---

---

---

---

---

---

Basis of Presentation and Principles of Consolidation

Forward Air Corporation ("the Company", "We", "Our") is a leading asset-light freight and logistics company. Prior to the Company’s Board of Directors’ (the "Board") approval of a strategy to divest the Company's Pool Distribution business (“Pool”), its services were classified into three principal reportable segments: Expedited Freight, Intermodal and Pool Distribution. As a result of the decision to divest of Pool, which has been classified as a discontinued operation, the Company now has two principal reportable segments: Expedited Freight and Intermodal (see Note 14, Segment Reporting). See Note 4, Discontinued Operations and Held for Sale, for additional information regarding the decision to divest of Pool.

Through the Expedited Freight segment, the Company operates a comprehensive national network to provide expedited regional, inter-regional and national less-than-truckload ("LTL") services. Expedited Freight offers customers local pick-up and delivery and other services including final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling.

The Company's Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station ("CFS") warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest United States.

Pool, which has been classified as discontinued operations, provides high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. Pool offers this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States.

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company’s operating results are subject to seasonal trends (as described in the Company's 2019 Form 10-K) when measured on a quarterly basis; therefore operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to the consolidated financial statements and notes thereto included in the Forward Air Corporation Annual Report on Form 10-K for the year ended December 31, 2019.

The accompanying unaudited consolidated financial statements of the Company include Forward Air Corporation and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior period financial information to conform to the current year presentation.

Discontinued Operations

On April 23, 2020, the Board approved a strategy to divest Pool within the next year. Accordingly, Pool met the criteria for assets held for sale as of June 30, 2020. Pool assets and liabilities are reflected as “Assets and liabilities held for sale” on the Consolidated Balance Sheets in this report. In addition, the results of operations for Pool have been presented in this report as discontinued operations. Amounts for all periods discussed below reflect the results of operations, financial condition and cash flows from Forward Air’s continuing operations, unless otherwise noted. See Note 4, Discontinued Operations and Held for Sale.

---

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.

In particular, management has made estimates and assumptions related to the impact of the novel coronavirus ("COVID-19") on its business. COVID-19 was characterized as a pandemic by the World Health Organization on March 11, 2020. To help lessen its spread, many countries have implemented travel restrictions and/or required companies to limit or suspend business operations. These actions have disrupted supply chains and company operations around the world. The current environment resulting from COVID-19 is unprecedented and comes with a great deal of uncertainty as discussed further throughout this document.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and requires the use of a forward-looking expected loss model. Under current accounting guidance, credit losses are recognized when it is probable a loss has been incurred. The updated guidance will require financial assets to be measured at amortized costs less a reserve, equal to the net amount expected to be collected. This standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard as of January 1, 2020, which resulted in the Company revising its allowance for doubtful accounts policy on a prospective basis. The adoption of this standard did not have a material impact on the Company's financial statements.

The Company'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 are completed. The Company generally recognizes revenue for its services over time to coincide with when its customers simultaneously receive and consume the benefits of these services. Performance obligations are short-term with transit days typically less than a week. Upon delivery of a shipment or related service, customers are billed and remit payment according to payment terms.

Excluding Pool, the Company's revenue from contracts with customers is disclosed within two reportable segments: Expedited Freight and Intermodal. This is consistent with disclosures in earnings releases and annual reports and with the information regularly reviewed by the chief operating decision maker for evaluating financial performance. See additional discussion in Note 14, Segment Reporting.

---

On April 23, 2020, the Board approved a strategy to divest Pool within the next year. Accordingly, Pool met the criteria for assets held for sale as of June 30, 2020. Pool assets and liabilities are reflected as “Assets and liabilities held for sale” on the Consolidated Balance Sheets in this report. In addition, the results of operations for Pool have been presented in this report as discontinued operations.

Upon meeting the assets held for sale criteria and during its annual impairment analysis, the Company evaluated whether Pool's estimated fair value, less costs to sell, exceeded the carrying value of its assets and liabilities. As a result of that assessment, we determined that the fair value of Pool exceeded its carrying value by approximately 5%.

The results of Pool were previously included in its own segment. The Company will continue to have two reporting segments: Expedited Freight and Intermodal, which is consistent with the way the Chief Operating Decision Maker reviews operating results and makes resource decisions (See Note 14, Segment Reporting). Certain corporate overhead and other costs previously allocated to Pool for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations. These costs have been reclassified to the eliminations and other column in the segment reconciliation that appears in Note 14, Segment Reporting.

