false--12-31FY20190000912728P2YP7YP2YP6YP2YP10YP1YP4YP3YP6M0.180.150.150.150.150.150.150.150.180.180.180.180.18208100021010000.60.010.015000000050000000285349352785023328534935278502330.2101500000001300000001500000001300000000.01500000050000000000P40YP10YP30YP3YP5YP3YP2YP3YP3YP3YP7Y 0000912728 2019-01-01 2019-12-31 0000912728 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-01-01 2019-12-31 0000912728 fwrd:DefiniteLivedIntangibleAssetsMember 2019-01-01 2019-12-31 0000912728 fwrd:KeyEmployeePerformanceShareBasedPlanMember 2019-01-01 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-12-31 0000912728 fwrd:EmployeeNonVestedSharesMember 2019-01-01 2019-12-31 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2019-01-01 2019-12-31 0000912728 fwrd:EmployeeStockPurchasePlanMember 2019-01-01 2019-12-31 0000912728 2019-06-30 0000912728 2020-02-14 0000912728 2019-12-31 0000912728 2018-12-31 0000912728 2018-01-01 2018-12-31 0000912728 2017-01-01 2017-12-31 0000912728 us-gaap:CommonStockMember 2018-01-01 2018-12-31 0000912728 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0000912728 us-gaap:CommonStockMember 2019-01-01 2019-12-31 0000912728 us-gaap:RetainedEarningsMember 2017-01-01 2017-12-31 0000912728 us-gaap:CommonStockMember 2017-01-01 2017-12-31 0000912728 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0000912728 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 2017-12-31 0000912728 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0000912728 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0000912728 2016-12-31 0000912728 us-gaap:RetainedEarningsMember 2019-12-31 0000912728 us-gaap:CommonStockMember 2017-12-31 0000912728 us-gaap:RetainedEarningsMember 2016-12-31 0000912728 us-gaap:CommonStockMember 2016-12-31 0000912728 us-gaap:CommonStockMember 2018-12-31 0000912728 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000912728 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000912728 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000912728 us-gaap:RetainedEarningsMember 2017-12-31 0000912728 us-gaap:CommonStockMember 2019-12-31 0000912728 us-gaap:RetainedEarningsMember 2018-12-31 0000912728 2017-12-31 0000912728 us-gaap:AdditionalPaidInCapitalMember 2016-12-31 0000912728 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween5000and10000Member srt:MinimumMember 2019-01-01 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween3000and5000Member 2019-01-01 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween5000and10000Member srt:MaximumMember 2019-01-01 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween3000and5000Member srt:MinimumMember 2019-01-01 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween3000and5000Member srt:MaximumMember 2019-01-01 2019-12-31 0000912728 fwrd:IntermodalMember 2019-12-31 0000912728 us-gaap:StockOptionMember 2019-01-01 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween0and5000Member srt:MaximumMember fwrd:TruckloadMember 2019-01-01 2019-12-31 0000912728 fwrd:PoolDistributionMember 2019-12-31 0000912728 fwrd:StateofOhioMember 2019-01-01 2019-12-31 0000912728 fwrd:ExpeditedFreightMember 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween0and5000Member srt:MinimumMember fwrd:TruckloadMember 2019-01-01 2019-12-31 0000912728 fwrd:Aggregatedeductibleforclaimsbetween5000and10000Member 2019-01-01 2019-12-31 0000912728 fwrd:IntermodalMember 2019-01-01 2019-12-31 0000912728 srt:MinimumMember us-gaap:BuildingMember 2019-01-01 2019-12-31 0000912728 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-01-01 2019-12-31 0000912728 srt:MaximumMember us-gaap:EquipmentMember 2019-01-01 2019-12-31 0000912728 srt:MaximumMember 2019-01-01 0000912728 srt:MinimumMember us-gaap:EquipmentMember 2019-01-01 2019-12-31 0000912728 srt:MaximumMember us-gaap:BuildingMember 2019-01-01 2019-12-31 0000912728 srt:MinimumMember 2019-01-01 0000912728 us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-31 0000912728 us-gaap:NoncompeteAgreementsMember 2018-12-31 0000912728 us-gaap:TradeNamesMember 2018-12-31 0000912728 us-gaap:CustomerRelationshipsMember 2018-12-31 0000912728 us-gaap:TradeNamesMember 2018-01-01 2018-12-31 0000912728 us-gaap:NoncompeteAgreementsMember 2018-01-01 2018-12-31 0000912728 us-gaap:CustomerRelationshipsMember 2019-12-31 0000912728 us-gaap:NoncompeteAgreementsMember 2019-12-31 0000912728 fwrd:OSTMember 2019-01-01 2019-12-31 0000912728 fwrd:FSAMember 2019-01-01 2019-12-31 0000912728 fwrd:PoolDistributionMember 2018-12-31 0000912728 fwrd:PoolDistributionMember 2019-12-31 0000912728 fwrd:TruckloadPremiumServicesMember 2019-12-31 0000912728 fwrd:FinalMileMember 2019-12-31 0000912728 fwrd:IntermodalMember 2018-12-31 0000912728 fwrd:ExpeditedLTLMember 2019-12-31 0000912728 fwrd:TruckloadPremiumServicesMember 2018-12-31 0000912728 fwrd:ExpeditedLTLMember 2018-12-31 0000912728 fwrd:IntermodalMember 2019-12-31 0000912728 us-gaap:MeasurementInputRiskFreeInterestRateMember fwrd:FSAMember 2019-12-31 0000912728 fwrd:MeaurementInputRevenueVolatilityMember fwrd:FSAMember 2019-04-21 0000912728 us-gaap:MeasurementInputRiskFreeInterestRateMember fwrd:FSAMember 2019-04-21 0000912728 us-gaap:MeasurementInputDiscountRateMember fwrd:FSAMember 2019-04-21 0000912728 us-gaap:MeasurementInputDiscountRateMember fwrd:FSAMember 2019-12-31 0000912728 fwrd:MeaurementInputRevenueVolatilityMember fwrd:FSAMember 2019-12-31 0000912728 fwrd:KCLMember 2017-10-22 0000912728 fwrd:AtlanticMember us-gaap:CustomerRelationshipsMember 2017-05-07 0000912728 fwrd:FSAMember 2019-04-21 0000912728 fwrd:MMTMember 2018-07-25 0000912728 fwrd:AtlanticMember 2017-05-07 0000912728 fwrd:FSAMember us-gaap:CustomerRelationshipsMember 2019-04-21 0000912728 fwrd:OSTMember 2019-07-14 0000912728 fwrd:SouthwestFreightDistributorsMember 2018-10-28 0000912728 fwrd:OSTMember us-gaap:GoodwillMember 2019-07-14 0000912728 fwrd:SouthwestFreightDistributorsMember us-gaap:NoncompeteAgreementsMember 2018-10-28 0000912728 fwrd:MMTMember us-gaap:GoodwillMember 2018-07-25 0000912728 fwrd:FSAMember us-gaap:NoncompeteAgreementsMember 2019-04-21 0000912728 fwrd:SouthwestFreightDistributorsMember us-gaap:GoodwillMember 2018-10-28 0000912728 fwrd:KCLMember us-gaap:GoodwillMember 2017-10-22 0000912728 fwrd:SouthwestFreightDistributorsMember us-gaap:CustomerRelationshipsMember 2018-10-28 0000912728 fwrd:MMTMember us-gaap:NoncompeteAgreementsMember 2018-07-25 0000912728 fwrd:AtlanticMember us-gaap:GoodwillMember 2017-05-07 0000912728 fwrd:KCLMember us-gaap:NoncompeteAgreementsMember 2017-10-22 0000912728 fwrd:MMTMember us-gaap:CustomerRelationshipsMember 2018-07-25 0000912728 fwrd:FSAMember 2019-04-21 2019-04-21 0000912728 fwrd:FSAMember us-gaap:GoodwillMember 2019-04-21 0000912728 fwrd:OSTMember us-gaap:NoncompeteAgreementsMember 2019-07-14 0000912728 fwrd:KCLMember us-gaap:CustomerRelationshipsMember 2017-10-22 0000912728 fwrd:OSTMember us-gaap:CustomerRelationshipsMember 2019-07-14 0000912728 fwrd:AtlanticMember us-gaap:NoncompeteAgreementsMember 2017-05-07 0000912728 us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0000912728 us-gaap:TradeNamesMember 2019-01-01 2019-12-31 0000912728 us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0000912728 us-gaap:TradeNamesMember 2019-12-31 0000912728 fwrd:FSAMember 2019-04-21 0000912728 fwrd:TrailersMember 2019-04-01 2019-06-30 0000912728 fwrd:FSAMember 2019-12-31 0000912728 fwrd:TractorsMember 2019-12-31 0000912728 fwrd:KCLMember 2018-06-30 0000912728 fwrd:TractorsMember 2019-04-01 2019-06-30 0000912728 fwrd:AtlanticMember 2018-12-31 0000912728 fwrd:TractorsMember 2019-06-30 0000912728 fwrd:TrailersMember 2019-10-01 2019-12-31 0000912728 2019-01-01 2019-06-30 0000912728 fwrd:TractorsMember 2019-10-01 2019-12-31 0000912728 fwrd:FSAMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0000912728 fwrd:KCLMember us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0000912728 fwrd:AtlanticMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0000912728 fwrd:OSTMember us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0000912728 fwrd:SouthwestFreightDistributorsMember us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0000912728 fwrd:AtlanticMember us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0000912728 fwrd:OSTMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0000912728 fwrd:MMTMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0000912728 fwrd:SouthwestFreightDistributorsMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0000912728 fwrd:FSAMember us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0000912728 fwrd:MMTMember us-gaap:NoncompeteAgreementsMember 2019-01-01 2019-12-31 0000912728 fwrd:KCLMember us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0000912728 us-gaap:LetterOfCreditMember 2017-09-29 0000912728 2017-09-29 0000912728 fwrd:FederalfundsMember 2019-01-01 2019-12-31 0000912728 fwrd:SwinglineloanMember 2017-09-29 0000912728 us-gaap:RevolvingCreditFacilityMember 2017-09-29 0000912728 us-gaap:RevolvingCreditFacilityMember 2019-12-31 0000912728 us-gaap:RevolvingCreditFacilityMember 2019-01-01 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember 2018-01-01 2018-12-31 0000912728 us-gaap:EmployeeStockOptionMember 2017-01-01 2017-12-31 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2016-05-01 2016-05-31 0000912728 fwrd:EmployeeStockPurchasePlanMember 2019-12-31 0000912728 us-gaap:CommonStockMember 2016-05-31 0000912728 fwrd:A2016StockRepurchasePlanMember us-gaap:CommonStockMember 2016-07-20 2016-07-21 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2019-12-31 0000912728 us-gaap:CommonStockMember 2019-12-31 0000912728 fwrd:A2016StockRepurchasePlanMember us-gaap:CommonStockMember 2019-01-01 2019-12-31 0000912728 fwrd:A2019StockRepurchasePlanMember us-gaap:CommonStockMember 2019-02-05 2019-02-05 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2018-01-01 2018-12-31 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2017-01-01 2017-12-31 0000912728 fwrd:KeyEmployeePerformanceShareBasedPlanMember 2017-01-01 2017-12-31 0000912728 us-gaap:StockOptionMember 2018-01-01 2018-12-31 0000912728 fwrd:KeyEmployeePerformanceShareBasedPlanMember 2018-01-01 2018-12-31 0000912728 us-gaap:StockOptionMember 2017-01-01 2017-12-31 0000912728 fwrd:KeyEmployeePerformanceShareBasedPlanMember 2019-12-31 0000912728 fwrd:EmployeeStockPurchasePlanMember 2018-01-01 2018-12-31 0000912728 fwrd:EmployeeStockPurchasePlanMember 2017-01-01 2017-12-31 0000912728 fwrd:EmployeeStockPurchasePlanMember 2017-12-31 0000912728 fwrd:EmployeeStockPurchasePlanMember 2018-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange50.71through53.73Member 2019-01-01 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange45.34through48.32Member 2019-01-01 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange42.48through44.90Member 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange45.34through48.32Member 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange42.48through64.26Member 2019-01-01 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange64.26through64.26Member 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange50.71through53.73Member 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange42.48through44.90Member 2019-01-01 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange57.18through60.42Member 2019-01-01 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange57.18through60.42Member 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange42.48through64.26Member 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember fwrd:ExercisePriceRange64.26through64.26Member 2019-01-01 2019-12-31 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2017-12-31 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2018-12-31 0000912728 fwrd:NonemployeeDirectorNonvestedSharesGrantedMember 2016-12-31 0000912728 us-gaap:EmployeeStockOptionMember 2019-12-31 0000912728 us-gaap:EmployeeStockOptionMember 2018-12-31 0000912728 us-gaap:EmployeeStockOptionMember 2016-12-31 0000912728 us-gaap:EmployeeStockOptionMember 2017-12-31 0000912728 fwrd:EmployeeNonVestedSharesMember 2018-01-01 2018-12-31 0000912728 fwrd:KeyEmployeePerformanceShareBasedPlanMember 2017-12-31 0000912728 fwrd:KeyEmployeePerformanceShareBasedPlanMember 2018-12-31 0000912728 fwrd:KeyEmployeePerformanceShareBasedPlanMember 2016-12-31 0000912728 fwrd:EmployeeNonVestedSharesMember 2016-12-31 0000912728 fwrd:EmployeeNonVestedSharesMember 2017-01-01 2017-12-31 0000912728 fwrd:EmployeeNonVestedSharesMember 2017-12-31 0000912728 fwrd:EmployeeNonVestedSharesMember 2018-12-31 0000912728 fwrd:EmployeeNonVestedSharesMember 2019-12-31 0000912728 2019-10-01 2019-12-31 0000912728 2018-07-01 2018-09-30 0000912728 2019-04-01 2019-06-30 0000912728 2019-07-01 2019-09-30 0000912728 2018-10-01 2018-12-31 0000912728 2017-07-01 2017-09-30 0000912728 2017-10-01 2017-12-31 0000912728 2017-01-01 2017-03-31 0000912728 2018-04-01 2018-06-30 0000912728 2020-01-01 2020-03-31 0000912728 2018-01-01 2018-03-31 0000912728 2019-01-01 2019-03-31 0000912728 2017-04-01 2017-06-30 0000912728 srt:MinimumMember us-gaap:EmployeeStockOptionMember 2019-01-01 2019-12-31 0000912728 srt:MaximumMember us-gaap:EmployeeStockOptionMember 2019-01-01 2019-12-31 0000912728 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0000912728 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-12-31 0000912728 us-gaap:IntersegmentEliminationMember 2018-01-01 2018-12-31 0000912728 fwrd:IntermodalMember 2018-01-01 2018-12-31 0000912728 fwrd:PoolDistributionMember 2018-01-01 2018-12-31 0000912728 fwrd:ExpeditedFreightMember 2018-01-01 2018-12-31 0000912728 fwrd:IntermodalMember 2018-12-31 0000912728 fwrd:ExpeditedFreightMember 2018-12-31 0000912728 fwrd:PoolDistributionMember 2018-12-31 0000912728 us-gaap:IntersegmentEliminationMember 2018-12-31 0000912728 fwrd:PoolDistributionMember 2019-01-01 2019-12-31 0000912728 fwrd:ExpeditedFreightMember 2019-01-01 2019-12-31 0000912728 us-gaap:IntersegmentEliminationMember 2019-01-01 2019-12-31 0000912728 us-gaap:IntersegmentEliminationMember 2019-12-31 0000912728 fwrd:ExpeditedFreightMember 2017-01-01 2017-12-31 0000912728 us-gaap:IntersegmentEliminationMember 2017-01-01 2017-12-31 0000912728 fwrd:PoolDistributionMember 2017-01-01 2017-12-31 0000912728 fwrd:IntermodalMember 2017-01-01 2017-12-31 0000912728 us-gaap:IntersegmentEliminationMember 2017-12-31 0000912728 fwrd:PoolDistributionMember 2017-12-31 0000912728 fwrd:IntermodalMember 2017-12-31 0000912728 fwrd:ExpeditedFreightMember 2017-12-31 0000912728 fwrd:TruckloadrevenueMember 2019-01-01 2019-12-31 0000912728 fwrd:OtherrevenueMember 2019-01-01 2019-12-31 0000912728 fwrd:NetworkrevenueMember 2019-01-01 2019-12-31 0000912728 fwrd:FinalMilerevenueMember 2019-01-01 2019-12-31 0000912728 fwrd:LinnStarMember 2020-01-12 0000912728 fwrd:LinnStarMember 2020-01-12 2020-01-12 0000912728 us-gaap:AllowanceForCreditLossMember 2018-12-31 0000912728 us-gaap:AllowanceForCreditLossMember 2018-01-01 2018-12-31 0000912728 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2019-12-31 0000912728 fwrd:AllowanceForRevenueAdjustmentsMember 2017-12-31 0000912728 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2017-12-31 0000912728 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2018-12-31 0000912728 fwrd:AllowanceForRevenueAdjustmentsMember 2017-01-01 2017-12-31 0000912728 fwrd:AllowanceForRevenueAdjustmentsMember 2019-01-01 2019-12-31 0000912728 us-gaap:AllowanceForCreditLossMember 2019-01-01 2019-12-31 0000912728 fwrd:AllowanceForRevenueAdjustmentsMember 2018-12-31 0000912728 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2018-01-01 2018-12-31 0000912728 fwrd:AllowanceForRevenueAdjustmentsMember 2019-12-31 0000912728 us-gaap:AllowanceForCreditLossMember 2016-12-31 0000912728 us-gaap:AllowanceForCreditLossMember 2017-01-01 2017-12-31 0000912728 fwrd:AllowanceForRevenueAdjustmentsMember 2018-01-01 2018-12-31 0000912728 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2016-12-31 0000912728 fwrd:AllowanceForRevenueAdjustmentsMember 2016-12-31 0000912728 us-gaap:AllowanceForCreditLossMember 2017-12-31 0000912728 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2017-01-01 2017-12-31 0000912728 us-gaap:AllowanceForCreditLossMember 2019-12-31 0000912728 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2019-01-01 2019-12-31 iso4217:USD fwrd:Days xbrli:shares xbrli:pure iso4217:USD xbrli:shares
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, 2019
Commission file number: 000-22490

