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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001

Commission File No. 000-22490

FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (423) 636-7000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of class)

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  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 2002 was approximately $482.5 million based on the closing price of such stock on such date of $28.13.

The number of shares outstanding of the registrant’s common stock, $.01 par value, as of February 28, 2002 was 21,727,243.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2002 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. Such definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2001.

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PART I

ITEM 1. BUSINESS

Introduction

     Forward Air Corporation, through its operating subsidiaries (the “Company” or “Forward Air”), offers its customers scheduled ground transportation of cargo as a cost effective, reliable alternative to air transportation. The Company transports cargo that must be delivered at a specific time but is less time-sensitive than traditional air freight. This type of cargo is frequently referred to in the transportation industry as “deferred air freight.” Forward Air operates a network of 75 terminals located on or near airports in the United States and Canada, including a central sorting facility in Columbus, Ohio and regional hubs serving key markets. Rather than owning its own trucks, the Company purchases most of its transportation requirements from owner-operators and, to a lesser extent, from truckload carriers. A typical shipment consists of a pallet load of freight, often computers, telecommunications equipment, machine parts, trade show exhibit materials or medical equipment. During 2001, an average shipment weighed over 700 pounds. Forward Air has experienced rapid revenue growth from $63.6 million in 1995 to $227.5 million in 2001, a 24% compound annual growth rate. The Company’s operating income grew from $6.4 million to $31.7 million over the same period, a 31% compound annual growth rate.

     The Company focuses its services on: air freight forwarders, which are businesses that arrange transportation of cargo for third parties; integrated air cargo carriers; and airlines. The Company serves its customers by locating terminals on or near airports and maintaining regularly scheduled transportation service between major cities. Forward Air receives shipments at its terminals and transports them by truck to its central sorting facility or one of its regional hubs, where they are unloaded and sorted. After sorting, the shipments are reloaded and delivered to the terminals nearest their destinations. The Company ships freight directly between terminals when justified by the volume of shipments. The Company typically does not provide local pickup and delivery services and does not market its services directly to shippers. Since the Company does not place significant size or weight restrictions on shipments, it does not compete directly with small or overnight package delivery services such as DHL Worldwide, UPS and Airborne. During 2001, approximately 29% of the shipments the Company handled were for overnight delivery, with approximately 62% for delivery within two to three days and the balance in four to five days.

Industry Overview

     As businesses minimize inventory levels, perform manufacturing and assembly operations in multiple locations and distribute their products through many channels, they more frequently require expedited delivery services. Expedited shipments are those shipments that the customer requires to be delivered the next day or within two to three days, usually at a specified time or within a specified time window.

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     Shippers with expedited delivery requirements have four principal alternatives to transport freight: they may use a fully integrated air cargo carrier, an airline, a less-than-truckload carrier or an air freight forwarder. Integrated air cargo carriers provide pick-up and delivery services primarily using their own fleet of trucks and provide transportation services generally using their own fleet of aircraft. Airlines provide airport to airport service, but have limited cargo space and generally accept only shipments weighing less than 150 pounds. Less-than-truckload carriers provide pick-up and delivery services through their own fleet of trucks. The national less-than-truckload carriers operate terminals where freight is unloaded, sorted and reloaded multiple times in a single shipment. The additional handling increases transit time, handling costs and the likelihood of cargo damage. An air freight forwarder obtains shipments from customers, makes arrangements for transportation of the cargo by a third party carrier and usually arranges for both delivery from the shipper to the carrier and from the carrier to the recipient.

     Although expedited freight is often transported by aircraft, transportation by truck often is a viable alternative, especially for shipments requiring deferred delivery. Generally, the cost of shipping freight, especially heavy freight, by truck is substantially less than shipping by aircraft. The Company believes there are several trends that are increasing demand for lower-cost truck transportation of expedited freight. These trends include:

	Increased Outsourcing of Logistics Management to Third Parties. Air freight forwarders are playing an increasingly important role in logistics management. As the growing emphasis on just-in-time processes has added to the complexity of logistics management, companies are finding it more advantageous to outsource their logistics management functions to third parties. In contrast to integrated air cargo carriers and less-than-truckload carriers that are focused on utilizing their own fixed-cost assets, air freight forwarders can select from various transportation modes and suppliers to meet their customers’ shipping requirements, thereby serving their customers less expensively. Air freight forwarders generally handle shipments of any size and offer customized shipping options, unlike integrated air cargo carriers and less-than-truckload carriers.
	Integrated Air Cargo Carriers’ Increased Focus on Expedited Freight. Integrated air cargo carriers that transport heavy freight, such as Emery Worldwide and BAX Global, are increasingly targeting their marketing efforts at higher yielding expedited or overnight freight to better utilize their high fixed-cost infrastructures. As a result, these carriers are increasingly outsourcing deferred freight to surface transportation providers like Forward Air.
	Reduced Airline Cargo Capacity. Since the 1980’s, when the domestic airlines eliminated many of their all-cargo aircraft, growth in demand for air cargo services has generally outpaced the growth of aircraft cargo capacity. More recently, airlines have been modifying their domestic route systems to provide higher frequency service to more destinations, therefore replacing many of their wide-body aircraft with narrow-body aircraft that have less cargo capacity. Federal Aviation Administration (“FAA”) mandates have also reduced air cargo capacity because most all-cargo aircraft are older, and it often

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	is not economically feasible to modify these older aircraft to meet the FAA’s noise reduction standards.

