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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-22490
fwrd-20210331_g1.jpg
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee62-1120025
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
1915 Snapps Ferry RoadBuilding NGreenevilleTN37745
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code: (423) 636-7000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueFWRDThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x  No ¨
 
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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer¨Non-accelerated filer¨Smaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark 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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
Yes ¨  No x

 The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of April 30, 2021 was 27,317,840.



Table of Contents
   
Forward Air Corporation
   
  Page
  Number
Part I.Financial Information 
   
Item 1.Financial Statements (Unaudited) 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
Part II.Other Information
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
   
Item 4.
Item 5.
Item 6.
   

2

Table of Contents

Part I.Financial Information
  
Item 1.Financial Statements (Unaudited).
Forward Air Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 March 31,
2021
December 31,
2020
Assets
Current assets:  
Cash and cash equivalents$24,396 $40,254 
Accounts receivable, less allowance of $2,071 in 2021 and $2,273 in 2020
186,504 156,490 
Other receivables16,847  
Other current assets20,239 28,150 
Current assets held for sale 21,002 
Total current assets247,986 245,896 
Property and equipment379,566 380,519 
Less accumulated depreciation and amortization192,622 190,652 
Total property and equipment, net186,944 189,867 
Operating lease right-of-use assets130,859 123,338 
Goodwill250,736 244,982 
Other acquired intangibles, net of accumulated amortization of $96,451 in 2021 and $93,009 in 2020
147,668 145,032 
Other assets51,708 45,181 
Noncurrent assets held for sale 53,097 
Total assets$1,015,901 $1,047,393 
Liabilities and Shareholders’ Equity 
Current liabilities:  
Accounts payable$40,676 $38,371 
Accrued expenses74,625 51,264 
Other current liabilities6,817 10,580 
Current portion of debt and finance lease obligations1,908 1,801 
Current portion of operating lease liabilities45,107 43,680 
Current liabilities held for sale 25,924 
Total current liabilities169,133 171,620 
Long-term debt and finance lease obligations, less current portion and debt issuance costs117,156 117,408 
Operating lease liabilities, less current portion86,212 80,346 
Other long-term liabilities57,131 54,129 
Deferred income taxes41,538 41,986 
Noncurrent liabilities held for sale 34,575 
Shareholders’ equity:  
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued or outstanding in 2021 and 2020
  
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 27,318,501 in 2021 and 27,316,434 in 2020
273 273 
Additional paid-in capital247,678 242,916 
Retained earnings296,780 304,140 
Total shareholders’ equity544,731 547,329 
Total liabilities and shareholders’ equity$1,015,901 $1,047,393 
The accompanying notes are an integral part of the condensed consolidated financial statements.
3

Table of Contents

    
Forward Air Corporation
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 Three Months Ended
 March 31,
2021
March 31,
2020
Operating revenue$362,202 $305,557 
Operating expenses: 
Purchased transportation184,608 150,598 
Salaries, wages and employee benefits74,897 69,559 
Operating leases19,167 17,884 
Depreciation and amortization9,237 9,334 
Insurance and claims9,741 10,044 
Fuel expense3,702 4,013 
Other operating expenses38,126 28,353 
Total operating expenses339,478 289,785 
Income from continuing operations22,724 15,772 
Other expense: 
Interest expense(1,165)(853)
Total other expense(1,165)(853)
Income before income taxes21,559 14,919 
Income tax expense4,845 3,504 
Net income from continuing operations16,714 11,415 
Loss from discontinued operation, net of tax(5,533)(3,040)
Net income and comprehensive income $11,181 $8,375 
Basic net income (loss) per share
Continuing operations$0.61 $0.41 
Discontinued operation(0.20)(0.11)
Net income per share1
$0.40 $0.30 
Diluted net income (loss) per share
Continuing operations$0.60 $0.41 
Discontinued operation(0.20)(0.11)
Net income per share$0.40 $0.30 
Dividends per share$0.21 $0.18 
1Rounding may impact summation of amounts.