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                     
Commission File No. 000-22490

FORWARD AIR CORPORATION
(Exact name of Registrant as specified in its charter)
 
 
Tennessee
62-1120025
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
 
 
 
1915 Snapps Ferry Road
Building N
Greeneville
TN
37745
(Address of principal executive offices)
(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
FWRD
The Nasdaq Stock Market LLC
 
 
 

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ  No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting Company
Emerging Growth Company

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐




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

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1,635,989,687 as of June 30, 2019.

The number of shares outstanding of the Registrant’s common stock (as of February 14, 2020): 28,138,584.

Documents Incorporated By Reference
Portions of the proxy statement for the 2020 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.




Table of Contents
 
 
 
 
Forward Air Corporation
Page
Number
 
 
Part I.
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
 
 
Part III.
 
 
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
 
 
 
Part IV.
 
 
 
 
 
Item 15.
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents


Introductory Note

This Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (this “Form 10-K”) contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. In this Form 10-K, forward-looking statements include, but are not limited to, any projections of earnings, revenues, payment of dividends, other financial items or related accounting treatment, or cost reduction measures; any statement regarding the availability of cash; any statement of plans, strategies, and objectives of management for future operations; any statements regarding future insurance, claims and litigation; any statements regarding regulation and legislative impacts on our business; any statements concerning proposed or intended, new services, developments or integration measures; any statements regarding our technology and information systems, including the effectiveness of each; any statements regarding competition, including our specific advantages, the capabilities of our segments, including the integration of services and our geographic location; any statement regarding our properties; any statements regarding intended expansion through acquisition or greenfield startups; any statements regarding future business, economic conditions or performance; any statements regarding our environmental initiatives and any statements of belief and any statements of assumptions underlying any of the foregoing. Some forward-looking statements may be identified by use of such terms as “believes,” “anticipates,” “intends,” “plans,” “estimates,” “projects” or “expects.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from those contemplated by the forward-looking statements: economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, our ability to manage our growth and ability to grow, in part, through acquisitions, while being able to successfully integrate such acquisitions, our inability to maintain our historical growth rate because of a decreased volume of freight or decreased average revenue per pound of freight moving through our network, the availability and compensation of qualified independent owner-operators and freight handlers as well as contracted, third-party carriers needed to serve our customers’ transportation needs, our inability to manage our information systems and inability of our information systems to handle an increased volume of freight moving through our network, the occurrence of cybersecurity risks and events, market acceptance of our service offerings, claims for property damage, personal injuries or workers’ compensation, enforcement of and changes in governmental regulations, environmental, tax, insurance and accounting matters, the handling of hazardous materials, changes in fuel prices, loss of a major customer, increasing competition and pricing pressure, our dependence on our senior management team and the potential effects of changes in employee status, seasonal trends, the occurrence of certain weather events, restrictions in our charter and bylaws. As a result of the foregoing, no assurance can be given as to future financial condition, cash flows or results of operations. Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Part I

Item 1. Business

Overview

Forward Air is a leading asset-light freight and logistics company. We provide less-than-truckload (“LTL”), final mile, truckload, intermodal drayage and pool distribution services across the United States and in Canada. We offer premium services that typically require precision execution, such as expedited transit, delivery during tight time windows and special handling. We utilize an asset-light strategy to minimize our investments in equipment and facilities and to reduce our capital expenditures. Forward Air was formed as a corporation under the laws of the State of Tennessee on October 23, 1981. Our common stock is listed on the Nasdaq Global Select Market under the symbol “FWRD”.

Services Provided

Our services are classified into three reportable segments: Expedited Freight, Intermodal and Pool Distribution. For financial information relating to each of our business segments, see Note 10, Segment Reporting to our Consolidated Financial Statements included in this Form 10-K.

Effective September 1, 2018, Thomas Schmitt was named the Company's President and Chief Executive Officer. Mr. Schmitt is the Company's Chief Operating Decision Maker ("CODM") and is primarily responsible for allocating resources to and assessing the performance of the Company's segments. As a result of this change in leadership, the Company revisited its strategy, and in the fourth quarter of 2019, we consolidated our Truckload Premium Services operations into our Expedited Freight network

3

Table of Contents

operations. This allowed Expedited Freight to diversify its revenues while simultaneously enhancing its owner-operator and brokerage relationships, which has lowered Expedited Freight’s linehaul and overall unit costs. Due to this change in leadership and the implementation of a new strategy, management determined that a change in the Company’s reportable segments had occurred.

Expedited Freight. We operate a comprehensive national network to provide expedited regional, inter-regional and national 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. We plan to grow our LTL and final mile geographic footprints through greenfield start-ups as well as acquisitions. During the year ended December 31, 2019, Expedited Freight accounted for 70% of our consolidated revenue.

Intermodal. We provide first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and Container Freight Station (“CFS”) warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest United States. We plan to grow Intermodal’s geographic footprint through acquisitions as well as greenfield start-ups where we do not have an acceptable acquisition target. During the year ended December 31, 2019, Intermodal accounted for 15% of our consolidated revenue.

Pool Distribution. We provide high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States. During the year ended December 31, 2019, Pool Distribution accounted for 15% of our consolidated revenue.

Strategy

Our strategy is to take advantage of our core competencies in precision execution to provide asset-light freight and logistics services in order to profitably grow in the premium segments of the markets we serve. Principal components of our efforts include:
Expand Service Offerings. We believe we can increase freight volumes and revenues by offering new and enhanced services that address more of our customers’ premium transportation needs. In the past few years, we have added or enhanced LTL pickup and delivery, final mile solutions, expedited truckload, temperature-controlled shipments, warehousing, drayage, customs brokerage and shipment consolidation and handling services. These services benefit our existing customers and increase our ability to attract new customers. We also believe we can increase freight volumes by providing services to customers like third-party logistics companies and international freight forwarders that have historically represented a small percentage of our customer base and by opening new terminals in underpenetrated markets away from airport locations.

Pursue Strategic Acquisitions. We continue to evaluate and pursue acquisitions that can increase our penetration of a geographic area; add new customers, business verticals and services; and increase freight volume. For example, we acquired Central States Trucking Co. (“CST”) in 2014, which created the foundation for what is now our Intermodal segment. Since our acquisition of CST in 2014, we have completed nine additional intermodal acquisitions including O.S.T. Trucking, Inc. and O.S.T. Logistics Inc. (collectively, “O.S.T.”), which we closed in July 2019. We also acquired FSA Network, Inc. ("FSA") in April 2019, which expanded and enhanced our final mile footprint. In addition, in December 2019 we signed an agreement to acquire Linn Star Holdings, Inc., Linn Star Transfer, Inc. and Linn Star Logistics, LLC (collectively, “Linn Star”), which we closed in January 2020. The acquisition of Linn Start expands our final mile footprint to an additional 20 locations.

Enhance Information Systems. We are committed to the development and enhancement of our information systems in order to provide us competitive service advantages and increased productivity. We believe our information systems have and will assist us in capitalizing on new business opportunities with existing and new customers.

Operations

The following describes in more detail the operations of each of our reportable segments: Expedited Freight, Intermodal and Pool Distribution.





4

Table of Contents



Expedited Freight

Overview

Our Expedited Freight segment provides expedited regional, inter-regional and national LTL, final mile and truckload services. We market our Expedited Freight services primarily to freight and logistics intermediaries (such as freight forwarders and third-party logistics companies), airlines (such as integrated air cargo carriers, and passenger and cargo airlines) and retailers (such as retailers of heavy bulky appliances). We offer our customers a high level of service with a focus on on-time, damage-free deliveries. Our Expedited Freight network encompasses approximately 92% of all continental U.S. zip codes, with service in Canada.

Shipments

During 2019, approximately 32% of the freight handled by our LTL network was for overnight delivery, approximately 55% was for delivery within two to three days and the balance was for delivery in four or more days.

The average weekly volume of freight moving through our LTL network network was approximately 48.6 million pounds per week in 2019. During 2019, our average shipment weighed approximately 621 pounds. Although we impose no significant size or weight restrictions, we focus our marketing and price structure on shipments of 200 pounds or more.

Expedited Freight generally does not market its services directly to shippers (where such services might compete with our freight and logistics intermediary customers). Also, because Expedited Freight does not place significant size or weight restrictions on shipments, we generally do not compete directly with integrated air cargo carriers such as United Parcel Service and FedEx Corporation in the overnight delivery of small parcels.

The table below summarizes the average weekly volume of freight moving through our LTL network for each year since 2005.

Average Weekly

Volume in Pounds
Year
(In millions)
2005
31.2
2006
32.2
2007
32.8
2008
34.2
2009
28.5
2010
32.6
2011
34.0
2012
34.9
2013
35.4
2014
37.4
2015
47.2
2016
46.5
2017
49.5
2018
50.2
2019
48.6

Transportation

Our licensed property broker places our customers’ cargo with qualified motor carriers, including our own, and other third-party transportation companies. Expedited Freight's licensed motor carrier contracts with owner-operators for most of its transportation services. The owner-operators own, operate and maintain their own tractors and employ their own drivers. Our freight handlers load and unload our trailers and vehicles for hauling by owner-operators between our terminals.


5

Table of Contents

We seek to establish long-term relationships with owner-operators to assure dependable service and availability. We believe Expedited Freight has experienced significantly higher average retention of owner-operators compared to other over-the-road transportation providers. Expedited Freight has established specific guidelines relating to safety records, driving experience and personal evaluations that we use to select our owner-operators. To enhance our relationship with the owner-operators, Expedited Freight seeks to pay rates that are generally above prevailing market rates and our owner-operators often are able to negotiate a consistent work schedule for their drivers. Usually, owner-operators negotiate schedules for their drivers that are between the same two cities or along a consistent route, improving quality of work life for the drivers of our owner-operators and, in turn, increasing the retention rate of owner-operators.

As a result of efforts to expand our logistics and other services, and in response to seasonal demands and volume surges in particular markets, we also purchase transportation from other surface transportation providers to handle overflow volume. Of the $562.8 million incurred for Expedited Freight's transportation during 2019, we purchased 45% from the owner-operators of our licensed motor carrier, 7% from our company fleet and 48% from other surface transportation providers.

All of our Expedited Freight independent contractor tractors are equipped with in-cab communication devices, which enable us to communicate with drivers, plan and monitor shipment progress and monitor and record drivers’ hours of service. We use the real-time global positioning data obtained from these devices to improve customer and driver service.

Other Services

Expedited Freight continues to evolve the capabilities of its network to provide additional value-added services. Expedited Freight also seeks to lower its unit costs by integrating these services into the overall operation of its network.

Expedited Freight offers final mile services which include the delivery and installation of heavy bulky appliances such as washing machines, dryers, dishwashers and refrigerators. Through the acquisition of FSA Logistix in 2019 and acquisition of Linn Star in January 2020, Expedited Freight significantly expanded its final mile geographic footprint and now operates in 83 locations nationwide. Expedited Freight is also increasingly integrating these deliveries into its LTL pickup and delivery and terminal operations so as to increase network density and lower overall LTL unit costs.

In the fourth quarter of 2019, we consolidated our Truckload Premium Services operations into our Expedited Freight network operations. This allowed Expedited Freight to diversify its revenues while simultaneously enhancing its owner-operator and brokerage relationships, which has lowered Expedited Freight’s linehaul and overall unit costs. As a result of this consolidation, Expedited Freight offers expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-controlled logistics services.

Other Expedited Freight services allow customers to access the following services from a single source:

customs brokerage;
warehousing, dock and office space;
hotshot or ad-hoc ultra-expedited services; and
shipment consolidation and handling, such as shipment build-up and break-down and reconsolidation of air or ocean pallets or containers.

Customers

Our wholesale customer base is primarily comprised of freight forwarders, third-party logistics (“3PL”) companies, integrated air cargo carriers and passenger, cargo airlines, steamship lines and retailers. Expedited Freight’s freight forwarder customers vary in size from small, independent, single facility companies to large, international logistics companies. Our dependable service and wide-ranging service offerings also make Expedited Freight an attractive option for 3PL providers, which is one of the fastest growing segments in the transportation industry. Because we deliver dependable service, integrated air cargo carriers use our network to provide overflow capacity and other services, including shipment of bigger packages and pallet-loaded cargo. In 2019, Expedited Freight's ten largest customers accounted for approximately 36% of its operating revenue and had no customers with revenue greater than 10% of Expedited Freight operating revenue for 2019. No single customer accounted for more than 10% of our consolidated revenue.