---

Summarized Held for Sale and Discontinued Operations Financial Information

 

The following table provides a reconciliation of the carrying amounts of major classes of assets and liabilities which are included in assets and liabilities held for sale in the accompanying Consolidated Balance Sheets as of each of the periods presented below:

	June 30, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	—			$	—
Accounts receivable, less allowance of $124 in 2020 and $49 in 2019	11,224				13,983
Other current assets	647				969
Total current assets held for sale	$	11,871			$	14,952
Property and equipment	$	52,046			$	53,166
Less accumulated depreciation and amortization	32,443				32,891
Total property and equipment, net	19,603				20,275
Operating lease right-of-use assets	44,110				46,487
Goodwill and other acquired intangibles:
Goodwill	5,406				5,406
Other acquired intangibles, net of accumulated amortization of $12,679 in 2020 and $12,359 in 2019	2,621				2,941
Total goodwill and other acquired intangibles, net	8,027				8,347
Other assets	2,853				1,595
Total noncurrent assets held for sale	$	74,593			$	76,704
Liabilities
Current liabilities:
Accounts payable	$	2,732			$	4,575
Accrued expenses	5,163				5,668
Other current liabilities	—				2
Current portion of operating lease obligations	15,897				14,729
Total current liabilities held for sale	$	23,792			$	24,974
Operating lease obligations, less current portion	$	28,385			$	31,847
Other long-term liabilities	3,989				2,368
Deferred income taxes	3,951				2,728
Total noncurrent liabilities held for sale	$	36,325			$	36,943

---

The following table summarizes the results of operations classified as discontinued operations, net of tax, in the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019:

	Three months ended								Six months ended
	June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Operating revenue	$	13,974			$	42,869			$	50,926			$	85,379
Operating expenses:
Purchased transportation	3,147				11,688				12,683				23,151
Salaries, wages and employee benefits	8,394				16,437				25,507				32,842
Operating leases	4,966				4,202				10,646				8,498
Depreciation and amortization	362				1,454				1,657				2,993
Insurance and claims	1,287				1,472				3,013				2,856
Fuel expense	413				1,462				1,740				2,955
Other operating expenses	3,495				4,674				7,841				9,572
Total operating expenses	22,064				41,389				63,087				82,867
(Loss) income from discontinued operations before income taxes	(8,090		)		1,480				(12,161		)		2,512
Income tax (benefit) expense	(2,019		)		394				(3,049		)		706
(Loss) income from discontinued operations, net of tax	$	(6,071	)		$	1,086			$	(9,112	)		$	1,806

Expedited Freight Acquisitions

As part of the Company's strategy to expand final mile pickup and delivery operations, in January 2020, the Company acquired certain assets and liabilities of Linn Star Holdings, Inc., Linn Star Transfer, Inc. and Linn Star Logistics, LLC (collectively, “Linn Star”) for $57,239. This acquisition increased the Company's Final Mile capabilities with an additional 20 locations. In addition, in April 2019, the Company acquired certain assets and liabilities of FSA Network, Inc., doing business as FSA Logistix (“FSA”), for $27,000 and a potential earnout of up to $15,000. Both transactions were funded using cash flows from operations. The assets, liabilities, and operating results of these acquisitions have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Expedited Freight reportable segment.

The FSA acquisition agreement provides the sellers an earnout opportunity of up to $15,000 based on the achievement of certain revenue milestones over two one-year periods, beginning May 1, 2019. Upon acquisition, the fair value of the earn-out liability was $11,803 and was included in other current and long-term liabilities in the opening consolidated balance sheet. The earn-out liability was classified as level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the FASB Codification”) and the value was determined based on estimated revenues and the probability of achieving them. The fair value was based on the two-year performance of FSA's acquired customer revenue and was estimated using a Monte Carlo simulation.

---

The initial weighted average assumptions used in the Monte Carlo simulation are summarized in the following table:

	FSA Earn-out
	April 21, 2019		December 31, 2019		June 30, 2020
Risk-free rate	2.9%		2.2%		2.2%
Revenue discount rate	4.4%		4.4%		3.2%
Revenue volatility	3.0%		5.0%		6.0%

In June 2020, the Company paid the first period's earn-out payment of $5,284; the second and final payment is expected to be paid in the second quarter of 2021. Excluding the impact from this payment, during the three months ended June 30, 2020, the earn-out fair value decreased $2,108 to $3,784, which is classified as a current liability. The change in fair value is included in other operating expenses and is based on changes in expected cash flows and expected new business wins.

Intermodal Acquisitions

As part of the Company's strategy to expand its Intermodal operations, in July 2019, the Company acquired certain assets and liabilities of O.S.T. Logistics, Inc. and O.S.T. Trucking Co., Inc. (together referred to as “OST”) for $12,000. OST is a drayage company and expanded the Company's intermodal footprint on the East Coast, primarily in Baltimore, Maryland, with additional locations in Pennsylvania, Virginia, South Carolina and Georgia. This transaction was funded using cash flows from operations. The assets, liabilities, and operating results of the acquisition have been included in the Company's consolidated financial statements from the date of acquisition and have been included in the Intermodal reportable segment.

