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, 20142016
Commission File No. 000-22490
 
FORWARD AIR CORPORATION
(Exact name of registrant as specified in its charter)

Tennessee62-1120025
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)
  
430 Airport
1915 Snapps Ferry Road, Building N

 
Greeneville, Tennessee37745
(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:
Common Stock, $0.01 par valueThe NASDAQ Stock Market LLC
(Title of class)(Name of exchange on which registered)

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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting Company o
(Do not check if a smaller reporting company)

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 20142016 was approximately $1,445,406,9121,324,483,176 based upon the $47.85$44.53 closing price of the stock as reported on The NASDAQ Stock Market LLC on that date. For purposes of this computation, all directors and executive officers of the registrant are assumed to be affiliates. This assumption is not a conclusive determination for purposes other than this calculation.

The number of shares outstanding of the registrant’s common stock, $0.01 par value per share as of February 9, 201517, 2017 was 30,479,715.30,229,809.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 20152017 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.
   
   
   
   
 


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Introductory Note

This Annual Report on Form 10-K for the fiscal year ended December 31, 20142016 (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, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements regarding future insurance and claims; any statements concerning proposed or intended new services or developments; any statements regarding intended expansion through acquisition or greenfield startups; any statements regarding future economic conditions or performance; and any statements of belief and any statements of assumptions underlying any of the foregoing. Some forward-looking statements may be identified by use of such terms as “believes,” “anticipates,” “intends,” “plans,” “estimates,” “projects” or “expects.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from those contemplated by the forward-looking statements: economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, 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, increasing competition and pricing pressure, surplus inventories, loss of a major customer, the creditworthiness of our customers and their ability to pay for services rendered, our ability to secure terminal facilities in desirable locations at reasonable rates, the inability of our information systems to handle an increased volume of freight moving through our network, changes in fuel prices, claims for property damage, personal injuries or workers’ compensation, employment matters including rising health care costs, enforcement of and changes in governmental regulations, environmental and tax matters, the handling of hazardous materials, 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 and our inability to successfully integrate acquisitions. 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 wereprovide less-than-truckload (“LTL”), truckload, intermodal and pool distribution services across the United States and in Canada. We utilize an asset-light strategy to minimize our investments in equipment and facilities and to reduce our capital expenditures. Forward Air was formed as a corporation under the laws of the State of Tennessee on October 23, 1981. Our operationscommon stock is listed on the Nasdaq Global Select Market under the symbol “FWRD”.

Services Provided

Our services can be broadly classified into threefour principal reportable segments: Forward AirExpedited LTL, Truckload Premium Services (“Forward Air”TLS”), Forward Air Solutions (“FASI”)Intermodal and Total Quality ("TQI").  Pool Distribution. For financial information relating to each of our business segments, see Note 10, “Segment Reporting,” in the Notes to consolidated Financial Statements included in this Form 10-K.

Through our Forward Air segment weExpedited LTL. We operate a comprehensive national network to provide time-definite surface transportationexpedited regional, inter-regional and related logistics services to the North American expedited ground freight market. Our licensed property broker utilizes qualified motor carriers, including our own, and other third-party transportation companies, to offer ournational LTL services. Expedited LTL offers customers local pick-up and delivery (Forward Air Complete®) and scheduled surface transportation of cargo as a cost-effective, reliable alternative to air transportation. We transport cargo that must be delivered at a specific time but is less time-sensitive than traditional air freight. This type of cargo is frequently referred to in the transportation industry as deferred air freight. We also offer our customers an array of logistics and other services including: expedited full truckload (“TLX”); dedicated fleets; warehousing; customs brokerage; andincluding shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. Also includedBecause of our roots in serving the deferred air freight market, our terminal network is located at or near airports in the Forward Air segment areUnited States and Canada. During the services performed by Central States Trucking Co. and Central States Logistics, Inc. (“CST”) which we acquired in 2014. CST provides intermodal drayage, devanning, transloading and warehousing services.year ended December 31, 2016, Expedited LTL accounted for 58.1% of our consolidated revenue.

FASI, whichTLS. We provide expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-controlled logistics services in the United States and Canada. During the year ended December 31, 2016, TLS accounted for 16.7% 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, with a smaller operational presence in the Southwest and Southeast. We plan to grow Intermodal’s geographic footprint through acquisitions as well as greenfield start-ups where we formed in July 2007, provides pooldo not have an acceptable acquisition target. During the year ended December 31, 2016, Intermodal accounted for 10.6% of our consolidated revenue.