6

Table of Contents

Intermodal

Overview

Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station ("CFS") warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with smaller operational presence in Southwest and Mid-Atlantic United States. We plan to expand beyond our current geographic footprint through acquisitions as well as greenfield start-ups where no suitable acquisition is available. Intermodal also provides linehaul and local less-than-truckload service in the Midwest, as well as CFS warehousing services (e.g. devanning, unit load device build-up/tear-down, and security screening) for air and ocean import/export freight at five (5) of its Midwest terminals (Chicago, Cleveland, Milwaukee, Indianapolis and Detroit). Our Intermodal service differentiators include:

Immediate proof of delivery ("POD") and Signature Capture capability via tablets;
All drivers receive dispatch orders on hand-held units and are trackable via GPS; and
Daily container visibility and per diem management reports.

Operations

Intermodal’s primary office is located in Oak Brook, Illinois. Intermodal’s network consists of 21 locations primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest United States.             

Transportation

Intermodal utilizes a mix of Company-employed drivers, owner-operators and third-party carriers. During 2019, approximately 73% of Intermodal’s direct transportation expenses were provided by owner-operators, 25% by Company-employed drivers, and 2% by third-party carriers.

All of our Intermodal company and independent contractor tractors are equipped with computer tablets, which enable us to communicate with our drivers, plan and monitor shipment progress and monitor our drivers’ hours of service. We use the real-time global positioning data obtained from these devices to improve customer and driver service and provide a high level of shipment visibility to our customers (including immediate POD signature capture). We believe that our technology is a key differentiator and enables us to provide a higher level of service than our competitors.

Customers

Intermodal’s customer base is primarily comprised of international freight forwarders, passenger and cargo airlines, beneficial cargo owners and steamship lines. In 2019, Intermodal’s ten largest customers accounted for approximately 31% of its operating revenue and had no customers with revenue greater than 10% of Intermodal operating revenue for 2019. No single customer accounted for more than 10% of our consolidated revenue.
        
Pool Distribution

Overview

Our Pool Distribution (or “Pool”) segment provides pool distribution services through a network of terminals and service locations throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States. Pool distribution involves managing high-frequency handling and distribution of time-sensitive product to numerous destinations in specific geographic regions. We market these services to national and regional retailers and distributors.

Transportation
Pool Distribution provides transportation services through a mix of Company-employed drivers, owner-operators and third-party carriers. The mix of sources utilized to provide Pool transportation services is dependent on the individual markets and related customer routes. During 2019, approximately 36% of Pool's direct transportation expenses were provided by third-party carriers, 34% by owner-operators and 30% was provided by Company-employed drivers.
Customers


7

Table of Contents

Pool Distribution’s customer base is primarily composed of national and regional retailers and distributors. Pool’s ten largest customers accounted for approximately 78% of Pool Distribution’s 2019 operating revenue and had three customers with revenue greater than 10% of Pool Distribution’s 2019 operating revenue. No single customer accounted for more than 10% of our consolidated revenue.



Competition

We compete in the North American transportation and logistics services industry, and the markets in which we operate are highly competitive, very fragmented and historically have few barriers to entry. We compete with a large number of other asset-light logistics companies, asset-based carriers, integrated logistics companies, and third-party freight brokers. To a lesser extent, we also compete with integrated air cargo carriers and passenger airlines. Our competition ranges from small operators that compete within a limited geographic area to companies with substantially greater financial and other resources, including greater freight capacity.

Our Expedited Freight segment primarily competes with other national and regional truckload carriers. Expedited Freight also competes with less-than-truckload carriers, and to a lesser extent, integrated air cargo carriers and passenger and cargo airlines. Our Intermodal segment primarily competes with national and regional drayage providers. Our Pool Distribution segment primarily competes with other national and regional truckload carriers.

We believe competition in our segments is based primarily on quality service, available capacity, on-time delivery, flexibility, reliability, security, transportation rates, location of facilities, and business relationships, and we believe we compete favorably with other transportation service companies. To that end, we believe our Expedited Freight segment has an advantage over other truckload and less-than-truckload carriers because Expedited Freight delivers faster, more reliable services between cities at rates that are generally significantly below the charge to transport the same shipments to the same destinations by air. We believe our Intermodal segment has a competitive advantage over other drayage providers because we deliver faster, more reliable service while offering greater shipment visibility and security. Additionally, we believe our Intermodal segment is one of the leading providers of drayage and related services in North America today. We believe that our presence in several regions across the continental United States enables our Pool Distribution segment to provide consistent, high-quality service to our customers regardless of location, which is a competitive advantage over other pool distribution providers.

Marketing

We market all of our services through a sales and marketing staff located in major markets of the United States. Senior management also is actively involved in sales and marketing at the national and local account levels. We participate in trade shows and advertise our services through direct mail programs and through the Internet via www.forwardaircorp.com, www.forwardair.com, www.forwardairsolutions.com and www.cstruck.com. We market our services through all of our websites. The information contained on our websites is not part of this filing and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Seasonality

Historically, our operating results have been subject to seasonal trends when measured on a quarterly basis. The first quarter has traditionally been the weakest and the third and fourth quarters have traditionally been the strongest. Typically, this pattern has been the result of factors such as economic conditions, customer demand, weather, and national holidays. Additionally, a significant portion of our revenue is derived from customers whose business levels are impacted by the economy. The impact of seasonal trends and the economy is more pronounced on our Pool Distribution business, whose operating revenues and results tend to improve in the third and fourth quarters compared to the first and second quarters.

Employees and Equipment

As of December 31, 2019, we had 4,640 full-time employees, 2,014 of whom were freight handlers. Also, as of that date, we had an additional 840 part-time employees, of whom the majority were freight handlers. None of our employees are covered by a collective bargaining agreement. We recognize that our workforce, including our freight handlers, is one of our most valuable assets. The recruitment, training and retention of qualified employees are essential to support our continued growth and to meet the service requirements of our customers.


8

Table of Contents

We manage a trailer pool that is utilized by all of our reportable segments to move freight through our networks. Our trailer pool includes dry van, refrigerated and roller-bed trailers, and substantially all of our trailers are 53 feet long. We own the majority of the trailers we use, but we supplement at times with leased trailers. As of December 31, 2019, we had 6,709 owned trailers in our fleet with an average age of approximately 4.4 years. In addition, as of December 31, 2019, we also had 469 leased trailers in our fleet. As of December 31, 2019, we had 426 owned tractors and straight trucks in our fleet, with an average age of approximately 6.6 years. In addition, as of December 31, 2019, we also had 927 leased tractors and straight trucks in our fleet.


Environmental Protection and Community Support

Forward Air is committed to protecting the environment and we have taken a variety of steps to improve the sustainability of our operations. We are implementing new practices and technologies, improving our training, and incorporating sustainability objectives in our growth strategies. Our initiatives will be focused on reducing overall waste, electricity consumption and carbon emissions, while working to increase employee engagement and community involvement.
As a partner of the U.S. Environmental Protection Agency ("EPA") SmartWay program since 2008, Forward Air has continued to adopt new environmentally safe policies and innovations to improve fuel efficiency and reduce emissions. For example, we actively seek to utilize equipment with reduced environmental impact. We utilize trailers with light weight composites and employ trailer skirts to decrease aerodynamic drag, both of which improve fuel efficiency. We are also increasing our use of electric forklifts and transitioning to automatic transmission tractors, which will decrease our fuel consumption.
Through vendor partnerships, we are implementing new solutions to manage waste and improve recycling across our facilities. Annually, we recycle tons of dunnage and thousands of aluminum load bars. Forward Air also participates in ReCaps, providing and purchasing recycled trailer tires. We also focus on increasing our landfall diversion rate through our partnership with Waste Harmonics.
In addition, we are a corporate partner of Truckers Against Trafficking, a nonprofit organization that educates, equips, empowers and mobilizes members of the trucking and busing industries to combat human trafficking. On Veteran’s Day 2019, Forward Air also launched Operation: Forward Freedom - providing support to our Veterans primarily through partnering with Hope for the Warriors. Hope for the Warriors is a nonprofit organization that is dedicated to restoring a sense of self, family and hope to United States military veterans. This is an important cause for us as many of our employees, independent contractors, customers and vendors are or have a family member who is a military veteran.
Finally, we joined Women in Trucking in November 2019. Women in Trucking is a nonprofit organization, supporting and celebrating women in the trucking industry. We recognize the value in describing our sustainability focus and will continue to update our future disclosures accordingly. We are committed to making our presence count across the country.
Risk Management and Litigation
Under U.S. Department of Transportation (“DOT”) regulations, we are liable for property damage and personal injuries caused by owner-operators and Company-employed drivers while they are operating on our behalf. Additionally, from time to time, the drivers employed and engaged by the third-party transportation carriers we contract with are involved in accidents, which may result in serious personal injuries. The resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the contracted carrier. Although these drivers are not our employees, all of these drivers are employees, owner-operators, or independent contractors working for carriers and, from time to time, claims may be asserted against us for their actions, or for our actions in retaining them.

We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured retention ("SIR") of $3.0 million per occurrence for vehicle and general liability claims and will be responsible for any damages and personal injuries below that self-insured amount. We are also responsible for varying annual aggregate deductible amounts of liability for claims in excess of the SIR/deductible. For the policy year that began October 1, 2019, we have an annual $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million. We also have a $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. As a result, we are responsible for the first $7.5 million per claim, until we meet the $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million and the $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. We cannot guarantee that our SIR levels will not increase and/or that we have to agree to more unfavorable policy terms as a result of market conditions, poor claims experience or other factors. This insurance covers vehicle liability and general liability claims for the Expedited Freight, excluding its truckload operation, and Pool Distribution segments. Truckload maintains separate liability insurance coverage for claims between $0 and $5.0 million, and for the policy year that began April 1, 2019, truckload had no SIR for claims in this layer. Intermodal maintains separate liability insurance coverage for all liability claims. For the policy year that began April 1, 2019, Intermodal had an SIR of less than $0.1 million for each claim. We also maintain separate brokerage liability insurance coverage to cover third-party claims for

9

Table of Contents

damages and personal injuries arising from accidents with drivers employed and engaged by third-party transportation carriers, and this policy covering our Expedited LTL and Pool Distribution segments has an SIR of $0.1 million for each claim.

We may also be subject to claims for workers’ compensation. We maintain workers’ compensation insurance coverage that we believe is adequate to cover such claims. We have a SIR of approximately $0.4 million for each such claim, except in Ohio, where we are a qualified self-insured entity with an approximately $0.5 million SIR. We could incur claims in excess of our policy limits or incur claims not covered by our insurance. Any claims beyond the limits or scope of our insurance coverage may have a material adverse effect on us. Because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance retainage could adversely affect our profitability. In addition, we may be unable to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against losses.

From time to time, we are a party to litigation arising in the normal course of our business, most of which involve claims for personal injury, property damage related to the transportation and handling of freight, or workers’ compensation. We do not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations.

Regulation

We are regulated by various United States and state agencies, including but not limited to the DOT, the Federal Motor Carrier Safety Administration, under the DOT, manages a Compliance, Safety, Accountability initiative (“CSA”) as well as electronic logging devices in commercial motor vehicles, and that states’ jurisdiction with respect to the regulation of operations safety and insurance. We are also subject to laws and regulations under the U.S. Environmental Protection Agency and the Occupational Safety and Health Administration, which regulate safety, the supervision of hazardous materials, water discharges, air emissions, solid waste disposal and the release and cleanup of other substances. These regulatory authorities have broad powers, generally governing matters such as authority to engage in motor carrier operations, as well as motor carrier registration, driver hours of service, safety and fitness of transportation equipment and drivers, transportation of hazardous materials, certain mergers and acquisitions and periodic financial reporting. The trucking industry is also subject to regulatory and legislative changes from a variety of other governmental authorities, which address matters such as: increasingly stringent environmental, occupational safety and health regulations, limits on vehicle weight and size, ergonomics, port security, and hours of service. In addition, we are subject to compliance with cargo-security and transportation regulations issued by the Transportation Security Administration and Customs and Border Protection (“CBP”) within the U.S. Department of Homeland Security, and our domestic customs brokerage operations are licensed by CBP.

We are also subject to employment laws and regulations, including the changing regulatory landscape, with the potential effects of California Assembly Bill 5 (“California AB5”), which would introduce a new test for determining worker classification that is viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships.

Additionally, our Canada business activities are subject to similar requirements imposed by the laws and regulations of Canada, as well as its provincial laws and regulations. Regulatory requirements, and changes in regulatory requirements, may affect our business or the economics of the industry by requiring changes in operating practices or by influencing the demand for and increasing the costs of providing transportation services.

Service Marks

Through one of our subsidiaries, we hold federal trademark registrations or applications for federal trademark registration, associated with the following service marks: Forward Air, Inc.®, North America’s Most Complete Roadfeeder Network®, Keeping Your Business Moving Forward®, Forward Air®, Forward Air Complete®, PROUD®, Total Quality, Inc.®, TQI, Inc.®, TQI®, Central States Trucking Co.®, First in “Last Mile” Home Delivery®, FSA Logistix®, FSA Logistix A Final Mile Company®, FSA Network, Inc.®, Forward CST Because it matters, think Forward SM, Forward LTL Because it matters, think Forward SM, Final Forward Mile Because it matters, think Forward SM, Forward Truckload Services Because it matters, think Forward SM, and Forward Solutions Because it matters, think Forward SM. These marks are of significant value to our business.

Available Information

We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K. other reports and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended from time to time. We are an electronic filer and the SEC maintains an Internet site at www.sec.gov that contains these reports and other information filed electronically. We make available free of charge through the Investor Relations portion of our website such reports as soon as reasonably practicable

10

Table of Contents

after such material is electronically filed with or furnished to the SEC. Our website address is www.forwardaircorp.com. Our goal is to maintain our website as a portal through which investors can easily find or navigate to pertinent information about us. The information provided on the website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Information About our Executive Officers

The current executive officers of the Company, as of February 24, 2020 are listed below. The ages listed below are as of December 31, 2019.

The following are our executive officers:
Name
 
Age
 
Position
Thomas Schmitt
 
54
 
President, Chief Executive Officer and Executive Chairman
Michael J. Morris
 
51
 
Chief Financial Officer and Treasurer
Michael L. Hance
 
48
 
Chief Legal Officer & Secretary
Chris C. Ruble
 
57
 
Chief Operating Officer
Matthew J. Jewell
 
53
 
Chief Commercial Officer

There are no family relationships between any of our executive officers. All officers hold office until the earliest to occur of their resignation or removal by the Board of Directors.