Competitive Advantages

	The Company believes that its competitive advantages are:
	– Focus on the deferred air freight market. Forward Air focuses on providing ground transportation services to the deferred air freight market. The Company believes that this focus and commitment to reliable service has enabled Forward Air to provide a higher level of service in a more cost effective manner than its competitors.
	– Concentrated marketing strategy. The Company provides its services to air freight forwarders, integrated air cargo carriers and airlines rather than marketing its services directly to shippers. The Company does not place significant size or weight restrictions on shipments and, therefore, does not compete with small or overnight package delivery services such as DHL Worldwide, UPS and Airborne. The Company believes that air freight forwarders prefer to purchase their transportation services from Forward Air because it does not market its services to their shipper customers and is not competing with them for customers.
	– Established nationwide network of terminals and sorting facilities. The Company has built a network throughout the United States and Canada located on or near airports. The Company believes it would be difficult for a competitor to duplicate its nationwide network without the expertise it has acquired and without expending significant management resources and capital. Forward Air’s network enables it to provide regularly scheduled service between most markets, on-time delivery with minimal freight damage or loss, all at rates significantly below air freight rates.
	– Low-capital-intensive business model. The Company purchases virtually all of its transportation requirements from owner-operators or truckload carriers, rather than acquiring and operating its own tractors. This allows the Company to respond quickly to changing demands and opportunities in its industry and to generate a higher return on assets with lower capital expenditures.
	– Enhanced technology. The Company is committed to using information technology to improve its service and reduce its operating costs. Technology allows the Company to increase the volume of freight that it can handle in its network and provides real-time tracking and tracing of shipments throughout the transportation process. During 2001, Forward Air enhanced its systems to permit its customers to obtain real-time information about that shipment via the Internet or EDI.
	– Broad customer base. The Company has established close relationships with a large number of air freight forwarders, integrated air cargo carriers and airlines. The

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	Company’s five largest customers only accounted for approximately 17% of its operating revenue in 2001, and no single customer accounted for more than ten percent.

Growth Strategy

	The key elements of Forward Air’s growth strategy are to:
	– Increase freight volume from existing customers. Many of the Company’s customers currently use Forward Air for only a portion of their overall transportation needs. In addition, many of the Company’s air freight forwarder customers are growing rapidly, and the Company expects that they will have a greater need for its services as their businesses grow. The Company will continue to market directly to these customers to capture additional freight volume.
	– Improve efficiency of its transportation network. The Company constantly seeks to improve the efficiency of its network without changing its infrastructure or incurring significant capital expenditures. As the volume of freight between key markets increases, the Company intends to continue to add regional hubs and direct shuttles. Additional regional hubs and direct shuttles improve Forward Air’s efficiency by reducing the number of miles freight must be transported and reducing the number of times freight must be handled and sorted. Increased freight volumes should increase the Company’s profits and operating margins because these additional shipments help cover the substantial fixed costs of its operations.
	– Develop new customers. The Company will actively market its services to potential new air freight forwarder customers. The Company believes air freight forwarders will move away from integrated air cargo carriers because those carriers charge higher rates and away from less-than-truckload carriers because those carriers provide less reliable service and compete for the same customers. The Company also believes that there is significant potential for increased freight volume from airlines as well as from the integrated air cargo carriers.
	– Enhance information systems. The Company is committed to continued enhancement of its information systems in ways that can provide it both competitive service advantages and increased productivity. Management believes that Forward Air’s customers will increasingly demand more sophisticated information systems to track and trace shipments. Forward Air believes its enhanced systems will enable it to retain existing customers and encourage them to increase the volume of freight they send through its network. The Company also believes these enhanced information systems will attract new customers.
	– Expand logistics services. The Company will continue to expand its national and international logistics services to increase revenue and improve utilization of its terminal facilities and labor force. The Company has added a number of services in the past few years, such as exclusive-use transportation services, and insurance, customs brokerage and terminal handling services. These services directly benefit Forward Air’s customers,

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	particularly air freight forwarders who cannot justify providing the services for themselves, attract new customers and improve utilization of the Forward Air network by increasing its revenue without significantly increasing the Company’s costs.
	– Pursue acquisitions. The Company intends to continue to evaluate acquisitions that can increase its penetration of a geographic area, add customers or freight density or allow it to offer additional services. Since its inception, the Company has acquired the assets of eight of its regional competitors that met one or more of these criteria.

Operations

     The Company receives freight from air freight forwarders, airlines and integrated air cargo carriers at its terminals, which are located on or near airports in the United States and Canada. The Company consolidates and transports these shipments by truck through the Forward Air network to the terminals nearest the ultimate destinations of the shipments. The Company operates regularly scheduled service to and from each of its terminals through its Columbus, Ohio central sorting facility or through one of its regional hubs. The Company also operates regularly scheduled shuttle service directly between cities where the volume of freight warrants bypassing the Columbus sorting facility or a regional hub. When a shipment arrives at the terminal nearest its destination, the customer arranges for the shipment to be picked up at the terminal and delivered to its final destination.

