributable to the acquisition of Atlantic,
Triumph and Ace and the impact of increased fuel surcharges.
Purchased Transportation
Intermodal purchased transportation increased $25.5 million, or 66.9%, to $63.6 million for the year ended December 31, 2017
from $38.1 million for the same period in 2016. Intermodal purchased transportation as a percentage of revenue was 41.1% for the year
ended December 31, 2017 compared to 36.0% for the year ended December 31, 2016. The increase in Intermodal purchased transportation
as a percentage of revenue was attributable to the Atlantic acquisition, which had a higher utilization of owner-operators as opposed to
Company-employed drivers. The increase is also attributable to rate increases to our owner-operators.
Salaries, Wages, and Benefits
Intermodal salaries, wages and employee benefits increased $8.8 million, or 34.9%,
to $34.0 million for the year ended
December 31, 2017 compared to $25.2 million for the year ended December 31, 2016. As a percentage of Intermodal operating revenue,
salaries, wages and benefits decreased to 22.0% for the year ended December 31, 2017 compared to 23.8% for the same period in
2016. The improvement in salaries, wages and employee benefits as a percentage of revenue was primarily due to leveraging the increase in
revenue on office and administrative salaries leading to a 0.8% decrease as a percentage of revenue. The improvement is also due to a 0.5%
decrease as a percentage of revenue for lower workers' compensation and health insurance costs and an additional 0.5% decrease as a
percentage of revenue due to dock efficiencies.
Operating Leases
Operating leases increased $1.5 million, or 12.5% to $13.5 million for the year ended December 31, 2017 from $12.0 million for
the same period in 2016. Operating leases were 8.7% of Intermodal operating revenue for the year ended December 31, 2017 compared
to11.4% in the same period of 2016. Operating leases decreased as a percentage of revenue due to slightly increasing trailer rental charges
while other revenue that does not require trailer rentals increased at a more rapid rate. The decrease as a percentage of revenue is also
attributable to utilization of owned equipment acquired as part of Atlantic and the increase in revenue out-pacing the increase in facility
rents.
Depreciation and Amortization
Depreciation and amortization increased $1.9 million, or 48.7%, to $5.8 million for the year ended December 31, 2017 from $3.9
million for the same period in 2016. Depreciation and amortization expense as a percentage of Intermodal operating revenue was 3.8% for
the year ended December 31, 2017 compared to 3.7% for the same period of 2016. The higher depreciation and amortization was due to
equipment and intangible assets acquired with Atlantic, Triumph and Ace.
Insurance and Claims
Intermodal insurance and claims expense increased $1.2 million, or 40.0%, to $4.2 million for the year ended December 31, 2017
from $3.0 million for the year ended December 31, 2016. Intermodal insurance and claims were 2.7% of operating revenue for the year
ended December 31, 2017 compared to 2.8% for the same period in 2016. The increase in Intermodal insurance and claims was primarily
attributable to higher insurance premiums and increased vehicle accident claim reserves due to an increased vehicle fleet as a result of the
acquisitions.
Fuel Expense
Intermodal fuel expense increased $1.4 million, or 56.0%, to $3.9 million for the year ended December 31, 2017 from $2.5
million in the same period of 2016. Fuel expenses were 2.5% of Intermodal operating revenue for the year ended December 31, 2017
compared to 2.4% in the same period of 2016. Intermodal fuel expenses increased due to higher year-over-year fuel prices and revenue
volumes. These increases were partially offset by increased utilization of owner-operators.
48
Table of Contents
Other Operating Expenses
Intermodal other operating expenses increased $6.8 million, or 68.7%, to $16.7 million for the year ended December 31, 2017
compared to $9.9 million for the same period of 2016. Intermodal other operating expenses as a percentage of revenue for the year ended
December 31, 2017 were 10.8% compared to 9.4% for the same period of 2016. The increase in Intermodal other operating expenses was
due mostly due to a $3.8 million increase in container related rental and storage charges associated with revenue increases discussed
previously. The remaining increase was due to increased terminal expenses and other variable costs, such as maintenance and tolls,
corresponding with the increases in revenue, and legal and professional fees related to the acquisition of Atlantic.
Income from Operations
Intermodal’s income from operations increased by $1.9 million, or 17.1%, to $13.0 million for the year ended December 31, 2017
compared to $11.1 million for the same period in 2016. Income from operations as a percentage of Intermodal operating revenue was 8.4%
for the year ended December 31, 2017 compared to 10.5% in the same period of 2016. The increase in operating income was primarily
attributable to the Atlantic, Triumph and Ace acquisitions. The decrease in income from operations as a percentage of revenue was
attributable to increased amortization associated with Intermodal's acquisitions, lower margins on acquired business and acquisition related
legal and professional fees.
49
Table of Contents
Pool Distribution - Year Ended December 31, 2017 compared to Year Ended December 31, 2016
The following table sets forth our historical financial data of the Pool Distribution segment for the years ended December 31, 2017
and 2016 (in millions):
Pool Distribution Segment Information
(In millions)
(Unaudited)
Year ended
December 31,
2017
(As Adjusted)
Percent of
Revenue
December 31,
2016
(As Adjusted)
Percent of
Revenue
Percent
Change Change
Operating revenue
$
168.5
100.0% $
151.9
100.0% $
16.6
10.9%
Operating expenses:
Purchased transportation
Salaries, wages and employee
benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Total operating expenses
Income from operations
$
47.5
28.2
43.2
28.4
4.3
10.0
62.7
13.3
6.8
4.7
5.5
21.6
162.1
6.4
37.2
7.9
4.0
2.8
3.3
12.8
96.2
3.8% $
56.8
12.7
6.0
4.4
4.9
20.3
148.3
3.6
37.4
8.5
3.9
2.9
3.2
13.4
97.6
2.4% $
5.9
0.6
0.8
0.3
0.6
1.3
13.8
2.8
10.4
4.7
13.3
6.8
12.2
6.4
9.3
77.8%
Pool Distribution Operating Statistics
December 31,
2017
(As Adjusted)
Year ended
December 31,
2016
(As Adjusted)
Percent
Change
$
82,196
2.05 $
28
69,742
2.18
29
17.9 %
(6.0)
(3.4)%
50
Cartons 1
Revenue per Carton
Terminals
1 In thousands
Table of Contents
Revenues
Pool operating revenue increased $16.6 million, or 10.9%, to $168.5 million for the year ended December 31, 2017 from $151.9
million for the year ended December 31, 2016. The revenue increase was due to increased fuel surcharge revenues, increased volumes
from previously existing customers, new business and rate increases.
Purchased Transportation
Pool purchased transportation increased $4.3 million, or 10.0%, to $47.5 million for the year ended December 31, 2017 from
$43.2 million for the year ended December 31, 2016. Pool purchased transportation as a percentage of revenue was 28.2% for the year
ended December 31, 2017 compared to 28.4% for the same period in 2016. The improvement in Pool purchased transportation as a
percentage of revenue was attributable to an increased utilization of owner-operators over more costly third-party carriers and revenue
increases associated with rate increases.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits of Pool increased by $5.9 million, or 10.4%, to $62.7 million for the year ended
December 31, 2017 from $56.8 million for the year ended December 31, 2016. As a percentage of Pool operating revenue, salaries, wages
and benefits were 37.2% for the years ended December 31, 2017 compared to 37.4% for the same period in 2016. As a percentage of
revenue, increases in dock pay and employee incentive were more than offset by decreases in Company-employed driver pay as a
percentage of revenue. Dock pay increased as a percentage of revenue as increasing revenue volumes required the use of more costly
contract labor. While Company-employed driver pay increased in total cost on higher miles, it decreased as a percentage of revenue due to
increases in revenues not requiring Company-employed drivers, such as fuel.
Operating Leases
Operating leases increased $0.6 million, or 4.7%, to $13.3 million for the year ended December 31, 2017 from $12.7 million for
the year ended December 31, 2016. Operating leases were 7.9% of Pool operating revenue for the year ended December 31, 2017
compared to 8.5% for the year ended December 31, 2016. Operating leases increased due to additional truck and trailer leases and rentals
used to provide capacity for additional business wins throughout the network, partially offset by reduced facility rent driven by higher rent
in 2016 attributable to the transition and relocation of certain terminals. The decrease as a percentage of revenue is attributable to increased
revenue.
Depreciation and Amortization
Depreciation and amortization increased $0.8 million, or 13.3%, to $6.8 million for the year ended December 31, 2017 compared
to $6.0 million for the same period in 2016. Depreciation and amortization expense as a percentage of Pool operating revenue was 4.0%
for the year ended December 31, 2017 compared to 3.9% for the year ended December 31, 2016. The increase in Pool depreciation and
amortization was due to the allocation of trailer depreciation, which reflects Pool's increased utilization of our trailer fleet. This increase
was partly offset by a decrease in tractor depreciation due to the increased use of rentals and leases mentioned above.
Insurance and Claims
Pool insurance and claims increased $0.3 million, or 6.8%, to $4.7 million for the year ended December 31, 2017 from $4.4
million for the year ended December 31, 2016. As a percentage of operating revenue, insurance and claims was 2.8% for the year ended
December 31, 2017 compared to 2.9% for the year ended December 31, 2016. The decrease as a percentage of revenue was due to a
decrease in cargo claims, partly offset by increases in vehicle accident claim reserves.
Fuel Expense
Pool fuel expense increased $0.6 million, or 12.2%, to $5.5 million for the year ended December 31, 2017 from $4.9 million for
the year ended December 31, 2016. Fuel expenses were 3.3% of Pool operating revenue during the year ended December 31, 2017
compared to 3.2% for the year ended December 31, 2016. Pool fuel expenses increased due to higher year-over-year fuel prices and higher
revenue volumes.
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Other Operating Expenses
Pool other operating expenses increased $1.3 million, or 6.4%, to $21.6 million for the year ended December 31, 2017 compared
to $20.3 million for the year ended December 31, 2016. Pool other operating expenses were 12.8% of operating revenue for the year ended
December 31, 2017 compared to 13.4% for the year ended December 31, 2016. Other operating expenses includes equipment maintenance,
terminal and office expenses, professional fees and other over-the-road costs. As a percentage of revenue the decrease was attributable to a
0.3% decrease in dock and facility related costs, a 0.2% decrease in legal and professional fees and 0.2% decrease due to improved agent
station margins. These improvements were partly offset by losses incurred on the sale of old equipment. The dock and facility related cost
improvements were mainly attributable to 2016 including the startup of new business, while similar costs were not incurred in 2017. The
decrease in legal fees is primarily related to costs associated with a 2016 Department of Transportation safety audit that were not incurred in
2017.
Income from Operations
Pool income from operations increased by $2.8 million, or 77.8% to $6.4 million for the year ended December 31, 2017 from $3.6
million for the year ended December 31, 2016. Pool income from operations was 3.8% of operating revenue for the year ended
December 31, 2017 compared to 2.4% of operating revenue for the year ended December 31, 2016. The improvement in Pool income from
operations was primarily the result of higher revenue volumes, current year rate increases, purchased transportation efficiencies and lower
facility costs.
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Other operations - Year Ended December 31, 2017 compared to Year Ended December 31, 2016
Other operating activity improved from a $2.7 million operating loss during the year ended December 31, 2016 to a $1.8 million
operating loss during the year ended December 31, 2017. The year ended December 31, 2017, includes $1.2 million in loss development
reserves for vehicle and workers' compensation claims, $0.9 million of executive severance costs and $0.4 of turn in costs from old Towne
equipment. These costs were partly offset by $0.7 million of indemnification funds received related to the Towne acquisition. These costs
and benefits were kept at the corporate level and not passed through to our operating segments.
The $2.7 million in operating loss included in other operations and corporate activities for the year ended December 31, 2016, was
primarily for $1.7 million in loss development reserves resulting from our semi-annual actuarial analyses of our workers' compensation
claims. Other operations for the year ended December 31, 2016 also included a $1.0 million increase to our reserve for remaining net
payments on duplicate facilities vacated following the Towne acquisition, as several facilities had yet to be sub-leased.
Discussion of Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting
principles (“GAAP”). The preparation of financial statements in accordance with GAAP requires our management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and
assumptions are based on historical experience and changes in the business environment. However, actual results may differ from
estimates under different conditions, sometimes materially. Critical accounting policies and estimates are defined as those that are both
most important to the portrayal of our financial condition and results and require management’s most subjective judgments. Management
considers our policies on Self-Insurance Loss Reserves, Business Combinations and Goodwill and Other Intangible Assets to be critical. See
Note 1, Accounting Policies to our Consolidated Financial Statements for a discussion over these critical accounting policies and estimates,
as well as a discussion of recent accounting pronouncements.
Liquidity and Capital Resources
We have historically financed our working capital needs, including capital expenditures, with cash flows from operations and
borrowings under our senior credit facility line of credit.
Year Ended December 31, 2018 Cash Flows compared to December 31, 2017 Cash Flows
Net cash provided by operating activities totaled approximately $152.6 million for the year ended December 31, 2018 compared to
approximately $103.4 million for the year ended December 31, 2017. The $49.2 million increase in cash provided by operating activities is
mainly attributable to a $25.5 million increase in net earnings after consideration of non-cash items and a $21.3 million improvement in the
collection of receivables, primarily related to 2017 receivables increasing for revenues related to the Atlantic acquisition. The remaining
increase was due to a decrease in estimated income tax payments.
Net cash used in investing activities was approximately $55.5 million for the year ended December 31, 2018 compared with
approximately $59.2 million during the year ended December 31, 2017. Investing activities during the year ended December 31, 2018
consisted primarily of net capital expenditures of $35.2 million primarily for new trailers, information technology and sorting equipment
and $20.0 million used to acquire Southwest and MMT. Investing activities during the year ended December 31, 2017 consisted primarily
of net capital expenditures of $35.8 million primarily for new trailers, forklifts and information technology and $23.1 million used to
acquire Atlantic and KCL. The proceeds from disposal of property and equipment during the year ended December 31, 2018 and 2017 were
primarily from sales of older trailers.
Net cash used in financing activities totaled approximately $75.3 million for the year ended December 31, 2018 compared with net
cash used in financing activities of $48.8 million for the year ended December 31, 2017. The $26.5 million increase was attributable to a
$48.0 million decrease in net borrowings from our revolving credit facility partly offset by a $28.0 million decrease in payments on our
term loan and a $14.5 million decrease in payments on our line of credit. Additionally, there was a $3.5 million decrease in cash from
employee stock transactions and related tax benefits. The year ended December 31, 2018 also included $66.1 million used to repurchase
shares of our common stock, which was a $17.1 million increase from the $49.0 million used to repurchase shares of common stock for the
same period of 2017. The remaining change in financing activity is attributable to a $0.4 million increase in payments of cash dividends
due to an increase in fourth quarter dividend per share from $0.15 per share to $0.18 per share partly offset by a decrease in the outstanding
share count during the year ended December 31, 2018 compared to the same period in 2017.