Thomas Schmitt has served as President, Chief Executive Officer and director since September 2018 and was elected Chairman of the Board in May 2019. Prior to joining Forward Air, Mr. Schmitt served as Management Board Member and Chief Commercial Officer for DB Schenker, a Global Logistics Company from June 2015 to July 2018. From January 2013 to April 2015, Mr. Schmitt was President, CEO and Director of Aqua Terra, a Canadian provider of natural spring water. From 2010 to 2012, Mr. Schmitt served as President, CEO and Director of Purolator, a Canadian parcel and freight transportation company. Prior to joining Purolator, Mr. Schmitt spent 12 years at FedEx in Memphis, TN where he served as CEO of FedEx Supply Chain and SVP of FedEx Solutions. Prior to his time with FedEx, Mr. Schmitt held senior roles at McKinsey & Company. Mr. Schmitt has been a member of the Xynteo Leadership board since 2018 and a Non-Executive Director of the Ferguson Plc board since February 2019. Mr. Schmitt also served on the board of directors of Dicom Transportation Group from January 2014 to June 2018, Zooplus AG, from June 2013 to May 2016, Univar, Inc., from July 2008 to June 2013 and Cyberport GmbH since June 2015.
    
Michael J. Morris has served as Chief Financial Officer and Treasurer since June 2016. From 2010 to 2015, Mr. Morris was the Senior Vice President of Finance & Treasurer at Con-way Inc. (“Con-way”) and in 2016 he transitioned to be the Senior Vice President of Finance & Treasurer at XPO Logistics Inc. (“XPO”) following XPO's acquisition of Con-way.
 
Michael L. Hance has served as Chief Legal Officer and Secretary since May 2014. From May 2010 until May 2014, he served as Senior Vice President of Human Resources and General Counsel. From January 2008 until May 2010, he served as Senior Vice President and General Counsel, and from August 2006 until January 2008, he served as Vice President and Staff Counsel. Before joining us, Mr. Hance practiced law with the law firms of Baker, Donelson, Bearman, Caldwell and Berkowitz, P.C. from October 2003 until August 2006 and with Bass, Berry & Sims, PLC from September 1999 to September 2003.

Chris C. Ruble has served as Chief Operating Officer for the entire Company since May 2019. Mr. Ruble was Chief Operating Officer for the Company's Expedited Freight, TLS (now part of Expedited Freight) and Pool Distribution segments from June 2018 to May 2019. Prior to this role, Mr. Ruble was President, Expedited Services from January 2016 to June 2018, Executive Vice President, Operations from August 2007 to January 2016, and Senior Vice President, Operations from October 2001 until August 2007. He was a Regional Vice President from September 1997 to October 2001 and a regional manager from February 1997 to September 1997, after starting with the Company as a terminal manager in January 1996. From June 1986 to August 1995, Mr. Ruble served in various management capacities at Roadway Package System, Inc.

Matthew J. Jewell has served as Chief Commercial Officer since May 2019. Mr. Jewell was President, Intermodal from June 2018 to May 2019, President, Logistics Services from January 2016 to June 2018, Executive Vice President, Intermodal Services & Chief Strategy Officer from May 2014 to January 2016, and Executive Vice President and Chief Legal Officer from January 2008 until May 2014. From July 2002 until January 2008, he served as Senior Vice President and General Counsel.  In October 2002, he was also appointed Secretary. From July 2002 until May 2004, Mr. Jewell was also the Senior Vice President, General Counsel and Secretary of Landair Corporation. From January 2000 until joining us in July 2002, Mr. Jewell was a partner with the law firm of Austin & Sparks, P.C. Mr. Jewell was an associate at Dennis, Corry & Porter, L.L.P. from July 1991 to December 1998 and a partner from January 1999 to January 2000.    

11

Table of Contents


Other information required by this item is incorporated herein by reference to our proxy statement for the 2020 Annual Meeting of Shareholders (the “2020 Proxy Statement”). The 2020 Proxy Statement will be filed with the SEC not later than 120 days subsequent to December 31, 2019.

12

Table of Contents

Item 1A.
Risk Factors

The following are important risk factors that could affect our financial performance and could cause actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Annual Report on Form 10-K or our other filings with the SEC or in oral presentations such as telephone conferences and webcasts open to the public. You should carefully consider the following factors and consider these in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and related Notes in Item 8.

Overall economic conditions that reduce freight volumes could have a material adverse impact on our operating results and ability to achieve growth.

We are sensitive to changes in overall economic conditions that impact customer shipping volumes, industry freight demand and industry truck capacity. The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of our customers, interest and currency rate fluctuations, inflation and other economic factors beyond our control. Changes in U.S. trade policy could lead to ‘trade wars’ impacting the volume of economic activity in the United States, and as a result, trucking freight volumes may be materially reduced. Such a reduction may materially and adversely affect our business. Deterioration in the economic environment subjects our business to various risks, including the following that may have a material and adverse impact on our operating results and cause us not to maintain profitability or achieve growth:

A reduction in overall freight volumes reduces our revenues and opportunities for growth. In addition, a decline in the volume of freight shipped due to a downturn in customers’ business cycles or other factors (including our ability to assess dimensional-based weight increases) generally results in decreases in freight pricing and decreases in average revenue per pound of freight, as carriers compete for loads to maintain truck productivity.

Our base transportation rates are determined based on numerous factors such as length of haul, weight per shipment and freight class. During economic downturns, we may also have to lower our base transportation rates based on competitive pricing pressures and market factors.

Some of our customers may face economic difficulties and may not be able to pay us, and some may go out of business. In addition, some customers may not pay us as quickly as they have in the past, causing our working capital needs to increase.

A significant number of our transportation providers may go out of business and we may be unable to secure sufficient equipment or other transportation services to meet our commitments to our customers.

We may not be able to appropriately adjust our expenses to changing market demands. In order to maintain high variability in our business model, it is necessary to adjust staffing levels to changing market demands. In periods of rapid change, it is more difficult to match our staffing levels to our business needs.

If the domestic freight forwarder, Expedited Freight’s primary customer, is disintermediated, and we are not able to transition effectively into servicing other customers, like third-party logistics companies and beneficial cargo owners, our business and financial results could be materially adversely affected.

We may have difficulty effectively managing our growth, which could adversely affect our business, results of operations and financial condition.

Our growth strategy includes increasing freight volume from existing customers, expanding our service offerings and pursing strategic transactions. Our growth plans will place significant demands on our management and operating personnel. Our ability to manage our future growth effectively will require us to, among other things, regularly enhance our operating and management information systems, evaluate and change our service offerings and continue to attract, retain, train, motivate and manage key employees, including through training and development programs. If we are unable to manage our growth effectively, our business, results of operations and financial condition may be adversely affected.

We have grown and may grow, in part, through acquisitions, which involve various risks, and we may not be able to identify or acquire companies consistent with our growth strategy or successfully integrate acquired businesses into our operations.

We have grown through acquisitions, and we intend to pursue opportunities to expand our business by acquiring other

13

Table of Contents

companies in the future. Acquisitions involve risks, including those relating to:

identification of appropriate acquisition candidates;
negotiation of acquisitions on favorable terms and valuations;
integration of acquired businesses and personnel;
integration of information technology systems;
implementation of proper business and accounting controls;
ability to obtain financing, at favorable terms or at all;
diversion of management attention;
retention of employees and customers;
non-employee driver attrition;
unexpected liabilities;
detrimental issues not discovered during due diligence.

Acquisitions also may affect our short-term cash flow and net income as we expend funds, potentially increase indebtedness and incur additional expenses. If we are not able to identify or acquire companies consistent with our growth strategy, or if we fail to successfully integrate any acquired companies into our operations, we may not achieve anticipated increases in revenue, cost savings and economies of scale, our operating results may actually decline and acquired goodwill and intangibles may become impaired.

If we have difficulty attracting and retaining owner-operators or freight handlers, or are unable to contract with a sufficient number of third-party carriers to supplement our owner-operator fleet, our profitability and results of operations could be adversely affected.

We depend on owner-operators for most of our transportation needs. In 2019, owner-operators provided 56.1% of our purchased transportation. Competition for owner-operators is intense, and sometimes there are shortages of available owner-operators. In addition, a decline in the availability of trucks, tractors and trailers for owner-operator purchase or use may negatively affect our ability to hire, attract or retain available owner-operators. We also need a large number of freight handlers to operate our business efficiently. During periods of low unemployment in the areas where our terminals are located, we may have difficulty hiring and retaining a sufficient number of freight handlers. If we have difficulty attracting and retaining enough qualified freight handlers and owner-operators, we may be forced to increase wages and benefits or to increase the cost at which we contract with our owner-operators, either of which would increase our operating costs. This difficulty may also impede our ability to maintain our delivery schedules, which could make our service less competitive and force us to curtail our planned growth. A capacity deficit may lead to a loss of customers and a decline in the volume of freight we receive from customers.

To augment our fleet of owner-operators, from time to time we purchase transportation from third-party carriers at a higher cost. As with owner-operators, competition for third-party carriers is intense, and sometimes there are shortages of available third-party carriers. If we cannot secure a sufficient number of owner-operators and have to purchase transportation from third-party carriers, our operating costs will increase. If our labor and operating costs increase, we may be unable to offset the increased costs by increasing rates without adversely affecting our business. As a result, our profitability and results of operations could be adversely affected.

A determination by regulators that our independent owner-operators are employees rather than independent contractors could expose us to various liabilities and additional ongoing expenses, and related litigation can subject us to substantial costs, which could have a material adverse effect on our results of operations and our financial condition.

At times, the Internal Revenue Service, the Department of Labor and state authorities have asserted that owner-operators are “employees,” rather than “independent contractors.” Additionally, we are aware of certain judicial decisions and legislative proposals that could bring about major reforms in the classification of workers, including the California legislature’s recent passage of California Assembly Bill 5 (“California AB 5”). California AB 5 purports to codify a new test for determining worker classification that is broadly viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships. Given the recent passage of California AB 5, there is no guidance from regulatory authorities, and there is a significant degree of uncertainty regarding its application. In addition, California AB 5 has been the subject of widespread national discussion and it is possible that other jurisdictions may enact similar laws.

A determination by regulators that our independent owner-operators are employees rather than independent contractors could expose us to various liabilities and additional ongoing expenses, including but not limited to, employment-related expenses such as workers’ compensation insurance coverage and reimbursement of work-related expenses. Our exposure could include prior period compensation, as well as potential liability for employee benefits and tax withholdings. In addition, the topic of the

14

Table of Contents

classification of individuals as employees or independent contractors has gained increased attention among the plaintiffs’ bar and certain states have recently seen numerous class action lawsuits filed against transportation companies that engage independent contractors, some of which have resulted in significant damage awards and/or monetary settlements for workers who have been allegedly misclassified as independent contractors. The legal and other costs associated with any of these matters can be substantial and could have a material adverse effect on our results of operations and our financial condition.

If we fail to maintain our information technology systems, or if we fail to successfully implement new technology or enhancements, we may be at a competitive disadvantage and experience a decrease in revenues.

We rely heavily on our information technology systems to efficiently run our business, and they are a key component of our growth strategy and competitive advantage. We, our customers and third parties increasingly store and transmit data by means of connected information technology systems. We expect our customers to continue to demand more sophisticated, fully integrated information systems from their transportation providers. To keep pace with changing technologies and customer demands, we must correctly interpret and address market trends and enhance the features and functionality of our information technology systems in response to these trends, which may lead to significant ongoing software development costs. We may be unable to accurately determine the needs of our customers and the trends in the transportation services industry or to design and implement the appropriate features and functionality of our information technology systems in a timely and cost-effective manner, which could put us at a competitive disadvantage and result in a decline in our efficiency, decreased demand for our services and a corresponding decrease in our revenues. In addition, we could incur software development costs for technology that is ultimately not deployed and thus, would require us to write-off these costs, which would negatively impact our financial results. Furthermore, as technology improves, our customers may be able to find alternatives to our services for matching shipments with available freight hauling capacity.

Our information technology systems can also play an integral role in managing our internal freight and transportation information and creating additional revenue opportunities including assessing available backhaul capacity. A failure to capture and utilize our internal freight and transportation information may impair our ability to service our existing customers or grow revenue.

Our information technology systems are dependent upon global communications providers, web browsers, telephone systems and other aspects of the Internet infrastructure that have experienced significant system failures and electrical outages in the past. While we take measures to ensure our major systems have redundant capabilities, our systems are susceptible to outages from fire, floods, power loss, telecommunications failures, data leakage, human error, break-ins, cyber-attacks and similar events. The occurrence of any of these events could disrupt or damage our information technology systems and hamper our internal operations, impede our customers’ access to our information technology systems and adversely impact our customer service, volumes, and revenues and result in increased cost. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

Our business is subject to cybersecurity risks.

Our operations depend on effective and secure information technology systems. Threats to information technology systems, including as a result of cyber-attacks and cyber incidents, continue to grow. Cybersecurity risks could include, but are not limited to, malicious software, attempts to gain unauthorized access to our data and the unauthorized release, corruption or loss of our data and personal information, interruptions in communication, loss of our intellectual property or theft of our sensitive or proprietary technology, loss or damage to our data delivery systems, or other electronic security, including with our property and equipment.

These cybersecurity risks could:
Disrupt our operations and damage our information technology systems,
Negatively impact our ability to compete,
Enable the theft or misappropriation of funds,
Cause the loss, corruption or misappropriation of proprietary or confidential information, expose us to litigation and
Result in injury to our reputation, downtime, loss of revenue, and increased costs to prevent, respond to or mitigate cybersecurity events.

If a cybersecurity event occurs, it could harm our business and reputation and could result in a loss of customers. Likewise, data privacy breaches by employees and others who access our systems may pose a risk that sensitive customer or vendor data may be exposed to unauthorized persons or to the public, adversely impacting our customer service, employee relationships and our reputation.


15

Table of Contents

While we continue to make efforts to evaluate and improve our systems and particularly the effectiveness of our security program, procedures and systems, it is possible that our business, financial and other systems could be compromised, which could go unnoticed for a prolonged period of time, and there can be no assurance that the actions and controls that we implement, or which we cause third-party service providers to implement, will be sufficient to protect our systems, information or other property. Additionally, customers or third parties upon whom we rely face similar threats, which could directly or indirectly impact our business and operations. The occurrence of a cyber-incident or attack could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations will be materially and adversely affected if our new service offerings do not gain market acceptance or result in the loss of our current customer base.

One element of our growth strategy is to expand our service offerings to customers. As a result, we have added additional services in the past few years. We may not succeed in making our customers sufficiently aware of existing and future services or in creating customer acceptance of these services at the prices we would want to charge. In addition, we may be required to devote substantial resources to educate our customers, with no assurance that a sufficient number of customers will use our services for commercial success to be achieved. We may not identify trends correctly, or may not be able to bring new services to market as quickly, effectively or price-competitively as our competitors. In addition, new services may alienate existing customers or cause us to lose business to our competitors. If any of the foregoing occurs, it could have a material adverse effect on our results of operations.

For example, we have in recent years expanded our “final mile” service offering through the acquisition of the assets of FSA and Linn Star Holdings, Inc., Linn Star Transfer, Inc. and Linn Star Logistics, LLC (collectively, “Linn Star”). This is a difficult to serve market and we face competition in this market from competitors that have operated in this market for several years, which may hinder our ability to compete and gain market share.

Claims for property damage, personal injuries or workers’ compensation and related expenses could significantly reduce our earnings.