     A typical shipment consists of a pallet load of freight, often computers, telecommunications equipment, machine parts, trade show exhibit materials or medical equipment. Since Forward Air commenced operations in November 1990, the weekly volume of freight moving through its network has increased from an average of approximately 1.2 million pounds to over 24.3 million pounds in 2001. During 2001, an average shipment weighed over 700 pounds. Shipments range from small boxes weighing only a few pounds to large shipments of several thousand pounds. Although the Company imposes no significant size or weight restrictions, it focuses its marketing and price structure on shipments of 200 pounds or more. As a result, the Company does not directly compete for most of its business with overnight couriers or small package delivery companies.

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Terminals

     At December 31, 2001, the Forward Air network included terminals located in the following 75 cities:

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     Independent agents operated eleven of these locations, which typically handle relatively low volumes of freight.

Shuttle Service And Regional Hubs

     The Company operates direct terminal-to-terminal shuttles and regional overnight service between cities where justified by freight volumes. The Company currently provides regional overnight service to many of the markets within its network. Direct service allows the Company to provide quicker scheduled service at a lower cost because it can transport freight over the most direct route and eliminate the added time and cost of handling the freight at its central or a regional hub sorting facility. Direct shipments also reduce the likelihood of damage because of reduced handling and sorting of the freight. As Forward Air continues to increase volume between various cities, it intends to continue to add direct shuttles. For example, the Northeast Shuttle transports freight between Albany, Baltimore, Boston, Buffalo, Hartford, Newark, Newburgh, New York, Philadelphia, Rochester, Syracuse and Washington. The Company accomplishes this by direct shipment, as from Boston to Newark, or by overnight service routed through the Newburgh regional hub. Where warranted by sufficient volume in a region, the Company utilizes larger terminals as regional sorting hubs, which allows it to bypass the Columbus sorting facility. These regional hubs improve the Company’s operating efficiency and enhance customer service. The Company currently operates regional hubs in Atlanta, Dallas/Ft. Worth, Kansas City, Los Angeles, New Orleans, Newburgh, Orlando and San Francisco.

Shipments

     Since operations were commenced in November 1990, the weekly volume of freight moving through the Company’s network has increased from an average of approximately 1.2 million pounds to over 24.3 million pounds per week as shown below:

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Customers and Marketing

     The Company’s customers are primarily air freight forwarders, airlines and integrated air cargo carriers. Air freight forwarder customers vary in size from small, independent, single facility companies to large, international logistics companies, such as AIT Freight Systems, Associated Global Systems, Danzas/AEI, Exel and Pilot Air Freight. Airline customers include British Airways, Continental, Northwest Airlines, United Airlines and Virgin Atlantic. Because of Forward Air’s reputation for dependable service, integrated air cargo carriers such as DHL Worldwide Express, Emery Worldwide, Federal Express and UPS utilize its services to provide overflow capacity and other services.

     The Company markets its services through a sales and marketing staff located in various regions of the United States. Senior management also is actively involved in sales and marketing at the national account level and supports local sales activity. The Company has a strong commitment to marketing and focuses on air freight forwarders, airlines and integrated air cargo carriers that have time sensitive shipping requirements requiring customized services. The Company also participates in air cargo trade shows and advertises its services through direct mail programs and through the Internet via www.forwardair.com.

Logistics Services

     Customers increasingly demand more than the movement of freight from their transportation providers. To meet these demands, the Company continually seeks ways to customize its logistics services and add new services. Logistics services increase the Company’s profit margins by increasing its revenue without corresponding increases in its fixed costs.

     Forward Air logistics services allow customers to access the following services from a single source:

	– exclusive-use transportation services;
	– dock, warehouse and office space;
	– customs brokerage, such as assistance with customs procedures for both import and export shipments; and
	– terminal handling, such as shipment build-up and break-down and reconsolidation of air or ocean pallets or containers.

Technology and Information Systems

     The regular enhancement of the Company’s information systems is a key component of its growth strategy. The Company has invested and expects to continue to invest significant management and financial resources on improving its information systems in an effort to provide accurate, real-time information to its management and customers. Management believes the

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ability to provide accurate, real-time information on the status of shipments will become increasingly important and that its efforts in this area will result in both competitive service advantages and increased productivity throughout the Forward Air network.

Purchased Transportation

     The Company contracts for most of its transportation services from owner-operators. The owner-operators own, operate and maintain their own vehicles and employ their own drivers. The Company also purchases transportation from Landair Transport, Inc. and from other truckload carriers to handle overflow volume. Of the $97.5 million of purchased transportation in 2001, the Company purchased 72% from owner-operators, 2% from Landair Transport, Inc. and 26% from other common carriers.

     The Company seeks to establish long-term relationships with owner-operators to assure dependable service and availability, and the Company has consistently experienced a low turnover of owner-operators. The Company has established guidelines relating to safety records, driving experience and personal evaluations that it uses to select its owner-operators. To enhance the Company’s relationship with the owner-operators, it pays per mile rates above prevailing market rates and offers each driver a consistent work schedule, typically to the same destination.