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Year Ended December 31, 2017 Cash Flows compared to December 31, 2016 Cash Flows
Net cash provided by operating activities totaled approximately $103.4 million for the year ended December 31, 2017 compared to
approximately $130.4 million for the year ended December 31, 2016. The $27.0 million decrease in cash provided by operating activities is
mainly attributable to a $23.4 million increase in accounts receivable and a $23.5 million increase in income tax payments. These decreases
were partly offset by a $9.8 million increase in net earnings after consideration of non-cash items and $10.1 million increase in cash used to
fund accounts payable and prepaid assets. The increase in accounts receivables was attributable to higher revenue across all segments and
revenues associated with the Atlantic acquisition.
Net cash used in investing activities was approximately $59.2 million for the year ended December 31, 2017 compared to
approximately $52.4 million during the year ended December 31, 2016. Investing activities during the year ended December 31, 2017
consisted primarily of $23.1 million used to acquire Atlantic and a small Intermodal acquisition and net capital expenditures of $35.8
million primarily for new trailers, forklifts and information technology. Investing activities during the year ended December 31, 2016
consisted primarily of $11.8 million used to acquire Ace and Triumph, which is included in the Intermodal segment, and net capital
expenditures of $40.3 million for new trailers, forklifts, computer hardware and internally developed software. The proceeds from disposal
of property and equipment during the year ended December 31, 2017 and 2016 were primarily from sales of older trailers and vehicles.
Net cash used in financing activities totaled approximately $48.8 million for the year ended December 31, 2017 compared to net
cash used in financing activities of $102.8 million for the year ended December 31, 2016. The $54.0 million change in cash from financing
activities was attributable to $55.0 million in borrowings from our revolving credit facility and a $13.0 million decrease in payments on the
term loan and revolver. These increases in cash were partly offset by a $9.0 million increase in share repurchases, a $2.5 million increase in
our quarterly cash dividend and a $2.5 million decrease in cash from employee stock transactions. The year ended December 31, 2017 also
included $49.0 million used to repurchase shares of our Common Stock, compared to $40.0 million used to repurchase shares of our
Common Stock during the year ended December 31, 2016. Dividends increased due to our Board of Directors increasing the quarterly cash
dividend from $0.12 per share for the first three quarters of 2016 to $0.15 per share during the fourth quarter of 2016 and all quarters in
2017.
Credit Facility
On September 29, 2017, the Company entered into a five-year senior unsecured revolving credit facility (the “Facility”) with a
maximum aggregate principal amount of $150.0 million, with a sublimit of $30.0 million for letters of credit and a sublimit of $30.0 million
for swing line loans. The Facility may be increased by up to $100.0 million to a maximum aggregate principal amount of $250.0 million
pursuant to the terms of the credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new
lenders extending such commitments. Such increases to the Facility may be in the form of additional revolving credit loans, term loans or a
combination thereof, and are contingent upon there being no events of default under the Facility and satisfaction of other conditions
precedent and are subject to the other limitations set forth in the credit agreement.
The Facility is scheduled to mature in September 2022. The proceeds were used to refinance existing indebtedness of the
Company and may also be used 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.
Unless the Company elects otherwise under the credit agreement, interest on borrowings under the Facility is based on the highest
of (a) the federal funds rate (not less than 0%) plus 0.5%, (b) the administrative agent's prime rate and (c) the LIBOR Rate plus 1.0%, in
each case plus a margin that can range from 0.3% to 0.8% with respect to the Facility depending on the Company’s ratio of consolidated
funded indebtedness to earnings before interest, taxes, depreciation and amortization, as set forth in the credit agreement. Payments of
interest for each loan that is based on the LIBOR Rate are due in arrears on the last day of the interest period applicable to such loan (with
interest periods of one, two or three months being available, at the Company’s option). Payments of interest on loans that are not based on
the LIBOR Rate are due on the last day of each quarter ended March 31, June 30, September 30 and December 31 of each year. All unpaid
amounts of principal and interest are due at maturity. As of December 31, 2018, the Company had $47.5 million in borrowings outstanding
under the revolving credit facility, $10.7 million utilized for outstanding letters of credit and $91.8 million of available borrowing capacity
under the revolving credit facility. The interest rate on the outstanding borrowings under the facility was 4.1% at December 31, 2018.
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
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change of control events. The occurrence of an event of default may result in, among other things, the termination of the Facilities,
acceleration of repayment obligations and the exercise of remedies by the lenders with respect to the Company and its subsidiaries that are
party to the Facility. The Facility also contains financial covenants and other covenants that, among other things, restrict the ability of the
Company and its subsidiaries, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales,
dividends and stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set
forth in the credit agreement. As of December 31, 2018, the Company was in compliance with the aforementioned covenants.
Share Repurchases
On July 21, 2016, our Board of Directors approved a stock repurchase authorization for up to 3.0 million shares of the Company's
Common Stock. In connection with this action, the board canceled the Company's 2014 repurchase plan. Under the 2016 repurchase plan,
during the year ended December 31, 2017, we repurchased 947,819 shares of common stock for $49.0 million, or an average of $51.68 per
share. Under the 2016 repurchase plan, during the year ended December 31, 2018, we repurchased 1,109,270 shares of common stock for
$66.1 million, or an average of $59.61 per share. As of December 31, 2018, 709,395 shares remain that may be repurchased.
On February 5, 2019, our Board of Directors canceled the Company’s remaining 2016 share repurchase authorization and
approved a stock repurchase authorization for up to five million shares of the Company’s common stock. The amount and timing of any
repurchases under the Company’s new repurchase authorization will be at such prices as determined by management of the Company.
Repurchases of common stock may also be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the
Company might otherwise be precluded from doing so under insider trading laws. Stock repurchases may be commenced or suspended
from time to time for any reason.
Dividends
During each quarter of 2017 and the first three quarters of 2018, our Board of Directors declared a cash dividend of $0.15 per
share. During the fourth quarter of 2018 our Board of Directors declared a quarterly cash dividend of $0.18 per share. We expect to
continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by our Board
of Directors.
We believe that our available cash, investments, expected cash generated from future operations and borrowings under the
available credit facility will be sufficient to satisfy our anticipated cash needs for at least the next twelve months. However, we continue to
evaluate and pursue acquisitions that can increase our penetration into a geographic area, add new customers, add new business verticals,
increase freight volume and add new service offerings. Acquisitions may affect our short-term cash flow, liquidity and net income as we
expend funds, potentially increase indebtedness and incur additional expenses.
Off-Balance Sheet Arrangements
At December 31, 2018, we had letters of credit outstanding from banks totaling $10.7 million required primarily by our workers’
compensation and vehicle liability insurance providers.
Contractual Obligations and Commercial Commitments
Our contractual obligations and other commercial commitments as of December 31, 2018 (in thousands) are summarized below:
Contractual Obligations
Payment Due Period (in millions)
Total
2019
Capital lease obligations
Equipment purchase commitments
Operating leases
Total contractual cash obligations
$
$
0.4
14.3
159.3
174.0
$
$
0.3
14.3
51.4
66.0
2020-2021
0.1
$
—
70.6
70.7
$
$
2022-2023
$
2024 and
Thereafter
—
—
11.5
11.5
— $
—
25.8
25.8
$
Not included in the above table are $47.5 million in borrowings outstanding under the revolving credit facility, reserves for
unrecognized tax benefits of $1.2 million and self-insurance claims of $25.8 million. The equipment purchase commitments
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are for various trailers, vehicles and forklifts. All of the above commitments are expected to be funded by cash on hand and cash flows
from operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk relates principally to changes in interest rates and fuel prices. Our interest rate exposure relates
principally to changes in interest rates for borrowings under our senior unsecured credit facility. The revolving credit had $47.5 million
outstanding at December 31, 2018 and bear interest at variable rates. However, a hypothetical increase in our credit facility borrowing rate
of 150 basis points, or an increase in the total effective interest rate from 3.4% to 4.9%, would increase our annual interest expense by
approximately $0.6 million and would have decreased our annual cash flow from operations by approximately $0.6 million.
Our only other debt is capital lease obligations totaling $0.4 million. These lease obligations all bear interest at a fixed
rate. Accordingly, there is no exposure to market risk related to these capital lease obligations.
We are exposed to the effects of changes in the price and availability of fuel, as more fully discussed in Item 1A, “Risk Factors.”
Our cash and cash equivalents are also subject to market risk, primarily interest-rate and credit risk.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2018. Our disclosure controls and procedures are designed to provide reasonable
assurance that the information required to be disclosed in this annual report on Form 10-K has been appropriately recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our principal executive and principal financial officers, to
allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principal financial officers
have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules
13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance to management
and the Board of Directors regarding the preparation and fair presentation of financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment,
management used the framework set forth by the Committee on Sponsoring Organizations of the Treadway Commission in Internal
Control — Integrated Framework ("2013 Framework"). Based on our assessment, we have concluded, as of December 31, 2018, that our
internal control over financial reporting was effective based on those criteria.
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Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial
statements for the year ended December 31, 2018, has issued an attestation report on the Company’s internal control over financial
reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2018 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Forward Air Corporation
Opinion on Internal Control over Financial Reporting
We have audited Forward Air Corporation’s internal control over financial reporting as of December 31, 2018, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Forward Air Corporation (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets as of December 31, 2018 and 2017, the related consolidated statements of comprehensive income,
shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial
statement schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements") and our report dated February 20,
2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 20, 2019
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Item 9B. Other Information
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers of the Registrant
Part III
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K of the Securities Act and General Instruction G(3) to Form 10-K, the
following information is included in Part III of this report. The ages listed below are as of December 31, 2018.
Name
Bruce A. Campbell
Thomas Schmitt
Michael J. Morris
Michael L. Hance
Chris C. Ruble
Matthew J. Jewell
The following are our executive officers:
Position
Executive Chairman
President, Chief Executive Officer and Director
Chief Financial Officer, Senior Vice President and Treasurer
Senior Vice President, Chief Legal Officer & Secretary
Chief Operating Officer - Expedited LTL, TLS and Pool Distribution
President - Intermodal
Age
67
53
50
47
56
52
There are no family relationships between any of our executive officers. All officers hold office until the earliest to occur of their
resignation or removal by the Board of Directors.
Bruce A. Campbell has served as Executive Chairman since September 2018 and as a director since April 1993. From October
2003 to September 2018, Mr. Campbell served as President and Chief Executive Officer and as Chairman of the Board since May 2007.
Thomas Schmitt has served as President, Chief Executive Officer and Director since September 2018. From June 2015 to September
2018, Mr. Schmitt was a member of the senior management of Schenker AG, and most recently held the title of Chief Commercial Officer.
Prior to joining Schenker, from January 2013 to June 2015, he served as Chief Executive Officer and President of AquaTerra Corporation.
Prior to AquaTerra, Mr. Schmitt held various senior executive positions including Chief Executive Officer and President of Purolator, Inc.
and Chief Executive Officer and President of Fedex Global Supply Chain Services from 1998 to 2010. Mr. Schmitt was a Senior
Engagement Manager at McKinsey & Company from 1993 to 1998.
Michael J. Morris has served as Chief Financial Officer, Senior Vice President and Treasurer since June 2016. From 2010 to 2015,
Mr. Morris was the Senior Vice President of Finance & Treasurer at Con-way Inc. (“Con-way”) and in 2016 he transitioned to be the
Senior Vice President of Finance & Treasurer at XPO Logistics Inc. (“XPO”) following XPO's acquisition of Con-way.
Michael L. Hance has served as Senior Vice President, Chief Legal Officer and Secretary since May 2014. From May 2010 until
May 2014, he served as Senior Vice President of Human Resources and General Counsel. From January 2008 until May 2010, he served as
Senior Vice President and General Counsel, and from August 2006 until January 2008, he served as Vice President and Staff Counsel.
Before joining us, Mr. Hance practiced law with the law firms of Baker, Donelson, Bearman, Caldwell and Berkowitz, P.C. from October
2003 until August 2006 and with Bass, Berry & Sims, PLC from September 1999 to September 2003.
Chris C. Ruble was appointed to Chief Operating Officer for the Company's Expedited LTL, TLS and Pool Distribution segments,
effective June 2018. Mr. Ruble was President - Expedited Services from January 2016 to June 2018, Executive Vice President, Operations
from August 2007 to January 2016, and Senior Vice President, Operations from October 2001 until August 2007. He was a Regional Vice
President from September 1997 to October 2001 and a regional manager from February 1997 to September 1997, after starting with the
Company as a terminal manager in January 1996. From June 1986 to August 1995, Mr. Ruble served in various management capacities at
Roadway Package System, Inc.
Matthew J. Jewell was appointed to President of the Intermodal business, effective June 2018. Mr. Jewell was President -
Logistics Services from January 2016 to June 2018, Executive Vice President, Intermodal Services & Chief Strategy Officer
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from May 2014 to January 2016, and Executive Vice President and Chief Legal Officer from January 2008 until May 2014. From July 2002
until January 2008, he served as Senior Vice President and General Counsel. In October 2002, he was also appointed Secretary. From July
2002 until May 2004, Mr. Jewell was also the Senior Vice President, General Counsel and Secretary of Landair Corporation. From January
2000 until joining us in July 2002, Mr. Jewell was a partner with the law firm of Austin & Sparks, P.C. Mr. Jewell was an associate at
Dennis, Corry & Porter, L.L.P. from July 1991 to December 1998 and a partner from January 1999 to January 2000.
Other information required by this item is incorporated herein by reference to our proxy statement for the 2019 Annual Meeting of
Shareholders (the “2019 Proxy Statement”). The 2019 Proxy Statement will be filed with the SEC not later than 120 days subsequent to
December 31, 2018.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the 2019 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item is incorporated herein by reference to the 2019 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the 2019 Proxy Statement.
Item 14. Principle Accounting Fees and Services
The information required by this item is incorporated herein by reference to the 2019 Proxy Statement.
Item 15. Exhibits, Financial Statement Schedules
(a)(1) and (2)
List of Financial Statements and Financial Statement
Schedules.
Part IV
The response to this portion of Item 15 is submitted as a separate section of this report.
(a)(3)
List of
Exhibits.