Under DOT regulations, we are liable for property damage and personal injuries caused by owner-operators and Company-employed drivers while they are operating on our behalf. Additionally, from time to time, the drivers employed and engaged by the third-party transportation carriers we contract with are involved in accidents, which may result in serious personal injuries. The resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the contracted carrier. Although these drivers are not our employees and all of these drivers are employees, owner-operators, or independent contractors working for carriers, from time to time, claims may be asserted against us for their actions, or for our actions in retaining them.

We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured retention ("SIR") of $3.0 million per occurrence for vehicle and general liability claims and will be responsible for any damages and personal injuries below that self-insured amount. We are also responsible for varying annual aggregate deductible amounts of liability for claims in excess of the SIR/deductible. For the policy year that began April 1, 2019, we have an annual $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million. We also have a $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. As a result, we are responsible for the first $7.5 million per claim, until we meet the $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million and the $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. This insurance covers claims for the Expedited Freight, excluding its truckload operation, and Pool Distribution segments. Truckload maintains separate liability insurance coverage for claims between $0 and $5.0 million, and for the policy year that began April 1, 2019, truckload had no SIR for claims in this layer. Intermodal maintains separate liability insurance coverage for all liability claims. For the policy year that began April 1, 2019, Intermodal had an SIR of $50 thousand for each claim. We cannot guarantee that our SIR levels will not increase and/or that we have to agree to more unfavorable policy terms as a result of market conditions, poor claims experience or other factors.

We may also be subject to claims for workers’ compensation. We maintain workers’ compensation insurance coverage that we believe is adequate to cover such claims. We have a SIR of approximately $0.4 million for each such claim, except in Ohio, where we are a qualified self-insured entity with an approximately $0.5 million SIR. We could incur claims in excess of our policy limits or incur claims not covered by our insurance. Any claims beyond the limits or scope of our insurance coverage may have a material adverse effect on us. Because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance retainage could adversely affect our profitability. In addition, we may be unable to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against losses.


16

Table of Contents

Further, as we focus on growing our final mile solutions business that includes in-home installation of appliances, we may become increasingly subject to inherent risks associated with delivery and installation of products. These risks include incidents that can cause personal injury or loss of life, damage to or destruction of property, equipment or the environment, or the suspension of our operations.

We face risks related to self-insurance and third-party insurance that can be volatile to our earnings.

We self-insure a significant portion of our claims exposure and related expenses for cargo loss, employee medical expense, bodily injury, workers’ compensation and property damage, and maintain insurance with insurance companies above our limits of self-insurance. Self-insurance retention and other limitations are detailed in Part II, Item 7, under “Self-Insurance Loss Reserves.” Because of these significant self-insured exposures, insurance and claims expense may fluctuate significantly from period-to-period. Any increase in frequency or severity of claims, or any increases to then-existing reserves, could adversely affect our financial condition and results of operations. Additionally, our ability to obtain and maintain adequate insurance and the cost of such insurance may be affected by significant claims and conditions in the insurance market over which we have no control. If the cost of insurance increases, we may decide to discontinue certain insurance coverage, reduce our level of coverage or increase our deductibles/retentions to offset the cost increase. In addition, our existing types and levels of insurance coverage could become difficult or impossible to obtain in the future. The occurrence of an event that is not fully covered by insurance, the loss of insurance coverage or a material increase in the cost of insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We accrue for the costs of the uninsured portion of pending claims, based on the nature and severity of individual claims and historical claims development trends. Estimating the number and severity of claims, as well as related judgment or settlement amounts is inherently difficult. We may fail to establish sufficient insurance reserves and adequately estimate for future insurance claims. This, along with legal expenses, incurred but not reported claims, and other uncertainties can cause unfavorable differences between actual self-insurance costs and our reserve estimates.

Volatility in fuel prices, shortages of fuel or the ineffectiveness of our fuel surcharge program can have a material adverse effect on our results of operations and profitability.

We are subject to risks associated with the availability and price of fuel. Fuel prices have fluctuated dramatically over recent years. Future fluctuations in the availability and price of fuel could adversely affect our results of operations. Fuel availability and prices can be impacted by factors beyond our control, such as natural or man-made disasters, adverse weather conditions, political events, economic sanctions imposed against oil-producing countries or specific industry participants, disruption or failure of technology or information systems, price and supply decisions by oil producing countries and cartels, terrorist activities, armed conflict, tariffs, sanctions, other changes to trade agreements and world supply and demand imbalance. Over time we have been able to mitigate the impact of the fluctuations through our fuel surcharge programs. Our fuel surcharge rates are set weekly based on the national average for fuel prices as published by the U.S. Department of Energy and our fuel surcharge table. Our fuel surcharge revenue is the result of our fuel surcharge rates and the tonnage transiting our networks. There can be no assurance that our fuel surcharge revenue programs will be effective in the future as the fuel surcharge may not capture the entire amount of the increase in fuel prices. Additionally, decreases in fuel prices reduce the cost of transportation services and accordingly, could reduce our revenues and may reduce margins for certain lines of business. In addition to changing fuel prices, fluctuations in volumes and related load factors may subject us to volatility in our fuel surcharge revenue. Fuel shortages, changes in fuel prices and the potential volatility in fuel surcharge revenue may adversely impact our results of operations and overall profitability.

Because a portion of our network costs are fixed, any factors that result in a decrease in the volume or revenue per pound of freight shipped through our networks will adversely affect our results of operations.

Our operations, particularly our networks of hubs and terminals, represent substantial fixed costs. As a result, any decline in the volume or revenue per pound of freight we handle will have an adverse effect on our operating margin and our results of operations. Several factors can result in such declines, including adverse business and economic conditions affecting shippers of freight as discussed above. In addition, volumes shipped through our network may be negatively impacted by lack of customer contractual obligations or cancellations of existing customer contracts. Typically, we do not enter into long-term contracts with our customers. Rather, our customer contracts typically allow for cancellation within 30 to 60 days.  As a result, we cannot guarantee that our current customers will continue to utilize our services or that they will continue at the same levels.   The timing of our capital investments, pricing models and service availability are generally based on our existing and anticipated customer contracts. Any change in one of the foregoing factors that results in a decrease in the volume or revenue per pound of freight shipped will adversely affect our results of operations.



17

Table of Contents

We derive a significant portion of our revenue from a few major customers, the loss of one or more of which could have a material adverse effect on our business.

For the calendar year ended December 31, 2019, our top 10 customers, based on revenue, accounted for approximately 29% of our revenue. Our Expedited Freight and Intermodal segments typically do not have long-term contracts with their customers. While our Pool Distribution segment business may involve a long-term written contract, those contracts may contain cancellation clauses, and there is no assurance that our current customers will continue to utilize our services or continue at the same levels. A reduction in or termination of our services by one or more of our major customers could have a material adverse effect on our business and operating results.

We operate in highly competitive and fragmented segments of our industry, and our business will suffer if we are unable to adequately address downward pricing pressures and other factors that may adversely affect our results of operations, growth prospects and profitability.

The segments of the freight transportation industry in which we participate are highly competitive, very fragmented and historically have few barriers to entry. We compete with a large number of other asset-light logistics companies, asset-based carriers, integrated logistics companies, and third-party freight brokers. To a lesser extent, we also compete with integrated air cargo carriers and passenger airlines. Our competition ranges from small operators that compete within a limited geographic area to companies with substantially greater financial and other resources, including greater freight capacity.  We also face competition from freight forwarders who decide to establish their own networks to transport expedited ground freight, as well as from logistics companies, Internet matching services and Internet and third-party freight brokers, and new entrants to the market. In addition, customers can bring in-house some of the services we provide to them. We believe competition is based primarily on quality service, available capacity, on-time delivery, flexibility, reliability and security, transportation rates as well as the ability to acquire and maintain terminal facilities in desirable locations at reasonable rates. Many of our competitors periodically reduce their rates to gain business, especially during times of economic decline. In the past several years, several of our competitors have reduced their rates to unusually low levels that we believe are unsustainable in the long-term, but that may materially adversely affect our business in the short-term. In an effort to reduce costs, we have seen our customers solicit bids from multiple transportation providers and decide to develop or expand internal capabilities for some of the services that we provide.

In addition, competitors may pursue other strategies to gain a competitive advantage such as developing superior information technology systems or establishing cooperative relationships to increase their ability to address customer needs. The development of new information technology systems or business models could result in our disintermediation in certain businesses, such as freight brokerage. Furthermore, the transportation industry continues to consolidate. As a result of consolidation, our competitors may increase their market share and improve their financial capacity, and may strengthen their competitive positions. Business combinations could also result in competitors providing a wider variety of services at competitive prices, which could adversely affect our financial performance. These competitive pressures may cause a decrease in our volume of freight, require us to lower the prices we charge for our services and adversely affect our results of operations, growth prospects and profitability.

We could be required to record a material non-cash charge to income if our recorded intangible assets or goodwill are determined to be impaired.

We have $127.8 million of recorded net definite-lived intangible assets on our consolidated balance sheet at December 31, 2019.  Our definite-lived intangible assets primarily represent the value of customer relationships and non-compete agreements that were recorded in conjunction with our various acquisitions.  We review our long-lived assets, such as our definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  Impairment is recognized on these assets when the estimated fair value is less than the carrying value.  If such measurement indicates impairment, we would be required to record a non-cash impairment charge to our consolidated statement of comprehensive income in the amount that the carrying value of these assets exceeds the estimated fair value of the assets.

We also have recorded goodwill of $221.1 million on our consolidated balance sheet at December 31, 2019. Goodwill is assessed for impairment annually (or more frequently if circumstances indicate possible impairment) for each of our reporting units. This assessment includes comparing the fair value of each reporting unit to the carrying value of the assets assigned to each reporting unit. If the carrying value of the reporting unit was to exceed our estimated fair value of the reporting unit, we would then be required to estimate the fair value of the individual assets and liabilities within the reporting unit to ascertain the amount of fair value of goodwill and any potential impairment. If we determine that our fair value of goodwill is less than the related book value, we could be required to record a non-cash impairment charge to our consolidated statement of comprehensive income, which could have a material adverse effect on our earnings.



18

Table of Contents

We are dependent on our senior management team and other key employees, and the loss of any such personnel could materially and adversely affect our business, operating results and financial condition.

Our future performance depends, in significant part, upon the continued service of our senior management team and other key employees. We cannot be certain that we can retain these employees. The loss of the services of one or more of these or other key personnel could have a material adverse effect on our business, operating results and financial condition if we are unable to secure replacement personnel internally or through our recruitment programs and initiatives that have sufficient experience in our industry or in the management of our business. If we fail to develop, compensate, and retain a core group of senior management and other key employees and address issues of succession planning, it could hinder our ability to execute on our business strategies and maintain our level of service.

Our business is subject to seasonal trends.

Historically, our operating results have been subject to seasonal trends when measured on a quarterly basis. Our first and second quarters have traditionally been the weakest compared to our third and fourth quarters. This trend is dependent on numerous factors including economic conditions, customer demand and weather. Because revenue is directly related to the available working days of shippers, national holidays and the number of business days during a given period may also create seasonal impact on our results of operations. After the winter holiday season and during the remaining winter months, our freight volumes are typically lower because some customers reduce shipment levels. In addition, a substantial portion of our revenue is derived from customers in industries whose shipping patterns are tied closely to consumer demand which can sometimes be difficult to predict or are based on just-in-time production schedules. Therefore, our revenue is, to a large degree, affected by factors that are outside of our control. There can be no assurance that our historic operating patterns will continue in future periods as we cannot influence or forecast many of these factors.

Our results of operations may be affected by harsh weather conditions, disasters and pandemics.

Certain weather-related conditions such as ice and snow can disrupt our operations. Our operating expenses have historically been higher in the winter months because of cold temperatures and other adverse winter weather conditions, which result in decreased fuel efficiency, increased cold weather-related maintenance costs of revenue equipment and increased insurance and claims costs. Harsh weather could also reduce our ability to transport freight, which could result in decreased revenues. Disasters, including severe weather and public health issues, such as pandemics, occurring in the United States or abroad, could result in the temporary lack of an adequate work force and the temporary disruption in the transport of goods to or from overseas which could prevent, delay or reduce freight volumes and could have an adverse impact on consumer spending and confidence levels, all of which could result in decreased revenues.

We operate in a regulated industry, and increased costs of compliance with, or liability for violation of, existing or future regulations and enforcement could have a material adverse effect on our business.

The DOT and various state and federal agencies have been granted broad regulatory powers over our business in the United States, and we are licensed by the DOT and U.S. Customs. Additionally, our Canada business activities are subject to the similar laws and regulations of Canada and its provinces including the effects of NAFTA and any successor agreement. If we fail to comply with any applicable regulations, our licenses may be revoked or we could be subject to substantial fines or penalties and to civil and criminal liability. The transportation industry is subject to legislative and regulatory changes that can affect the economics of our business by requiring changes in operating practices or influencing the demand for, and the cost of providing, transportation services.

In December 2010, the Federal Motor Carrier Safety Administration (“FMCSA”) established the Compliance Safety Accountability (“CSA”) motor carrier oversight program under which drivers and fleets are evaluated based on certain safety-related standards. Carriers’ safety and fitness ratings under CSA include the on-road safety performance of the carriers’ drivers. The FMCSA has also implemented changes to the hours of service (“HOS”) regulations which govern the work hours of commercial drivers and adopted a rule that requires commercial drivers who use paper log books to maintain hours-of-service records with electronic logging devices (“ELDs”) and will require commercial drivers who use automatic on-board recording devices (“AOBRDs”) to record HOS to use ELDs by December 2019. As of December 2019, our fleets were updated to meet the ELD requirements. At any given time, there are also other proposals for safety-related standards that are pending legislative or administrative approval or adoption. If additional or more stringent standards are adopted, such may result in a reduction of the pool of qualified drivers available to us and to other motor carriers in our industry. If we experience safety and fitness violations, our safety and fitness scores could be adversely impacted and our fleets could be ranked poorly as compared to our peers. A reduction in our safety and fitness scores or those of our contracted drivers could also reduce our competitiveness in relation to

19

Table of Contents

other companies that have higher scores. Additionally, competition for qualified drivers and motor carriers with favorable safety ratings may increase and thus result in increases in driver-related compensation costs.

In addition, there may be changes in applicable federal or state tax or other laws or interpretations of those laws. If this happens, we may incur additional taxes, as well as higher workers’ compensation and employee benefit costs, and possibly penalties and interest for prior periods. This could have an adverse effect on our results of operations.

We are subject to various environmental laws and regulations, and costs of compliance with, or liabilities for violations of, existing or future laws and regulations could significantly increase our costs of doing business.

Our operations are subject to environmental laws and regulations dealing with, among other things, the handling of hazardous materials, discharge and retention of storm water, and emissions from our vehicles. We operate in industrial areas, where truck terminals and other industrial activities are located, and where groundwater or other forms of environmental contamination may have occurred. Our operations involve the risks of fuel spillage, environmental damage, and hazardous waste disposal, among others. If we are involved in a spill or other accident involving hazardous substances, or if we are found to be in violation of applicable environmental laws or regulations, it could significantly increase our cost of doing business. Under specific environmental laws and regulations, we could be held responsible for all of the costs relating to any contamination at our past or present terminals and at third-party waste disposal sites. If we fail to comply with applicable environmental laws and regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

In addition, as global warming issues become more prevalent, federal and local governments and our customers are beginning to respond to these issues. This increased focus on sustainability may result in new regulations and customer requirements that could negatively affect us. This could cause us to incur additional direct costs or to make changes to our operations in order to comply with any new regulations and customer requirements, as well as increased indirect costs or loss of revenue resulting from, among other things, our customers incurring additional compliance costs that affect our costs and revenues. We could also lose revenue if our customers divert business from us because we have not complied with their sustainability requirements. These costs, changes and loss of revenue could have a material adverse effect on our business, financial condition and results of operations. Even without any new legislation or regulation, increased public concern regarding greenhouse gases emitted by transportation carriers could harm the reputations of companies operating in the transportation logistics industries and shift consumer demand toward more locally sourced products and away from our services.