Pool Distribution. We provide high-frequency handling and distribution servicesof time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest continental United States. During the year ended December 31, 2016, Pool distribution involves managing high-frequency, last mile handling and distributionDistribution accounted for 15.1% of time-sensitive product to numerous destinations in specific geographic regions.  Our primary customers for pool distribution are regional and nationwide distributors and specialty retailers, such as mall, strip mall and outlet-based retail chains.
TQI, which we acquired in March 2013, provides maximum security and temperature-controlled logistics services, primarily truckload services, to the life sciences sector (pharmaceutical and biotechnology products). In addition to core pharmaceutical services and other cold chain services, TQI provides truckload and less-than-truckload brokerage transportation services.our consolidated revenue.

Growth Strategy

Our strategy is to take advantage of our competitive strengthscore competencies to provide asset-light freight and logistics services in order to increase our profits and shareholder returns. Our goal is to use our established businesses asgrow in the base from which to expand and launch new services that will allow us to grow and provide shareholder returns in any economic environment.premium or high service level segments of the markets we serve. Principal components of our efforts include:

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Increase Freight Volume from Existing Customers.Expand Service Offerings. Many of our customers currently use us for only a portion of their overall transportation needs. We believe we can increase freight volumes from existing customersand revenues by offering morenew and enhanced and comprehensive services that address all of the customer’s transportation needs, such as Forward Air Complete® ("Complete"), our direct to door pick-up and delivery service and customer label integration.  By offering additional services that can be integrated with our existing services, we believe we will attract additional business from existing customers.
Expand Service Offerings. We continue to expand our offered services to increase revenue and improve utilizationmore of our terminal facilities and labor force. Because of the timing of the arrival and departure of cargo, our facilities are under-utilized during certain portions of the day, allowing us to add logistics services without significantly increasing our costs. Therefore, we have added a number of additional services incustomers’ premium transportation needs. In the past few years, such as TLX, pool distribution,we have added or enhanced LTL pickup and delivery, customer label integration, expedited truckload, temperature-controlled shipments, warehousing, drayage, customs brokerage and shipment consolidation and handling services. These services directly benefit our existing customers and increase our ability to attract new customers, particularly those customers that cannot justify providing the services directly. These services are not offered by many transportation providers with whom we compete and are attractive to customers who prefer to use one provider for all of their transportation needs.customers.

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

Pursue Strategic Acquisitions.We continue to evaluate and pursue acquisitions that can increase our penetration of a geographic area,area; add new customers, add new business verticals and services; and increase freight volume. In addition,For example, we expect to explore acquisitions, such as TQI, that enable us to offer additional services. Further,acquired Central States Trucking Co. (“CST”) in 2014, we completed the acquisition of CST which later in 2014 acquired substanially all the assets of Recob Great Lakes Express, Inc. ("RGL") and Multi-Modal Trucking, Inc. and Multi-Modal Services, Inc. (together referred to as "MMT").2014. CST provides industry leadingindustry-leading container and intermodal drayage services primarily within the Midwest, regionSoutheast and Southwest regions of the United States. CST also provides linehaul service within the airport-to-airportLTL space as well as dedicated contract and Container Freight StationCFS warehouse services. Acquisitions may affectSince our short-term cash flowacquisition of CST in 2014, CST has completed four acquisitions. In 2016, CST acquired substantially all of the assets of ACE Cargo, LLC (“Ace”) and net incomeTriumph Transport, Inc. and Triumph Repair Service, Inc. (together referred to as we expend funds, potentially increase indebtedness and incur additional expenses.“Triumph”).
Competitive Advantages

We believe that the following competitive advantages are critical to our success:Operations

Focus on Specific Freight Markets and Concentrated Marketing Strategy. Our Forward Air segment focuses on providing time-definite surface transportation and related logistics services to the North American expedited ground freight market.  Forward Air provides our expedited ground freight services mainly to freight forwarders, integrated air cargo carriers, and passenger and cargo airlines rather than directly serving shippers. We believe that Forward Air customers prefer to purchase their transportation services from us because, among other reasons, we generally do not market Forward Air’s services to their shipper customers and, therefore, do not compete directly with them for customers. Our FASI segment focuses on providing high-quality pool distribution services to retailers and nationwide distributors of retail products.  Our TQI segment focuses on providing maximum security and temperature-controlled logistics services to the pharmaceutical and life science industries. This focused approach enables us to provide a higher level of service across all our business segments in a more cost-effective manner than our competitors.
Expansive Network of Terminals and Facilities. We have developed a network of terminals and facilities throughout the United States and Canada. We believe it would be difficult for a competitor to duplicate our network of facilities with the expertise and strategic facility locations we have acquired without expending significant capital and management resources. We believe that through our network of terminals and facilities we can offer our customers a variety of comprehensive, high-quality, consistent service across the majority of the continental United States.  
Superior Service Offerings. Forward Air’s published expedited ground freight schedule for transit times with specific cut-off and arrival times generally provides Forward Air customers with the predictability they need. In addition, our network of Forward Air terminals allows us to offer our Forward Air customers later cut-off times, a higher percentage of direct shipments (which reduces damage and shortens transit times) and earlier delivery times than most of our competitors. Our network of FASI terminals allows us the opportunity to provide precision deliveries to a wider range