(b)
(c)
The response to this portion of Item 15 is submitted as a separate section of this report.
Exhibits.
The response to this portion of Item 15 is submitted as a separate section of this report.
Financial Statement
Schedules.
The response to this portion of Item 15 is submitted as a separate section of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date:
February 20, 2019
Forward Air Corporation
By:
/s/ Michael J. Morris
Michael J. Morris
Chief Financial Officer, Senior Vice President
and Treasurer (Principal Financial Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Thomas Schmitt
Thomas Schmitt
/s/ Michael J. Morris
Michael J. Morris
/s/ Bruce A. Campbell
Bruce A. Campbell
/s/ C. Robert Campbell
C. Robert Campbell
/s/ Ronald W. Allen
Ronald W. Allen
/s/ Ana B. Amicarella
Ana B. Amicarella
/s/ Valerie A. Bonebrake
Valerie A. Bonebrake
/s/ R. Craig Carlock
R. Craig Carlock
/s/ C. John Langley, Jr.
C. John Langley, Jr.
/s/ G. Michael Lynch
G. Michael Lynch
/s/ W. Gil West
W. Gil West
President, Chief Executive Officer and Director
Title
Date
February 20, 2019
(Principal Executive Officer)
Chief Financial Officer, Senior Vice President
and Treasurer (Principal Financial Officer)
February 20, 2019
Executive Chairman
February 20, 2019
Lead Director
February 20, 2019
Director
Director
Director
Director
Director
Director
Director
62
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
February 20, 2019
Table of Contents
Annual Report on Form 10-K
Item 8, Item 15(a)(1) and (2), (a)(3), (b) and (c)
List of Financial Statements and Financial Statement Schedule
Financial Statements and Supplementary Data
Certain Exhibits
Financial Statement Schedule
Year Ended December 31, 2018
Forward Air Corporation
Greeneville, Tennessee
F-1
Table of Contents
Forward Air Corporation
Form 10-K — Item 8 and Item 15(a)(1) and (2)
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Forward Air Corporation are included as a separate section of this report:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets — December 31, 2018 and 2017
Consolidated Statements of Comprehensive Income — Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Shareholders’ Equity — Years Ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows — Years Ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements — December 31, 2018
Page No.
F-3
F-4
F-6
F-7
F-8
F-9
The following financial statement schedule of Forward Air Corporation is included as a separate section of this report.
Schedule II - Valuation and Qualifying Accounts
S-1
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and, therefore, have been omitted.
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Forward Air Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Forward Air Corporation (the Company) as of December 31, 2018 and
2017, the related consolidated statements of comprehensive income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively
referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), Forward Air Corporation’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 20, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company‘s auditor since 1991.
Atlanta, Georgia
February 20, 2019
F-3
Table of Contents
Forward Air Corporation
Consolidated Balance Sheets
(Dollars in thousands)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance of $2,081 in 2018 and $3,006 in 2017
Inventories
Prepaid expenses and other current assets
Income tax receivable
Total current assets
Property and equipment:
Land
Buildings
Equipment
Leasehold improvements
Construction in progress
Total property and equipment
Less accumulated depreciation and amortization
Net property and equipment
Goodwill and other acquired intangibles:
Goodwill
Other acquired intangibles, net of accumulated amortization of $80,666 in 2018 and $71,527
in 2017
Total net goodwill and other acquired intangibles
Other assets
Total assets
December 31,
2018
December 31,
2017
(As Adjusted)
$
25,657 $
156,359
2,240
11,763
5,063
201,082
16,928
65,919
311,573
14,165
5,315
413,900
204,005
209,895
3,893
147,948
1,425
9,954
4,428
167,648
16,928
65,870
291,181
12,604
12,652
399,235
193,123
206,112
199,092
191,671
113,661
312,753
36,485
760,215 $
111,247
302,918
15,944
692,622
$
The accompanying notes are an integral part of the consolidated financial statements.
F-4
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Forward Air Corporation
Consolidated Balance Sheets (Continued)
(Dollars in thousands)
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Accrued payroll and related items
Insurance and claims accruals
Payables to owner-operators
Collections on behalf of customers
Other accrued expenses
Income taxes payable
Current portion of capital lease obligations
Total current liabilities
Capital lease obligations, less current portion
Long-term debt, less current portion
Other long-term liabilities
Deferred income taxes
Commitments and contingencies (Note 7)
Shareholders’ equity:
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding
shares - 28,534,935 in 2018 and 29,454,062 in 2017
Additional paid-in capital
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2018
December 31,
2017
(As Adjusted)
$
$
34,630 $
16,959
12,648
7,424
261
2,492
—
309
74,723
54
47,281
47,739
37,174
30,723
13,230
11,999
6,322
329
2,869
320
359
66,151
365
40,223
24,104
29,080
—
—
285
210,296
342,663
553,244
760,215 $
295
195,346
337,058
532,699
692,622
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Table of Contents
Forward Air Corporation
Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
December 31,
2018
Year ended
December 31,
2017
(As Adjusted)
Operating revenue
$
1,320,886 $
1,169,346 $
December 31,
2016
(As Adjusted)
1,030,210
Operating expenses:
Purchased transportation
Salaries, wages and employee benefits
Operating leases
Depreciation and amortization
Insurance and claims
Fuel expense
Other operating expenses
Impairment of goodwill and other intangible assets
Total operating expenses
Income from operations
Other expense:
Interest expense
Other, net
Total other expense
Income before income taxes
Income taxes
Net income and comprehensive income
Net income per share:
Basic
Diluted
Dividends per share:
613,636
300,230
75,677
42,183
35,180
23,121
108,828
—
1,198,855
122,031
545,091
265,842
63,799
41,055
29,578
16,542
98,682
—
1,060,589
108,757
(1,783)
(2)
(1,785)
120,246
28,195
92,051 $
(1,209)
(11)
(1,220)
107,537
20,282
87,255 $
3.14
3.12
$
$
2.90
2.89
$
$
0.63 $
0.60 $
$
$
$
$
460,796
242,270
60,492
38,210
25,392
13,233
87,672
42,442
970,507
59,703
(1,597)
4
(1,593)
58,110
30,605
27,505
0.90
0.90
0.51
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Table of Contents
Forward Air Corporation
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
Common Stock
Additional
Balance at December 31, 2015 (As Reported)
Cumulative effect of new accounting standard
Balance at December 31, 2015
Net income and comprehensive income for 2016 (As
Adjusted)
Exercise of stock options
Common stock issued under employee stock purchase
plan
Share-based compensation
Dividends ($0.51 per share)
Cash settlement of share-based awards for minimum
tax withholdings
Share repurchases
Vesting of previously non-vested shares
Income tax benefit from stock options exercised
Balance at December 31, 2016
Net income and comprehensive income for 2017 (As
Adjusted)
Exercise of stock options
Conversion of deferred stock
Common stock issued under employee stock purchase
plan
Share-based compensation
Dividends ($0.60 per share)
Cash settlement of share-based awards for minimum
tax withholdings
Share repurchases
Vesting of previously non-vested shares
Balance at December 31, 2017
Net income and comprehensive income for 2018 (As
Adjusted)
Exercise of stock options
Other
Common stock issued under employee stock purchase
plan
Share-based compensation
Dividends ($0.63 per share)
Cash settlement of share-based awards for minimum
tax withholdings
Share repurchases
Vesting of previously non-vested shares
Income tax benefit from stock options exercised
Balance at December 31, 2018
Shares
Amount
Paid-in
Capital
Retained
Earnings
(As Adjusted)
30,544 $
—
30,544
305 $
—
305
160,855 $
—
160,855
348,895 $
(558)
348,337
—
346
11
—
—
(42)
(910)
141
—
30,090
—
206
10
10
—
—
(35)
(948)
121
29,454
—
95
—
9
—
—
—
3
—
—
—
—
(9)
2
—
301
—
2
—
—
—
—
—
(9)
1
295
—
1
—
—
—
—
(33)
(1,109)
119
—
28,535 $
(1)
(11)
1
—
285 $
—
8,145
442
8,334
6
—
—
(2)
1,732
179,512
—
7,270
—
458
8,103
4
—
—
(1)
195,346
—
3,920
—
479
10,549
3
—
—
(1)
—
27,505
—
—
—
(15,535)
(1,800)
(39,974)
—
—
318,533
87,255
—
—
—
—
(18,056)
(1,700)
(48,974)
—
337,058
92,051
—
(30)
—
—
(18,430)
(1,871)
(66,115)
—
—
210,296 $
342,663 $
Total
Shareholders'
Equity
(As Adjusted)
510,055
(558)
509,497
27,505
8,148
442
8,334
(15,529)
(1,800)
(39,983)
—
1,732
498,346
87,255
7,272
—
458
8,103
(18,052)
(1,700)
(48,983)
—
532,699
92,051
3,921
(30)
479
10,549
(18,427)
(1,872)
(66,126)
—
—
553,244
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Table of Contents
Forward Air Corporation
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization
Impairment of goodwill, intangible and other assets
Change in fair value of earn-out liability
Share-based compensation
(Gain) loss on disposal of property and equipment
Provision for loss on receivables
Provision for revenue adjustments
Deferred income taxes
Tax benefit for stock options exercised
Changes in operating assets and liabilities
Accounts receivable
Prepaid expenses and other assets
Income taxes
Accounts payable and accrued expenses
Net cash provided by operating activities
Investing activities:
Proceeds from disposal of property and equipment
Purchases of property and equipment
Acquisition of business, net of cash acquired
Other
Net cash used in investing activities
Financing activities:
Payments of debt and capital lease obligations
Proceeds from senior credit facility
Proceeds from exercise of stock options
Payments of cash dividends
Repurchase of common stock (repurchase program)
Common stock issued under employee stock purchase plan
Cash settlement of share-based awards for tax withholdings
Tax benefit for stock options exercised
Net cash used in financing activities
Net increase (decrease) in cash
Cash at beginning of year
December 31,
2018
Year ended
December 31,
2017
(As Adjusted)
December 31,
2016
(As Adjusted)
$
92,051 $
87,255 $
27,505
42,183
—
(455)
10,549
(171)
139
3,628
8,094
—
(12,178)
(2,565)
(1,256)
12,535
152,554
7,059
(42,293)
(19,987)
(242)
(55,463)
(302)
7,000
3,921
(18,427)
(66,126)
479
(1,872)
—
(75,327)
21,764
3,893
25,657 $
41,055
—
—
8,103
1,281
1,814
3,055
(12,068)
—
(33,457)
(1,204)
(3,480)
11,010
103,364
2,440
(38,265)
(23,140)
(222)
(59,187)
(42,790)
55,000
7,272
(18,052)
(48,983)
458
(1,700)
—
(48,795)
(4,618)
8,511
3,893 $
38,210
42,442
—
8,334
291
258
2,020
3,412
(1,732)
(10,077)
283
20,177
(772)
130,351
1,929
(42,186)
(11,800)
(337)
(52,394)
(55,768)
—
8,148
(15,529)
(39,983)
442
(1,800)
1,732
(102,758)
(24,801)
33,312
8,511
Cash at end of year
$
The accompanying notes are an integral part of the consolidated financial statements
F-8
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FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
(In thousands, except share and per share data)
1. Accounting Policies
Basis of Presentation and Principles of Consolidation
Forward Air Corporation's (“the Company”, “We”, “Our”) services are classified into four principal reportable segments:
Expedited LTL, Truckload Premium Services (“TLS”), Intermodal and Pool Distribution ("Pool") (See note 10).
Through the Expedited LTL segment, we operate a comprehensive national network to provide expedited regional, inter-regional
and national less-than-truckload ("LTL") services. Expedited LTL offers customers local pick-up and delivery and other services including
shipment consolidation and deconsolidation, warehousing, final mile solutions, customs brokerage and other handling. Because of our roots
in serving the deferred air freight market, our terminal network is located at or near airports in the United States and Canada.
Through our TLS segment, we provide expedited truckload brokerage, dedicated fleet services, as well as high security and
temperature-controlled logistics services in the United States and Canada.
Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports
and railheads. Intermodal also offers dedicated contract and CFS warehouse and handling services. Today, Intermodal operates primarily in
the Midwest and Southeast, with a smaller operational presence in the Southwest.
In our Pool Distribution segment, we provide high-frequency handling and distribution of time sensitive product to numerous
destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest
United States.
The accompanying consolidated financial statements of the Company include Forward Air Corporation and its subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation 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. Significant areas requiring management estimates include the
following key financial areas:
Allowance for Doubtful Accounts
The Company evaluates the collectability of its accounts receivable based on a combination of factors. 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 to reduce
the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company
recognizes reserves for these bad debts based on the length of time the receivables are past due. Specifically, amounts that are 90 days or
more past due are reserved at 50.0% for Expedited LTL, 10.0% for Intermodal, 25.0% for Pool and up to 50.0% for TLS. 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.
Allowance for Revenue Adjustments
The Company’s allowance for revenue adjustments consists of amounts reserved for billing rate changes that are not captured
upon load initiation. These adjustments are recorded in revenue from operations and generally arise: (1) when the sales department
contemporaneously grants small rate changes (“spot quotes”) to customers that differ from the standard rates in the system; (2) when
freight requires dimensionalization or is reweighed resulting in a different required rate; (3) when billing errors occur; and (4) when data
entry errors occur. When appropriate, permanent rate changes are initiated and reflected in the system.
F-9
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The Company monitors the manual revenue adjustments closely through the employment of various controls that are in place to ensure that
revenue recognition is not compromised. During 2018, average revenue adjustments per month were approximately $302 on average
revenue per month of approximately $110,074 (0.3% of monthly revenue). In order to estimate the allowance for revenue adjustments
related to ending accounts receivable, the Company prepares an analysis that considers average monthly revenue adjustments and the
average lag for identifying and quantifying these revenue adjustments. Based on this analysis, the Company establishes an allowance
covering approximately 35-85 days (dependent upon experience in the last twelve months) of average revenue adjustments, adjusted for
rebates and billing errors. The lag is periodically adjusted based on actual historical experience. Additionally, the average amount of
revenue adjustments per month can vary in relation to the level of sales or based on other factors (such as personnel issues that could result
in excessive manual errors or in excessive spot quotes being granted). Both of these significant assumptions are continually evaluated for
appropriateness.