The FMCSA’s CSA initiative could adversely impact our ability to hire qualified drivers or contract with qualified owner-operators or third-party carriers, meet our growth projections and maintain our customer relationships, each of which could adversely impact our results of operations.

The FMCSA’s Compliance, Safety, Accountability initiative (“CSA”) is an enforcement and compliance program designed to monitor and improve commercial motor vehicle safety by measuring the safety record of both the motor carrier and the driver. These measurements are scored and used by the FMCSA to identify potential safety risks and to direct enforcement action. CSA scores are dependent upon safety and compliance experience, which could change at any time. In addition, the safety standards prescribed in CSA could change and our ability as well as our independent contractors’ ability to maintain an acceptable score could be adversely impacted. Public disclosure of certain CSA scores was restricted through the enactment of the Fixing America’s Surface Transportation Act of 2015 (the “FAST Act”) on December 4, 2015; however, the FAST Act does not restrict public disclosure of all data collected by the FMCSA. If we receive unacceptable CSA scores, and this data is made available to the public, our relationships with our customers could be damaged, which could result in a loss of business.

The requirements of CSA could also shrink the industry’s pool of drivers as those with unfavorable scores could leave the industry. As a result, the costs to attract, train and retain qualified drivers, owner-operators or third-party carriers could increase. In addition, a shortage of qualified drivers could increase driver turnover, decrease asset utilization, limit growth and adversely impact our results of operations.

If our employees were to unionize, our operating costs would likely increase.

None of our employees is currently represented by a collective bargaining agreement. However, we have no assurance that our employees will not unionize in the future, which could increase our operating costs and force us to alter our operating methods. This could have a material adverse effect on our operating results.

Our charter and bylaws and provisions of Tennessee law could discourage or prevent a takeover that may be considered favorable.


20

Table of Contents

Our charter and bylaws and provisions of Tennessee law may discourage, delay or prevent a merger, acquisition or change in control that may be considered favorable. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors and take other corporate actions. Among other things, these provisions:

authorize us to issue preferred stock, the terms of which may be determined at the sole discretion of our Board of Directors and may adversely affect the voting or economic rights of our shareholders; and

establish advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be acted on by shareholders at a meeting.

Our charter and bylaws and provisions of Tennessee law may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices for our Common Stock and also could limit the price that investors are willing to pay in the future for shares of our Common Stock.

Our financing costs may be adversely affected by changes in LIBOR.

In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced its intention to phase out LIBOR by the end of 2021. We use LIBOR as a reference rate in our revolving credit facility to calculate interest due to our lender. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. If LIBOR ceases to exist, we may need to renegotiate our credit agreement with our lender. This could have an adverse effect on our financing costs.

Item 1B.    Unresolved Staff Comments

None.

Item 2.        Properties

Properties
 
We believe that we have adequate facilities for conducting our business, including properties owned and leased. Management further believes that in the event replacement property is needed, it will be available on terms and at costs substantially similar to the terms and costs experienced by competitors within the transportation industry.
 
We own our Columbus, Ohio central sorting facility which is used by our Expedited Freight segment. The Columbus, Ohio facility is 125,000 square feet with 168 trailer doors. 

We also own facilities near Dallas/Fort Worth, Texas, Chicago, Illinois and Atlanta, Georgia, all of which are used by the Expedited Freight segment.  The Dallas/Fort Worth, Texas facility has over 216,000 square feet with 134 trailer doors and approximately 28,000 square feet of office space.  The Chicago, Illinois facility is over 125,000 square feet with 110 trailer doors and over 10,000 square feet of office space. The Atlanta, Georgia facility is over 142,000 square feet with 118 trailer doors and approximately 12,000 square feet of office space. We lease our shared services headquarters in Greeneville, Tennessee. The lease on this facility expires in 2023. We also lease our executive headquarters in Atlanta, Georgia.

We lease and maintain 146 additional terminals, office spaces and other properties located in major cities throughout the United States and Canada. Lease terms for these terminals are typically for three to seven years. In addition, we have operations in 22 cities operated by independent agents who handle freight for us on a commission basis.
    
Item 3.        Legal Proceedings
 
From time to time, we are a party to ordinary, routine litigation incidental to and arising in the normal course of our business, most of which involve claims for personal injury, property damage related to the transportation and handling of freight, or workers’ compensation. We do not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or cash flow.

Item 4.        Mine Safety Disclosures
    
Not applicable.


21

Table of Contents

Part II

Item 5.        Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities    

Our Common Stock trades on The Nasdaq Global Select Stock Market™ under the symbol “FWRD.”

There were approximately 681 shareholders of record of our Common Stock as of January 15, 2020.
 
Subsequent to December 31, 2019, our Board of Directors declared a cash dividend of $0.18 per share that will be paid in the first quarter of 2020 to the shareholders on record on March 5, 2020. The Company expects to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by the Board of Directors.

There are no material restrictions on our ability to declare dividends. 

None of our securities were sold during fiscal year 2019 without registration under the Securities Act.

Stock Performance Graph

The following graph compares the percentage change in the cumulative shareholder return on our Common Stock with The Nasdaq Trucking and Transportation Stocks Index and The Nasdaq Global Select Stock Market™ Index commencing on the last trading day of December 2014 and ending on the last trading day of December 2019. The graph assumes a base investment of $100 made on December 31, 2014 and the respective returns assume reinvestment of all dividends. The comparisons in this graph are required by the SEC and, therefore, are not intended to forecast or necessarily be indicative of any future return on our Common Stock.

The performance graph and related information shall not be deemed “soliciting material” or be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.


22

Table of Contents

chart-c5271e21f9a65b45912.jpg

2014

2015

2016

2017

2018

2019
Forward Air Corporation
$
100


$
85


$
94


$
114


$
109


$
139

Nasdaq Trucking and Transportation Stocks Index
100


84


103


128


116


140

Nasdaq Global Select Stock Market Index
100


106


114


147


141


200


Issuer Purchases of Equity Securities    
Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1-31, 2019

50


$
63.6


50


4,229

November 1-30, 2019

35


70.0


35


4,194

December 1-31, 2019

39


69.3


39


4,155

Total

124


$
67.2


124


4,155

 
 
 
 
 
 
 
 
 
(1) On February 5, 2019, the Board of Directors canceled the Company’s remaining 2016 share repurchase authorization and approved a share repurchase authorization for up to 5.0 million shares of the Company’s common shares that shall remain in effect until such time as the shares authorized for repurchase are exhausted or until earlier terminated.

Item 6.        Selected Financial Data


23

Table of Contents

The following table sets forth our selected financial data. The selected financial data should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes thereto, included elsewhere in this report.
 
Year ended
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(In thousands, except per share data)
Income Statement Data:
 
 
 
 
 
 
 
 
 
Operating revenue
$
1,410,395

 
$
1,320,886

 
$
1,169,346

 
$
1,030,210

 
$
987,894

Income from operations
118,823

 
122,031

 
108,757

 
59,703

 
81,674

Operating margin (1)
8.4
%
 
9.2
%
 
9.3
%
 
5.8
%
 
8.3
%
 
 
 
 
 
 
 
 
 
 
Net income
87,099

 
92,051

 
87,255

 
27,505

 
55,516

Net income per share:
 
 
 
 
 
 
 
 
 
   Basic
$
3.06

 
$
3.14

 
$
2.90

 
$
0.90

 
$
1.79

   Diluted
$
3.04

 
$
3.12

 
$
2.89

 
$
0.90

 
$
1.78

 
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.72

 
$
0.63

 
$
0.60

 
$
0.51

 
$
0.48

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
 
Total assets
$
990,878

 
$
760,215

 
$
692,622

 
$
644,048

 
$
702,327

Long-term obligations, net of current portion
72,249

 
47,335

 
40,588

 
725

 
28,856

Shareholders' equity
577,182

 
553,244

 
532,699

 
498,344

 
509,497

 
 
 
 
 
 
 
 
 
 
(1) Income from operations as a percentage of operating revenue


24

Table of Contents

Item 7.        Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview and Executive Summary
 
Effective September 1, 2018, Thomas Schmitt was named the Company's President and Chief Executive Officer. Mr. Schmitt is the Company's Chief Operating Decision Maker ("CODM") and is primarily responsible for allocating resources to and assessing the performance of the Company's segments. As a result of this change in leadership, the Company revisited its strategy as discussed in Item 1 included in this Form 10-K. Due to this change in leadership and implementation of a new strategy, Management changed how it evaluates and manages the business effective in the fourth quarter of 2019 and classifies our services into three reportable segments: Expedited Freight, Intermodal and Pool Distribution. The results of our previous Expedited LTL and TLS segments have been consolidated into our Expedited Freight segment. This classification is consistent with how the CODM makes decisions about resource allocation and assesses the Company's performance. The Company has recast its financial information and disclosures for the prior periods to reflect the segment disclosures as if the current presentation had been in effect throughout all periods presented. For financial information relating to each of our business segments, see Note 10, Segment Reporting to our Consolidated Financial Statements.
 
Through the Expedited Freight segment, we operate a comprehensive national network to provide expedited regional, inter-regional and national 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. We plan to grow our LTL and final mile geographic footprints through greenfield start-ups as well as acquisitions. During the year ended December 31, 2019, Expedited Freight accounted for 70.1% of our consolidated revenue.

Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station ("CFS") warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with smaller operational presence in Southwest and Mid-Atlantic United States. We plan to grow Intermodal’s geographic footprint through acquisitions as well as greenfield start-ups where we do not have an acceptable acquisition target. During the year ended December 31, 2019, Intermodal accounted for 15.4% of our consolidated revenue.

In our Pool Distribution segment, we provide high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States. During the year ended December 31, 2019, Intermodal accounted for 14.7% of our consolidated revenue.

Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our ability to increase our earnings depends in significant part on our ability to increase the amount of freight and the revenue per pound for the freight shipped through our networks and to grow other services, such as LTL pickup and delivery, final mile solutions and intermodal services, which will allow us to maintain revenue growth in challenging shipping environments. In addition, we are continuing to execute synergies across our services, particularly with service offerings in the Expedited Freight segment. Synergistic opportunities include the ability to share resources, particularly our fleet resources.

Trends and Developments

Expedited Freight Acquisitions

As part of our strategy to expand our final mile pickup and delivery operations, in April 2019, we acquired certain assets of FSA for $27.0 million in cash and additional contingent consideration ("earnout") based upon future revenue generation. The earnout opportunity is $15.0 million and had a fair value of $11.8 million as of December 31, 2019. This acquisition provides an opportunity for our Expedited Freight segment to expand its final mile service offering into additional geographic markets, form relationships with new customers, and add volumes to our existing locations. The assets, liabilities, and operating results of this acquisition have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Expedited Freight reportable segment. See additional discussion in Note 2, Acquisitions, Goodwill and Other Long-Lived Assets, to our Consolidated Financial Statements.

In addition, in December 2019 we signed an agreement to acquire certain assets of Linn Star for $57.2 million in cash. This acquisition closed in January 2020. The acquisition of Linn Star expands our final mile footprint to additional 20 locations.




25

Table of Contents


Intermodal Acquisitions

As part of our strategy to expand our Intermodal operations, in July 2018, we acquired certain assets of Multi-Modal Transport Inc. (“MMT”) for $3.7 million, in October 2018 we acquired certain assets of Southwest Freight Distributors, Inc. (“Southwest”) for $16.3 million and in July 2019 we acquired certain assets and liabilities of O.S.T. for $12.0 million. O.S.T. is a drayage company and provides the Intermodal segment with an expanded footprint on the East Coast, with locations in the Pennsylvania, Maryland, Virginia, South Carolina and Georgia markets. These transactions were funded using cash flows from operations and provide an opportunity for our Intermodal segment to expand into additional geographic markets and add volumes to our existing locations. The assets, liabilities, and operating results of these acquisitions have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Intermodal reportable segment.

Results from Fixed Asset Useful Life and Salvage Value Study

The Company evaluates the reasonableness of the useful lives and salvage values of its assets on an ongoing basis. During the third quarter of 2019, the Company identified indicators that the useful lives of its owned tractors and trailers extended beyond initial expectations. As a result, management deemed it appropriate to extend the average useful life of its trailers from seven to ten years and its tractors from five to ten years. In addition, management reduced the salvage value of its tractors from 25% to 10%. No changes were made to trailer salvage values. See additional discussion in Note 2, Acquisitions, Goodwill and Other Long-Lived Assets, to our Consolidated Financial Statements.

These changes in estimates were made to assets currently owned and originally purchased new since assets purchased used were assigned individual useful lives and salvage values based on their age and condition at purchase. This change in estimate was made on a prospective basis beginning on July 1, 2019. The impact of this study on the year ended December 31, 2019 was a $2.6 million reduction in depreciation.

In addition, during the year ended December 31, 2019, management recorded a $1.2 million reserve against tractors, which reflected tractors where the expected carrying value exceeded its fair value during the year. This was recorded in other operating expenses in our Consolidated Statements of Comprehensive Income.
    

26

Table of Contents


Results from Operations
The following table sets forth our consolidated historical financial data for the years ended December 31, 2019 and 2018 (in millions):

Year ended December 31,

2019
 
2018
 
Change
 
Percent Change
 
 
 
(As Adjusted)
 
 
 
 
Operating revenue:


 


 


 


Expedited Freight
$
988.8

 
$
931.1

 
$
57.7

 
6.2
 %
Intermodal
217.7

 
201.0

 
16.7

 
8.3

Pool Distribution
207.4

 
194.1

 
13.3

 
6.9

Eliminations and other operations
(3.5
)
 
(5.3
)
 
1.8

 
(34.0
)
Operating revenue
1,410.4

 
1,320.9

 
89.5

 
6.8

Operating expenses:

 

 

 

   Purchased transportation
639.0

 
613.6

 
25.4

 
4.1

   Salaries, wages, and employee benefits
335.2

 
300.2

 
35.0

 
11.7

   Operating leases
82.0

 
75.7

 
6.3

 
8.3

   Depreciation and amortization
42.1

 
42.2

 
(0.1
)
 
(0.2
)
   Insurance and claims
45.5

 
35.2

 
10.3

 
29.3

   Fuel expense
24.2

 
23.1

 
1.1

 
4.8

   Other operating expenses
123.6

 
108.8

 
14.8

 
13.6

      Total operating expenses
1,291.6

 
1,198.8

 
92.8

 
7.7

Income (loss) from operations:


 


 

 

Expedited Freight
101.0

 
101.4

 
(0.4
)
 
(0.4
)
Intermodal
23.7

 
23.3

 
0.4

 
1.7

Pool Distribution
7.3

 
5.9

 
1.4

 
23.7

Other operations
(13.2
)
 
(8.5
)
 
(4.7
)
 
55.3

Income from operations
118.8

 
122.1

 
(3.3
)
 
(2.7
)
Other expense:

 

 

 

   Interest expense
(2.7
)
 
(1.8
)
 
(0.9
)
 
50.0

      Total other expense
(2.7
)
 
(1.8
)
 
(0.9
)
 
50.0

Income before income taxes
116.1

 
120.3

 
(4.2
)
 
(3.5
)
Income taxes
29.0

 
28.2

 
0.8

 
2.8

Net income and comprehensive income
$
87.1

 
$
92.1

 
$
(5.0
)
 
(5.4
)%

Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion above and in Note 10, Segment Reporting to our Consolidated Financial Statements.