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

Table of Contents

Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Three Months Ended
 March 31,
2021
March 31,
2020
 
Operating activities:
Net income from continuing operations$16,714 $11,415 
Adjustments to reconcile net income of continuing operations to net cash provided by operating activities of continuing operations
Depreciation and amortization9,237 9,334 
Change in fair value of earn-out liability(48)(594)
Share-based compensation expense2,597 3,078 
Provision for revenue adjustments1,777 1,042 
Deferred income tax expense(505)1,225 
Other92 (265)
Changes in operating assets and liabilities, net of effects from the purchase of businesses:
Accounts receivable(28,023)3,040 
Other receivables(13,339) 
Other current and noncurrent assets7,085 2,776 
Accounts payable and accrued expenses21,326 (223)
Net cash provided by operating activities of continuing operations16,913 30,828 
Investing activities:
Proceeds from sale of property and equipment665 720 
Purchases of property and equipment(2,695)(2,651)
Purchase of a business, net of cash acquired(15,000)(55,931)
Net cash used in investing activities of continuing operations(17,030)(57,862)
Financing activities:
Repayments of finance lease obligations(467)(336)
Proceeds from revolving credit facility 65,000 
Proceeds from issuance of common stock upon stock option exercises2,147  
Payments of dividends to stockholders(5,797)(5,050)
Repurchases of common stock(9,998)(15,259)
Payment of minimum tax withholdings on share-based awards(2,744)(2,672)
Contributions from (distributions to) subsidiary held for sale1,118 (2,153)
Net cash (used in) provided by financing activities from continuing operations(15,741)39,530 
Net (decrease) increase in cash and cash equivalents of continuing operations(15,858)12,496 
Cash from discontinued operation:
Net cash used in operating activities of discontinued operation(6,902)(1,662)
Net cash provided by (used in) investing activities of discontinued operation8,020 (491)
Net cash (used in) provided by financing activities of discontinued operation(1,118)2,153 
Net (decrease) increase in cash and cash equivalents(15,858)12,496 
Cash and cash equivalents at beginning of period of continuing operations40,254 64,749 
Cash at beginning of period of discontinued operation   
Net (decrease) increase in cash and cash equivalents(15,858)12,496 
Less: cash at end of period of discontinued operation  
Cash and cash equivalents at end of period of continuing operations$24,396 $77,245 

 The accompanying notes are an integral part of the condensed consolidated financial statements.
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Forward Air Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands)
 Common StockAdditional Paid-in
Capital
Retained Earnings
Total Shareholders’ Equity
 SharesAmount
Balance at December 31, 202027,316 $273 $242,916 $304,140 $547,329 
Net income— — — 11,181 11,181 
Stock options exercised40 — 2,147 — 2,147 
Share-based compensation expense— — 2,613 — 2,613 
Payment of dividends to shareholders— — 3 (5,800)(5,797)
Payment of minimum tax withholdings on share-based awards(35)— — (2,744)(2,744)
Repurchases and retirement of common stock(114)(1)— (9,997)(9,998)
Issuance of share-based awards111 1 (1)—  
Balance at March 31, 202127,318 $273 $247,678 $296,780 $544,731 


 Common StockAdditional Paid-in
Capital
Retained Earnings
Total Shareholders’ Equity
 SharesAmount
Balance at December 31, 201927,850 $279 $226,869 $350,034 $577,182 
Net income— — — 8,375 8,375 
Share-based compensation expense— — 3,266 — 3,266 
Payment of dividends to shareholders— — 2 (5,052)(5,050)
Payment of minimum tax withholdings on share-based awards(42)— — (2,672)(2,672)
Repurchases and retirement of common stock(268)(3)— (15,256)(15,259)
Issuance of share-based awards139 1 (2)— (1)
Balance at March 31, 202027,679 $277 $230,135 $335,429 $565,841 

The accompanying notes are an integral part of the condensed consolidated financial statements.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021

1.    Description of Business and Basis of Presentation

Basis of Presentation and Principles of Consolidation

Forward Air Corporation and its subsidiaries (“Forward Air or the “Company) is a leading asset-light freight and logistics company. The Company has two reportable segments: Expedited Freight and Intermodal. The Company conducts business in the United States and Canada.
The Expedited Freight segment 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 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.

The condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position, results of operations, and cash flows at the dates and for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results for the year.

The Board approved a strategy to divest the Pool Distribution business (“Pool) on April 23, 2020, and the sale of Pool was completed on February 12, 2021. Pool provided high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. Pool offered this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States. Accordingly, the results of operations for Pool have been presented as a discontinued operation in our Consolidated Statements of Comprehensive Income for all period presented. In addition, the assets and liabilities were presented as held for sale in the Consolidated Balance Sheets for the prior period. Unless otherwise noted, amounts, percentages and discussion for all periods reflect the results of operations, financial condition and cash flows from our continuing operations.

2.     Revenue Recognition

Revenue is recognized when the Company satisfies the performance obligation by the delivery of a shipment in accordance with contractual agreements, bill of lading (“BOL”) and general tariff provisions. The amount of revenue recognized is measured as the consideration the Company expects to receive in exchange for those services pursuant to a contract with a customer. A contract exists once the Company enters into a contractual agreement with a customer. The Company does not recognize revenue in cases where collectibility is not probable, and defers recognition until collection is probable or payment is received.