Self-Insurance Loss Reserves
Under U.S. Department of Transportation (“DOT”) regulations, the Company is liable for property damage and personal injuries
caused by owner-operators and Company-employed drivers while they are operating on our behalf. Additionally, from time to time, the
drivers employed and engaged by the third-party transportation carriers we contract with are involved in accidents, which may result in
serious personal injuries. The resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage
maintained by the contracted carrier. Although these drivers are not our employees, all of these drivers are employees, owner-operators, or
independent contractors working for carriers and, from time to time, claims may be asserted against us for their actions, or for our actions in
retaining them.
The Company currently maintains liability insurance coverage that it believes is adequate to cover third-party claims. The
Company has a self-insured retention ("SIR") of $3,000 per occurrence for vehicle and general liability claims and will be responsible for
any damages and personal injuries below that self-insured amount. The Company is also responsible for varying annual aggregate
deductible amounts of liability for claims in excess of the SIR/deductible. For the policy year that began April 1, 2018, the Company had
an annual $6,000 aggregate deductible for claims between $3,000 and $5,000. The Company also had a $2,500 aggregate deductible for
claims between $5,000 and $10,000. As a result, the Company is responsible for the first $7,500 per claim, until it meets the $6,000
aggregate deductible for claims between $3,000 and $5,000 and the $2,500 aggregate deductible for claims between $5,000 and $10,000.
This insurance covers claims for the LTL Expedited and Pool Distribution segments. TLS maintains separate liability insurance coverage
for claims between $0 and $5,000, and for the policy year that began April 1, 2018, TLS had no SIR for claims in this layer. Intermodal
maintains separate liability insurance coverage for all liability claims. For the policy year that began April 1, 2018, Intermodal had an SIR
of $50 for each claim.
The Company may also be subject to claims for workers’ compensation. The Company maintains workers’ compensation
insurance coverage that it believes is adequate to cover such claims. The Company has a SIR of approximately $350 for each such claim,
except in Ohio, where it is a qualified self-insured entity with an approximately $500 SIR.
The amount of self-insurance loss reserves and loss adjustment expenses is determined based on an estimation process that uses
information obtained from both company-specific and industry data, as well as general economic information. The estimation process for
self-insurance loss exposure requires management to continuously monitor and evaluate the life cycle of claims. Using data obtained from
this monitoring and the Company’s assumptions about the emerging trends, management develops information about the size of ultimate
claims based on its historical experience and other available market information. The most significant assumptions used in the estimation
process include determining the trend in loss costs, the expected consistency in the frequency and severity of claims incurred but not yet
reported, changes in the timing of the reporting of losses from the loss date to the notification date, and expected costs to settle unpaid
claims. The Company utilizes a quarterly actuarial analyses to evaluate open claims and estimate the ongoing development exposure.
As of December 31, 2018, we have recognized an insurance proceeds receivable and claims payable of $28,520 for open vehicle
and workers’ compensation claims in excess of our stop-loss limits. As of December 31, 2017, we recognized an insurance proceeds
receivable and claims payable of $8,133 for open vehicle and workers’ compensation claims in excess of our stop-loss limits. These
balances are recorded in other assets and other long-term liabilities, respectively, in the Company's consolidated balance sheets.
F-10
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
Revenue and Expense Recognition
The Company's revenue is generated from providing transportation and related services to customers in accordance with
contractual agreements, bill of lading ("BOL") contracts and general tariff provisions. Related services include accessorial charges such as
terminal handling, storage, equipment rentals and customs brokerage. These services are distinct and are accounted for as separate
performance obligations. Generally, the Company's performance obligations begin when a customer's BOL is received and are satisfied
when the delivery of a shipment and related services is completed. The Company 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 less than a week. Upon delivery of a shipment or related service, customers are billed and remit payment according to payment
terms.
Revenue is categorized by line of business as the Company believes this best depicts the nature, timing and amount of revenue and
cash flows. For all lines of business, the Company reports revenue on a gross basis as it is the principal in the transaction. In addition, the
Company has discretion in setting its service pricing and as a result, the amount earned for these services varies. The Company also has the
discretion to select its drivers and other vendors for the services provided to its customers. These factors, discretion in setting prices and
discretion in selecting drivers and other vendors, further support reporting revenue on a gross basis. See additional discussion in the Recent
Accounting Pronouncements section of this Note and in Note 10, Segment Reporting.
All expenses are recognized when incurred. Purchased transportations expenses are typically due to the owner-operator or third-
party transportation provider once the delivery of a shipment and related services is completed. To ensure these expenses are properly
recognized when incurred, these costs are recognized over time to coincide with the service performance.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash and cash
equivalents.
Inventories
Inventories of tires, replacement parts, supplies, and fuel for equipment are stated at the lower of cost or market utilizing the FIFO
(first-in, first-out) method of determining cost. Inventories of tires and replacement parts are not material in the aggregate. Replacement
parts are expensed when placed in service, while tires are capitalized and amortized over their expected life. Replacement parts and tires
are included as a component of other operating expenses in the consolidated statements of comprehensive income.
Property and Equipment
Property and equipment are stated at cost. Expenditures for normal repair and maintenance are expensed as incurred. Depreciation
of property and equipment is calculated based upon the cost of the asset, reduced by its estimated salvage value, using the straight-line
method over the estimated useful lives as follows:
Buildings
Equipment
Leasehold improvements
30-40 years
3-10 years
Lesser of Useful Life or Initial Lease Term
Depreciation expense for each of the three years ended December 31, 2018, 2017 and 2016 was $33,044, $30,862 and $28,088
respectively.
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Impairment is recognized on assets classified as held and used when the sum of undiscounted estimated
cash flows expected to result from the use of the asset is less than the carrying value. If such measurement indicates a possible impairment,
the estimated fair value of the asset is compared to its net book value to measure the impairment charge, if any. When the criteria have been
met for long-lived assets to be classified as held for sale, the assets are recorded at the
F-11
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
lower of carrying value or fair market value (less selling costs). See additional discussion in Note 2, Acquisition, Goodwill and Other Long-
Lived Assets.
Operating Leases
Certain operating leases include rent increases during the initial lease term. For these leases, the Company recognizes the related
rental expenses on a straight-line basis over the term of the lease, which includes any rent holiday period, and records the difference
between the amounts charged to operations and amount paid as rent as a rent liability. Leasehold improvements are amortized over the
shorter of the estimated useful life or the initial term of the lease. Reserves for idle facilities are initially measured at the fair value of the
portion of the lease payments associated with the vacated facilities, reduced by estimated sublease rentals. See Recent Accounting
Pronouncements for expected changes to lease accounting. In addition, see further discussion in Note 6, Operating Leases.
Business Combinations
Upon the acquisition of a business, the fair value of the assets acquired and liabilities assumed must be estimated. This requires
judgments regarding the identification of acquired assets and liabilities assumed, some of which may not have been previously recorded by
the acquired business, as well as judgments regarding the valuation of all identified acquired assets and assumed liabilities. The assets
acquired and liabilities assumed are determined by reviewing the operations, interviewing management and reviewing the financial and
contractual information of the acquired business. Consideration is typically paid in the form of cash paid upon closing or contingent
consideration paid upon satisfaction of a future obligation. If contingent consideration is included in the purchase price, the Company
values that consideration as of the acquisition date and it is recorded to goodwill.
Once the acquired assets and assumed liabilities are identified, the fair values of the assets and liabilities are estimated using a variety
of approaches that require significant judgments. For example, intangible assets are typically valued using a discounted cash flow (“DCF”)
analysis, which requires estimates of the future cash flows that are attributable to the intangible asset. A DCF analysis also requires
significant judgments regarding the selection of discount rates that are intended to reflect the risks that are inherent in the projected cash
flows, the determination of terminal growth rates, and judgments about the useful life and pattern of use of the underlying intangible asset.
The valuation of acquired property, plant and equipment requires judgments about current market values, replacement costs, the physical
and functional obsolescence of the assets and their remaining useful lives. A failure to appropriately assign fair values to acquired assets
and assumed liabilities could significantly impact the amount and timing of future depreciation and amortization expense, as well as
significantly overstate or understate assets or liabilities.
Goodwill and Other Intangible Assets
Goodwill is recorded at cost based on the excess of purchase price over the fair value of net assets acquired. Goodwill and
intangible assets with indefinite lives are not amortized but the Company conducts an annual (or more frequently if circumstances indicate
possible impairment) impairment test of goodwill for each reporting unit at June 30 of each year. Examples of such events or
circumstances could include a significant change in business climate or a loss of significant customers. Other intangible assets are
amortized over their useful lives. Results of impairment testing are described in Note 2, Acquisition, Goodwill and Other Long-Lived
Assets.
Acquisitions are accounted for using the purchase method. The definite-lived intangible assets of the Company resulting from
acquisition activity and the related amortization are described in Note 2, Acquisition, Goodwill and Other Long-Lived Assets.
Software Development
Costs related to software developed or acquired for internal use are expensed or capitalized based on the applicable stage of
software development and any capitalized costs are amortized over their estimated useful life. The Company typically uses a five-year
straight line amortization for the capitalized amounts of software development costs. At December 31, 2018 and 2017 the Company had
$21,492 and $19,567, respectively, of capitalized software development costs included in property and equipment. Accumulated
amortization on these assets was $15,611 and $13,706 at December 31, 2018 and 2017, respectively. Included in depreciation expense is
amortization of capitalized software development costs. Amortization of
F-12
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
capitalized software development for the years ended December 31, 2018, 2017 and 2016 was $1,905, $1,816 and $1,658 respectively.
As of December 31, 2018 the estimated amortization expense for the next five years of capitalized software development costs is
as follows:
2019
2020
2021
2022
2023
Total
$
$
1,605
1,263
932
653
382
4,835
Income Taxes
The Company accounts for income taxes using the liability method, whereby deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to be recovered or settled. We report a liability for unrecognized tax benefits
resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to
unrecognized tax benefits in interest expense and operating expenses, respectively. See additional discussion in the Note 5, Income Taxes.
Net Income Per Share
The Company calculates net income per share in accordance with the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, Earnings per Share (“ASC
260”). Under ASC 260, basic net income per share is computed by dividing net income available to common shareholders by the weighted-
average number of common shares outstanding for the period. The Company's non-vested shares contain non-forfeitable rights to dividends
and are therefore considered participating securities for purposes of computing net income per share pursuant to the two-class method. Net
income allocated to participating securities was $881 in 2018, $700 in 2017 and $210 in 2016. Net losses are not allocated to participating
securities in periods in which the Company incurs a net loss. Diluted net income per share is computed by dividing net income available to
common shareholders by the weighted-average number of common shares outstanding after considering the additional dilution from any
dilutive non-participating securities. The Company's non-participating securities include options and performance shares.
Share-Based Payments
The Company’s general practice has been to make a single annual grant of share-based compensation to key employees and to
make other grants only in connection with new employment or promotions. In addition, the Company makes annual grants to non-
employee directors in conjunction with their annual election to our Board of Directors or at the time of their appointment to the Board of
Directors. For employees, the Company has granted stock options, non-vested shares and performance shares. For non-employee
directors, the Company has generally issued non-vested shares.
Stock options typically expire seven years from the grant date and vest ratably over a three-year period. The share-based compensation
for stock options is recognized ratably over the requisite service period, or vesting period. The Company uses the Black-Scholes option-
pricing model to estimate the grant-date fair value of options granted.
F-13
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The following table contains the weighted-average assumptions used to estimate the fair value of options granted. These
assumptions are subjective and changes in these assumptions can materially affect the fair value estimate.
December 31,
2018
December 31,
2017
December 31,
2016
Expected dividend yield
Expected stock price volatility
Weighted average risk-free interest
rate
Expected life of options (years)
1.1%
24.4%
2.7%
6.1
1.3%
28.5%
2.0%
5.9
1.0%
28.9%
1.3%
5.8
The fair value of non-vested shares issued were 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.
The fair value of the performance shares was estimated using a Monte Carlo simulation. The share-based compensation for
performance shares are recognized ratably over the requisite service period, or vesting period. The following table contains the weighted-
average assumptions used to estimate the fair value of performance shares granted. These assumptions are subjective and changes in these
assumptions can materially affect the fair value estimate.
Expected stock price volatility
Weighted average risk-free interest
rate
December 31,
2018
24.3%
2.2%
Year ended
December 31,
2017
24.7%
1.4%
December 31,
2016
22.3%
0.8%
Under the 2005 Employee Stock Purchase Plan (the “ESPP”), the Company is authorized to issue shares of Common Stock to
eligible employees. 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 two large lump
sum contributions. The Company recognizes share-based compensation on the date of purchase based on the difference between the
purchase date fair market value and the employee purchase price. See Note 4, Shareholders' Equity, Stock Options and Net Income per
Share for additional discussion.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): "Simplifying the Accounting
for Goodwill Impairment." Under the new standard, a goodwill impairment loss will be measured at the amount by which a reporting unit's
carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill, thus no longer requiring the two-step method. The
guidance requires prospective adoption and will be effective for annual or interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption of this guidance is permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. We adopted this guidance as of January 1, 2018 and do not expect any impact to the consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which will require lessees to recognize a right-of-use asset with a
corresponding lease liability on their balance sheet for most leases classified as operating leases under previous guidance. Lessors will be
required to recognize a net lease investment for most leases. Additional qualitative and quantitative disclosures will also be required. We
adopted this standard as of January 1, 2019 and therefore, the full impact of this new guidance will be reflected in the Company’s first
quarter 2019 financial statements and disclosures. As a result, changes to processes and internal controls to meet the standard’s reporting
and disclosure requirements have been implemented.
We elected several of the practical expedients permitted under the transition guidance within the new standard. The practical
expedients we elected will allow us to carryforward our conclusions over whether any expired or existing contracts contain a lease, to
carryforward historical lease classification, and to carryforward our evaluation of initial direct costs for any existing leases. In addition, we
elected the practical expedients to combine lease and non-lease components and to keep leases
F-14
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
with an initial term of 12 months or less off the balance sheet. For leases with an initial term of 12 months or less, we will recognize the
corresponding lease expense on a straight-line basis over the lease term.
We applied the transition requirements as of January 1, 2019 and will not present comparative financial statements as allowed per
the guidance. In addition, we will recognize a cumulative-effect adjustment to the opening balance of retained earnings in the first quarter
2019 financial statements as allowed per the guidance. We estimate our adoption of the standard will result in the recognition of right-of-
use assets and corresponding lease liabilities of approximately $130,000 to $150,000 in the first quarter 2019 financial statements. This
asset and corresponding liability could vary to the extent the Company enters into new leases during the quarter. This standard is not
expected to materially affect our operating results or liquidity.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provided guidance on revenue from
contracts with customers that superseded most current revenue recognition guidance, including industry-specific guidance. The underlying
principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects
to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and
how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in
the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain
circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash
flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual periods beginning on or after
December 15, 2017 and we adopted this guidance as of January 1, 2018. The guidance permits the use of either a full retrospective or
modified retrospective adoption approach with a cumulative effect adjustment recorded in either scenario as necessary upon transition.