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of locations than most pool distribution providers with increased on-time performance. TQI utilizes industry-leading temperature-controlled equipment, 24-hour real-time monitoring and tracking technology, and layered security features and practices to provide its customers with a level of service that is unmatched in the industry today.
Flexible Business Model. Rather than owning and operating our own large fleets of trucks, we purchase most of our transportation requirements from owner-operators or truckload carriers. This approach allows us to respond quickly to changing demands and opportunities in our industry and to generate higher returns on assets because of the lower capital requirements.
Comprehensive Logistic and Other Service Offerings. Through our three segments we offer an array of logistic and other services including: TLX, pick-up and delivery (Forward Air Complete™), pool distribution, temperature-controlled truckload, warehousing, customs brokerage and shipment consolidation and handling. These services are an essential part of many of our customers’ transportation needs and are not offered by many of our competitors.  We are often able to provide these services utilizing existing infrastructure and thereby earning additional revenue without incurring significant additional fixed costs.
Leading Technology Platform. We are committed to using information technology to improve our operations.  Through improved information technology, we believe we can increase the volume of freight we handle in our networks, improve visibility of shipment information and reduce our operating costs. Our technology allows us to provide our customers with electronic bookings and real-time tracking and tracing of shipments while in our network, complete shipment history, proof of delivery, estimated charges and electronic bill presentment. We continue to enhance our systems to permit us and our customers to access vital information through both the Internet and electronic data interchange.  We have continued to invest in information technology to the benefit of our customers and our business processes.
Strong Balance Sheet and Availability of Funding. Our asset-light business model and strong market position in the expedited ground freight market provides the foundation for operations that have produced excellent cash flow from operations even in challenging conditions.  Our strong balance sheet and available borrowing capacity, can also be a competitive advantage.  Our competitors, particularly in the pool distribution market, are mainly regional and local operations, and may struggle to maintain operations in an uncertain economic environment.  The threat of financial instability may encourage new and existing customers to use a more financially secure transportation provider.
Operations
The following describes in more detail the operations of each of our reportable segments: Expedited LTL, Truckload Premium Services, Intermodal and Pool Distribution.

Forward AirExpedited LTL

Airport-to-airportOverview

Forward Air is a leading provider of time-definite surface transportationOur Expedited LTL segment provides expedited regional, inter-regional and related logistics services to the North American expedited ground freight market. Through Forward Air, we transport cargo that must be delivered at a specific time but is less time-sensitive than traditional air freight. This type of cargo is frequently referred to in the transportation industry as deferred air freight.national LTL services. We market our Forward Air airport-to-airportExpedited LTL services primarily to freight and logistics intermediaries (such as freight forwarders and third party logistics companies) and airlines (such as integrated air cargo carriers, and passenger and cargo airlines. To serve this market, weairlines). We offer our customers a high level of service with a focus on on-time, damage-free deliveries. We serve our customers by locating ourOur terminals are located on or near airports in the United States and Canada and maintainingmaintain regularly scheduled transportation service between major cities. We either receive shipments at our terminals or if instructed to do so pick up shipments directly from our customers. We then transport the freight by truck (i) directly to the destination terminal; (ii) to our Columbus, Ohio central sorting facility; or (iii) to one of our 12 regional hubs, where they are unloaded, sorted and reloaded. After reloading the shipments, we deliver them to the terminals nearest their destinations and then, if requested by the customer, on to a final designated site. We ship freight directly between terminals when justified by the tonnage volume.
During 2014, approximately 27.0% of the freight Forward Air handled was for overnight delivery, approximately 57.1% was for delivery within two to three days and the balance was for delivery in four or more days. Forward Air generally does not market its airport-to-airport services directly to shippers (where such services might compete with our freight forwarder customers). Also, because Forward Air does not place significant size or weight restrictions on airport-to-airport shipments, Forward Air generally does not compete directly with integrated air cargo carriers such as United Parcel Service and Federal Express in the overnight delivery of small parcels. In 2014, Forward Air’s ten largest customers accounted for approximately 44.3% of Forward Air’s operating revenue and no single customer accounted for more than 10.0% of Forward Air’s operating revenue. 