The Company generates revenue from the delivery of a shipment and the completion of related services. Revenue for the delivery of a shipment is recorded over time to coincide with when customers simultaneously receive and consume the benefits of the delivery services. Accordingly, revenue billed to a customer for the transportation of freight are recognized over the transit period as the performance obligation to the customer is satisfied. The Company determines the transit period for a shipment based on the pick-up date and the delivery date, which may be estimated if delivery has not occurred as of a reporting period. The determination of the transit period and how much of it has been completed as of a given reporting date may require the Company to make judgments that impact the timing of revenue recognized. For delivery of shipments with a pick-up date in one reporting period and a delivery date in another reporting period, the Company recognizes revenue based on relative transit time in each reporting period. A portion of the total revenue to be billed to the customer after completion of a delivery is
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
recognized in each reporting period based on the percentage of total transit time that has been completed at the end of the applicable reporting period. Upon delivery of a shipment or related service, customers are billed according to the applicable payment terms. Related services are a separate performance obligation and include accessorial charges such as terminal handling, storage, equipment rentals and customs brokerage.

Revenue is classified based on the 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 records revenue on a gross basis as it is the principal in the transaction as the Company has discretion to determine the amount of consideration. Additionally, the Company has the discretion to select drivers and other vendors for the services provided to customers. These factors, discretion in the amount of consideration and the selection of drivers and other vendors, support revenue recognized on a gross basis.

3.    Discontinued Operation and Held for Sale

As previously disclosed, on April 23, 2020, the Company made a decision to divest of Pool. The Pool business met the criteria for held for sale classification. As a result, the assets and liabilities of Pool were presented separately under the captions “Current assets held for sale”, “Noncurrent assets held for sale”, “Current liabilities held for sale” and “Noncurrent liabilities held for sale” in the Condensed Consolidated Balance Sheets as of December 31, 2020. The results of Pool were reclassified to “Loss from discontinued operation, net of tax” in the Condensed Consolidated Statements of Comprehensive Income for three months ended March 31, 2021 and 2020. Certain corporate overhead and other costs previously allocated to Pool for segment reporting purposes did not qualify for classification within discontinued operation and have been reallocated to continuing operations. These costs were reclassified to the eliminations and other column in the segment reconciliation in Note 13, Segment Reporting.
Sale of Pool
On February 12, 2021, the Company completed the sale of the Pool business for $8,000 in cash and up to a $12,000 earn-out based on earnings before interest, taxes, depreciation and amortization. The sale agreement for Pool included an earn-out based on the achievement of certain earnings before interest, taxes, depreciation and amortization attainment over an eleven-month period, beginning February 1, 2021. The Company will receive payment for the amount earned in the first quarter of 2022, and if elected, the buyer may defer the payment of up to half of the amount earned to first quarter of 2023. The preliminary estimated fair value of the earn-out asset on the date of sale was $6,967. The fair value was based on the estimated eleven-month period of the earnings before interest, taxes, depreciation and amortization and was calculated using a Monte Carlo simulation model.

The weighted-average assumptions under the Monte Carlo simulation model were as follows:

February 12, 2021
Counterparty credit spread1.2%
Earnings before interest, taxes, depreciation and amortization discount rate15.0%
Asset volatility55.0%

Subsequent to the date of sale, the Company will recognize any increases in the carrying value of the earn-out asset when the change is realized and will evaluate the earn-out asset for impairment at each reporting period. As of March 31, 2021, the Company recorded $3,508 in “Other receivables and $3,459 in “Other assets in the Condensed Consolidated Balance Sheets.

Transition Services Agreement

On February 12, 2021, the Company entered into a Transition Services Agreement (“TSA) with TOG FAS Holdings LLC, the buyer of the Pool business. Under the TSA, the Company performs certain services on an interim basis in order to facilitate the orderly transition of the Pool business. The effective date of the TSA was February 12, 2021 and will remain in effective until the date all services have been completed, but no more than six months following effective date. The TSA provides the right to extend the term of the TSA with no limit on the number of the mutually agreed upon extensions. In exchange for the services performed by the Company under the TSA, the Company receives a monthly service charge. For the
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
three months ended March 31, 2021, the Company recorded $171 of the fee received, in “Other operating expenses in the Condensed Consolidated Statements of Comprehensive Income, for the services performed under the TSA.