27

Table of Contents

Revenues

During the year ended December 31, 2019, revenue increased 6.8% compared to the year ended December 31, 2018. The revenue increase was primarily driven by increased revenue from our Expedited Freight segment of $57.7 million driven by increased final mile revenue primarily from the acquisition of FSA in April 2019. The Company's other segments also had revenue growth over prior year. Intermodal revenue increased 8.3%, primarily due to the acquisition of OST, and Pool revenue increased 6.9%.
 
Operating Expenses
Operating expenses increased $92.8 million primarily driven by purchased transportation increases of $25.4 million and salaries, wages and employee benefits increases of $35.0 million. Company-employed drivers are included in salaries, wages and benefits, while purchased transportation includes owner-operators and third-party carriers. Purchased transportation increased primarily due to increased volumes, but decreased as a percentage of revenue due to increased utilization of owner-operators and Company-employed drivers, which are typically less costly than third-party transportation providers. Salaries, wages and employee benefits increased primarily due to additional headcount from acquisitions, increased Company-employed driver utilization and increased personnel needs to support the additional volumes.
Operating Income and Segment Operations

Operating income decreased $3.3 million, or 2.7%, from the year ended December 31, 2018 to $118.8 million for the year ended December 31, 2019 primarily driven by a $4.7 million increase in loss from operations from Other operations due to a $6.5 million vehicle claims reserve recorded in 2019 for pending vehicular claims. Our Expedited Freight segment operating income decreased $0.4 million due to lower tonnage, higher insurance premiums and a large vehicle claim reserve, mostly offset by improvements in purchased transportation on increased utilization of owner-operators and Company-employed drivers and contributions from FSA. Our Pool and Intermodal segment saw slight increases. The results for our three reportable segments are discussed in detail in the following sections.

Interest Expense

Interest expense was $2.7 million for the year ended December 31, 2019 compared to $1.8 million for the same period in 2018. The increase in interest expense was attributable to additional borrowings on our revolving credit facility.

Income Taxes

The combined federal and state effective tax rate for the year ended December 31, 2019 was 25.0% compared to a rate of 23.4% for the same period in 2018. The higher effective tax rate for the year ended December 31, 2019 was primarily the result of increased executive compensation in the current year, which was not deductible for income tax purposes. This was partly offset by a reduction in taxable income resulting from the reinstatement of the Alternative Fuel Credit by the Internal Revenue Service on December 20, 2019 and the result of increased stock based compensation vesting when compared to the same period in 2018, which was impacted by forfeited performance shares.

Net Income

As a result of the foregoing factors, net income decreased by $5.0 million, or 5.4%, to $87.1 million for the year ended December 31, 2019 compared to $92.1 million for the same period in 2018.

28

Table of Contents

Expedited Freight - Year Ended December 31, 2019 compared to Year Ended December 31, 2018

The following table sets forth our historical financial data of the Expedited Freight segment for the years ended December 31, 2019 and 2018 (in millions):
Expedited Freight Segment Information
(In millions)
(Unaudited)













Year ended

December 31,

Percent of

December 31,

Percent of



Percent
 
2019

Revenue

2018

Revenue

Change

Change
 
 
 
 
 
(As Adjusted)
 
 
 
 
 
 
Operating revenue:















Network 1
$
676.9


68.5
%

$
677.4


72.8
%

$
(0.5
)

(0.1
)%
Truckload
184.7

18.7


186.1

20.0


(1.4
)

(0.8
)
Final Mile
100.6

10.2


39.4

4.2


61.2


155.3

Other
26.6

2.7


28.2

3.0


(1.6
)

(5.7
)
Total operating revenue
988.8


100.0


931.1


100.0


57.7


6.2













Operating expenses:











Purchased transportation
502.7


50.8


483.1


51.9


19.6


4.1

Salaries, wages and employee benefits
200.6


20.3


182.9


19.6


17.7


9.7

Operating leases
46.7


4.7


42.0


4.5


4.7


11.2

Depreciation and amortization
27.3


2.8


29.0


3.1


(1.7
)

(5.9
)
Insurance and claims
23.3


2.4


18.8


2.0


4.5


23.9

Fuel expense
10.2


1.0


9.5


1.0


0.7


7.4

Other operating expenses
77.0


7.8


64.4


6.9


12.6


19.6

Total operating expenses
887.8


89.8


829.7


89.1


58.1


7.0

Income from operations
$
101.0


10.2
%

$
101.4


10.9
%

$
(0.4
)

(0.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
1 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, truckload and final mile revenue

Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion above and in Note 10, Segment Reporting to our Consolidated Financial Statements.


29

Table of Contents

Expedited Freight Operating Statistics
 
 
 
 
 
 
 
Year ended
 
December 31,
 
December 31,
 
Percent
 
2019
 
2018
 
Change
 
 
 
(As Adjusted)
 
 
 
 
 
 
 
 
Business days
255

 
255

 
 %
 
 
 
 
 
 
Tonnage 1,2
 
 
 
 
 
    Total pounds
2,479,291

 
2,562,205

 
(3.2
)
    Pounds per day
9,723

 
10,048

 
(3.2
)
 
 
 
 
 
 
Shipments 1,2
 
 
 
 
 
    Total shipments
3,990

 
4,173

 
(4.4
)
    Shipments per day
15.6

 
16.4

 
(4.9
)
 
 
 
 
 
 
Weight per shipment
621

 
614

 
1.1

 
 
 
 
 
 
Revenue per hundredweight 3
$
27.21

 
$
26.15

 
4.1

Revenue per hundredweight, ex fuel 3
$
22.90

 
$
22.09

 
3.7

 
 
 
 
 
 
Revenue per shipment 3
$
171

 
$
163

 
4.9

Revenue per shipment, ex fuel 3
$
144

 
$
138

 
4.3

Network revenue from door-to-door shipments as a percentage of network revenue 3,4
40.0
%

35.3
%

13.3

Network gross margin 5
55.0
%
 
52.0
%
 
5.8
 %
 
 
 
 
 
 
1 In thousands
 
 
 
 
 
2 Excludes accessorial, full truckload and final mile products
 
 
 
 
3 Includes intercompany revenue between the Network and Truckload revenue streams
4 Door-to-door shipments include all shipments with a pickup and/or delivery
5 Network revenue less network purchased transportation as a percentage of network revenue

30

Table of Contents

Revenues
Expedited Freight operating revenue increased $57.7 million, or 6.2%, to $988.8 million for the year ended December 31, 2019 from $931.1 million for the same period of 2018. The increase was due to increased final mile revenue of $61.2 million, partly offset by decreases in other and truckload revenue. Network revenue also had a modest decrease compared to the prior year. Final mile revenue increased primarily due to the acquisition of FSA in April 2019. Other revenue, which includes warehousing and terminal handling, decreased $1.6 million due to the lower linehaul tonnage and shipment counts. Truckload revenue decreased $1.4 million due to a 4.0% decrease in average revenue per mile, partly offset by a 0.5% increase in overall miles. The decrease in average revenue per mile was primarily driven by rate pressures from both spot market and contract rate customers.

Network revenue decreased $0.5 million due to a 4.4% decrease in shipments and a 3.2% decrease in tonnage partly offset by a 4.1% increase in revenue per hundredweight over prior year. The decrease in shipments and tonnage was due to a decrease in legacy airport-to-airport shipments. The increase in revenue per hundredweight was due to increased shipment size and revenue per shipment.

Purchased Transportation

Expedited Freight purchased transportation increased by $19.6 million, or 4.1%, to $502.7 million for the year ended December 31, 2019 from $483.1 million for the year ended December 31, 2018. As a percentage of segment operating revenue, Expedited Freight purchased transportation was 50.8% during the year ended December 31, 2019 compared to 51.9% for the same period of 2018. Expedited Freight purchased transportation includes owner-operators and third-party carriers, while Company-employed drivers are included in salaries, wages and benefits. Purchased transportation decreased as a percentage of revenue primarily due to a 300 basis point decrease in Network purchased transportation as a percentage of revenue as linehaul cost per mile decreased on increased utilization of owner-operators and Company-employed drivers over more costly third-party transportation providers. This decrease was offset primarily by an increase in final mile purchased transportation due to the acquisition of FSA and deteriorating truckload purchased transportation due to the previously mentioned revenue rate pressures.

Salaries, Wages, and Benefits

Expedited Freight salaries, wages and employee benefits increased by $17.7 million, or 9.7%, to $200.6 million for the year ended December 31, 2019 from $182.9 million in the same period of 2018. Salaries, wages and employee benefits were 20.3% of Expedited Freight’s operating revenue for the year ended December 31, 2019 compared to 19.6% for the same period of 2018. The increase in total dollars and as a percentage of revenue was primarily due to $14.7 million for additional headcount and employee wages, of which $12.1 million was due to the acquisition of FSA. An additional $6.2 million increase was due to increased utilization of Company-employed drivers to fulfill linehaul and local pickup and delivery services. These increases were partly offset by a $3.9 million decrease of employee incentives.
 
Operating Leases
Expedited Freight operating leases increased $4.7 million, or 11.2%, to $46.7 million for the year ended December 31, 2019 from $42.0 million for the year ended December 31, 2018.  Operating leases were 4.7% of Expedited Freight’s operating revenue for the year ended December 31, 2019 compared to 4.5% for the year ended December 31, 2018.  The increase in cost was primarily due to a $2.8 million increase in facility leases mostly from additional facilities acquired from FSA and a $2.9 million increase in tractor rentals and leases to correspond with the increase in Company-employed driver usage mentioned above. These increases were partly offset by a $1.1 million decrease in trailer rentals and leases, as old leases were replaced with purchased trailers.
Depreciation and Amortization
Expedited Freight depreciation and amortization decreased $1.7 million, or 5.9%, to $27.3 million for the year ended December 31, 2019 from $29.0 million for the year ended December 31, 2018.  Depreciation and amortization expense as a percentage of Expedited Freight operating revenue was 2.8% in the year ended December 31, 2019 compared to 3.1% for the year ended December 31, 2018.  The decrease in total dollars was primarily due to a $1.9 million decrease in trailer depreciation for the year ended December 31, 2019 compared to the same period in 2018 primarily related to extending the useful lives of its trailers from seven to ten years as discussed above. Tractor depreciation decreased $0.6 million for the year ended December 31, 2019 compared to the same period in 2018 primarily due to decreasing the salvage value of tractors from 25% to 10% as discussed above, partly offset by a decrease in tractor depreciation, as older units were replaced with tractor leases mentioned above. The net decrease of trailer and tractor depreciation of $2.5 million was partly offset by a $0.8 million of increased amortization of acquired intangibles from FSA.

31

Table of Contents

Insurance and Claims
Expedited Freight insurance and claims expense increased $4.5 million, or 23.9%, to $23.3 million for the year ended December 31, 2019 from $18.8 million for the year ended December 31, 2018.  Insurance and claims as a percentage of Expedited Freight’s operating revenue was 2.4% for the year ended December 31, 2019 compared to 2.0% for the year ended December 31, 2018. The increase was attributable to a $1.0 million vehicle claim reserve recorded in the second quarter of 2019 for pending vehicular claims and a $1.8 million increase in vehicle insurance premiums. The increase was also attributable to higher accident related vehicle damage repairs, cargo claims and claims related fees. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.
Fuel Expense
Expedited Freight fuel expense increased $0.7 million, or 7.4%, to $10.2 million for the year ended December 31, 2019 from $9.5 million in the year ended December 31, 2018.  Fuel expense was 1.0% of Expedited Freight’s operating revenue for the years ended December 31, 2019 and 2018. Expedited Freight fuel expenses increased due to higher Company-employed driver miles.
Other Operating Expenses
Expedited Freight other operating expenses increased $12.6 million, or 19.6%, to $77.0 million for the year ended December 31, 2019 from $64.4 million for the year ended December 31, 2018.  Expedited Freight other operating expenses were 7.8% of operating revenue for the year ended December 31, 2019 compared to 6.9% for the year ended December 31, 2018.  The increase in total dollars and as a percentage of revenue was primarily attributable to a $2.8 million increase in parts costs for final mile installations due to the acquisition of FSA and a $1.5 million increase in loss on operating assets due to reserves for and sales of tractors. See additional discussion regarding the fixed asset useful life study above. The increase was also attributable to a $1.3 million increase in legal and professional fees and $1.2 million in higher travel-related expenses. Additionally, receivables allowance increased $0.8 million due to the third quarter of 2018 including a recovery of a previously reserved receivable. The remaining increase was due to increased terminal and office expenses and other over-the-road costs, including tolls.
Income from Operations
Expedited Freight income from operations decreased by $0.4 million, or 0.4%, to $101.0 million for the year ended December 31, 2019 compared to $101.4 million for the year ended December 31, 2018.  Expedited Freight’s income from operations was 10.2% of operating revenue for the year ended December 31, 2019 compared to 10.9% for the year ended December 31, 2018. The decrease in income from operations was due to lower tonnage, higher insurance premiums and a large vehicle claim reserve, mostly offset by improvements in Network gross margin on increased utilization of owner-operators and Company-employed drivers and contributions from FSA.



32

Table of Contents

Intermodal - Year Ended December 31, 2019 compared to Year Ended December 31, 2018

The following table sets forth our historical financial data of the Intermodal segment for the years ended December 31, 2019 and 2018 (in millions):
Intermodal Segment Information
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended
 
December 31,
 
Percent of
 
December 31,
 
Percent of
 
 
 
Percent
 
2019
 
Revenue
 
2018
 
Revenue
 
Change
 
Change
Operating revenue
$
217.7

 
100.0
%
 
$
201.0

 
100.0
%
 
$
16.7

 
8.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Purchased transportation
76.9

 
35.3

 
77.1

 
38.4

 
(0.2
)
 
(0.3
)
Salaries, wages and employee benefits
52.9

 
24.3

 
43.9

 
21.8

 
9.0

 
20.5

Operating leases
16.4

 
7.5

 
15.9

 
7.9

 
0.5

 
3.1

Depreciation and amortization
8.9

 
4.1

 
6.3

 
3.1

 
2.6

 
41.3

Insurance and claims
6.7

 
3.1

 
5.8

 
2.9

 
0.9

 
15.5

Fuel expense
7.6

 
3.5

 
6.6

 
3.3

 
1.0

 
15.2

Other operating expenses
24.6

 
11.3

 
22.1

 
11.0

 
2.5

 
11.3

Total operating expenses
194.0

 
89.1

 
177.7

 
88.4

 
16.3

 
9.2

Income from operations
$
23.7

 
10.9
%
 
$
23.3

 
11.6
%
 
$
0.4

 
1.7
 %

Intermodal Operating Statistics
 
 
 
Year ended
 
December 31,
 
December 31,
 
Percent
 
2019
 
2018
 
Change
 
 
 
 
 
 
Drayage shipments
313,817

 
305,239

 
2.8
%
Drayage revenue per shipment
$
599

 
$
567

 
5.6

Number of locations
21

 
20

 
5.0
%

33

Table of Contents

Revenues

Intermodal operating revenue increased $16.7 million, or 8.3%, to $217.7 million for the year ended December 31, 2019 from $201.0 million for the same period in 2018. The increase was primarily attributable to the increase in drayage shipments from the acquisition of O.S.T. that occurred in July 2019 and the acquisition of Southwest that occurred in November 2018. The increase was also attributable to revenue rate increases and fuel surcharge revenue on higher drayage shipments and higher fuel surcharge rates.