---

Allocations of Purchase Price

The following table presents the allocations of the previously discussed acquisition purchase prices to the assets acquired and liabilities assumed based on their estimated fair values and resulting residual goodwill (in thousands):

	FSA			OST			Linn Star
	April 21, 2019			July 14, 2019			January 12, 2020
Tangible assets:
Cash	$	202		$	—		$	1,308
Other receivables	1,491			—			—
Prepaid expenses and other current assets	—			—			1,182
Property and equipment	40			10,371			605
Operating lease right-of-use assets	3,209			1,672			10,011
Total tangible assets	4,942			12,043			13,106
Intangible assets:
Non-compete agreements	900			850			450
Customer relationships	17,900			5,700			29,800
Goodwill	19,963			2,050			25,234
Total intangible assets	38,763			8,600			55,484
Total assets acquired	43,705			20,643			68,590
Liabilities assumed:
Current liabilities	8,466			—			1,340
Other liabilities	5,030			—			—
Debt and finance lease obligations	—			6,971			—
Operating lease obligations	3,209			1,672			10,011
Total liabilities assumed	16,705			8,643			11,351
Net assets acquired	$	27,000		$	12,000		$	57,239

The above purchase price allocation for Linn Star is preliminary as the Company is still in the process of finalizing the valuation of the acquired assets and liabilities assumed. The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition date through the date of this filing. The acquired definite-lived intangible assets have the following useful lives:

	Useful Lives
	FSA	OST	Linn Star
Non-compete agreements	5 years	3 years	1 year
Customer relationships	15 years	10 years	15 years

The fair value of the non-compete agreements and customer relationships 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

Goodwill is allocated to reporting units that are expected to benefit from the business combinations generating the goodwill. Excluding Pool, the Company has four reporting units - Expedited LTL, Truckload, Final Mile and Intermodal. As discussed in Note 4, Discontinued Operations and Held for Sale, the carrying amounts of Pool's assets and liabilities, including goodwill, are classified as held for sale in the accompanying Consolidated Balance Sheets and its operating results are not part of the continuing operations of the Company.

The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2020 and no impairment charges were required. The Company estimated the fair value of the applicable reporting units, using a combination of discounted projected cash flows and market valuations for comparable companies as of the valuation date (level 3). Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value. Our calculations for Expedited LTL, Truckload, Final Mile and Intermodal indicated the fair value of each reporting unit exceeded their carrying value by 421.6%, 65.7%, 118.5% and 49.4%, respectively, as of June 30, 2020.

This discounted projected cash flow analysis required the Company to calculate the present value of its projected future cash flows using each reporting unit's applicable discount rate. The Company used a ten-year projection period to derive operating cash flow projections. Certain assumptions were made regarding future revenue and operating income growth based on industry market data and historical and expected performance. The Company's projected operating income was combined with expected working capital and capital expenditure requirements to determine operating cash flows. The significant assumptions used in this analysis were as follows:

	Expedited LTL			Truckload			Final Mile			Intermodal
Discount rate	10.5	%		13.5	%		13.5	%		13.5	%
Terminal growth rate	4.0	%		4.0	%		4.0	%		4.0	%

Market valuations for comparable companies employ valuation multiples derived from market stock prices of companies that are engaged in the same or similar lines of business as the reporting units and that are actively traded on a free and open market. The estimates used to calculate the fair value of each reporting unit change over time 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.

---

The following is a summary of the Company's goodwill as of June 30, 2020. Approximately $161,789 of goodwill is deductible for tax purposes.

	Beginning balance, December 31, 2019				Linn Star Acquisition				Ending balance, June 30, 2020
Expedited LTL
Goodwill	$	97,593			$	—			$	97,593
Accumulated Impairment	—				—				—
Truckload
Goodwill	45,164				—				45,164
Accumulated Impairment	(25,686		)		—				(25,686		)
Final Mile
Goodwill	19,963				25,234				45,197
Accumulated Impairment	—				—				—
Intermodal
Goodwill	78,665				—				78,665
Accumulated Impairment	—				—				—
Total
Goodwill	241,385				25,234				266,619
Accumulated Impairment	(25,686		)		—				(25,686		)
	$	215,699			$	25,234			$	240,933

Other Long-Lived Assets

The Company tests its long-lived assets (asset groups) for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Management evaluates long-lived assets for impairment at the lowest level for which cashflows are identifiable. In general, these assets are reviewed at the reporting unit level, discussed above, by significant asset category. Examples of significant asset categories include land, buildings, tractors, trailers, other equipment, leasehold improvements, right-of-use lease assets, customer relationships, non-compete agreements, software and inventory.

The Company’s general practice has been to make a single annual grant of share-based compensation in the first quarter to key employees and to make other employee grants only in connection with new employment or promotions.  Forms of share-based compensation granted to employees by the Company include stock options, non-vested shares of common stock (“non-vested shares”), and performance shares.  The Company also typically makes a single annual grant of non-vested shares to non-employee directors in conjunction with the annual election of non-employee directors to the Board of Directors. Share-based compensation is based on the grant date fair value of the instrument and is recognized ratably over the requisite service period or vesting period.  All share-based compensation expense is recognized in salaries, wages and employee benefits. Share-based compensation amounts below are disclosed on both a continuing and discontinuing basis.