Competition

     The air freight transportation industry is highly competitive and very fragmented. The Company’s competitors include regional trucking companies that specialize in handling deferred air freight and regional and national less-than-truckload carriers. To a lesser extent, the Company competes with integrated air cargo carriers and airlines. According to The Colography Group, Inc., an independent industry market research and consulting company, total revenue in 2001 for the U.S. domestic air market was estimated at $32.6 billion. Approximately $4.6 billion or 14% of that market was made up of heavyweight overnight and deferred freight, representing the portion of the market within which the Company believes it competes. The Company’s competition ranges from small operators that compete within a limited geographic area to companies with substantially greater financial and other resources and larger freight capacity. The Company also faces competition from its air freight forwarder customers who decide to establish their own networks to transport deferred air freight. The Company believes competition is based on service, primarily on-time delivery and reliability, as well as rates. The Company believes it offers its services at rates that are substantially below the charge to transport the same shipment to the same destination by air. The Company believes it has an advantage over less-than-truckload carriers based upon its reputation for faster, more reliable service between many cities.

Seasonality

     Historically, the Company’s operating results have been subject to seasonal trends when measured on a quarterly basis. The first quarter has traditionally been the weakest and the third and fourth quarters have traditionally been the strongest. Typically, this pattern has been the result of factors such as climate, national holidays, customer demand and economic conditions.

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A significant portion of the Company’s revenue is derived from customers whose business levels are impacted by the economy.

Employees

     As of December 31, 2001, the Company employed 1,551 persons, 766 of whom were freight handlers and customer service personnel. None of the Company’s employees is covered by a collective bargaining agreement. The Company recognizes that its workforce, including its freight handlers, is one of its most valuable assets. The recruitment, training and retention of qualified employees are essential to support the Company’s continued growth and to meet the service requirements of its customers.

Risk Management and Litigation

     Under Department of Transportation regulations, the Company may be liable for property damage or personal injuries caused by owner-operators while they are transporting freight on its behalf. The Company is self-insured for property damage to its own equipment. The Company believes that its insurance coverage is sufficient to adequately protect it from significant claims.

     From time to time, the Company is a party to litigation arising in the normal course of its business, most of which involve claims for personal injury, property damage related to the transportation and handling of freight or workers’ compensation. 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 or results of operations.

Regulation

     The Company, through its Forward Air, Inc. subsidiary, is a licensed property broker holding authority issued by the Federal Motor Carrier Safety Administration (“FMCSA”) at Docket No. MC-249708. The Company, through its FAF, Inc. subsidiary, is an interstate motor carrier licensed by the FMCSA at Docket No. MC-333604.

     The Company believes that it is in substantial compliance with applicable regulatory requirements relating to its operations. If the Company does not comply with applicable laws and regulations, it could be required to pay substantial fines and could have its licenses revoked.

     The Company is also subject to federal and state environmental laws and regulations, including those dealing with the transportation of hazardous materials and storage of fuel. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. The Company does not expect any material expenditures for compliance with federal, state or local environmental laws and regulations in 2002.

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ITEM 2. PROPERTIES

Properties and Equipment

     Management believes that the Company has adequate facilities for the conduct of its business, including properties owned and leased. Management further believes that in the event replacement property is needed, such property will be available on terms and at costs substantially similar to the terms and costs experienced by competitors within the transportation industry.

     The Company leases its 37,500 square foot headquarters in Greeneville, Tennessee from the Greeneville-Greene County Airport Authority. The lease term ends in 2006 and has two ten-year and one five-year renewal options. The Company has a capital lease agreement (with a bargain purchase option) extending to 2008 with the Director of Development of the State of Ohio for its 83,800 square foot Columbus, Ohio central hub sorting facility. In addition, the Company owns a terminal facility in Atlanta.

     The Company leases and maintains terminals in 62 additional cities located at or near various airports in the United States and Canada. Lease terms are typically for three to five years. The remaining eleven terminals are agent stations operated by independent agents who handle freight for the Company on a commission basis.

     The Company owns or leases the trailers it uses to move freight through the Forward Air network. Substantially all of the Company’s trailers are 53’ long, and many have specialized roller bed equipment required to serve air cargo industry customers. The average age of the Company’s owned trailer fleet was approximately 3.7 years at December 31, 2001.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, the Company is a party to litigation arising in the normal course of its business, most of which involve claims for personal injury and property damage related to the transportation and handling of freight or workers’ compensation. 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 or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of the fiscal year ended December 31, 2001, no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise.

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EXECUTIVE OFFICERS OF THE REGISTRANT

     Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) to Form 10-K, the following information is included in Part I of this report.

     The following are the Company’s executive officers:

     There are no family relationships between any of the executive officers of the Company. All officers hold office at the pleasure of the Board of Directors.

     Scott M. Niswonger is a co-founder of the Company and has served as a director since its founding in October 1981 and as Chairman of the Board and Chief Executive Officer since February 1988. Mr. Niswonger served as President of the Company from October 1981 until August 1998. He also serves as a director of Landair Corporation (“Landair”) and People’s Community Bank.

     Bruce A. Campbell has served as Chief Operating Officer of the Company since April 1990, as director since April 1993 and as President since August 1998. Mr. Campbell served as Executive Vice President of the Company from April 1990 until August 1998. Prior to joining the Company, Mr. Campbell served as Vice President of Ryder-Temperature Controlled Carriage in Nashville, Tennessee from September 1985 until December 1989. Mr. Campbell also serves as a director of Greene County Bancshares.