Purchased Transportation

Intermodal purchased transportation decreased $0.2 million, or 0.3%, to $76.9 million for the year ended December 31, 2019 from $77.1 million for the same period in 2018.  Intermodal purchased transportation as a percentage of revenue was 35.3% for the year ended December 31, 2019 compared to 38.4% for the year ended December 31, 2018.  Intermodal purchased transportation includes owner-operators and third-party carriers, while Company-employed drivers are included in salaries, wages and benefits. The decrease in Intermodal purchased transportation as a percentage of revenue was attributable to increased utilization of Company-employed drivers compared to the same period in 2018 and operating efficiencies.

Salaries, Wages, and Benefits

Intermodal salaries, wages and employee benefits increased $9.0 million, or 20.5%, to $52.9 million for the year ended December 31, 2019 compared to $43.9 million for the year ended December 31, 2018.  As a percentage of Intermodal operating revenue, salaries, wages and benefits increased to 24.3% for the year ended December 31, 2019 compared to 21.8% for the same period in 2018. The 2.5% increase in salaries, wages and employee benefits as a percentage of revenue was attributable to a 1.3% increase from utilization of Company-employed drivers and a 1.3% increase from higher administrative salaries, wages and benefits as a percentage of revenue. The increase as a percentage of revenue was also attributable to a 0.4% increase in group health insurance and workers compensation as a percentage of revenue. These increases were partly offset by a 0.3% decrease as a percentage of revenue in incentive and share based compensation to employees and a 0.2% improvement in dock pay as a percentage of revenue. The increase in administrative salaries, wages and benefits as a percentage of revenue was due to additional headcount from the acquisitions of O.S.T., Southwest and MMT.

Operating Leases

Intermodal operating leases increased $0.5 million, or 3.1% to $16.4 million for the year ended December 31, 2019 from $15.9 million for the same period in 2018.  Operating leases were 7.5% of Intermodal operating revenue for the year ended December 31, 2019 compared to 7.9% in the same period of 2018.  The decrease as a percentage of revenue was attributable to a 0.7% decrease in trailer rental charges as a percentage of revenue. This decrease as a percentage of revenue was partly offset by increases in facility rent from acquired companies and tractor rentals and leases to correspond with the increase in Company-employed driver usage mentioned above.

Depreciation and Amortization

Intermodal depreciation and amortization increased $2.6 million, or 41.3%, to $8.9 million for the year ended December 31, 2019 from $6.3 million for the same period in 2018. Depreciation and amortization expense as a percentage of Intermodal operating revenue was 4.1% for the year ended December 31, 2019 compared to 3.1% for the same period of 2018. The increase was due to $1.2 million increase in amortization of acquired intangibles. The increase in depreciation and amortization was also attributable to a $1.4 million increase in depreciation of equipment partly due to the equipment acquired from O.S.T..

Insurance and Claims

Intermodal insurance and claims expense increased $0.9 million, or 15.5%, to $6.7 million for the year ended December 31, 2019 from $5.8 million for the year ended December 31, 2018.   Intermodal insurance and claims were 3.1% of operating revenue for the year ended December 31, 2019 compared to 2.9% for the same period in 2018. The increase in Intermodal insurance and claims was primarily attributable to an increase in vehicle insurance premiums. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.

Fuel Expense

Intermodal fuel expense increased $1.0 million, or 15.2%, to $7.6 million for the year ended December 31, 2019 from $6.6 million in the same period of 2018.  Fuel expenses were 3.5% of Intermodal operating revenue for the year ended December 31,

34

Table of Contents

2019 compared to 3.3% in the same period of 2018.  Intermodal fuel expenses increased due to increased Company-employed driver usage mentioned above.

Other Operating Expenses

Intermodal other operating expenses increased $2.5 million, or 11.3%, to $24.6 million for the year ended December 31, 2019 compared to $22.1 million for the same period of 2018.  Intermodal other operating expenses as a percentage of revenue for the year ended December 31, 2019 were 11.3% compared to 11.0% for the same period of 2018. The increase in Intermodal other operating expense was due mostly to a $1.0 million increase in container related rental and storage charges and a $0.6 million increase in acquisition related legal and professional fees. The increase was also due to 2018 including a $0.5 million reduction in the earn-out liability for the Atlantic acquisition. The remaining increase was due to increased terminal and office expenses and other over-the-road costs, including tolls.

Income from Operations

Intermodal’s income from operations increased by $0.4 million, or 1.7%, to $23.7 million for the year ended December 31, 2019 compared to $23.3 million for the same period in 2018.  Income from operations as a percentage of Intermodal operating revenue was 10.9% for the year ended December 31, 2019 compared to 11.6% in the same period of 2018.  The increase in operating income in total dollars was primarily attributable to the acquisitions of O.S.T., Southwest and MMT. These increases were partly offset by higher amortization and professional fees related to acquisitions and the prior period including a $0.5 million benefit from the reduction of an earn-out liability, which led to the deterioration in income from operations as a percentage of revenue.

35

Table of Contents

Pool Distribution - Year Ended December 31, 2019 compared to Year Ended December 31, 2018

The following table sets forth our historical financial data of the Pool Distribution segment for the years ended December 31, 2019 and 2018 (in millions):
Pool Distribution Segment Information
(In millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended
 
December 31,
 
Percent of
 
December 31,
 
Percent of
 
 
 
Percent
 
2019
 
Revenue
 
2018
 
Revenue
 
Change
 
Change
Operating revenue
$
207.4

 
100.0
%
 
$
194.1

 
100.0
%
 
$
13.3

 
6.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Purchased transportation
61.7

 
29.7

 
57.4

 
29.6

 
4.3

 
7.5

Salaries, wages and employee benefits
78.7

 
37.9

 
71.3

 
36.7

 
7.4

 
10.4

Operating leases
19.0

 
9.2

 
17.6

 
9.1

 
1.4

 
8.0

Depreciation and amortization
5.9

 
2.8

 
6.9

 
3.6

 
(1.0
)
 
(14.5
)
Insurance and claims
6.2

 
3.0

 
4.6

 
2.4

 
1.6

 
34.8

Fuel expense
6.5

 
3.1

 
7.0

 
3.6

 
(0.5
)
 
(7.1
)
Other operating expenses
22.1

 
10.7

 
23.4

 
12.1

 
(1.3
)
 
(5.6
)
Total operating expenses
200.1

 
96.5

 
188.2

 
97.0

 
11.9

 
6.3

Income from operations
$
7.3

 
3.5
%
 
$
5.9

 
3.0
%
 
$
1.4

 
23.7
 %

Pool Distribution Operating Statistics
 
 
 
Year ended
 
December 31,
 
December 31,
 
Percent
 
2019
 
2018
 
Change
 
 
 
 
 
 
Cartons 1
104,602

 
92,976

 
12.5
 %
Revenue per carton
$
1.98

 
$
2.09

 
(5.3
)
Terminals
30

 
28

 
7.1

 
 
 
 
 
 
1 In thousands
 
 
 
 
 

36

Table of Contents

Revenues
Pool operating revenue increased $13.3 million, or 6.9%, to $207.4 million for the year ended December 31, 2019 from $194.1 million for the year ended December 31, 2018.  The increase was due to increased volumes from previously existing customers, new business and rate increases partly offset by a lower revenue per carton due to a change in customer mix. The increased volumes from previously existing and new customers was attributable in part to competitors exiting the market.

Purchased Transportation

Pool purchased transportation increased $4.3 million, or 7.5%, to $61.7 million for the year ended December 31, 2019 from $57.4 million for the year ended December 31, 2018.  Pool purchased transportation as a percentage of revenue was 29.7% for the year ended December 31, 2019 compared to 29.6% for the same period in 2018.  Pool purchased transportation includes owner-operators and third-party carriers, while Company-employed drivers are included in salaries, wages and benefits. The increase in Pool purchased transportation was attributable to increased rates charged by and increased utilization of, third-party carriers to cover the increases in revenue.

Salaries, Wages, and Benefits
Pool salaries, wages and employee benefits increased $7.4 million, or 10.4%, to $78.7 million for the year ended December 31, 2019 from $71.3 million for the year ended December 31, 2018.  As a percentage of Pool operating revenue, salaries, wages and benefits were 37.9% for the year ended December 31, 2019 compared to 36.7% for the same period in 2018. The increase was due to higher dock and driver pay and office and administrative pay. Dock pay increased due to increased dedicated revenue volumes, which required the use of more costly contract labor. Office and administrative pay increased due to additional staffing required to service business in new locations, including agent stations that were converted to Company-operated stations. Driver pay increased due to utilization of Company-employed drivers to fulfill the revenue increases.

Operating Leases

Pool operating leases increased $1.4 million, or 8.0%, to $19.0 million for the year ended December 31, 2019 from $17.6 million for the year ended December 31, 2018.  Operating leases were 9.2% of Pool operating revenue for the year ended December 31, 2019 compared to 9.1% for the year ended December 31, 2018.  Operating leases increased due to increases in tractor leases for the additional revenue discussed above and the use of leased tractors to replace old purchased equipment. The increase was also due to increased facility rent due to terminal expansions and new terminals to handle increased revenue described above. The increases in facility rent were mostly offset by 2018 including a $1.0 million charge to vacate a facility.

Depreciation and Amortization

Pool depreciation and amortization decreased $1.0 million, or 14.5%, to $5.9 million for the year ended December 31, 2019 compared to $6.9 million for the same period in 2018.  Depreciation and amortization expense as a percentage of Pool operating revenue was 2.8% for the year ended December 31, 2019 compared to 3.6% for the year ended December 31, 2018.  Trailer depreciation decreased $0.5 million compared to the same period in 2018 primarily due to extending the useful life of trailers from seven to ten years as discussed above. Tractor depreciation decreased $0.5 million as older units were replaced with tractor leases mentioned above partly offset by additional depreciation recognized during 2019 following the useful life study reduced the salvage value of tractors from 25% to 10% as discussed above.

Insurance and Claims

Pool insurance and claims increased $1.6 million, or 34.8%, to $6.2 million for the year ended December 31, 2019 from $4.6 million for the year ended December 31, 2018. As a percentage of operating revenue, insurance and claims was 3.0% for the year ended December 31, 2019 compared to 2.4% for the year ended December 31, 2018. The increase in total dollars and as a percentage of revenue was primarily due to increased vehicle insurance premiums and the prior period including a $0.5 million reimbursement for claims related legal fees. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.

Fuel Expense

Pool fuel expense decreased $0.5 million, or 7.1%, to $6.5 million for the year ended December 31, 2019 from $7.0 million for the year ended December 31, 2018.  Fuel expenses were 3.1% of Pool operating revenue during the year ended December 31,

37

Table of Contents

2019 compared to 3.6% for the year ended December 31, 2018.  Pool fuel expenses decreased due to lower year-over-year fuel prices, partly offset by increased utilization of Company-employed drivers.

Other Operating Expenses

Pool other operating expenses decreased $1.3 million, or 5.6%, to $22.1 million for the year ended December 31, 2019 compared to $23.4 million for the year ended December 31, 2018.  Pool other operating expenses were 10.7% of operating revenue for the year ended December 31, 2019 compared to 12.1% for the year ended December 31, 2018. Other operating expenses included equipment maintenance, terminal and office expenses, professional fees and other over-the-road costs.  As a percentage of revenue, the decrease was primarily attributable to a $2.0 million decrease in agent station handling costs due to the conversion of agent stations to Company-operated stations and lower revenue volumes from the remaining agent stations. This decrease was partly offset by increases in terminal and office expenses related to the new terminal locations.

Income from Operations

Pool income from operations increased by $1.4 million, or 23.7% to $7.3 million for the year ended December 31, 2019 from $5.9 million for the year ended December 31, 2018.  Pool income from operations was 3.5% of operating revenue for the year ended December 31, 2019 compared to 3.0% of operating revenue for the year ended December 31, 2018.  The improvement in Pool operating income in total dollars and as a percentage of revenue was due to increased revenue from new location wins, which included additional volumes from existing customers and new business wins and revenue rate increases. Pool's operating income also improved due to a $1.0 million charge to vacate a facility during 2018.

38

Table of Contents

Other operations - Year Ended December 31, 2019 compared to Year Ended December 31, 2018

Other operating activity declined from an $8.5 million operating loss during the year ended December 31, 2018 to a $13.2 million operating loss during the year ended December 31, 2019. The year ended December 31, 2019 included $6.5 million in vehicular reserves for unfavorable development of second quarter 2019 claims and increases to our loss development factors for vehicle and workers' compensation claims of $2.8 million and $0.3 million, respectively. The loss was also attributed to $3.6 million in costs related to the CEO transition.

The $8.5 million operating loss included in other operations and corporate activities for the year ended December 31, 2018 included a $6.0 million increase in self-insurance reserves related to existing vehicular claims and $0.8 million in self- insurance reserves resulting from workers' compensation claims. The loss was also attributable to $1.1 million in costs related to the CEO transition, comprised of recruiting fees and retention share awards.

39

Table of Contents


Results of Operations

The following table sets forth our historical financial data for the years ended December 31, 2018 and 2017 (in millions):
 
Year ended December 31,
 
2018
 
2017
 
Change
 
Percent Change
 
(As Adjusted)
 
(As Adjusted)
 
 
 
 
Operating revenue:
 
 
 
 
 
 
 
Expedited Freight
$
931.1

 
$
850.4

 
$
80.7

 
9.5
 %
Intermodal
201.0

 
154.7

 
46.3

 
29.9

Pool Distribution
194.1

 
168.5

 
25.6

 
15.2

Eliminations and other operations
(5.3
)
 
(4.3
)
 
(1.0
)
 
23.3

Operating revenue
1,320.9

 
1,169.3

 
151.6

 
13.0

Operating expenses:
 
 
 
 
 
 
 
   Purchased transportation
613.6

 
545.1

 
68.5

 
12.6

   Salaries, wages, and employee benefits
300.2

 
265.8

 
34.4

 
12.9

   Operating leases
75.7

 
63.8

 
11.9

 
18.7

   Depreciation and amortization
42.2

 
41.1

 
1.1

 
2.7

   Insurance and claims
35.2

 
29.6

 
5.6

 
18.9

   Fuel expense
23.1

 
16.5

 
6.6

 
40.0

   Other operating expenses
108.8

 
98.6

 
10.2

 
10.3

      Total operating expenses
1,198.8

 
1,060.5

 
138.3