Additionally, under the TSA, the Company remits payments to outside vendors on behalf of TOG FAS Holdings LLC for expenses incurred by the Pool business up to a limit of $18,000. The Company is reimbursed by TOG FAS Holdings LLC within 60 days from the end of the month in which the payment is remitted. As of March 31, 2021, the Company recorded a receivable in the amount of $13,339 in “Other receivables in the Condensed Consolidated Balance Sheets for the reimbursement due to the Company.

Summarized Discontinued Operation Financial Information

A summary of the results of operations classified as a discontinued operation, net of tax, in the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 is as follows:
 Three Months Ended
 March 31,
2021
March 31,
2020
Operating revenue$17,087 $36,952 
Operating expenses: 
Purchased transportation4,290 9,536 
Salaries, wages and employee benefits9,674 17,113 
Operating leases2,907 5,680 
Depreciation and amortization 1,295 
Insurance and claims929 1,726 
Fuel expense644 1,327 
Other operating expenses2,087 4,345 
Total operating expenses20,531 41,022 
Loss from discontinued operation(3,444)(4,070)
Loss on sale of business (2,860) 
Loss from discontinued operation before income taxes(6,304)(4,070)
Income tax benefit(771)(1,030)
Loss from discontinued operation, net of tax$(5,533)$(3,040)

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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021


4.    Acquisitions

Expedited Freight Acquisition

As part of the Company’s strategy to expand final mile pickup and delivery operations, 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 earn-out of up to $15,000. The purchase agreement for FSA included an earn-out up to $15,000 based on the achievement of certain revenue milestones over two one-year periods, beginning May 1, 2019. The estimated fair value of the earn-out liability on the date of acquisition was $11,803. The fair value was based on the estimated two-year performance of the acquired customer revenue and was calculated using a Monte Carlo simulation model. The fair value of the earn-out liability was adjusted at each reporting period based on changes in the expected cash flows and related assumptions used in the Monte Carlo simulation model. During the three months ended March 31, 2021 and 2020, the fair value of the earn-out changed by ($48) and ($594), respectively, and the change in fair value was recorded in “Other operating expenses in the Condensed Consolidated Statements of Comprehensive Income. The first one-year period ended in the second quarter of 2020 and the Company paid $5,284 based on the terms of the purchase agreement. The second one-year period will end in the second quarter of 2021. As of March 31, 2021 and December 31, 2020, the fair value of the earn-out liability was $6,817 and $6,865, respectively, which was reflected in “Other current liabilities in the Condensed Consolidated Balance Sheets.

Intermodal Acquisition

In February 2021, the Company acquired certain assets and liabilities of Proficient Transport Incorporated and Proficient Trucking, Inc. (together “Proficient Transport) for $15,000 and a potential earn-out up to $2,000. Proficient Transport is an intermodal drayage company headquartered in Chicago, Illinois. The acquisition of Proficient Transport supports the Company’s strategic growth plan by expanding the intermodal footprint in Georgia, Illinois, North Carolina, and Texas, and introduces a new location in Ohio. The acquisition was financed by cash flows from operations. The results of Proficient Transport have been included in the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Intermodal reportable segment.

The purchase agreement for Proficient Transport included an earn-out up to $2,000 based on the achievement of certain revenue milestones over a one-year period, beginning March 1, 2021. The estimated fair value of the earn-out liability on the date of acquisition was $815. The fair value was based on the estimated one-year performance of the acquired customer revenue and was calculated using a Monte Carlo simulation model. The weighted-average assumptions under the Monte Carlo simulation model were as follows:
February 28, 2021
Risk-free rate0.1%
Revenue discount rate8.8%
Revenue volatility27.3%

As of March 31, 2021, the fair value of the earn-out liability was $815, which was reflected in “Other current liabilities in the Condensed Consolidated Balance Sheets.


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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
Fair Value of Assets Acquired and Liabilities Assumed

Assets acquired and liabilities assumed as of the acquisition date are presented in the following table:
Proficient Transport
February 28, 2021
Tangible assets:
Accounts receivable, net$3,865 
Property and equipment140 
Other assets10 
Total tangible assets4,015 
Intangible assets:
Customer relationships6,060 
Non-compete agreements18 
Goodwill5,754 
Total intangible assets11,832 
Total assets acquired15,847 
Liabilities assumed:
Current liabilities32 
Total liabilities assumed32 
Net assets acquired$15,815 

The fair value of the assets acquired and liabilities assumed are preliminary based on the information available as of the acquisition date through the date of this filing.