     Andrew C. Clarke has served the Company as a director and as Chief Financial Officer, Senior Vice President and Treasurer since April 2001. Since April 2000, he has served as Chief Financial Officer, Senior Vice President and director of LogTech Corporation (“LogTech”), a Company subsidiary that provided Internet and technology services and support to the Company. From August 1998 to March 2000, Mr. Clarke was an investment banker with Deutsche Banc Alex. Brown in the Global Transportation Group. From June 1997 until September 1997, he worked in the high yield group at Smith Barney Inc., and from August 1993 until June 1996 in the mergers and acquisitions group at A.G. Edwards & Sons, Inc.

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     Craig A. Drum became Senior Vice President, Sales in July 2001 after joining the Company in January 2000 as Vice President, Sales of LogTech. In February 2001, Mr. Drum was promoted to Vice President of National Accounts. Prior to January 2000, Mr. Drum spent most of his 24-year career with Delta Air Lines, Inc., most recently as the Director of Sales and Marketing — Cargo.

     Michael A. Roberts has served as Senior Vice President, Marketing, of the Company since April 1990. He served as Vice President of Marketing from November 1987 until April 1990. Mr. Roberts served as a consultant to the Company from 1982 to 1987.

     Richard H. Roberts has served as Senior Vice President and General Counsel of the Company since July 1994 and as Secretary and a director since May 1995. Prior to joining the Company, Mr. Roberts was a partner with the Baker, Worthington, Crossley & Stansberry law firm from January 1991 until July 1994. Mr. Roberts also serves as a director of Landair and Miller Industries, Inc.

     Chris C. Ruble has served as Senior Vice President, Operations of the Company since October 2001. He was Regional Vice President from September 1997 to October 2001, regional manager from February 1997 to September 1997 after starting with the Company as a terminal manager in January 1996. From June 1986 to August 1995, Mr. Ruble served in various management capacities at Roadway Package System, Inc.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

     The $0.01 par value common stock of the Company (the “Common Stock”) trades on The Nasdaq National Market tier of The Nasdaq Stock Market® under the symbol “FWRD.” The following table sets forth the high and low sale prices for the Common Stock as reported by The Nasdaq National Market for each full quarterly period within the two most recent fiscal years. All prices have been restated to reflect a three-for-two stock split distributed in January 2000.

     There were approximately 6,000 shareholders of record (including brokerage firms and other nominees) of the Common Stock as of December 31, 2001.

     The Company has not paid cash dividends on its Common Stock in the two preceding fiscal years, and it is the current intention of management to retain earnings to finance the growth of the Company’s business. Future payment of dividends will depend upon the financial condition, results of operations, contractual restrictions and capital requirements of the Company, as well as other factors deemed relevant by the Board of Directors. No securities of the Company were sold during fiscal year 2001 without registration under the Securities Act of 1933, as amended.

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ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth selected financial data of the Company. The selected financial data should be read in conjunction with the Company’s financial statements and notes thereto, included elsewhere in this report.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

     The Company provides scheduled ground transportation of cargo on a time-definite basis. As a result of the Company’s established transportation schedule and network of terminals, its operating cost structure includes significant fixed costs. The Company’s ability to improve its operating margins will depend on its ability to increase the volume of freight moved through its network.

Results of Operations

     The following table sets forth the percentage relationship of expense items to operating revenue for the periods indicated.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Operating revenue increased by $12.6 million, or 5.9%, to $227.5 million for 2001 from $214.9 million in 2000. This increase resulted from an increase in traditional linehaul revenue of $4.2 million, an increase in logistics revenue of $4.8 million and an increase in other accessorial revenue of $3.6 million.

     Purchased transportation was 42.9% of operating revenue in 2001 compared to 42.5% in 2000. The increase in purchased transportation as a percentage of operating revenue was primarily attributable to a 0.5% increase in the amount paid to owner-operators for transportation services as well as a 0.3% increase in amounts paid for cartage services. The increase in

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purchased transportation costs as a percentage of operating revenue was offset by a 0.4% decrease in the amount paid to common carriers for transportation services.

     Salaries, wages and employee benefits were 22.4% of operating revenue in 2001 compared to 22.0% in 2000. The increase in salaries, wages and employee benefits as a percentage of operating revenue was primarily due to a 1.1% decrease in capitalized salary costs associated with the development of the Company’s internet-based system in 2000, which was offset by a 0.8% decrease in incentive payments in 2001.

     Operating leases, the largest component of which is terminal rent, were 5.1% of operating revenue in 2001 compared to 4.7% in 2000. The increase in operating leases as a percentage of revenue was attributable to a 0.7% increase in the amount paid for Company-operated terminals in 2001 compared to 2000. The increase in facility rental cost as a percentage of operating revenue was offset by a 0.3% decrease in the amount paid for leased trailers and trucks.

     Depreciation and amortization expense as a percentage of operating revenue was 3.7% in 2001, compared to 2.7% in 2000. The increase in depreciation and amortization expense as a percentage of revenue was primarily attributable to a 0.5% increase in depreciation from the capitalized costs associated with the development of internal-use software and a 0.4% increase from the amortization of the goodwill associated with the Dedicated Transportation Services, Inc. and Expedited Delivery Services, Inc. acquisitions.

     Insurance and claims were 3.3% of operating revenue in 2001, compared with 1.7% in 2000. The increase in insurance and claims expense as a percentage of revenue was the result of a 1.3% increase in primary and retrospective premium costs caused by an increase in the frequency and severity of accidents during 2001.