---

Employee Activity - Stock Options

 

Stock option grants to employees generally expire seven years from the grant date and typically vest ratably over a three-year period.  All forfeitures were recognized as they occurred. The Company used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted.  There were no options granted during the six months ended June 30, 2019. Further, there were no options granted to employees of the Company's discontinued operations during the six months ended June 30, 2020 or 2019. The weighted-average fair value of options granted and assumptions used to estimate their fair value during the six months ended June 30, 2020 were as follows (on a continuing basis):

	Six months ended
	June 30, 2020
Expected dividend yield	1.1		%
Expected stock price volatility	24.1		%
Weighted average risk-free interest rate	1.5		%
Expected life of options (years)	5.9
Weighted average grant date fair value	$	14.79

The following tables summarize the Company’s employee stock option activity and related information on a continuing basis:

	Six months ended June 30, 2020
												Weighted-
				Weighted-								Average
				Average				Aggregate				Remaining
				Exercise				Intrinsic				Contractual
	Options			Price				Value				Term
Outstanding at December 31, 2019	417			$	53
Granted	36			66
Exercised	—			—
Forfeited	(4	)		60
Outstanding at June 30, 2020	449			$	54			$	247			3.9
Exercisable at June 30, 2020	317			$	51			$	1,379			3.3

	Six months ended
	June 30, 2020				June 30, 2019
Share-based compensation for options	$	600			$	829
Tax benefit for option compensation	$	153			$	212
Unrecognized compensation cost for options	$	1,348			$	2,316
Weighted average period over which unrecognized compensation will be recognized (years)	1.6

---

The following tables summarize the Company’s employee stock option activity and related information on a discontinued basis:

	Six months ended June 30, 2020
												Weighted-
				Weighted-								Average
				Average				Aggregate				Remaining
				Exercise				Intrinsic				Contractual
	Options			Price				Value				Term
Outstanding at December 31, 2019	14			$	52
Granted	—			—
Exercised	—			—
Forfeited	—			—
Outstanding at June 30, 2020	14			$	52			$	37			3.3
Exercisable at June 30, 2020	12			$	52			$	41			3.2

	Six months ended
	June 30, 2020				June 30, 2019
Share-based compensation for options	$	11			$	21
Tax benefit for option compensation	$	3			$	5
Unrecognized compensation cost for options	$	11			$	42
Weighted average period over which unrecognized compensation will be recognized (years)	0.6

Employee Activity - Non-vested Shares

The fair value of non-vested shares issued was estimated using the closing market prices for the business day of the grant. The share-based compensation for the nonvested shares is recognized ratably over the requisite service period or vesting period, which is a three-year period.  All forfeitures were recognized as they occurred.

The following tables summarize the Company’s employee non-vested share activity and related information on a continuing basis:

	Six months ended June 30, 2020
				Weighted-
				Average				Aggregate
	Non-vested			Grant Date				Grant Date
	Shares			Fair Value				Fair Value
Outstanding and non-vested at December 31, 2019	264			$	58
Granted	111			66
Vested	(140	)		57
Forfeited	(13	)		62
Outstanding and non-vested at June 30, 2020	222			$	63			$	13,964

---

	Six months ended
	June 30, 2020				June 30, 2019
Share-based compensation for non-vested shares	$	3,727			$	3,960
Tax benefit for non-vested share compensation	$	950			$	1,010
Unrecognized compensation cost for non-vested shares	$	11,019			$	12,635
Weighted average period over which unrecognized compensation will be recognized (years)	2.0

The following tables summarize the Company’s employee non-vested share activity and related information on a discontinued basis:

	Six months ended June 30, 2020
				Weighted-
				Average				Aggregate
	Non-vested			Grant Date				Grant Date
	Shares			Fair Value				Fair Value
Outstanding and non-vested at December 31, 2019	13			$	58
Granted	6			63
Vested	(8	)		58
Forfeited	—			—
Outstanding and non-vested at June 30, 2020	11			$	61			$	678

	Six months ended
	June 30, 2020				June 30, 2019
Share-based compensation for non-vested shares	$	201			$	182
Tax benefit for non-vested share compensation	$	51			$	46
Unrecognized compensation cost for non-vested shares	$	552			$	557
Weighted average period over which unrecognized compensation will be recognized (years)	2.1

Employee Activity - Performance Shares

The Company annually grants performance shares to key employees.  Under the terms of the performance share agreements, following the end of a three-year performance period, the Company may issue to these employees a calculated number of common stock shares if certain performance targets are met. For shares granted during the three and six months ended June 30, 2020 and 2019, 50% of the performance share issuances will be based on meeting three-year earnings before interest, taxes, depreciation and amortization ("EBITDA") per share targets and the remaining 50% of the performance share issuances will be based on the three-year performance of the Company’s total shareholder return ("TSR") as compared to the TSR of a selected peer group. All forfeitures were recognized as they occurred.