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Terminals



Operations

Our airport-to-airportExpedited LTL network consists of terminals located in the following 8790 cities:
City Airport Served City Airport Served
Albany, NY ALB Louisville, KY SDF
Albuquerque, NM* ABQ Memphis, TN MEM
Allentown, PA* ABE McAllen, TX MFE
Atlanta, GA ATL Miami, FL MIA
Austin, TX AUS Milwaukee, WI MKE
Baltimore, MD BWI Minneapolis, MN MSP
Baton Rouge, LA* BTR Mobile, AL* MOB
Birmingham, AL* BHM Moline, IA MLI
Blountville, TN* TRI Montgomery, AL* MGM
Boston, MA BOS Nashville, TN BNA
Buffalo, NY BUF Newark, NJ EWR
Burlington, IA BRL Newburgh, NY SWF
Cedar Rapids, IA CID New Orleans, LA MSY
Charleston, SCSC**** CHS New York, NY JFK
Charlotte, NC CLT Norfolk, VA ORF
Chicago, IL ORD Oklahoma City, OK OKC
Cincinnati, OH CVG Omaha, NE OMA
Cleveland, OH CLE Orlando, FL MCO
Columbia, SC* CAE Pensacola, FL* PNS
Columbus, OH*** CMH Philadelphia, PA PHL
Corpus Christi, TX* CRP Phoenix, AZ PHX
Dallas/Ft. Worth, TX**TX DFW Pittsburgh, PA PIT
Dayton, OH* DAY Portland, OR PDX
Denver, CO**CO DEN Raleigh, NC RDU
Des Moines, IA** DSM Richmond, VA**VA RIC
Detroit, MI DTW Rochester, NY ROC
El Paso, TX ELP Sacramento, CA SMF
Evansville, INEVVSaginaw, MIMBS
Fort Wayne, IN*IN FWA Salt Lake City, UT SLC
Grand Rapids, MI*MI GRR San Antonio, TX SAT
Greensboro, NC GSO San Diego, CA SAN
Greenville, SC GSP San Francisco, CA SFO
Hartford, CT BDL Seattle, WA SEA
Harrisburg, PA MDT Shreveport, LA* SHV
Houston, TX IAH South Bend, IN*IN SBN
Huntsville, AL* HSV St. Louis, MO STL
Indianapolis, IN IND Syracuse, NY SYR
Jacksonville, FL JAX Tampa, FL TPA
Kansas City, MO MCI Toledo, OH* TOL
Knoxville, TN* TYS Tucson, AZ*Traverse City, MI* TUSTVC
Lafayette, LA* LFT Tulsa, OK**Tucson, AZ* TULTUS
Laredo, TX LRD Washington, DCTulsa, OK** IADTUL
Las Vegas, NV LAS Montreal, Canada*Washington, DC YULIAD
Little Rock, AR* LIT Toronto, CanadaMontreal, Canada* YYZYUL
Los Angeles, CA LAX Toronto, Canada YYZ

*      Denotes an independent agent location.
**    Denotes a location with combined Forward AirExpedited LTL and FASIPool Distribution operations.
*** Denotes a location in which Forward AirExpedited LTL is an agent for FASI.Pool Distribution.
****Denotes a location with combined Expedited LTL and Intermodal operations.

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Independent agents operate 2220 of our Forward AirExpedited LTL locations. These locations typically handle lower volumes of freight relative to our Company-operated facilities.

Direct Service and Regional Hubs
Shipments
We operate direct terminal-to-terminal services and regional overnight service between terminals where justified by freight volumes. We currently provide regional overnight service to many
During 2016, approximately 29.2% of the marketsfreight handled by Expedited LTL was for overnight delivery, approximately 56.1% was for delivery within our network. Direct service allows ustwo to provide quicker scheduled service at a lower cost because it allows us to minimize out-of-route milesthree days and eliminate the added time and cost of handling the freight at our centralbalance was for delivery in four or regional hub sorting facilities. Direct shipments also reduce the likelihood of damage because of reduced handling and sorting of the freight. As we continue to increase volume between various terminals, we intend to add other direct services. When warranted by sufficient volume in a region, we utilize larger terminals as regional sorting hubs, which allow us to bypass our Columbus, Ohio central sorting facility. These regional hubs improve our operating efficiency and enhance customer service. We operate regional hubs in Atlanta, Charlotte, Chicago, Dallas/Ft. Worth, Denver, Kansas City, Los Angeles, New Orleans, Newark, Newburgh, Orlando, and Sacramento.  