     Other operating expenses were 8.7% of operating revenue in 2001 compared with 9.0% in 2000. The decrease in other operating expenses as a percentage of revenue in 2001 resulted from a 0.3% decrease in office repairs and maintenance expense as well as a 0.2% decrease in end-station handling paid to agents. The decrease in other operating expenses as a percentage of operating revenue was offset by a 0.2% increase in the provision for doubtful accounts.

     Income from operations decreased by $5.6 million, or 15.0%, to $31.7 million for 2001 compared to $37.3 million for 2000. This decrease in income from operations is attributed to a higher operating cost structure incurred to operate the Forward Air network, including higher purchased transportation costs, higher salaries, wages and benefits, a greater number and larger size of terminals, an increase in depreciation and amortization expenses, as well as higher insurance costs. The Company was able to offset these increases, however, by lowering the percentage amount spent on other operating expenses.

     Interest expense was $331,000 in 2001 compared to $107,000 in 2000. The increase in interest expense was due to the discontinuation of the capitalization of interest costs relating to the completion of internal use software during 2001 which was offset by lower average net borrowings during 2001.

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     Other income, net was $877,000 in 2001 compared to $773,000 in 2000. The increase in interest income was due to an increase in cash and interest bearing securities in 2001 as compared to 2000, but was partially offset by lower yields on investments during that same time period.

     The combined federal and state effective tax rate for 2001 was 38.3%, compared to a rate of 38.2% for 2000. For information concerning income taxes, as well as information regarding differences between effective tax rates and statutory rates, see Note 7 of the Notes to Consolidated Financial Statements.

     As a result of the foregoing factors, net income decreased by $3.5 million, or 15.0%, to $19.9 million for 2001, from $23.4 million in 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Operating revenue increased by $44.1 million, or 25.8%, to $214.9 million for 2000 from $170.8 million in 1999. This increase resulted primarily from increased volume from domestic and international air cargo customers, an increased number of operating terminals and direct shuttles, and enhanced logistics services.

     Purchased transportation was 42.5% of operating revenue in 2000 compared to 43.8% in 1999. The decrease in purchased transportation was primarily attributable to operating efficiencies resulting from increased volumes of freight transported through the Forward Air network.

     Salaries, wages and employee benefits were 22.0% of operating revenue in 2000 compared to 22.4% in 1999. The decrease in salaries, wages and employee benefits as a percentage of operating revenue was due primarily to operating efficiencies resulting from increased volumes of freight transported through the Forward Air network.

     Operating leases, the largest component of which is terminal rent, were 4.7% of operating revenue in 2000 compared to 5.2% in 1999. This decrease in operating leases as a percentage of revenue was attributable to increased leverage resulting from increased operating revenue.

     Depreciation and amortization expense as a percentage of operating revenue was 2.7% in 2000, compared to 2.9% in 1999. The decrease in depreciation and amortization expense as a percentage of revenue was attributable to increased utilization of operating equipment during 2000 as a result of increased operating revenue.

     Insurance and claims as a percentage of revenue was 1.7% of operating revenue in 2000, compared with 1.2% in 1999. This increase in insurance and claims expense as a percentage of revenue was due primarily to an increase in the frequency and severity of accidents and higher premium costs during 2000.

     Other operating expenses were 9.0% of operating revenue in 2000 and 1999.

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     Income from operations increased by $10.9 million, or 41.3%, to $37.3 million for 2000 compared to $26.4 million for 1999. This increase in income from operations is due primarily to a lower operating cost structure resulting from an increase in operating revenue, which allowed the Company to spread the fixed costs of its network over a larger revenue base. The increase in income from operations during 2000 was partially offset by operating losses of approximately $1.6 million relating to the Company’s information technology subsidiary, LogTech. In 2001, the Company internalized the LogTech operations and begin offering its information technology services to its existing customer base. The wind-down of LogTech operations resulted in an additional estimated $350,000, or $0.01 per share, of operating losses during the first quarter of 2001.

     Interest expense was $107,000 in 2000 compared to $787,000, or 0.5% of revenue, in 1999. The decrease in interest expense was due to lower average net borrowings during 2000 coupled with the capitalization of interest costs totaling $301,000 during 2000 relating to the development of internal-use software.

     The combined federal and state effective tax rate for 2000 was 38.2%, compared to a rate of 38.3% for 1999. For information concerning income taxes, as well as information regarding differences between effective tax rates and statutory rates, see Note 7 of the Notes to Consolidated Financial Statements.

     As a result of the foregoing factors, income from continuing operations increased by $7.4 million, or 46.3%, to $23.4 million for 2000, from $16.0 million in 1999.

Discussion of Critical Accounting Policies

   Allowance for Doubtful Accounts and Revenue Adjustments

     The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances where management is aware of a specific customers’ inability to meet its financial obligations to the Company (e.g., bankruptcy filings, accounts turned for litigation), the Company records a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount management reasonably believes will be collected. For all other customers, the Company recognizes reserves for bad debts based on the length of time the receivables are past due. Specifically, amounts that are ninety days or more past due are reserved at 50%. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to the Company), our estimates of the recoverability of amounts due to the Company could be reduced by a material amount.