Depending upon the EBITDA per share targets met, 0% to 200% of the granted shares may ultimately be issued. For shares granted based on total shareholder return, 0% of the shares will be issued if the Company's total shareholder return outperforms 25% or less of the peer group, but 200% of the shares will be issued if the Company's total shareholder return performs better than 90% of the peer group.  

The fair value of the performance shares granted based on meeting EBITDA per share targets were estimated using the closing market prices on the day of grant and the probability of meeting these targets as of the measurement date. The fair value of the performance shares granted based on the three-year performance of the Company’s total shareholder return was estimated using

---

a Monte Carlo simulation. The following table contains the weighted-average assumptions, on both a continuing and discontinued basis, used to estimate the fair value of performance shares granted using the Monte Carlo simulation. These assumptions are subjective and changes in these assumptions can materially affect the fair value estimate.

	Six months ended
	June 30, 2020			June 30, 2019
Expected stock price volatility	23.5	%		23.4	%
Weighted average risk-free interest rate	1.4	%		2.5	%

The following tables summarize the Company’s employee performance share activity, assuming median share awards, and related information on a continuing basis:

	Six months ended June 30, 2020
				Weighted-
				Average				Aggregate
	Performance			Grant Date				Grant Date
	Shares			Fair Value				Fair Value
Outstanding and non-vested at December 31, 2019	58			$	62
Granted	38			69
Additional shares awarded based on performance	13			51
Vested	(33	)		51
Forfeited	(11	)		66
Outstanding and non-vested at June 30, 2020	65			$	68			$	4,425

	Six months ended
	June 30, 2020				June 30, 2019
Share-based compensation for performance shares	$	794			$	682
Tax benefit for performance share compensation	$	202			$	174
Unrecognized compensation cost for performance shares	$	2,837			$	2,299
Weighted average period over which unrecognized compensation will be recognized (years)	2.3

The following tables summarize the Company’s employee performance share activity, assuming median share awards, and related information on a discontinued basis:

	Six months ended June 30, 2020
				Weighted-
				Average				Aggregate
	Performance			Grant Date				Grant Date
	Shares			Fair Value				Fair Value
Outstanding and non-vested at December 31, 2019	4			$	62
Granted	2			69
Additional shares awarded based on performance	1			51
Vested	(2	)		51
Forfeited	—			—
Outstanding and non-vested at June 30, 2020	5			$	66			$	275

---

	Six months ended
	June 30, 2020				June 30, 2019
Share-based compensation for performance shares	$	48			$	35
Tax benefit for performance share compensation	$	12			$	9
Unrecognized compensation cost for performance shares	$	165			$	137
Weighted average period over which unrecognized compensation will be recognized (years)	2.1

Employee Activity – Employee Stock Purchase Plan

Under the 2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by shareholders, the Company is authorized to issue up to a remaining 350 shares of common stock to employees of the Company. 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 following table summarizes the Company's employee stock purchase activity and related information on a continuing basis:

	Six months ended
	June 30, 2020				June 30, 2019
Shares purchased by participants under plan	6				4
Average purchase price	$	45			$	49
Weighted-average fair value of each purchase right under the ESPP granted ¹	$	5			$	10
Share-based compensation for ESPP shares	$	30			$	46
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period

The following table summarizes the Company's employee stock purchase activity and related information on a discontinued basis:

	Six months ended
	June 30, 2020				June 30, 2019
Shares purchased by participants under plan	1				1
Average purchase price	$	45			$	49
Weighted-average fair value of each purchase right under the ESPP granted ¹	$	5			$	10
Share-based compensation for ESPP shares	$	3			$	6
¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period

Non-employee Director Activity - Non-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 under a non-vested share award until the director terminates service on the Board of Directors. If a director elects to defer receipt, the Company will issue deferred stock units to the director, which do not represent actual ownership in shares and the director will not have voting rights or other incidents of ownership until the shares are issued. However, the Company will credit the director with dividend equivalent payments in the form of additional deferred stock units for each cash dividend payment made by the Company. All forfeitures were recognized as they occurred.

In May 2016, with the approval of shareholders, the Company further amended the Amended Plan to reserve for issuance an additional 160 common shares, increasing the total number of reserved common shares under the Amended Plan to 360. As of June 30, 2020, there were approximately 92 shares remaining available for grant. There were no shares granted to non-employee directors classified as discontinued operations in any period.