Shipmentsmore days.

The average weekly volume of freight moving through our airport-to-airportExpedited LTL network was approximately 36.946.5 million pounds per week in 2014.2016. During 2014,2016, our average shipment weighed approximately 650 pounds and shipment sizes ranged from small boxes weighing only a few pounds to large shipments of several thousand631 pounds. Although we impose no significant size or weight restrictions, we focus our marketing and price structure on shipments of 200 pounds or more. As a result,

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

The table below summarizes the average weekly volume of freight moving through our network for each year since 1999.2002.

Average WeeklyAverage Weekly

Volume in PoundsVolume in Pounds
Year(In millions)(In millions)
199919.4
200024.0
200124.3
200224.524.5
200325.325.3
200428.728.7
200531.231.2
200632.232.2
200732.832.8
200834.234.2
200928.528.5
201032.632.6
201134.034.0
201234.934.9
201335.435.4
201437.437.4
201547.2
201646.5

Forward Air Logistics and Other ServicesPurchased Transportation

Forward Air customers increasingly demand more than the movement of freight from their transportation providers. To meet these demands, we continually seek ways to customize our logistics services and add new services.

Our logistics and other services allow customers to access the following services from a single source:
expedited full truckload, or TLX;
intermodal drayage, or CST;
dedicated fleet;
customs brokerage, such as assistance with U.S. Customs and Border Protection (“U.S. Customs”) procedures for both import and export shipments;

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Table of Contents

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.

These services are critical to many of our customers that do not provide logistics services themselves or that prefer to use one provider for all of their surface transportation needs.

Our logistics revenue is generated primarily by our TLX and intermodal drayage services. Our TLX service provides a high level of truckload service through a dedicated owner operator fleet and third party transportation providers that allow for flexible capacity while also allowing us to cross utilize assets and capacity with our airport-to-airport fleet.

In conjunction with our acquisitions of CST in February 2014 and the related acquisitions of RGL and MMT, we expanded our container and intermodal drayage operations into the Midwest. We now offer container and intermodal drayage services in Charleston, Chicago, Cleveland, Detroit, Houston, Indianapolis, Milwaukee and Minneapolis.

Forward Air Customers
Our wholesale customer base is primarily comprised of freight forwarders, integrated air cargo carriers and passenger, cargo airlines and steamship lines. Forward Air's freight forwarder customers vary in size from small, independent, single facility companies to large, international logistics companies such as SEKO Worldwide, AIT Worldwide Logistics, Expeditors International of Washington, Associated Global, UPS Supply Chain Solutions, FedEx Corporation and Pilot Air Freight. Because we deliver dependable service, integrated air cargo carriers such as UPS Cargo, FedEx Corporation and DHL Worldwide Express use our network to provide overflow capacity and other services, including shipment of bigger packages and pallet-loaded cargo. Our passenger and cargo airline customers include United Airlines and Delta.  
Forward Air Purchased Transportation
Our licensed property broker places our customers’ cargo with qualified motor carriers, including our own, and other third-party transportation companies. Forward Air'sExpedited LTL’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.

Forward Air seeksWe seek to establish long-term relationships with owner-operators to assure dependable service and availability. Historically, Forward AirExpedited LTL has experienced significantly higher than industryhigher-than-industry average retention of owner-operators. Forward AirExpedited LTL has established specific guidelines relating to safety records, driving experience and personal evaluations that we use to select our owner-operators. To enhance itsour relationship with the owner-operators, Forward AirExpedited LTL’s rates are generally above prevailing market rates and we announced rate increases at the end of 2014. In addition, our owner-operators and their drivers often are able to negotiate a consistent work schedule.schedule for their drivers. Usually, owner-operators andnegotiate schedules for their drivers also negotiate schedules 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 their drivers and, in turn, increasing our driver retention.

As a result of efforts to expand our logistics and other services, seasonal demands and volume surges in particular markets, we also purchase transportation from other surface transportation providers to handle overflow volume. Of the $277.3$225.1 million incurred for Forward AirExpedited LTL's purchased transportation during 2014,2016, we purchased 53.3%63.2% from the owner-operators of our licensed motor carrier and 46.7%36.8% from other surface transportation providers.
Forward Air Competition
The


Other Services

Expedited LTL customers increasingly demand more than the movement of freight from their transportation providers. To meet these demands, we continually seek ways to customize and add new services.