   Insurance Loss Reserves

     Given the nature of the Company’s operating environment, the Company has, and in the future may, become subject to vehicle, workers compensation and health insurance claims. To mitigate a portion of these risks, the Company maintains insurance for individual vehicle and workers compensation claims exceeding $250,000 and health insurance claims exceeding

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$100,000. The amount of loss reserve and loss adjustment expenses is determined based on an estimation process that uses information obtained from both Company specific and industry data, as well as general economic information. The estimation process requires management to continuously monitor and evaluate the life cycle of claims. Using data obtained from this monitoring and management’s assumptions about the emerging trends, management develops information about the size of ultimate claims based on the Company’s historical experience and other available market information. The most significant assumptions used in the estimation process include determining the trend in loss costs, the expected consistency in the frequency and severity of claims incurred but not yet reported to prior year claims, changes in the timing of the reporting of losses from the loss date to the notification date, and expected costs to settle unpaid claims. Management also monitors the reasonableness of the judgments made in the prior year estimation process (referred to as a hindsight analysis) and adjusts current year assumptions based on the hindsight analysis.

Liquidity and Capital Resources

     The Company’s availability under its line of credit was $14.8 million and $13.8 million at December 31, 2001 and 2000, respectively. As of December 31, 2001, the Company had $19.4 million in cash or cash equivalents and management believes that the Company will have adequate access to capital for its foreseeable future needs. The Company was in full compliance with the covenant and ratio requirements in its loan agreements at the end of December 31, 2001 and 2000.

     The Company has historically financed its working capital needs, including capital expenditures, with cash flows from operations and borrowings under its bank lines of credit. Net cash provided by operating activities totaled approximately $35.5 million for 2001, $33.8 million for 2000 and $20.1 million for 1999. The increases in net cash provided by operating activities in 2001 and 2000 are mainly attributable to growth and improvements in results of operations.

     Net cash used in investing activities was approximately $31.0 million in 2001, $26.9 million in 2000 and $13.4 million in 1999. Investing activities in 2001 consisted primarily of purchases and sales/maturities of available-for-sale securities as well as acquisitions and capital expenditures. Investing activities in 2000 and 1999 consisted primarily of acquisitions along with the purchase of operating equipment and management information systems.

     Net cash used in financing activities was $743,000 in 2001, compared to net cash provided by financing activities of $2.6 million in 2000 and cash used in financing activities of $1.2 million in 1999. Financing activities included the continued financing of operating equipment and working capital needs, repayment of long-term debt and capital leases, proceeds received from the exercise of stock options, Common Stock issued under the Company’s employee stock purchase plan, and Common Stock issued from a public offering.

     On May 4, 1999, 1.5 million shares of the Common Stock of the Company were sold under a Form S-3 Registration Statement dated April 23, 1999. The net proceeds of the offering were $18.0 million and were used principally to repay outstanding debt.

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     The Company expects net capital expenditures in 2002 for operating equipment and management information systems to be approximately $5.0 million. The Company expects to fund these expenditures through cash provided by operating activities and borrowings under its credit facility. The 2002 capital expenditure budget does not include any allocation for acquisitions.

     The credit facility consists of a working capital line of credit. As long as the Company complies with several financial covenants and ratios, the credit facility permits it to borrow up to $20.0 million. Interest rates for advances under the facilities vary based on covenants related to total indebtedness, cash flows, results of operations and other ratios. The facility bears interest at LIBOR plus 1.00% to 1.90%, expires in April 2002 and is secured by accounts receivable. The amount the Company can borrow under the line of credit is reduced by the amount of any outstanding letters of credit.

Contractual Obligations and Commercial Commitments

     Management believes that the Company’s available cash, expected cash generated from future operations and borrowings under available lines of credit, will be sufficient to satisfy anticipated cash needs for at least the next twelve months.

     On February 24, 1999, the Board of Directors approved a two-for-one stock split which was distributed on March 19, 1999. On January 10, 2000, the Board of Directors approved a three-for-two stock split which was distributed on January 28, 2000. All share, earnings per share, dividends per share, and quarterly stock price data included herein and in the Consolidated Financial Statements and Notes thereto have been restated to give effect to the stock splits.

Related Party Transactions

   Transactions with Landair Corporation

     On July 9, 1998, the Board of Directors of the Company authorized the Spin-off to separate the Company into two publicly-held corporations, one owning and operating the deferred air freight operations and the other owning and operating the truckload operations.

     The Spin-off was effected on September 23, 1998 through the distribution to shareholders of the Company of all the outstanding stock of a new truckload holding company, Landair.

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     Pursuant to the Spin-off, the common stock of Landair was distributed on a pro rata basis of one share of Landair common stock for every one share of Company common stock held. Effective with the Spin-off, the Company is the legal entity that continues to own and operate the deferred air freight operations through its operating subsidiaries and Landair is the legal entity that owns and operates the truckload operations through its operating subsidiaries.

     In connection with the Spin-off, the Company entered into a Transition Services Agreement (“TSA”) with Landair which was effective upon the actual separation of the two companies.