The following tables summarize the Company’s non-employee non-vested share activity and related information on a continuing basis:

	Six months ended June 30, 2020
				Weighted-
				Average				Aggregate
	Non-vested			Grant Date				Grant Date
	Shares			Fair Value				Fair Value
Outstanding and non-vested at December 31, 2019	16			$	62
Granted	24			43
Vested	(16	)		62
Forfeited	—			—
Outstanding and non-vested at June 30, 2020	24			$	43			$	1,035

	Six months ended
	June 30, 2020				June 30, 2019
Share-based compensation for non-vested shares	$	506			$	483
Tax benefit for non-vested share compensation	$	129			$	123
Unrecognized compensation cost for non-vested shares	$	896			$	784
Weighted average period over which unrecognized compensation will be recognized (years)	0.9

The Company has a five-year senior unsecured revolving credit facility (the “Facility”) that was entered into on September 29, 2017 and amended on April 16, 2020. The Facility has a maximum aggregate principal amount of $225,000, 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 $25,000 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 and may be used to refinance existing indebtedness of the Company and for working capital, capital expenditures and other general corporate purposes. The Facility refinanced the Company’s obligations

---

for its unsecured credit facility under the credit agreement dated as of February 4, 2015, as amended, which was terminated as of the date of the new Facility.

Unless the Company elects otherwise under the credit agreement, interest on borrowings under the Facility will be at the base interest rate (which cannot be less than 3.00%) and will be the highest of (a) the federal funds rate (which cannot be less than 0.00%) plus 0.50%, (b) the administrative agent's prime rate and (c) the LIBOR Rate (which cannot be less than 1.00%) plus 1.00% and, in each case, a margin that can range from 0.25% to 0.75% 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 June 30, 2020, the Company had $132,500 in borrowings outstanding under the revolving credit facility, $15,367 utilized for outstanding letters of credit and $77,133 of available borrowing capacity under the revolving credit facility.  The interest rate on the outstanding borrowing under the revolving credit facility was 3.25% as of June 30, 2020.

---

The following table sets forth the computation of basic and diluted net income per share:

	Three months ended								Six months ended
	June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Numerator:
Net income and comprehensive income from continuing operations	$	9,225			$	21,244			$	20,641			$	38,931
Net (loss) income and comprehensive (loss) income from discontinued operations	(6,071		)		1,086				(9,112		)		1,806
Net income attributable to Forward Air shareholders	$	3,154			$	22,330			$	11,529			$	40,737
Income allocated to participating securities	(13		)		(251		)		(83		)		(459		)
Numerator for basic and diluted net income per share for continuing operations	$	9,212			$	20,993			$	20,558			$	38,472
Numerator for basic and diluted net (loss) income per share for discontinued operations	$	(6,071	)		$	1,086			$	(9,112	)		$	1,806
Denominator:
Denominator for basic income per share - weighted-average shares	27,695				28,268				28,424				28,421
Effect of dilutive stock options	13				77				35				76
Effect of dilutive performance shares	18				28				32				34
Denominator for diluted income per share - adjusted weighted-average shares	27,726				28,373				28,491				28,531
Basic net income (loss) per share:
Continuing operations	$	0.33			$	0.74			$	0.72			$	1.35
Discontinued operations	(0.22		)		0.04				(0.31		)		0.07
Net income per share	$	0.11			$	0.78			$	0.41			$	1.42
Diluted net income (loss) per share:
Continuing operations	$	0.33			$	0.74			$	0.72			$	1.35
Discontinued operations	(0.22		)		0.04				(0.32		)		0.06
Net income per share	$	0.11			$	0.78			$	0.40			$	1.41

---

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:

	June 30, 2020			June 30, 2019
Anti-dilutive stock options	218			194
Anti-dilutive performance shares	29			—
Anti-dilutive non-vested shares and deferred stock units	95			—
Total anti-dilutive shares	342			194

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.

For the six months ended June 30, 2020 and 2019, the effective income tax rates varied from the statutory federal income tax rate of 21.0%, primarily as a result of the effect of state income taxes, net of the federal benefit, and permanent differences between book and tax net income. The combined federal and state effective tax rate for continuing operations for the six months ended June 30, 2020 was 25.3% compared to a rate of 24.6% for the same period in 2019.  The higher effective tax rate for the six months ended June 30, 2020 was primarily due to decreased stock based compensation vesting and exercises when compared to the same period in 2019 and increased executive compensation as a percentage of income before income taxes, which was not deductible for income tax purposes.

A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. An entity controls the use of the identified asset if both of the following are true: (1) the entity obtains the right to substantially all of the economic benefits from use of the identified asset and (2) the entity has the right to direct the use of the identified asset. For the three and six months ended June 30, 2020, the Company leased facilities and equipment under operating and finance leases, which were accounted for in accordance with ASU 2016-02, Leases.

The Company elected the practical expedients as allowed per this guidance to combine lease and non-lease components and to keep leases with an initial term of 12 months or less, after the consideration of options, off the balance sheet. Additionally, variable lease and variable nonlease components were not contemplated in the calculation of the right-of-use asset and corresponding liability.