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

customs brokerage;
warehousing, dock and office space;
hotshot or ad-hoc ultra expedited groundservices; 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 segment of the transportation industry is highly competitive and very fragmented. Our competitors primarily include national and regional truckload and less-than-truckload carriers. To a lesser extent, Forward Air also competes withforwarders, third party logistics companies, integrated air cargo carriers and passenger, cargo airlines and cargo airlines.
We believe competitionsteamship lines. Expedited LTL’s freight forwarder customers vary in size from small, independent, single facility companies to large, international logistics companies. Our dependable service and wide-ranging service offerings also make Expedited LTL an attractive option for third party logistic providers (“3PL”), which is one of the fastest growing segments in the expedited ground freighttransportation 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 2016, no single customer accounted for more than 10% of Expedited LTL’s revenue.

Truckload Premium Services

Overview

Our TLS segment is based primarily on service, on-time delivery, flexibility and reliability,an asset-light provider of transportation management services, including, but not limited to, expedited truckload brokerage, dedicated fleet services, as well as rates.high security and temperature-controlled logistics services. We offermarket our Forward AirTLS services at rates that generally are significantly belowto integrated air cargo carriers, airlines, freight forwarders and LTL carriers, as well as life-science companies, and their distributors and other shippers of high value cargo. TLS offers long haul, regional and local services through a dedicated fleet and third party transportation providers. TLS also utilizes a wide assortment of equipment to meet our customers’ critical on-time expectations in the charge to transport the same shipment to the same destination by air. We believe Forward Air has an advantage over less-than-truckload carriers because Forward Air delivers faster, more reliable service between many cities.  United States and Canada.

Operations

TLS’ primary operations are located in Columbus, Ohio. TLS also has satellite operations in South Bend, Indiana; Grand Rapids, Michigan; Greeneville, Tennessee; and Sacramento, California.

Operating Statistics

The table below summarizes the average weekly miles driven for each year since 2003.
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 Average Weekly Miles
Year(In thousands)
2003211
2004260
2005248
2006331
2007529
2008676
2009672
2010788
2011876
20121,005
20131,201
20141,185
20151,459
20161,756
Table
Transportation

TLS utilizes a dedicated fleet of Contentsowner-operators, company drivers and third party transportation providers in its operations. The owner-operators own, operate and maintain their own tractors and employ their own drivers. We also maintain a fleet of company drivers, which primarily services our life science and high value cargo customers. In many instances, our customers request team (driver) service. Through team service, we are able to provide quicker, more secure, transit service to our TLS customers.

We seek to establish long-term relationships with owner-operators and company drivers to assure dependable service and availability. To enhance our relationship with the owner-operators and our company drivers, TLS strives to set its owner-operator and company driver pay rates above prevailing market rates.

TLS has established specific guidelines relating to safety records, driving experience and personal evaluations that we use to qualify and select our drivers (leased and employed).

In addition to our owner operators and company fleet, we also purchase transportation from other surface transportation providers (including Expedited LTL) to serve our customers’ needs. TLS’ brokerage operation has relationships with over 4,700 qualified carriers. Of the $123.3 million incurred for TLS transportation during 2016, we purchased 44.7% from the owner-operators of our licensed motor carrier, 8.5% from our company fleet and 46.8% from other surface transportation providers.

We have access to over 5,700 trailers and we utilize a variety of equipment in our TLS operations including dry van, refrigerated, and roller-bed trailers, as well as straight trucks and cargo vans. We service our life science and high-security cargo customers with industry-leading TAPA (Transported Asset Protection Association) Level 1 certified equipment that has layered security measures to prevent theft, qualified and calibrated refrigerated trailers and temperature systems that minimize the chance of damage to cargo caused by temperature excursions. All of the TLS trailers have global positioning trailer-tracking technology that allows us to more effectively manage our trailer pool.

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

Customers

Our customer base is primarily comprised of freight forwarders, third party logistics companies, integrated air cargo carriers and passenger, cargo airlines, and LTL carriers, as well as retail, life-science companies, and their distributors. TLS’ customers include Fortune 500 pharmaceutical manufacturers and distributors, as well as transportation companies. In 2016, TLS’ ten largest customers accounted for approximately 73.5% of its operating revenue but revenues from these customers do not exceed 10% of our consolidated revenue.