     In accordance with the terms included in the TSA, subsequent to the Spin-off in 1998, the Company provided accounts payable, payroll, human resources, employee benefit plan administration, owner-operator settlement, central purchasing, accounting and legal, general administrative, and information technology services to the Company. The Company charged Landair $662,000, $1.5 million and $2.4 million, respectively, during the years ended December 31, 2001, 2000 and 1999 for these services. These charges have been included in salaries, wages and employee benefits in the accompanying statements of operations. Landair provided safety, licensing, permitting and fuel tax, insurance and claims services, recruiting and retention services, and driver training center services to the Company. Landair charged the Company $104,000, $230,000 and $455,000, respectively, during the years ended December 31, 2001, 2000 and 1999 for these services. These charges have been included in salaries, wages and employee benefits in the accompanying statements of operations.

     The Company purchased $1.7 million, $2.2 million and $3.3 million of truckload transportation services from Landair in 2001, 2000 and 1999, respectively.

     The Company’s Chairman of the Board and Chief Executive Officer and its Senior Vice-President, General Counsel and Secretary also serve as executive officers and directors of Landair.

   Transactions with Sky Night LLC

     The Company purchases air transportation services from Sky Night, LLC (“Sky Night”), a limited liability corporation owned by the Company’s Chairman and Chief Executive Officer. The air charter expense totaled $269,000 and $185,000 in 2001 and 2000, respectively. In addition, the Company paid salaries and benefits of $104,000 and $130,000 for two pilots of the limited liability corporation during 2001 and 2000, respectively.

     During 2001, the Company entered into an agreement to sublease hangar space at its Greeneville, Tennessee headquarters to Sky Night. The initial term of the sublease is for 12 months, with a one-year renewal option, and the monthly rental rate was determined based on market prices for similar spaces in the area.

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Impact of Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as amended, was required to be adopted by the Company in January 2001. The adoption of the Statement did not have a significant effect on the financial position or results of operations of the Company.

Forward-Looking Statements

     The Company, or its officers and directors on behalf of the Company, may from time to time make written or oral “forward-looking statements.” Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission (the “Commission”), in press releases and in reports to shareholders. Oral forward-looking statements may be made by the Company’s officers and directors on behalf of the Company to the press, potential investors, securities analysts and others. The Private Securities Litigation Reform Act of 1995 contains a safe harbor for forward-looking statements. The Company relies on this safe harbor in making such disclosures. In connection with this safe harbor provision, the Company is hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. Without limitation, factors that might cause such a difference include economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, the Company’s inability to maintain its historical growth rate due to a decreased volume of freight moving through the Company’s network, competition, surplus inventories, loss of a major customer, the ability of the Company’s information systems to handle increased volume of freight moving through its network, and the availability and compensation of qualified independent owner-operators to serve the Company’s transportation needs. The Company disclaims any intent or obligation to update these forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     On May 4, 1999, the Company sold 1.5 million shares of Common Stock in a public offering. The net proceeds of $18.0 million were used principally to repay outstanding debt. With this repayment, the Company’s exposure to market risk related to its remaining outstanding debt is not significant.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this item is submitted as a separate section of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

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PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item with respect to directors of the Company is incorporated herein by reference to the Company’s definitive proxy statement for its 2002 Annual Meeting of Shareholders (the “2002 Proxy Statement”). The 2002 Proxy Statement will be filed with the Commission not later than 120 days subsequent to December 31, 2001.

     Pursuant to Item 401(b) of Regulation S-K, the information required by this item with respect to executive officers of the Company is set forth in Part I of this report.

ITEM 11.      EXECUTIVE COMPENSATION

     The information required by this item is incorporated herein by reference to the 2002 Proxy Statement, which will be filed with the Commission not later than 120 days subsequent to December 31, 2001.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated herein by reference to the 2002 Proxy Statement, which will be filed with the Commission not later than 120 days subsequent to December 31, 2001.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by reference to the 2002 Proxy Statement, which will be filed with the Commission not later than 120 days subsequent to December 31, 2001.

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PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

	(a)(1)and (2)		List of Financial Statements and Financial Statement Schedules.
			The response to this portion of Item 14 is submitted as a separate section of this report.
	(a)(3)		List of Exhibits.
			The response to this portion of Item 14 is submitted as a separate section of this report.
	(b)		Reports on Form 8-K.
			The Company did not file a report on Form 8-K during the fourth quarter of 2001.
	(c)		Exhibits.
			The response to this portion of Item 14 is submitted as a separate section of this report.
	(d)		Financial Statement Schedules.
			The response to this portion of Item 14 is submitted as a separate section of this report.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Forward Air Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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Annual Report on Form 10-K

Item 8, Item 14(a)(1) and (2), (c) and (d)

List of Financial Statements and Financial Statement Schedule

Financial Statements and Supplementary Data

Certain Exhibits

Financial Statement Schedule

Year Ended December 31, 2001

Forward Air Corporation

Greeneville, Tennessee

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Forward Air Corporation

Form 10-K — Item 8 and Item 14(a)(1) and (2)

Index to Financial Statements and Financial Statement Schedule

The following consolidated financial statements of Forward Air Corporation are included as a separate section of this report:

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

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Report of Independent Auditors

The Board of Directors and Shareholders
Forward Air Corporation

We have audited the accompanying consolidated balance sheets of Forward Air Corporation as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Forward Air Corporation at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Nashville, Tennessee
February 1, 2002

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Forward Air Corporation

Consolidated Balance Sheets

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See accompanying notes.

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Forward Air Corporation

Consolidated Statements of Income

See accompanying notes.

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Forward Air Corporation

Consolidated Statements of Shareholders’ Equity