For leases and subleases with terms greater than 12 months, the Company records the related right-of-use asset as the balance of the related lease liability, adjusted for any prepaid or accrued lease payments. Unamortized initial direct costs and lease incentives were not significant as of June 30, 2020. The lease liability was recorded at the present value of the lease payments over the term. Many of the Company's leases include rental escalation clauses, renewal options and/or termination options that were contemplated in the determination of lease payments when appropriate. As of June 30, 2020, the Company was not reasonably certain of exercising any renewal options. Further, as of June 30, 2020, it was reasonably certain that all termination options would not be exercised. As such, there were no adjustments made to its right-of-use lease assets or corresponding liabilities as a result. In addition, the Company does not have any leases with residual value guarantees or material restrictions or covenants as of June 30, 2020.

For these leases with an initial term of 12 months or less, after the consideration of options, the Company recognizes the corresponding lease expense on a straight-line basis over the lease term.

---

Operating Leases

The Company leases some of its facilities under noncancelable operating leases that expire in various years through 2028. Certain leases may be renewed for periods varying from 1 to 10 years.  In conjunction with the acquisition of Linn Star in January 2020, discussed further in Note 5, Acquisitions and Long-Lived Assets, the Company assumed operating facility leases that expire in various years through 2025 and had a right-of-use asset and corresponding lease liability of approximately $10,011 at acquisition.

The Company has also historically entered into or assumed through acquisition several equipment operating leases for assets including tractors, straight trucks and trailers with original lease terms between 2 and 6 years.  These leases expire in various years through 2025 and certain leases may be renewed for periods varying from 1 to 3 years.  The Company did not enter into any material equipment leases outside the normal course of business during the six months ended June 30, 2020.

As of June 30, 2020, the Company has certain obligations to lease tractors, which will be delivered throughout 2020. These leases are expected to have terms of approximately 3 to 4 years and are not expected to materially impact the Company's right-of-use lease assets or liabilities as of June 30, 2020.

Finance Leases

Primarily through acquisitions, the Company assumes equipment leases that meet the criteria for classification as a finance lease with remaining lease terms between 2 and 7 years. These leases expire in various years through 2025 with no options to renew.  The finance leased equipment is being amortized over the shorter of the lease term or useful life. The Company did not enter into any new finance leases during the six months ended June 30, 2020.

Off Balance Sheet Risk

As of June 30, 2020, the Company had letters of credit outstanding totaling $15,367.

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.

 

Revolving credit facility: The Company’s revolving credit facility bears variable interest rates plus additional basis points based upon covenants related to total indebtedness to earnings.  As the revolving credit facility bears a variable interest rate, the carrying value approximates fair value.

The fair value estimates of earn-outs are discussed in Note 5, Acquisitions and Long-Lived Assets.

Using interest rate quotes and discounted cash flows, the Company estimated the fair value of its outstanding finance lease obligations as follows:

		June 30, 2020
		Carrying Value				Fair Value
Finance leases		$	5,626			$	5,945

The carrying value of the finance lease obligations are included within the Equipment section of Property and equipment on the Company’s Consolidated Balance Sheet. 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.

---

During each quarter of 2019 and the first and second quarter of 2020, the Company's Board of Directors declared a cash dividend of $0.18 per share of common stock. The Company expects to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by the Board of Directors.

On July 21, 2016, the Company's Board of Directors approved a stock repurchase authorization for up to 3,000 shares of the Company’s common stock (the "2016 Repurchase Plan"). On February 5, 2019, the Company's Board of Directors canceled the Company’s 2016 Repurchase Plan and approved a new stock repurchase plan authorizing up to 5,000 shares of the Company’s common stock (the “2019 Repurchase Plan”) that shall remain in effect until such time as the shares authorized for repurchase are exhausted or the plan is canceled.  The Company is not obligated to repurchase any specific number of shares and may suspend or cancel the plan at any time. The Company does not expect to repurchase any shares under this plan during the third quarter of 2020.

The following tables summarize the Company's share repurchases for the three and six months ended June 30, 2020 and 2019.

	Three months ended
	June 30, 2020									June 30, 2019
	Shares repurchased		Cost of shares repurchased			Average cost per share				Shares repurchased		Cost of shares repurchased			Average cost per share
2019 Repurchase Plan	—		$	—		$	—			407		$	24,436		$	60.05
Total	—		$	—		$	—			407		$	24,436		$	60.05

	Six months ended
	June 30, 2020									June 30, 2019
	Shares repurchased		Cost of shares repurchased			Average cost per share				Shares repurchased		Cost of shares repurchased			Average cost per share
2016 Repurchase Plan	—		$	—		$	—			68		$	3,850		$	56.97
2019 Repurchase Plan	268		15,259			56.93				569		34,767			61.08
Total	268		$	15,259		$	56.93			637		$	38,617		$	60.65

As of June 30, 2020, 3,887 shares were available to be purchased under the 2019 Plan.

Self-Insurance Reserves

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 business, 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 is responsible for the first $7,500 per incident until it meets the $6,000 aggregate deductible for incidents resulting in claims between $3,000 and $5,000 and the $2,500 aggregate deductible for incidents resulting in claims between $5,000 and $10,000. Due to the uncertainty 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.