The weighted-average useful life of acquired intangible assets as of the acquisition date are summarized in the following table:
Weighted-Average Useful Lives
Customer relationships8 years
Non-compete agreements1 year
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021


5.    Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of goodwill during the three months ended March 31, 2021 are summarized as follows (in thousands):
Expedited FreightIntermodalConsolidated
Balance as of December 31, 2020$165,268 $79,714 $244,982 
Acquisition 5,754 5,754 
Balance as of March 31, 2021$165,268 $85,468 $250,736 

Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of June 30 each year. Based on the current macroeconomic conditions, the Company assessed its goodwill and other intangible assets for indications of impairment as of March 31, 2021 and concluded there were no indicators of impairment during the three months ended March 31, 2021.

Other Intangible Assets

Changes in the carrying amount of acquired intangible assets during the three months ended March 31, 2021 are summarized as follows (in thousands):

Gross Carrying Amount
Customer Relationships1
Non-Compete AgreementsTrade NamesTotal
Balance as of December 31, 2020$228,416 $8,125 $1,500 $238,041 
Acquisition6,060 18  6,078 
Balance as of March 31, 2021$234,476 $8,143 $1,500 $244,119 

Accumulated Amortization
Customer Relationships1
Non-Compete AgreementsTrade NamesTotal
Balance as of December 31, 2020$85,930 $5,579 $1,500 $93,009 
Amortization expense3,104 338  3,442 
Balance as of March 31, 2021$89,034 $5,917 $1,500 $96,451 

1 Carrying value as of March 31, 2021 and December 31, 2020 is inclusive of $16,501 of accumulated impairment.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021




6.    Stock Incentive Plans

The Company recorded shared-based compensation expense as follows for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended
March 31,
2021
March 31,
2020
Salaries, wages and employee benefits - continuing operations$2,269 $2,817 
Salaries, wages and employee benefits - discontinued operation16188
Total share-based compensation expense$2,285 $3,005 

Stock Incentive Plan

In May 2016, the Company adopted the 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) for the issuance of up to 2,000 common shares. As of March 31, 2021, approximately 793 shares remain available for grant under the Omnibus Plan.

Stock Options
     
Share-based compensation expense associated with stock options is amortized ratably over the requisite service period. The Company estimates the fair value of the grants using the Black-Scholes option-pricing model. Stock option transactions during the three months ended March 31, 2021 on a continuing operations basis were as follows:

Stock OptionsWeighted-Average Exercise Price
Outstanding as of December 31, 2020359 $55.79 
Granted39 75.05 
Exercised(26)54.26 
Forfeited  
Outstanding as of March 31, 2021372 $58.06 

As of March 31, 2021, the total share-based compensation expense related to unvested stock options net yet recognized was approximately $1,250, and the weighted average period over which it is expected to be recognized is approximately two years.

Stock option transactions during the three months ended March 31, 2021 on a discontinued operation basis were as follows:
Stock OptionsWeighted-Average Exercise Price
Outstanding at December 31, 202014 $52.15 
Granted  
Exercised(14)52.15 
Forfeited  
Outstanding at March 31, 2021 $ 
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021


Restricted Shares

Restricted shares are restricted from sale or transfer until vesting, and restrictions lapse in three equal installments beginning one year after the date of grant. Share-based compensation expense associated with these awards is amortized ratably over the requisite service period. Restricted share transactions during the three months ended March 31, 2021 on a continuing operations basis were as follows:
Restricted SharesWeighted-Average Grant Date Fair Value
Outstanding as of December 31, 2020213 $62.78 
Granted108 75.14 
Vested(96)61.38 
Forfeited(11)69.13 
Outstanding as of March 31, 2021214 $69.31 

As of March 31, 2021, the total share-based compensation expense related to the restricted shares net yet recognized was approximately $13,179, and the weighted-average period over which it is expected to be recognized is approximately two years.

Restricted share transactions during the three months ended March 31, 2021 on a discontinued operation basis were as follows:
Restricted SharesWeighted-Average Grant Date Fair Value
Outstanding as of December 31, 20208 $60.83 
Granted  
Vested(4)61.78 
Forfeited(4)61.37 
Outstanding as of March 31, 2021 $ 

Performance Awards

Performance awards are based on achieving certain financial targets, such as targets for earnings before interest, taxes, depreciation and amortization, and the Company’s total shareholder return as compared to the total shareholder return of a selected peer group, as determined by the Company’s Board of Directors. Performance targets are set at the beginning of each three-year measurement period. Share-based compensation expense associated with these awards is amortized ratably over the vesting period. Depending on the financial target, the compensation expense is based on the projected assessment of the level of performance that will be achieved.