As permitted by the guidance, we implemented the use of full retrospective presentation, which required the Company to adjust
each prior reporting period presented to conform to the current year presentation. While evaluating principal versus agent relationships
under the new standard, we determined that we will transition the fuel surcharge revenue stream from an agent to principal relationship.
This caused this revenue stream and associated costs to be recognized on a gross basis that have historically been recognized on a net basis.
In addition, based on a review of our customer shipping arrangements, we have concluded that revenue recognition for our
performance obligations should be over time. This is because the customer will simultaneously receive and consume the benefits of our
services as we perform them over the related service period. A performance obligation is performed over time if an entity determines that
another entity would not need to substantially reperform the work completed to date if another entity were to fulfill the remaining
performance obligation to the applicable customer. Applying this guidance to our shipping performance obligations, if we were to move a
customer’s freight partially to its destination but were unable to complete the remaining obligation, a replacement vendor would only have
to complete the transit as opposed to initiating at shipment origin. Therefore, we believe our customers simultaneously receive and
consume the benefits we provide and as a result we will recognize the revenue for each shipment over the course of time based on
percentage of days in transit. All performance obligations related to the Company's services are completed within twelve months or less.
Therefore, the Company has elected the practical expedient permitted under this guidance to not disclose the portion of revenue related to
the performance obligations that are unsatisfied, or partially unsatisfied, as of the end of the reporting period.
Our revenue from contracts with customers is disclosed within our four reportable segments: Expedited LTL, TLS, Intermodal and
Pool. This is consistent with our disclosures in earnings releases and annual reports and with the information regularly reviewed by the
chief operating decision maker for evaluating financial performance.
F-15
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The impact of implementing this guidance using the full retrospective approach on the prior period balance sheet and statements
of comprehensive income are shown in the "As Adjusted" columns of the following tables:
Balance Sheet:
Accounts receivable, net
Accounts payable
Deferred income taxes
Retained earnings
As Previously Reported
As of December 31, 2017
(In thousands)
Adjustments
As Adjusted
$
143,041 $
24,704
29,403
337,848
$
4,907
6,019
(323 )
(790 )
147,948
30,723
29,080
337,058
As Previously Reported
Year ended December 31, 2017
(In thousands, except per share data)
Adjustments
As Adjusted
Statement of Comprehensive Income:
Operating revenue
Expedited LTL
Truckload Premium Services
Intermodal
Pool Distribution
Eliminations and other operations
Consolidated operating revenue
Operating expenses
Income from operations
Income taxes
Net income
Diluted earnings per share
$
$
36,059 $
22,432
5,777
4,262
—
68,530
68,445
85
151
(66 )
— $
655,838
201,752
154,684
168,483
(11,411 )
1,169,346
1,060,589
108,757
20,282
87,255
2.89
619,779 $
179,320
148,907
164,221
(11,411 )
1,100,816
992,144
108,672
20,131
87,321
2.89 $
F-16
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
As Previously Reported
Year ended December 31, 2016
(In thousands, except per share data)
Adjustments
As Adjusted
Statement of Comprehensive Income:
Operating revenue
Expedited LTL
Truckload Premium Services
Intermodal
Pool Distribution
Eliminations and other operations
Consolidated operating revenue
Operating expenses
Income from operations
Income taxes
Net income
Diluted earnings per share
$
$
570,778 $
164,272
103,671
148,661
(4,852 )
982,530
922,551
59,979
30,716
27,670
0.90 $
25,761 $
16,735
1,993
3,191
—
47,680
47,956
(276 )
(111 )
(165 )
— $
596,539
181,007
105,664
151,852
(4,852 )
1,030,210
970,507
59,703
30,605
27,505
0.90
2. Acquisitions, Goodwill and Other Long-Lived Assets
Intermodal Acquisitions
As part of the Company's strategy to expand its Intermodal operations, in January 2016, the Company acquired certain assets of
Ace Cargo, LLC ("Ace") for $1,700, and in August 2016, the Company acquired certain assets of Triumph Transport, Inc. and Triumph
Repair Service, Inc. (together referred to as “Triumph”) for $10,100 and an earnout of $1,250 paid in September 2017. These acquisitions
provided an opportunity for our Intermodal operations to expand into additional Midwest markets.
In May 2017, the Company acquired certain assets of Atlantic Trucking Company, Inc., Heavy Duty Equipment Leasing,
LLC, Atlantic Logistics, LLC and Transportation Holdings, Inc. (together referred to as “Atlantic” in this note) for $22,500 and an earnout
of $135 paid in the fourth quarter of 2018. The acquisition was funded by a combination of cash on hand and funds from our revolving
credit facility. Atlantic was a privately held provider of intermodal, drayage and related services headquartered in Charleston, South
Carolina. It also has terminal operations in Atlanta, Charlotte, Houston, Jacksonville, Memphis, Nashville, Norfolk and Savannah. These
locations allow Intermodal to significantly expand its footprint in the southeastern region. In October 2017, the Company acquired certain
assets of Kansas City Logistics, LLC ("KCL") for $640 and an earnout of $100 paid in the second quarter of 2018. KCL provides CST with
an expanded footprint in the Kansas and Missouri markets.
In July 2018, the Company acquired certain assets of Multi-Modal Transport Inc. ("MMT") for $3,737 and in October 2018, the
Company acquired certain assets of Southwest Freight Distributors (“Southwest”) for $16,250. Southwest is a Dallas, Texas based
premium drayage provider. The MMT acquisition provides Intermodal with an expanded footprint in the Minnesota, North Dakota, South
Dakota, Iowa and Wisconsin markets, and the Southwest acquisition provides an expanded footprint in Texas. Both MMT and Southwest
also provide access to several strategic customer relationships.
The assets, liabilities, and operating results of these collective acquisitions have been included in the Company's consolidated
financial statements from their dates of acquisition and have been included in the Intermodal reportable segment.
F-17
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
Allocations of Purchase Prices
The following table presents the allocations of the previously discussed purchase prices to the assets acquired and liabilities
assumed based on their estimated fair values and resulting residual goodwill (in thousands):
Tangible assets:
Property and equipment
Total tangible assets
Intangible assets:
Non-compete agreements
Customer relationships
Goodwill
Total intangible assets
Total assets acquired
Liabilities assumed:
Current liabilities
Other liabilities
Total liabilities assumed
Net assets acquired
Ace &
Triumph
January &
August 2016 May 7, 2017
Atlantic
KCL
October 22,
2017
MMT
July 25, 2018
Southwest
October 28,
2018
$
$
1,294 $
1,294
1,821 $
1,821
223 $
223
81 $
81
139
5,335
6,282
11,756
13,050
1,150
13,400
6,719
21,269
23,090
—
1,250
1,250
11,800 $
590
—
590
22,500 $
6
234
277
517
740
100
—
100
640 $
43
1,659
1,954
3,656
3,737
—
—
—
3,737 $
933
933
650
9,200
5,467
15,317
16,250
—
—
—
16,250
The acquired definite-lived intangible assets have the following useful lives:
Customer relationships
Non-compete agreements
Ace &
Triumph
15 years
5 years
Atlantic
15 years
5 years
KCL
15 years
2 years
MMT
15 years
4 years
Southwest
10 years
3 years
Useful Lives
The fair value of the customer relationships and non-compete agreements were estimated using an income approach (level 3).
Under this method, an intangible asset's fair value is equal 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.
Goodwill
The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2018. The
first step of the goodwill impairment test is the Company's assessment of qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than the reporting unit's carrying amount, including goodwill. When performing the qualitative
assessment, the Company considers the impact of factors including, but not limited to, macroeconomic and industry conditions, overall
financial performance of each reporting unit, litigation and new legislation. If based on the qualitative assessments, the Company believes
it more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, or periodically as deemed
appropriate by management, the Company will prepare an estimation of the respective reporting unit's fair value utilizing a quantitative
approach.
F-18
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
If a quantitative fair value estimation is required, the Company estimates the fair value of the applicable reporting units based on a
combination of a market approach, which considers comparable companies, and the income approach, using a discounted cash flow model,
as of the valuation date. Under the market approach, valuation multiples are derived based on a selection of comparable companies and
applied to projected operating data for each reporting unit to arrive at an indication of fair value. Under the income approach, the
discounted cash flow model determines fair value based on the present value of management prepared projected cash flows over a specific
projection period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate
which reflects our best estimate of the weighted average cost of capital of a market participant, and is adjusted for appropriate risk factors.
The Company believes the most sensitive estimate used in the income approach is the management prepared projected cash flows.
Consequently, as necessary the Company performs sensitivity tests on select reporting units to ensure reductions of the present value of the
projected cash flows by at least 10% would not adversely impact the results of the goodwill impairment tests. Historically, the Company
has equally weighted the income and market approaches as it believed the quality and quantity of the collected information were
approximately equal. The inputs used in the fair value estimates for goodwill are classified within 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”).
If the estimation of fair value indicates the impairment potentially exists, the Company will then measure the amount of the
impairment, if any. Goodwill impairment exists when the estimated implied fair value of goodwill is less than its carrying value. Changes
in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances.
Goodwill is allocated to reporting units that are expected to benefit from the business combinations generating the goodwill. As of
June 30, 2018, the Company had five reporting units - Expedited LTL, TLX Forward Air, Intermodal, Pool Distribution and Total Quality,
Inc. ("TQI"). The TLX Forward Air and the TQI reporting units were assigned to the Truckload Premium Services reportable segment.
Currently, there is no goodwill assigned to the TLX Forward Air reporting unit. Our 2018 calculations for LTL, Pool Distribution,
Intermodal and TQI indicated that, as of June 30, 2018, the fair value of each reporting unit exceeded their carrying value by approximately
349.0%, 182.0%, 73.0% and 36.0%, respectively.
For our June 30, 2018 analysis, the significant assumptions used for the income approach were projected net cash flows and the
following discount and long-term growth rates:
Expedited
LTL
Pool
Intermodal
TQI
Discount rate
Long-term growth rate
12.0%
4.0%
15.5%
4.0%
14.0%
4.0%
16.5%
4.0%
The estimates used to calculate the fair value of each reporting unit change from year to year based on operating results, market
conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of the reporting unit's
fair value and goodwill impairment for the reporting unit.
As of July 1, 2018, the TLX Forward Air and TQI reporting units were fully integrated into the Truckload Premium Services
reporting unit. As a result, as of December 31, 2018 we had four reporting units - Expedited LTL, Truckload Premium Services, Intermodal
and Pool Distribution. The Company conducted a qualitative assessment as of December 31, 2018 and no indicators of impairment were
identified.
In 2016, due to the financial performance of the TQI reporting unit falling notably short of previous projections the Company
reduced TQI's projected cash flows and as a result the estimate of TQI's fair value no longer exceeded the respective carrying value.
Consequently, the Company recorded a goodwill impairment charge of $25,686 for the TQI reporting unit during the year ended December
31, 2016.
F-19
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The following is a summary of the changes in goodwill for Intermodal and the Company for the year ended December 31, 2018.
There were no changes to Expedited LTL, Truckload Premium or Pool Distribution during the year ended December 31, 2018.
Approximately $119,948 of goodwill is deductible for tax purposes.
Expedited LTL
Truckload Premium
Pool Distribution
Intermodal
Total
Accumulated
Accumulated
Goodwill
Impairment
Goodwill
Impairment
Goodwill
Accumulated
Impairment
Goodwill
Accumulated
Impairment
Net
Ending balance,
December 31,
2017
MMT acquisition
Southwest
acquisition
Ending balance,
December 31,
2018
$
97,593 $
—
—
— $
—
—
45,164 $
(25,686 ) $
12,359 $
—
—
—
—
—
—
(6,953 ) $
—
69,194 $
1,954
—
5,467
— $191,671
—
1,954
—
5,467
$
97,593 $
— $
45,164 $
(25,686 ) $
12,359 $
(6,953 ) $
76,615 $
— $199,092
Other Acquired Intangibles
Through acquisitions, the Company acquired customer relationships, non-compete agreements and trade names having weighted-
average useful lives of 15.0, 4.5 and 4.0 years, respectively. Amortization expense on acquired customer relationships, non-compete
agreements and trade names for each of the years ended December 31, 2018, 2017 and 2016 was $9,138, $10,193 and $10,122,
respectively.
As of December 31, 2018, definite-lived intangible assets are comprised of the following:
Acquired
Intangibles
Accumulated
Amortization
Accumulated
Impairment
Net Acquired
Intangibles
Customer relationships
Non-compete agreements
Trade name
Total
$
$
204,226 $
5,102
1,500
210,828 $
75,585 $
3,581
1,500
80,666 $
16,501 $
—
—
16,501 $
112,140
1,521
—
113,661
As of December 31, 2017, definite-lived intangible assets are comprised of the following:
Acquired
Intangibles
Accumulated
Amortization
Accumulated
Impairment
Net Acquired
Intangibles
Customer relationships
Non-compete agreements
Trade name
Total
$
$
193,209 $
4,566
1,500
199,275 $
66,986 $
3,074
1,467
71,527 $
16,501 $
—
—
16,501 $
109,722
1,492
33
111,247
The estimated amortization expense for the next five years on definite-lived intangible assets as of December 31, 2018 is as
follows:
2019
2020
2021
2022
2023
Customer relationships
Non-compete agreements
Total
$
$
9,350
516
9,866
$
$
9,350
486
9,836
$
$
9,207
438
9,645
$
$
9,007
81
9,088
$
$
8,659
—
8,659
Additionally, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the
carrying amount may not be recoverable. Impairment is recognized on assets classified as held and used when the sum of undiscounted
estimated cash flows expected to result from the use of the asset is less than the carrying value. If such measurement indicates a possible
impairment, the estimated fair value of the asset is compared to its net book value to measure the impairment charge, if any. In conjunction
with the June 30, 2016 TQI goodwill impairment assessment the Company determined
F-20
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
there were indicators that TQI's customer relationship and non-compete intangible assets were impaired, as the undiscounted cash flows
associated with the applicable assets no longer exceeded the related assets' net book values. The Company estimated the fair value of the
customer relationship and non-compete assets using an income approach (level 3). Under this method, an intangible asset's fair value is
equal 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. As a result of these estimates the Company recorded an impairment charge of $16,501 related to TQI customer
relationships during the year ended December 31, 2016. The Company incurred no such impairment charges during the years ended
December 31, 2017 or 2018.