---

Purchase Commitments

The Company operates in two reportable segments based on information available to and used by the chief operating decision maker ("CODM").  This classification is consistent with how the CODM makes decisions about resource allocation and assesses the Company's performance. 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.

Expedited Freight operates a comprehensive national network to provide expedited regional, inter-regional and national LTL services and offers customers local pick-up and delivery and other services including final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. Intermodal primarily provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads.

Except for certain insurance activity, the accounting policies of the segments are the same as those described in the summary of significant accounting policies disclosed in Note 1, Description of Business and Basis of Presentation, to the Forward Air Corporation Annual Report on Form 10-K for the year ended December 31, 2019. For workers compensation and vehicle claims, each segment is charged an insurance premium and is also charged a deductible that corresponds with each segment's individual self-retention limit. However, any losses beyond these deductibles and any loss development factors applied to outstanding claims as a result of actuary analysis are not passed to the segments, but recorded at the corporate level ("Eliminations & other").

Segment data includes intersegment revenues and shared costs.  Costs of the corporate headquarters, shared services and shared assets, such as trailers, are allocated to the segments based on usage. The cost basis of shared assets are not allocated. Instead, the cost basis for the majority of shared assets, such as trailers, are included in Expedited Freight.  

The following tables summarize segment information from continuing operations for the three and six months ended June 30, 2020 and 2019:

---

		Three months ended June 30, 2020
		Expedited Freight				Intermodal				Eliminations & other				Continuing Operations
External revenues		$	235,417			$	46,420			$	—			$	281,837
Intersegment revenues		241				8				(408		)		(159		)
Depreciation		5,009				1,081				25				6,115
Amortization		1,731				1,567				—				3,298
Share-based compensation expense		2,062				472				(105		)		2,429
Interest expense		3				59				1,136				1,198
Income (loss) from operations		11,753				4,413				(2,252		)		13,914
Total assets		912,814				212,923				(139,702		)		986,035
Capital expenditures		11,545				18				—				11,563
		Three months ended June 30, 2019 (As Adjusted)
		Expedited Freight				Intermodal				Eliminations & other				Continuing Operations
External revenues		$	252,468			$	50,522			$	—			$	302,990
Intersegment revenues		818				17				(938		)		(103		)
Depreciation		6,399				463				(46		)		6,816
Amortization		1,081				1,330				—				2,411
Share-based compensation expense		2,391				443				211				3,045
Interest expense		2				—				579				581
Income (loss) from operations		28,187				5,245				(4,362		)		29,070
Total assets		687,570				187,815				(20,530		)		854,855
Capital expenditures		11,761				142				—				11,903

---

		Six months ended June 30, 2020
		Expedited Freight				Intermodal				Eliminations & other				Continuing Operations
External revenues		$	488,560			$	98,875			$	—			$	587,435
Intersegment revenues		727				13				(940		)		(200		)
Depreciation		9,916				2,134				43				12,093
Amortization		3,519				3,135				—				6,654
Share-based compensation expense		4,729				861				(83		)		5,507
Interest expense		6				113				1,932				2,051
Income (loss) from operations		26,933				8,126				(5,372		)		29,687
Total assets		912,814				212,923				(139,702		)		986,035
Capital expenditures		13,950				264				—				14,214
		Six months ended June 30, 2019 (As Adjusted)
		Expedited Freight				Intermodal				Eliminations & other				Continuing Operations
External revenues		$	477,421			$	104,619			$	—			$	582,040
Intersegment revenues		1,523				35				(1,750		)		(192		)
Depreciation		13,005				932				(86		)		13,851
Amortization		1,927				2,737				—				4,664
Share-based compensation expense		4,560				974				376				5,910
Interest expense		4				2				1,150				1,156
Income (loss) from operations		49,093				11,426				(7,747		)		52,772
Total assets		687,570				187,815				(20,530		)		854,855
Capital expenditures		13,999				215				—				14,214

The following table summarizes revenue from the defined services included within Expedited Freight revenue for the three and six months ended June 30, 2020 and 2019:

		Three months ended								Six months ended
		June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Expedited freight revenue:
Network revenue		$	134,173			$	172,491			$	286,182			$	333,841
Truckload revenue		41,857				48,624				89,384				96,309
Final mile revenue		53,427				24,957				101,229				34,714
Other revenue		6,201				7,214				12,492				14,080
Total revenue		$	235,658			$	253,286			$	489,287			$	478,944

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

•	continue to impact customer demand of the Company’s transportation services;

•	cause the Company to experience an increase in costs as a result of the Company’s emergency measures, delayed payments from customers and uncollectable accounts;

•	cause delays and disruptions in the supply chain resulting in disruptions in the commercial operation dates of certain projects; and

•	cause other unpredictable events.

---

---

---