Performance award transactions during the three months ended March 31, 2021 on a continuing operations basis were as follows assuming target levels of performance:
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
Performance AwardsWeighted-Average Grant Date Fair Value
Outstanding as of December 31, 202065 $67.62 
Granted36 87.33 
Earned(11)92.89 
Forfeited(11)70.22 
Outstanding as of March 31, 202179 $75.61 

As of March 31, 2021, the total share-based compensation expense related to unearned performance awards not yet recognized, assuming the Company's current projected assessment of the level of performance that will be achieved, was approximately $3,652, and the weighted-average period over which it is expected to be recognized is approximately three years.


Employee Stock Purchase Plan

Under the 2005 Employee Stock Purchase Plan (the “ESPP”), the Company is authorized to issue up to a remaining 335 shares of common stock to 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. No shares were issued during the three months ended March 31, 2021.
Director Restricted Shares

Under the Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”), approved in May 2007 and further amended in February 2013 and January 2016, up to 360 common shares may be issued. As of March 31, 2021, approximately 90 shares remain available for grant under the Amended Plan.

Director restricted share transactions during the three months ended March 31, 2021 were as follows:
Director Restricted SharesWeighted-Average Grant Date Fair Value
Outstanding as of December 31, 202024 $43 
Granted2 93 
Vested  
Forfeited  
Outstanding as of March 31, 202126 $47 

For the three-months ended March 31, 2021 and 2020, the Company recorded $328 and $261, respectively, of share-based compensation expense associated with these grants. As of March 31, 2021, the total share-based compensation expense related to the restricted shares net yet recognized was approximately $256.

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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021


7.    Indebtedness

As of both March 31, 2021 and December 31, 2020, the Company had $112,500 in borrowings outstanding under the revolving credit facility, $18,326 utilized for outstanding letters of credit and $94,174 of available borrowing capacity under the revolving credit facility. The interest rate on the outstanding borrowings under the revolving credit facility was 3.25% and 2.30% as of March 31, 2021 and March 31, 2020, respectively.

In September 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 maturity date of the Facility is September 29, 2022. In April 2020, the Company entered into an amendment to the Facility, which increased the maximum aggregate principal amount to $225,000. 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 amended 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.

Under the amended Facility, interest accrues on the amounts outstanding under the credit facility, at the Company’s option, at either (1) London Interbank Offered Rate (“LIBOR) rate, not less than 1.00%, plus a margin ranging from 2.25% to 2.75% based on the Company’s leverage ratio, or (2) base rate, which cannot be less than 3.00%. The base rate is the highest of (i) the federal funds rate, not less than zero, plus 0.50%, (ii) the administrative agent's prime rate and (iii) the LIBOR rate, not less than 1.00%, plus 1.00%, plus a margin ranging from 0.25% to 0.75% based on the Company’s leverage ratio. Interest is payable in arrears for each loan that is based on the LIBOR rate on the last day of the interest period applicable to each loan, and interest is payable in arrears on loans not based on the LIBOR rate on the last day of each quarter.

The Facility contains covenants that, among other things, restrict the ability of the Company, 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. The Company also has to fulfill financial covenants with respect to a leverage ratio and an interest coverage ratio. As of March 31, 2021, the Company was in compliance with the aforementioned covenants.

In April 2021, the Company borrowed $20,000 under the revolving credit facility.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021



8.    Net Income (Loss) Per Share

A reconciliation of net income attributable to Forward Air and weighted-average common shares outstanding for purposes of calculating basic and diluted net income per share during the three months ended March 31, 2021 and 2020 is as follows:
 Three Months Ended
March 31,
2021
March 31,
2020
Numerator:  
Net income and comprehensive income from continuing operations$16,714 $11,415 
Net loss and comprehensive loss from discontinued operation(5,533)(3,040)
Net income attributable to Forward Air$11,181 $8,375 
Income allocated to participating securities(101)(67)
Numerator for basic and diluted net income per share for continuing operations$16,613 $11,348 
Numerator for basic and diluted net loss per share for discontinued operation$(5,533)$(3,040)
Denominator:  
Denominator for basic net income per share - weighted-average number of common shares outstanding27,361 27,846 
Dilutive stock options and performance share awards136 102 
Denominator for diluted net income per share - weighted-average number of common shares and common share equivalents outstanding27,497 27,948 
Basic net income (loss) per share:
     Continuing operations$0.61 $0.41 
     Discontinued operation(0.20)(0.11)
Net income per share1
$0.40 $0.30 
Diluted net income (loss) per share:
     Continuing operations$0.60 $0.41 
     Discontinued operation(0.20)(0.11)
Net income per share$0.40 $0.30 
1 Rounding may impact summation of amounts.