Intermodal

Overview

Our Intermodal segment provides high value intermodal container drayage services. We market our Intermodal services to import and export customers. Intermodal offers first- and last-mile transportation of freight both to and from seaports and railheads through a dedicated fleet and third party transportation providers. Today, Intermodal operates primarily in the Midwest, with a smaller presence in the Southeast and Southwest. 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 ("ULD") 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 contrainer visibility and per diem management reports.


Forward Air Solutions (FASI)Operations

Intermodal’s primary office is located in Oak Brook, Illinois. Intermodal’s network consists of terminals in the following locations:

City
Charleston, SC*Kansas City, MO
Chicago/Joliet, ILMinneapolis, MN
Cincinnati, OHMilwaukee, WI
Cleveland, OHRochelle, IL
Dallas, TXRomulus, MI
Houston, TXSavannah, GA
Indianapolis, IN

* Denotes a location with combined Intermodal and Expedited LTL operations.

Transportation

Intermodal utilizes a mix of Company-employed drivers, owner-operators and third party carriers. During 2016, approximately 20.0% of Intermodal’s direct transportation expenses were provided by Company-employed drivers, 77.7% by owner-operators and 2.3% was provided by third party carriers.

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

Customers

Intermodal’s customer base is primarily comprised of international freight forwarders, passenger and cargo airlines and steamship lines. In 2016, Intermodal’s ten largest customers accounted for approximately 39.1% of its operating revenue but revenues from these customers do not exceed 10% of our consolidated revenue.

Pool Distribution

Through our FASIOverview

Our Pool Distribution (or “Pool”) segment we provideprovides pool distribution services through a network of terminals and service locations in 2927 cities throughout the Mid-Atlantic, Southeast, Midwest and Southwest continental United States. Pool distribution involves managing high-frequency handling and distribution of time-sensitive product to numerous destinations in specific geographic regions. Our FASI pool distribution customers are primarily comprised ofWe market these services to national and regional retailers and distributors, such as Stage Stores, The Limited, The Marmaxx Group and The GAP.   FASI’s four largest customers accounted for approximately 64.6% of FASI’s 2014 operating revenue, but revenues from these four customers do not exceed 10.0% of our consolidated revenue.  No other customers accounted for more than 10.0% of FASI’s operating revenue.distributors.


Operations

Our pool distributionPool Distribution network consists of terminals and service locations in the following 2927 cities:
City
Albuquerque, NM*Jeffersonville, OHKansas City, MO
Atlanta, GAKansas City, MOLakeland, FL
Baltimore, MDLakeland, FLLas Vegas, NV
Baton Rouge, LA*Las Vegas, NVLittle Rock, AR*
Charlotte, NCLittle Rock, AR*Miami, FL
Chicago, IL*Miami, FLMontgomery, AL
Columbus, OH**Montgomery, ALNashville, TN
Dallas/Ft. Worth, TX***Nashville, TN
Denver, CO***TXRaleigh, NC
Des Moines, IA***Richmond, VA***VA
Detroit, MI*Rochester, NY*NY
El Paso, TX*Houston, TXSan Antonio, TX
Houston, TXJacksonville, FLSt. Louis, MO*
Jacksonville, FLTXTulsa, OK***
Jacksonville, TXJeffersonville, OH 

* Denotes an independent agent station.
** Denotes a location in which Forward AirExpedited LTL is an agent for FASI.Pool Distribution.
*** Denotes a location with combined Forward AirExpedited LTL and FASIPool Distribution operations.

FASI Transportation
FASIPool Distribution provides transportation services through a mix of Company-employed drivers, owner-operators and third party carriers. The mix of sources utilized to provide FASIPool transportation services is dependent on the individual markets and related customer routes. During 2014,2016, approximately 38.9%38.1% of FASI'sPool's direct transportation expenses were provided by Company-employed drivers, 25.2%33.6% by owner-operators and 35.9%28.3% was provided by third party carriers.
FASI Customers

Pool Distribution’s customer base is primarily composed of national and regional retailers and distributors. Pool’s three largest customers accounted for approximately 42.4% of Pool Distribution’s 2016 operating revenue, but revenues from these three customers do not exceed 10% of our consolidated revenue. No other customers accounted for more than 10% of Pool’s operating revenue.

Competition
The pool distribution segment of
We compete in the North American transportation and logistics services industry, is alsoand the markets in which we operate are highly competitive, very fragmented and very fragmented.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 competitorscompetition ranges from small operators that compete within a limited geographic area to companies with substantially greater financial and other resources, including greater freight capacity.  