3. Debt and Capital Lease Obligations
Credit Facilities
On September 29, 2017, the Company entered into a five-year senior unsecured revolving credit facility (the “Facility”) with a
maximum aggregate principal amount of $150,000, with a sublimit of $30,000 for letters of credit and a sublimit of $30,000 for swing line
loans. The Facility may be increased by up to $100,000 to a maximum aggregate principal amount of $250,000 pursuant to the terms of the
credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such
commitments. Such increases to the Facility may be in the form of additional revolving credit loans, term loans or a combination thereof,
and are contingent upon there being no events of default under the Facility and satisfaction of other conditions precedent and are subject to
the other limitations set forth in the credit agreement.
The Facility is scheduled to mature in September 2022. The proceeds were used to refinance existing indebtedness of the
Company and may also be used 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.
Unless the Company elects otherwise under the credit agreement, interest on borrowings under the Facility is based on the highest
of (a) the federal funds rate (not less than 0%) plus 0.5%, (b) the administrative agent's prime rate and (c) the LIBOR Rate plus 1.0%, in
each case plus a margin that can range from 0.3% to 0.8% with respect to the Facility depending on the Company’s ratio of consolidated
funded indebtedness to earnings before interest, taxes, depreciation and amortization, as set forth in the credit agreement. Payments of
interest for each loan that is based on the LIBOR Rate are due in arrears on the last day of the interest period applicable to such loan (with
interest periods of one, two or three months being available, at the Company’s option). Payments of interest on loans that are not based on
the LIBOR Rate are due on the last day of each quarter ended March 31, June 30, September 30 and December 31 of each year. All unpaid
amounts of principal and interest are due at maturity. As of December 31, 2018, the Company had $47,500 in borrowings outstanding
under the revolving credit facility, $10,650 utilized for outstanding letters of credit and $91,850 of available borrowing capacity under the
revolving credit facility. The interest rate on the outstanding borrowings under the facility was 4.1% at December 31, 2018.
The Facility contains customary events of default including, among other things, payment defaults, breach of covenants, cross
acceleration to material indebtedness, bankruptcy-related defaults, material judgment defaults, and the occurrence of certain change of
control events. The occurrence of an event of default may result in, among other things, the termination of the Facilities, acceleration of
repayment obligations and the exercise of remedies by the lenders with respect to the Company and its subsidiaries that are party to the
Facility. The Facility also contains financial covenants and other covenants that, among other things, restrict the ability of the Company
and its subsidiaries, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales, dividends and
stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set forth in the
credit agreement. As of December 31, 2018, the Company was in compliance with the aforementioned covenants.
Capital Leases
Primarily through acquisitions, the Company assumed several equipment leases that met the criteria for classification as a capital
lease. The leased equipment is being amortized over the shorter of the lease term or useful life.
F-21
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
Property and equipment include the following amounts for assets under capital leases:
Equipment
Accumulated
amortization
December 31,
2018
December 31,
2017
$
$
635
$
(518)
117
$
635
(413)
222
Amortization of assets under capital leases is included in depreciation and amortization expense.
Future minimum payments, by year and in the aggregate, under non-cancelable capital leases with initial or remaining terms of
one year or more consist of the following at December 31, 2018:
2019
2020
Total
Less amounts representing interest
Present value of net minimum lease payments
(including current portion of $309)
$
$
325
60
385
22
363
Interest Payments
Cash interest payments during 2018, 2017 and 2016 were $1,841, $1,193 and $1,770, respectively. No interest was capitalized
during the years ended December 31, 2018, 2017 and 2016.
4. Shareholders' Equity, Stock Options and Net Income per Share
Preferred Stock
There are 5,000,000 shares of preferred stock with a par value of $0.01 authorized, but no shares have been issued to date.
Cash Dividends
During the fourth quarter of 2018, the Company’s Board of Directors declared a cash dividend of $0.18 per share of Common
Stock. During the first, second and third quarters of 2018, each quarter of 2017 and the fourth quarter of 2016, the Company's Board of
Directors declared a cash dividend of $0.15 per share of Common Stock. During the first, second and third quarters of 2016, the Company's
Board of Directors declared a cash dividend of $0.12 per share of Common Stock. On February 5, 2019, the Company’s Board of Directors
declared a $0.18 per share dividend that will be paid in the first quarter of 2019. 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.
Repurchase of Common Stock
On July 21, 2016, our Board of Directors approved a stock repurchase plan that authorized the repurchase of up to 3,000,000
shares of the Company's Common Stock. Under the 2016 repurchase plan, during the year ended December 31, 2018, we repurchased
1,109,270 shares of Common Stock for $66,126, or $59.61 per share. As of December 31, 2018, 709,395 shares remain that may be
repurchased.
On February 5, 2019, our Board of Directors canceled the Company’s remaining 2016 share repurchase authorization and
approved a stock repurchase authorization for up to 5,000,000 shares of the Company’s common stock. The amount and timing of any
repurchases under the Company’s new repurchase authorization will be at such prices as determined by management of the Company.
Repurchases of common stock may also be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the
Company might otherwise be precluded from doing so under insider trading laws. Stock repurchases may be commenced or suspended
from time to time for any reason.
F-22
Table of Contents
Share-Based Compensation
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
In May 2016, with the approval of shareholders, the Company adopted the 2016 Omnibus Incentive Compensation Plan (the
“Omnibus Plan”) to reserve for issuance 2,000,000 common shares. Options issued under these plans have seven year terms and vest over a
two to three-year period. With the adoption of the Omnibus Plan, no further awards will be issued under the 1999 Amended Plan. As of
December 31, 2018, there were approximately 1,266,219 shares remaining available for grant under the Omnibus Plan.
Employee Activity - Options
The following table summarizes the Company’s employee stock options outstanding as of December 31, 2018:
Range of
Exercise
Price
Number
Outstanding
(000)
Weighted-
Average
Remaining
Contractual Life
Outstanding
Weighted-
Average
Exercise
Price
Exercisable
Weighted-
Average
Exercise
Price
Number
Exercisable
(000)
$36.90 -
41.32 -
45.34 -
50.71 -
57.18 -
64.26 -
$36.90 -
37.14
44.90
48.32
53.73
60.42
64.26
64.26
36
135
116
53
98
100
538
1.0
3.5
5.0
3.4
6.1
6.7
4.7
$
$
37.11
43.39
47.76
51.13
58.78
64.26
51.37
36
101
42
49
2
—
230
$
$
37.11
43.33
47.61
50.95
57.18
—
44.89
The following tables summarize the Company’s employee stock option activity and related information for the years ended
December 31, 2018, 2017 and 2016:
December 31, 2018
Weighted-
Average
Exercise
Price
Options
(000)
Year ended
December 31, 2017
December 31, 2016
Weighted-
Average
Exercise
Price
Options
(000)
Weighted-
Average
Exercise
Price
Options
(000)
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
Weighted-average fair value of
options granted during the year
Aggregate intrinsic value for
options exercised
Average aggregate intrinsic value
for options outstanding
Average aggregate intrinsic value
for exercisable options
$
$
$
$
440 $
193
(95)
—
538 $
230 $
16
1,992
4,550
3,439
45
62
41
—
51
45
$
$
F-23
564 $
128
(206)
(46)
440 $
226 $
13
3,569
41
48
35
46
45
42
$
$
786 $
137
(346)
(13)
564 $
331 $
12
7,803
32
44
24
35
41
37
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
December 31,
2018
Year ended
December 31,
2017
December 31,
2016
Shared-based compensation for options
Tax benefit for option compensation
Unrecognized compensation cost for options
Weighted average period over which unrecognized
compensation will be recognized (years)
$
$
$
1,578
398
3,128
$
$
2.2
Employee Activity – Non-vested shares
1,313
466
$
$
1,473
546
Non-vested share grants to employees vest ratably over a three-year period. The following tables summarize the Company's
employee non-vested share activity and related information:
December 31, 2018
Year ended
December 31, 2017
December 31, 2016
Non-vested
Shares
(000)
Weighted-
Average
Grant Date
Fair Value
Non-vested
Shares
(000)
Weighted-
Average
Grant Date
Fair Value
Non-vested
Shares
(000)
Weighted-
Average
Grant Date
Fair Value
Outstanding and non-vested at
beginning of year
Granted
Vested
Forfeited
Outstanding and non-vested at
end of year
Aggregate grant date fair value
Total fair value of shares vested
during the year
$
$
$
$
227
202
(107)
(7)
315
17,295
6,040
47
60
56
52
55
$
$
222
126
(105)
(16)
227
10,618
5,040
$
$
December 31,
2018
Shared-based compensation for non-vested shares
Tax benefit for non-vested share compensation
Unrecognized compensation cost for non-vested shares
Weighted average period over which unrecognized
compensation will be recognized (years)
$
$
$
6,874
1,732
11,003
$
$
1.8
Employee Activity – Performance shares
45
48
45
47
47
$
$
191
134
(94)
(9)
222
10,108
4,064
$
$
46
44
44
45
45
Year ended
December 31,
2017
December 31,
2016
5,045
1,791
$
$
4,614
1,712
In 2018, 2017 and 2016, the Company granted performance shares to key employees. Under the terms of the performance share
agreements, on the third anniversary of the grant date, the Company will issue to the employees a calculated number of common stock
shares based on the three year performance of the Company's total shareholder return as compared to the total shareholder return of a
selected peer group. No shares may be issued if the Company total shareholder return outperforms 25% or less of the peer group, but the
number of shares issued may be doubled if the Company total shareholder return performs better than 90% of the peer group.
F-24
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The following tables summarize the Company's employee performance share activity, assuming median share awards, and related
information:
December 31,
2018
Non-vested
Shares
(000)
Weighted-
Average
Grant Date
Fair Value
Year ended
December 31,
2017
December 31,
2016
Non-vested
Shares
(000)
Weighted-
Average
Grant Date
Fair Value
Non-vested
Shares
(000)
Weighted-
Average
Grant Date
Fair Value
Outstanding and non-vested at
beginning of year
Granted
Additional shares awarded
based on performance
Vested
Forfeited
Outstanding and non-vested at
end of year
Aggregate grant date fair value
$
69
18
—
—
(22)
$
65
3,795
$
Shared-based compensation for performance shares
Tax benefit for performance share compensation
Unrecognized compensation cost for performance
shares
Weighted average period over which unrecognized
compensation will be recognized (years)
$
$
$
Employee Activity – Employee Stock Purchase Plan
55
56
—
—
51
58
77
29
7
(33)
—
80
4,373
$
$
$
52
49
40
40
—
55
Year ended
December 31,
2017
December 31,
2016
1,045
371
$
$
1,447
537
58
72
—
—
67
58
80
27
—
—
(38)
69
3,980
$
$
$
December 31,
2018
$
$
1,263
318
1,415
1.7
Under the ESPP, at December 31, 2018, the Company is authorized to issue up to a remaining 362,404 shares of Common Stock
to employees of the Company. For the years ended December 31, 2018, 2017 and 2016, participants under the ESPP purchased 9,455,
9,954, and 11,174 shares, respectively, at an average price of $50.63, $46.01, and $39.50 per share, respectively. The weighted-average fair
value of each purchase right under the ESPP granted for the years ended December 31, 2018, 2017 and 2016, which is equal to the discount
from the market value of the Common Stock at the end of each six month purchase period, was $6.26, $9.26, and $6.46 per share,
respectively. Share-based compensation expense of $59, $92, and $72 was recognized in salaries, wages and employee benefits, during the
years ended December 31, 2018, 2017 and 2016, respectively.
Non-employee Directors – Non-vested shares
In May 2006, 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 May 22, 2007. The Amended Plan was then further amended and restated on December 17, 2008. 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
F-25
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
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.
In May 2016, with the approval of shareholders, the Company further amended the Amended Plan to reserve for issuance an
additional 160,000 common shares, increasing the total number of reserved common shares under the Amended Plan to 360,000. As of
December 31, 2018, there were approximately 132,313 shares remaining available for grant.
The following tables summarize the Company's non-employee non-vested share activity and related information:
December 31,
2018
Year ended
December 31,
2017
December 31,
2016
Non-vested
Shares and
Deferred
Stock Units
(000)
Weighted-
Average
Grant Date
Fair Value
Non-vested
Shares and
Deferred
Stock Units
(000)
Weighted-
Average
Grant Date
Fair Value
Non-vested
Shares and
Deferred
Stock Units
(000)
Weighted-
Average
Grant Date
Fair Value
Outstanding and non-vested at
beginning of year
Granted
Vested
Forfeited
Outstanding and non-vested at
end of year
Aggregate grant date fair value
Total fair value of shares vested
during the year
$
$
$
$
11
16
(12)
—
15
920
615
52
59
52
—
59
$
$
16
14
(16)
(3)
11
742
809
Shared-based compensation for non-vested shares
Tax benefit for non-vested share compensation
Unrecognized compensation cost for non-vested shares
Weighted average period over which unrecognized
compensation will be recognized (years)
$
$
$
December 31,
2018
775
195
360
0.4
F-26
$
$
$
$
44
52
44
49
52
$
$
$
$
15
16
(15)
—
16
688
639
51
44
51
—
44
Year ended
December 31,
2017
December 31,
2016
608
216
$
$
728
263
Table of Contents
Net Income per Share
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The following table sets forth the computation of net income per basic and diluted share:
Numerator:
Net income and comprehensive income
Income allocated to participating securities
Numerator for basic and diluted income per share - net
income
Denominator:
Denominator for basic net income per share - weighted-
average shares (in thousands)
Effect of dilutive stock options (in thousands)
Effect of dilutive performance shares (in thousands)
Denominator for diluted net income per share - adjusted
weighted-average shares (in thousands)
Basic net income per share
Diluted net income per share
$
$
$
2018
2017
(As Adjusted)
2016
(As Adjusted)
92,051 $
(881)
87,255 $
(700)
27,505
(210)
91,170
86,555
27,295
29,076
80
34
29,867
64
33
29,190
29,964
3.14 $
3.12 $
2.90 $
2.89 $
30,283
130
31
30,444
0.90
0.90
The number of instruments that could potentially dilute net income per basic share in the future, but that were not included in the
computation of net income per diluted share because to do so would have been anti-dilutive for the periods presented, are as follows:
Anti-dilutive stock options (in thousands)
Anti-dilutive performance shares (in thousands)
Anti-dilutive non-vested shares and deferred stock units (in
thousands)
Total anti-dilutive shares (in thousands)
2018
2017
2016
126
16
9
151
172
—
—
172
310
—
—
310
5. Income Taxes
Tax Reform
On December 22, 2017, President Trump signed into law H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V
of the concurrent resolution on the budget for fiscal year 2018” (this legislation is referred to herein as the “U.S. Tax Act”). The U.S. Tax
Act provided for significant changes in the U.S. Internal Revenue Code of 1986, as amended. The U.S. Tax Act contains provisions with
separate effective dates but is generally effective for taxable years beginning after December 31, 2017.