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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
The number of shares that were not included in the calculation of net income per diluted share because to do so would have been anti-dilutive for the three months ended March 31, 2021 and 2020 are as follows:
March 31,
2021
March 31,
2020
Anti-dilutive stock options25 203 
Anti-dilutive performance shares3 24 
Anti-dilutive restricted shares and deferred stock units1 75 
Total anti-dilutive shares29 302 


9.    Income Taxes

For the three months ended March 31, 2021, the Company recorded income tax expense of $4,845 and $3,504, respectively, for continuing operations. The effective tax rate of 22.5% for the three months ended March 31, 2021 varied from the statutory United States federal income tax rate of 21.0% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards. The effective tax rate of 23.5% for the three months ended March 31, 2020 varied from the statutory United States federal income tax rate of 21% primarily due to the effect of state income taxes, net of the federal benefit, and non-deductible executive compensation, partially offset by excess tax benefits realized on share-based awards and a refund for Tennessee tax credits.

As of both March 31, 2021 and December 31, 2020, the Company had $544 of unrecognized income tax benefits, all of which would affect the Company’s effective tax rate if recognized. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of both March 31, 2021 and December 31, 2020, the Company had accrued interest and penalties related to unrecognized tax benefits of $168. 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 2013.

The sale of Pool resulted in a capital loss in the amount of $2,426. The capital loss expires in 2026. The Company concluded that it was more likely than not the capital loss carryforward will not be realized and therefore, established a valuation allowance of $2,426 to reserve against its capital loss carryforward. The Company also maintains a valuation allowance to reserve against its state net operating loss carryforwards. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the likelihood that its deferred tax assets would be recovered from estimated future taxable income and available tax planning strategies. In making this assessment, all available evidence was considered including economic climate, as well as reasonable tax planning strategies. The Company believes it is more likely than not that it will realize its remaining net deferred tax assets, net of the valuation allowance, in future years.

10.    Fair Value of Financial Instruments

The Company categorizes its assets and liabilities into one of three levels based on the assumptions used in valuing the asset or liability. Estimates of fair value financial assets and liabilities are based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. In accordance with this guidance, fair value measurements are classified under the following hierarchy:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Model-derived valuations in which one or more significant inputs are unobservable.

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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021
As previously discussed in Note 4, Acquisitions, the fair value of the earn-out liability was determined using a Monte-Carlo simulation model. The significant inputs used in the model are derived from a combination of observable and unobservable market data. Observable inputs used in the Monte Carlo simulation model include the risk-free rate and the revenue volatility while unobservable inputs used in the Monte Carlo simulation model include the revenue discount rate and the estimated revenue projections.
    
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are summarized below:
As of March 31, 2021
Level 1Level 2Level 3Total
Earn-out liability$ $ $7,632 $7,632 
As of December 31, 2020
Level 1Level 2Level 3Total
Earn-out liability$ $ $6,865 $6,865 

Cash and cash equivalents, accounts receivable, and accounts payable are valued at their carrying amounts in the Company’s Condensed Consolidated Balance Sheets, due to the immediate or short-term maturity of these financial instruments.

The carrying amount of long-term debt under the Company’s credit facility approximate fair value based on the borrowing rates currently available to the Company for a loan with similar terms and average maturity.

As of March 31, 2021, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $6,892, compared to its carrying value of $6,652. As of December 31, 2020, the estimated fair value of the Company’s finance lease obligation, based on current borrowing rates, was $7,009, compared to its carrying value of $6,811.



11.    Shareholders’ Equity

Cash Dividends

During the first quarter of 2021 and the fourth quarter of 2020, the Company’s Board of Directors declared and the Company has paid a quarterly cash dividend of $0.21 per share of common stock.

On April 26, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.21 per common share that will be paid in second quarter of 2021.

Share Repurchase Program

On July 21, 2016, the Company’s Board of Directors approved a stock repurchase program for up to 3,000 shares of the Company’s common stock (the “2016 Repurchase Plan). On February 5, 2019, the Board of Directors canceled the Company’s 2016 Repurchase Plan and approved a revised stock repurchase plan authorizing up to 5,000 shares of the Company’s common stock (the “2019 Repurchase Plan”). The 2019 Repurchase Plan expires when the shares authorized for repurchase are exhausted or the 2019 Repurchase Plan is canceled.
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Table of Contents
Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021


During the three months ended March 31, 2021, the Company repurchased through open market transactions 114 shares of common stock for $9,997, or $87.89 per share, and during the three months ended March 31, 2020, the Company repurchased 268 shares of common stock for $15,259, or $56.93 per share. All shares received were retired upon receipt, and the excess of the purchase price over the par value per share was recorded to “Retained Earnings in the Condensed Consolidated Balance Sheets.