Beginning on January 1, 2018, the U.S. Tax Act lowered the U.S. corporate income tax rate from 35% to 21% on our U.S.
earnings from that date and beyond. The revaluation of our U.S. deferred tax assets and liabilities to the 21% corporate tax rate reduced our
net U.S. deferred income tax liability by approximately $15,901 which is reflected as a reduction in our income tax expense in our results
for the quarter and year ended December 31, 2017.
On December 22, 2017, the SEC staff issued SAB 118 that allows us to record provisional amounts during a measurement period
not to extend beyond one year of the enactment date. As of December 22, 2018, the Company has completed its accounting for all of the
enactment-date income tax effects of the U.S. Tax Act. The Company made no adjustments to the provisional amounts recorded at
December 31, 2017.
F-27
Table of Contents
Income Taxes
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The provision for income taxes consists of the following:
Current:
Federal
State
Deferred:
Federal
State
2018
2017
(As Adjusted)
2016
(As Adjusted)
$
$
16,572 $
3,559
20,131
7,194
870
8,064
28,195 $
28,556 $
4,043
32,599
(11,860)
(457)
(12,317)
20,282 $
24,139
3,052
27,191
3,145
269
3,414
30,605
The tax benefit associated with the exercise of stock options and the vesting of non-vested shares recorded to additional paid in
capital during the year ended December 31, 2016 was $1,732 and is reflected as an increase in additional paid-in capital in the
accompanying consolidated statements of shareholders’ equity. For 2018 and 2017, FASB guidance required the recognition of the income
tax effects of awards in the income statement when the awards vest or are settled thus eliminating additional paid in capital ("APIC") pools.
The historical income tax expense differs from the amounts computed by applying the federal statutory rate of 21.0% for 2018 and
35.0% for 2017 and 2016 to income before income taxes as follows:
Tax expense at the statutory rate
State income taxes, net of federal benefit
Share-based compensation
Qualified stock options
Other permanent differences
TQI goodwill impairment
Deferred tax asset valuation allowance
Federal qualified property deductions
Federal income tax credits
Non-taxable acquisitions
Rate impact on deferred tax liabilities
Other
$
$
2018
2017
(As Adjusted)
25,252 $
3,685
(50)
12
163
—
35
—
(207)
—
—
(695)
28,195 $
37,637 $
2,339
(366)
32
252
—
78
(2,075)
(58)
(568)
(15,901)
(1,088)
20,282 $
2016
(As Adjusted)
20,399
2,229
—
(88)
474
8,990
(2)
(1,311)
—
—
—
(86)
30,605
F-28
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax
liabilities and assets are as follows:
December 31,
2018
December 31,
2017
(As Adjusted)
Deferred tax assets:
Accrued expenses
Allowance for doubtful accounts
Share-based compensation
Accruals for income tax contingencies
Net operating loss carryforwards
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Tax over book depreciation
Intangible assets
Prepaid expenses deductible when paid
Goodwill
Total deferred tax liabilities
Net deferred tax liabilities
$
$
10,362 $
535
3,526
217
2,906
17,546
(395)
17,151
25,606
10,904
3,902
13,913
54,325
(37,174) $
8,228
777
3,002
251
4,733
16,991
(360)
16,631
19,402
11,108
3,460
11,741
45,711
(29,080)
Total cash income tax payments, net of refunds, during fiscal years 2018, 2017 and 2016 were $21,064, $36,110 and $10,628,
respectively.
The Company has considered the weight of all available evidence in determining the need for a valuation allowance against each
of the Company’s various deferred tax assets and believes the Company’s history of income is a significant weight of evidence supporting
the realization of all of the Company’s federal and most state deferred tax assets. In addition, the Company believes all existing deferred
tax liabilities will reverse in a manner that generates enough taxable income to realize an offsetting amount of deferred tax assets. Given the
historical positive performance of the Company for having more than ten consecutive years of profitability, the Company expects to fully
utilize the vast majority of its deferred tax assets and has concluded that the only valuation allowance needed relates to state net operating
loss carryforwards, as noted below.
As a result of the Towne acquisition the Company has approximately $10,258, $18,586 and $27,050 of federal net operating losses
as of December 31, 2018, 2017 and 2016 respectively, that will expire between 2020 and 2030. The Company expects to be able to fully
utilize these federal net operating losses before they expire.
At December 31, 2018 and 2017, the Company had state net operating loss carryforwards of $18,148 and $18,126, respectively,
that will expire between 2018 and 2030. Also, the use of these state net operating losses is limited to the future taxable income of separate
legal entities. Based on expectations of future taxable income, management believes that it is more likely than not that the results of
operations for certain separate legal entities will not generate sufficient taxable income to realize portions of these net operating loss
benefits for state loss carryforwards. As a result, a valuation allowance has been provided for the state loss carryforwards for these specific
legal entities. The valuation allowance on these state loss carryforwards increased $35 during 2018 and $78 during 2017.
F-29
Table of Contents
Income Tax Contingencies
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and Canada. With a
few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years
before 2012.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
Balance at December 31, 2015
Reductions for settlement with state taxing authorities
Additions for tax positions of current year
Balance at December 31, 2016
Reductions for settlement with state taxing authorities
Additions for tax positions of prior years
Additions for tax positions of current year
Balance at December 31, 2017
Reductions for settlement with state taxing authorities
Reductions for tax positions of prior years
Additions for tax positions of current year
Balance at December 31, 2018
$
$
Liability for
Unrecognized Tax
Benefits
773
(247 )
56
582
(14 )
400
366
1,334
(271 )
(40 )
35
1,058
Included in the liability for unrecognized tax benefits at December 31, 2018 and December 31, 2017 are tax positions of $1,058
and $1,334, respectively, which represents tax positions where the realization of the ultimate benefit is uncertain and the disallowance of
which would affect the Company’s annual effective income tax rate.
In addition, at December 31, 2018 and December 31, 2017, the Company had accrued penalties associated with unrecognized tax
benefits of $61 and $105, respectively. At December 31, 2018 and December 31, 2017, the Company also had accrued interest associated
with unrecognized tax benefits of $143 and $201, respectively.
6. Operating Leases
The Company leases certain facilities under noncancellable operating leases that expire in various years through 2026. Certain
leases may be renewed for periods varying from one to ten years. The Company has entered into or assumed through acquisition several
operating leases for tractors, straight trucks and trailers with original lease terms between three and five years. These leases expire in
various years through 2023 and may not be renewed beyond the original term.
Sublease rental income was $1,724, $1,923 and $1,517 in 2018, 2017 and 2016, respectively. In 2019, the Company expects to
receive aggregate future minimum rental payments under noncancellable subleases of approximately $1,155. Noncancellable subleases
expire between 2019 and 2021.
F-30
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
Future minimum rental payments under noncancellable operating leases with initial or remaining terms in excess of one year
consisted of the following at December 31, 2018:
2019
2020
2021
2022
2023
Thereafter
Total
$
$
51,380
40,999
29,598
16,612
9,234
11,459
159,282
7. Commitments and Contingencies
From time to time, the Company is party to ordinary, routine litigation incidental to and arising in the normal course of
business. The Company does not believe that any of these pending actions, individually or in the aggregate, will have a material adverse
effect on its financial condition, results of operations or cash flows.
The primary claims in the Company’s business relate to workers’ compensation, property damage, vehicle liability and employee
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. Such insurance coverage above the
applicable self-insurance levels continues to be an important part of the Company's risk management process.
In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured limits, including provision
for estimated claims incurred but not reported.
The Company estimates its self-insurance loss exposure by evaluating the merits and circumstances surrounding individual known
claims and by performing hindsight and actuarial analysis to determine an estimate of probable losses on claims incurred but not
reported. Such losses should be realized immediately as the events underlying the claims have already occurred as of the balance 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.
As of December 31, 2018, the Company had commitments to purchase trailers and forklifts for approximately $14,305 during
2019.
8. Employee Benefit Plan
The Company has a retirement savings plan (the “401(k) Plan”). The 401(k) Plan is a defined contribution plan whereby
employees who have completed 90 days of service, a minimum of 1,000 hours of service and are age 21 or older are eligible to participate.
The 401(k) Plan allows eligible employees to make contributions of 2.0% to 80.0% of their annual compensation. For all periods presented,
employer contributions were made at 25.0% of the employee’s contribution up to a maximum of 6.0% of total annual compensation, except
where government limitations prohibit.
Employer contributions vest 20.0% after two years of service and continue vesting 20.0% per year until fully vested. The
Company’s matching contributions expensed in 2018, 2017 and 2016 were approximately $1,713, $1,441 and $1,056, respectively.
F-31
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
9. Financial Instruments
Off Balance Sheet Risk
At December 31, 2018, the Company had letters of credit outstanding totaling $10,650.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial
instruments:
Accounts receivable and accounts payable: The carrying amounts reported in the balance sheet for accounts receivable and
accounts payable approximate their fair value based on their short-term nature.
The Company’s revolving credit facility and term loan bear variable interest rates plus additional basis points based upon
covenants related to total indebtedness to earnings. As the term loan bears a variable interest rate and there have been no significant
changes to our credit rating, the carrying value approximates fair value. Using interest rate quotes and discounted cash flows, the Company
estimated the fair value of its outstanding capital lease obligations as follows:
December 31,
2018
December 31,
2017
Capital lease obligations $
363 $
374 $
Carrying
Value
Fair Value
Carrying
Value
Fair Value
744
724 $
The Company's fair value estimates for the above financial instruments are classified within level 3 of the fair value hierarchy as
defined in the FASB Codification.
10. Segment Reporting
The Company has four reportable segments based on information available to and used by the chief operating decision
maker. Expedited LTL operates a comprehensive national network that provides expedited regional, inter-regional and national LTL and
final mile services. The TLS segment provides expedited truckload brokerage, dedicated fleet services and high security and temperature-
controlled logistics services. The Intermodal segment primarily provides first- and last-mile high value intermodal container drayage
services both to and from seaports and railheads. Pool Distribution provides high-frequency handling and distribution of time sensitive
product to numerous destinations.
Except for certain insurance activity, the accounting policies of the segments are the same as those described in the summary of
significant accounting policies disclosed in Note 1. For workers compensation and vehicle claims each segment is charged an insurance
premium and is also charged a deductible that corresponds with our corporate deductibles disclosed in Note 1. However, any losses beyond
our deductibles and any loss development factors applied to our outstanding claims as a result of actuary analysis are not passed to the
segments, but recorded at the corporate level within Eliminations and Other.
Segment data includes intersegment revenues. Costs of the corporate headquarters and shared services are allocated to the
segments based on usage. The expense associated with shared operating assets, such as trailers, are allocated between operating segments
based on usage. However, the carrying value of the asset's basis are not allocated. The Company evaluates the performance of its segments
based on income from operations. The Company’s business is conducted in the U.S. and Canada.
F-32
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
The following tables summarize segment information about results from operations and assets used by the chief operating decision
maker of the Company in making decisions regarding allocation of assets and resources as of and for the years ended December 31, 2018,
2017 and 2016.
Pool
Distribution
Intermodal
Eliminations &
Other
$
Year ended December 31, 2018
External revenues
Intersegment revenues
Depreciation and amortization
Share-based compensation expense
Interest expense
Income (loss) from operations
Total assets
Capital expenditures
Expedited
LTL
740,332 $
7,230
22,523
7,761
1
96,385
478,888
38,520
Truckload
Premium
Services
186,114 $
6,468
6,429
696
(21 )
5,055
71,163
190
$
Year ended December 31, 2017
(As Adjusted)
External revenues
Intersegment revenues
Depreciation and amortization
Share-based compensation expense
Interest expense
Income (loss) from operations
Total assets
Capital expenditures
Expedited
LTL
652,304 $
3,534
22,103
6,776
3
87,969
440,823
36,650
Truckload
Premium
Services
194,402 $
7,350
6,328
378
2
3,215
65,829
33
193,690 $
427
6,900
453
—
5,870
64,306
2,729
200,750 $
256
6,329
984
58
23,266
167,002
854
168,194 $
289
6,773
387
—
6,378
55,970
1,068
154,446 $
238
5,848
562
48
12,963
149,150
514
— $
Consolidated
1,320,886
—
42,183
10,549
1,783
122,031
760,215
42,293
(14,381 )
2
655
1,745
(8,545)
(21,144 )
—
— $
Consolidated
1,169,346
—
41,055
8,103
1,209
108,757
692,622
38,265
(11,411 )
3
—
1,156
(1,768)
(19,150 )
—
Pool
Distribution
Intermodal
Eliminations &
Other
$
Year ended December 31, 2016 (
As Adjusted)
External revenues
Intersegment revenues
Depreciation and amortization
Share-based compensation expense
Impairment of goodwill and other
intangible assets
Interest expense
Income (loss) from operations
Total assets
Capital expenditures
Expedited
LTL
593,472 $
3,067
21,919
7,209
Truckload
Premium
Services
Pool
Distribution
Intermodal
Eliminations &
Other
179,989 $
1,018
6,441
332
151,245 $
607
5,975
334
105,504 $
160
3,876
459
Consolidated
1,030,210
—
38,210
8,334
— $
(4,852)
(1)
—
—
1,687
83,142
443,077
37,501
42,442
3
(35,409 )
53,695
1,828
—
—
3,633
50,271
2,637
—
83
11,060
130,295
220
—
(176)
(2,723)
(33,290 )
—
42,442
1,597
59,703
644,048
42,186
F-33
Table of Contents
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2018
(In thousands, except share and per share data)
11. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2018 and 2017:
2018
Operating revenue
Income from operations
Net income
Net income per share:
Basic
Diluted
Operating revenue
Income from operations
Net income
Net income per share:
Basic
Diluted
March 31
$
302,608 $
24,235
17,741
June 30
September 30 December 31
356,561
35,047
27,684
331,375 $
29,879
22,329
330,343 $
32,870
24,298
$
$
0.60 $
0.60 $
0.83 $
0.82 $
0.76 $
0.76 $
0.95
0.95
2017
(As Adjusted)
March 31
$
262,046 $
23,743
14,581
$
$
0.48 $
0.48 $
F-34
June 30
September 30 December 31
325,136
27,843
34,681
298,289 $
27,176
18,328
283,876 $
29,996
19,666
0.65 $
0.65 $
0.61 $
0.61 $
1.17
1.16
Table of Contents
Forward Air Corporation
Schedule II — Valuation and Qualifying Accounts
(In thousands)
Col. A
Col. B
Col. C
Col. D
Col. E
Year ended December 31, 2018
Allowance for doubtful accounts
Allowance for revenue adjustments (1)
Income tax valuation
Year ended December 31, 2017
Allowance for doubtful accounts
Allowance for revenue adjustments (1)
Income tax valuation
Year ended December 31, 2016
Allowance for doubtful accounts
Allowance for revenue adjustments (1)
Income tax valuation
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Described
Deductions
-Described
Balance at
End of
Period
$
$
$
2,542 $
464
360
3,366
1,309 $
405
282
1,996
1,310 $
1,095
284
2,689
139 $
—
35
174
1,814 $
—
78
1,892
258 $
—
(2)
256
— $
3,628
—
3,628
— $
3,055
—
3,055
— $
2,020
—
2,020
$
$
$
1,372 (2)
3,320 (3)
—
4,692
581 (2)
2,996 (3)
—
3,577
259 (2)
2,710 (3)
—
2,969
1,309
772
395
2,476
2,542
464
360
3,366
1,309
405
282
1,996
(1) Represents an allowance for adjustments to accounts receivable due to disputed rates, accessorial charges and other aspects of
previously billed shipments.