As of March 31, 2021, the remaining shares to be repurchased under the 2019 Repurchase Plan were approximately 3,254 shares.

12.    Commitments and Contingencies

Contingencies

The Company is party to various legal claims and actions incidental to its business. The Company believes none of these claims or actions, either individually or in the aggregate, is material to its business or financial statements as a whole, including its results of operations and financial condition.

The Company is liable for claims related to vehicle liability, workers’ compensation, property damage and employee medical benefits. Insurance coverage provides the Company with primary and excess coverage, which the Company believes is sufficient to protect the Company from catastrophic claims.

For vehicle liability, the Company retains a portion of the risk. Below is a summary of the Company’s risk retention on vehicle liability insurance coverage maintained by the Company through $10,000:

Company
Risk Retention
FrequencyLayerPolicy Term
Expedited Freight¹
LTL business$3,000 Occurrence/Accident²
$0 to $3,000
10/1/2020 to 10/1/2021
Truckload business$2,000 Occurrence/Accident²
$0 to $2,000
10/1/2020 to 10/1/2021
LTL and Truckload businesses$6,000 Policy Term Aggregate³
$3,000 to $5,000
10/1/2020 to 10/1/2021
LTL and Truckload businesses$5,000 Policy Term Aggregate³
$5,000 to $10,000
10/1/2020 to 10/1/2021
Intermodal$250 Occurrence/Accident²
$0 to $250
4/1/2020 to 10/1/2021
¹ Excluding the Final Mile business, which is primarily a brokered service.
² For each and every accident, the Company is responsible for damages and defense up to these amounts, regardless of the number of claims associated with any accident.
³ During the Policy Term, the Company is responsible for damages and defense within the stated Layer up to the stated, aggregate amount of Company Risk Retention before insurance will respond.

Also, from time to time, when brokering freight, the Company may face claims for the “negligent selection” of outside, contracted carriers that are involved in accidents, and the Company maintains third-party liability insurance coverage with a $100 deductible per occurrence for most of its brokered services. Additionally, the Company maintains workers’ compensation insurance with a self-insured retention of $500 per occurrence.

Insurance coverage in excess of the self-insured retention limit is an important part of the Company’s risk management process. The Company believes the recorded reserves are sufficient for all incurred claims up to the self-insured retention limits, including an estimate for claims incurred but not reported. Since the ultimate resolution of outstanding claims as well as claims incurred but not reported is uncertain, it is possible that the reserves recorded for these losses could change materially in the near term. However, an estimate cannot be made of the range of additional loss that is at least reasonably possible.
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Forward Air Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
March 31, 2021


13.    Segment Reporting

The Company has two reportable segments: Expedited Freight and Intermodal. The Company evaluates segment performance based on income from operations. Segment results include intersegment revenues and shared costs.  Costs related to the corporate headquarters, shared services and shared assets, such as trailers, are allocated to each segment based on usage. Shared assets are not allocated to each segment, but rather the shared assets, such as trailers, are allocated to the Expedited Freight segment.

The accounting policies applied to each segment are the same as those described in the Summary of Significant Accounting Policies as disclosed in Note 1 to the Annual Report on Form 10-K for the year ended December 31, 2020, except for certain self-insurance loss reserves related to vehicle liability and workers’ compensation. Each segment is allocated an insurance premium and deductible that corresponds to the self-insured retention limit for that particular segment. Any self-insurance loss exposure beyond the deductible allocated to each segment is recorded in Eliminations & Other.      

Segment results from operations for the three months ended March 31, 2021 and 2020 are as follows:
 Three Months Ended March 31, 2021
 Expedited FreightIntermodalEliminations & OtherConsolidated
External revenues$303,531 $58,502 $— $362,033 
Intersegment revenues655 12 (498)169 
Depreciation4,993 799 3 5,795 
Amortization1,805 1,637  3,442 
Income (loss) from continuing operations24,530 4,509 (6,315)22,724 
Purchases of property and equipment2,411 284  2,695 
 Three Months Ended March 31, 2020
 Expedited FreightIntermodalEliminations & OtherConsolidated
External revenues$253,140 $52,455 $— $305,595 
Intersegment revenues485 5 (528)(38)
Depreciation4,908 1,053 18 5,979 
Amortization1,787 1,568  3,355 
Income (loss) from continuing operations15,179 3,713 (3,120)15,772 
Purchases of property and equipment2,405