(2) Represents uncollectible accounts written off, net of recoveries
(3) Represents adjustments to billed accounts receivable
S-1
No.
3.1
3.2
4.1
10.1
*
Exhibit
Restated Charter of the registrant (incorporated herein by reference to Exhibit 3 to the registrant’s Current Report on Form
8-K filed with the Securities and Exchange Commission on May 28, 1999 (File No. 0-22490))
Amended and Restated Bylaws of the registrant (incorporated herein by reference to Exhibit 3.1 to the registrant’s Current
EXHIBIT INDEX
Report on Form 8-K filed with the Securities and Exchange Commission on July 31, 2017 (File No. 0-22490))
Form of Forward Air Corporation Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the
registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998 filed with the Securities and
Exchange Commission on November 16, 1998 (File No. 0-22490))
Forward Air Corporation 2005 Employee Stock Purchase Plan (incorporated herein by reference to the registrant's Proxy
Statement filed with the Securities and Exchange Commission on April 20, 2005 (File No. 0-22490))
10.2
Air Carrier Certificate, effective August 28, 2003 (incorporated herein by reference to Exhibit 10.5 to the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange
Commission on March 11, 2004 (File No. 0-22490))
10.3
* Amendment to the Non-Employee Director Stock Plan (incorporated herein by reference to Exhibit 10.7 to the registrant's
10.4
10.5
Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange
Commission on March 11, 2004 (File No. 0-22490))
Form of Director Indemnification Agreement (incorporated herein by reference to Exhibit 10.4 to the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on
February 23, 2018 (File No. 0-22490))
* Employment Agreement dated October 30, 2007, between Forward Air Corporation and Bruce A. Campbell, including
Attachment B, Restrictive Covenants Agreement entered into contemporaneously with and as part of the Employment
Agreement (incorporated herein by reference to Exhibit 99.1 to the registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 31, 2007 (File No. 0-22490))
10.6
* Amendment dated December 30, 2008 to Employment Agreement dated October 30, 2007, between Forward Air
10.7
*
Corporation and Bruce A. Campbell (incorporated herein by reference to Exhibit 10.9 to the registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission on February
26, 2009 (File No. 0-22490))
Second Amendment dated February 24, 2009 to Employment Agreement dated October 30, 2007, between Forward Air
Corporation and Bruce A. Campbell (incorporated herein by reference to Exhibit 10.10 to the registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission on February
26, 2009 (File No. 0-22490))
10.8
* Third Amendment dated December 15, 2010 to Employment Agreement dated October 30, 2007, between Forward Air
10.9
*
10.10
*
10.11
*
Corporation and Bruce A. Campbell (incorporated herein by reference to Exhibit 10.10 to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on February
24, 2011 (File No. 0-22490))
Form of Incentive Stock Option Agreement under the registrant's Amended and Restated Stock Option and Incentive Plan,
as amended and 1999 Stock Option and Incentive Plan, as amended, for grants prior to February 12, 2006 (incorporated
herein by reference to Exhibit 10.12 to the registrant's Annual Report on Form 10-K/A for the fiscal year ended December
31, 2005 filed with the Securities and Exchange Commission on March 22, 2006 (File No. 0-22490))
Form of Non-Qualified Stock Option Agreement under the registrant's Non-Employee Director Stock Option Plan, as
amended, for grants prior to February 12, 2006 (incorporated herein by reference to Exhibit 10.13 to the registrant's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission
on March 22, 2006 (File No. 0-22490))
Forward Air Corporation Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to
Appendix A of the registrant's Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on
April 3, 2008 (File No. 0-22490))
10.12
10.13
* Form of Incentive Stock Option Agreement under the registrant's Amended and Restated Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit 10.19 to the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 filed with the Securities and Exchange Commission on February 26, 2009 (File No. 0-22490))
* Form of Non-Qualified Stock Option Agreement under the registrant's Amended and Restated Stock Option and Incentive
Plan (incorporated herein by reference to Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2010 filed with the Securities and Exchange Commission on February 24, 2011 (File No. 0-22490))
10.14
10.15
* Forward Air Corporation Executive Severance and Change in Control Plan, effective as of January 1, 2013 (incorporated
herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 14, 2012 (File No. 0-22490))
* Forward Air Corporation Recoupment Policy, effective as of January 1, 2013 (incorporated herein by reference to Exhibit
10.2 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 14,
2012 (File No. 0-22490))
10.16
* Forward Air Corporation Amended and Restated Stock Option and Incentive Plan, as further amended and restated on
February 7, 2013 (incorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 13, 2013 (File No. 0-22490))
10.17
* Form of Non-Qualified Stock Option Agreement for an award granted in February 2013, under the registrant's Amended
and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the Securities and Exchange Commission
on April 25, 2013 (File No. 0-22490))
10.18
* Amended and Restated Non-Employee Director Stock Plan, as further amended and restated on February 8, 2013
10.19
(incorporated herein by reference to Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2013, filed with the Securities and Exchange Commission on April 25, 2013 (File No. 0-22490))
First Amendment to the Forward Air Corporation Amended and Restated Stock Option and Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2016, filed with the Securities and Exchange Commission on April 27, 2016 (File No. 0-22490))
10.20
* Form of Nonqualified Stock Option Agreement under the registrant’s Amended and Restated Stock Option and Incentive
Plan (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.21
* Form of CEO Nonqualified Stock Option Agreement under the registrant’s Amended and Restated Stock Option and
Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.22
* Form of Restricted Stock Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.23
* Form of CEO Restricted Stock Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.24
* Form of Performance Share Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.25
* Form of CEO Performance Share Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan
(incorporated herein by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.26
* Form of Non-Employee Director Restricted Stock Units Agreement under the registrant’s Amended and Restated Non-
Employee Director Stock Plan (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form
8-K filed with the Securities and Exchange Commission on May 10, 2016 (File No. 0-22490))
10.27
* Form of Non-Employee Director Restricted Stock Agreement under the registrant’s Amended and Restated Non-Employee
Director Stock Plan (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 10, 2016 (File No. 0-22490))
10.28
* Michael J. Morris Offer Letter dated as of May 24, 2016 (incorporated herein by reference to Exhibit 10.1 to the
registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2016 (File No. 0-
22490))
10.29
* Form of Employee Restricted Share Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2016 filed with the Securities and Exchange Commission on July 27, 2016))
10.30
* Form of CEO Nonqualified Stock Option Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.41 to the registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 22, 2017)
10.31
* Form of CEO Performance Share Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.42 to the registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 22, 2017)
10.32
* Form of CEO Restricted Stock Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.43 to the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 22, 2017)
10.33
* Form of Nonqualified Stock Option Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.44 to the registrant’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 22, 2017)
10.34
* Form of Performance Share Agreement under the registrant’s 2016 Omnibus Compensation Plan (incorporated herein by
reference to Exhibit 10.45 to the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 22, 2017)
10.35
* Form of Notice of Grant of Performance Shares under the registrant’s 2016 Omnibus Compensation Plan (incorporated
herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on April 27, 2017)
10.36
* Executive Mortgage Assistance Agreement (incorporated herein by reference to Exhibit 10.2 to the registrant’s Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on April 27, 2017)
10.37
* Severance Agreement (incorporated herein by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on April 27, 2017)
10.38
* Forward Air Corporation 2016 Omnibus Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.1 to
the registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on July 27, 2017 (File
No. 0-22490))
10.39
* Amended and Restated Non-Employee Director Stock Plan (incorporated herein by reference to Exhibit 10.2 to the
10.40
registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on July 27, 2017 (File No.
02-22490))
Credit Agreement dated September 29, 2017 among Forward Air Corporation and Forward Air, Inc., as the borrowers, the
subsidiaries of the borrowers identified therein as the guarantors, Bank of America, N.A., U.S. Bank National Association
and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on October 3, 2017)
10.41
* Form of CEO Nonqualified Stock Option Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on April 26, 2018)
10.42
* Form of CEO Performance Share Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
(incorporated herein by reference to Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on April 26, 2018)
10.43
* Form of CEO Restricted Stock Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.6 to the registrant’s Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on April 26, 2018)
10.44
* Employment Agreement, dated June 6, 2018, between Forward Air Corporation and Thomas Schmitt (incorporated herein
by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 12, 2018)
10.45
* Restrictive Covenants Agreement, dated June 6, 2018, between Forward Air Corporation and Thomas Schmitt
(incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on June 12, 2018)
* Waiver and Acknowledgment, dated June 11, 2018 between Forward Air Corporation and Bruce Campbell (incorporated
herein by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 12, 2018)
Subsidiaries of the registrant
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR 240.13a-14(a))
Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR 240.13a-14(a))
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
10.46
21.1
23.1
31.1
31.2
32.1
Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
*Denotes a management contract or compensatory plan or arrangement.
Exhibit 21.1
FORWARD AIR CORPORATION
SUBSIDIARIES
FAF, Inc.
Forward Air, Inc.
Forward Air Solutions, Inc.
Forward Air International Airlines, Inc.
Central States Trucking Co.
Central States Logistics, Inc.
TQI Holdings, Inc.
State of Incorporation
Tennessee
Tennessee
Tennessee
Tennessee
Delaware
Illinois
Delaware
FORWARD AIR, INC.
SUBSIDIARIES
Forward Air Royalty, LLC
Forward Air Technology and Logistics Services, Inc.
FACSBI, LLC
Towne Holdings, LLC
Synergy Cargo Logistics, Inc.
TAF, LLC
Towne Air Freight, LLC
Forward Air Services, LLC
State of Incorporation
Delaware
Tennessee
Delaware
Delaware
California
Indiana
Indiana
Delaware
TQI HOLDINGS, INC.
SUBSIDIARIES
Total Quality, Inc.
TQI, Inc.
State of Incorporation
Michigan
Michigan
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-151198) pertaining to the Forward Air Corporation Amended and
Restated Stock Option and Incentive Plan,
(2) Registration Statement (Form S-8 No. 033-77944) pertaining to the Forward Air Corporation Stock Option and
Incentive Plan and the Employee Stock Purchase Plan,
(3) Registration Statement (Form S-8 No. 333-134294) pertaining to the Forward Air Corporation 2006 Non-
Employee Director Stock Plan,
(4) Registration Statement (Form S-8 No. 333-125872) pertaining to the Forward Air Corporation 2005 Employee
Stock Purchase Plan,
(5) Registration Statement (Form S-8 No. 333-120250) pertaining to the Forward Air Corporation 2000 Non-
Employee Director Stock Option Award,
(6) Registration Statement (Form S-8 No. 333-120249) pertaining to the Forward Air Corporation Non-Employee
Director Stock Plan, as amended, and the Forward Air Corporation 1999 Stock Option and Incentive Plan, as
amended,
(7) Registration Statement (Form S-8 No. 333-94249) pertaining to the Forward Air Corporation 1999 Stock Option
and Incentive Plan,
(8) Registration Statement (Form S-8 No. 333-211256) pertaining to the Forward Air Corporation 2016 Omnibus
Incentive Compensation Plan and the Forward Air Corporation Amended and Restated Non-Employee Director
Stock Plan -
of our reports dated February 20, 2019, with respect to the consolidated financial statements and schedule of
Forward Air Corporation and the effectiveness of internal control over financial reporting of Forward Air
Corporation included in this Annual Report (Form 10-K) of Forward Air Corporation for the year ended December
31, 2018.
/s/ Ernst & Young LLP
Atlanta, GA
February 20, 2019
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) (17 CFR 240.13a-14(a))
Exhibit 31.1
I, Thomas Schmitt, President, Chief Executive Officer and Director of Forward Air Corporation, certify that:
1. I have reviewed this report on Form 10-K for the year ended December 31, 2018 of Forward Air Corporation;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
February 20, 2019
/s/ Thomas Schmitt
Thomas Schmitt
President, Chief Executive Officer and
Director
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) (17 CFR 240.13a-14(a))
Exhibit 31.2
I, Michael J. Morris, Chief Financial Officer, Senior Vice President and Treasurer of Forward Air Corporation, certify that:
1. I have reviewed this report on Form 10-K for the year ended December 31, 2018 of Forward Air Corporation;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
February 20, 2019
/s/ Michael J. Morris
Michael J. Morris
Chief Financial Officer, Senior Vice
President and Treasurer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Forward Air Corporation (the “Company”) for the period ended
December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Thomas Schmitt, President,
Chief Executive Officer and Director of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 20, 2019
/s/ Thomas Schmitt
Thomas Schmitt
President, Chief Executive Officer and
Director
A signed original of this written statement required by Section 906 has been provided to Forward Air Corporation and will be retained by
Forward Air Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Forward Air Corporation (the “Company”) for the period ended
December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael J. Morris, Chief
Financial Officer, Senior Vice President and Treasurer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 20, 2019
/s/ Michael J. Morris
Michael J. Morris
Chief Financial Officer, Senior Vice
President and Treasurer
A signed original of this written statement required by Section 906 has been provided to Forward Air Corporation and will be retained by
Forward Air Corporation and furnished to the Securities and Exchange Commission or its staff upon request.