Our Expedited LTL, TLS and Pool Distribution segments primarily includecompete with other national and regional truckload carriers. Expedited LTL also competes with less-than-truckload carriers, and to a lesser extent, integrated air cargo carriers and passenger and cargo airlines, while our TLS segment also competes with property brokers and 3PLs. Our Intermodal segment primarily competes with national truckload and less-than-truckload carriers. regional drayage providers.

We believe FASIcompetition in our segments is based primarily on quality service, available capacity, on-time delivery, flexibility, reliability and security, transportation rates, location of facilities and business relationships, and we believe we compete favorably with other transportation service companies. To that end, we believe our Expedited LTL segment has an advantage over other truckload and less-than-truckload carriers because Expedited LTL delivers faster, more reliable services between cities at rates that are generally significantly below the charge to transport the same shipments to the same destinations by air. We believe our competitors due toTLS and Intermodal segments have a competitive advantage over other truckload carriers and drayage providers because we deliver faster, more reliable service while offering greater shipment visibility and security. Additionally, we believe our Intermodal

segment is one of the leading providers of drayage and related services in North America today. We believe that our presence in several regions across the continental United States allowing usenables our Pool Distribution segment to provide consistent, high-quality service to our customers regardless of location.
Total Quality (TQI)
TQIlocation, which is a premium provider of maximum security and temperature-controlled services to the pharmaceutical and other life science industries. TQI utilizes industry-leading temperature-controlled equipment, 24-hour real-time monitoring and tracking technology and layered security features and practices to provide our customers with a high level of service. In addition to its

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core pharmaceutical services, TQI also provides truckload and less-than-truckload brokerage transportation services. TQI’s administrative headquarters are located in Grand Haven, Michigan.
TQI Transportation
TQI maintains a fleet of Company-employed drivers and owner-operators. All Company-employed drivers and owner-operators are incentivized to follow strict operating procedures during pick up, transport and delivery. In addition to TQI’s private and owner-operator fleet, TQI has contracted third party partner carriers, that have committed to meet TQI’s high standards of service and serve as a dedicated source of scalable capacity. Utilizing these partner carriers, TQI is able to accommodate spikes in demand created by product launches, product recalls, special promotions and other seasonal marketing efforts that require additional capacity. During 2014, approximately 27.6% of TQI's direct transportation expenses were provided by Company-employed drivers, 7.7% by owner-operators and 64.7% was provided by third party carriers.
TQI Competition
TQI competitors primarily include national and regional truckload carriers. We believe competition in TQI’s market is based primarily on quality service, on-time delivery and flexibility together with reliability and security. We believe TQI has a competitive advantage as a result of our superior technology and its established relationships with market leaders in the pharmaceutical andover other life science industries.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 level and supports local sales initiatives.levels. We also participate in air cargo and retail trade shows and advertise our services through direct mail programs and through the Internet via www.forwardaircorp.com, www.forwardair.com,www.forwardairsolutions.com,www.shiptqi.com, and www.cstruck.com.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.  The pool distribution business, is seasonal andwhose 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, 2014,2016, we had 2,8203,689 full-time employees, 9341,314 of whom were freight handlers. Also, as of that date, we had an additional 1,082999 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 isare essential to support our continued growth and to meet the service requirements of our customers.

We own the majoritymanage a trailer pool that is utilized by all of trailers we useour reportable segments to move freight through our networks. SubstantiallyOur trailer pool includes dry van, refrigerated and roller-bed trailers, and substantially all of our trailers are 53’ long, some53 feet long. We own the majority of which have specialized roller bed equipment required to serve air cargo industry customers.the trailers we use, but we supplement at times with leased trailers. At December 31, 2014,2016, we had 3,7774,868 owned trailers in our fleet with an average age of approximately 5.35.2 years. In addition, at December 31, 2014,2016, we also had 40913 leased trailers in our fleet. At December 31, 2014,2016, we had 573695 owned tractors and straight trucks in our fleet, with an average age of approximately 4.85.4 years. In addition, at December 31, 2014,2016, we also had 109240 leased tractors and straight trucks in our fleet.

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. We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured retention of $0.5$0.8 million per

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occurrence for vehicle and general liability claims. 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 self-insured retention of approximately $0.3 million for each such claim, except in Ohio, where we are a qualified self-insured entity with an approximately $0.5 million self-insured retention. We could incur claims in excess of our policy limits or incur claims not covered by our insurance.

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

The DOTWe are regulated by various United States and various state and federal agencies, including but not limited to the DOT. These regulatory authorities have been granted broad powers, over our business. These entities generally regulategoverning matters such activities as authorizationauthority to engage in property brokerage and 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. WeThe 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 licensed through our subsidiariessubject to compliance with cargo-security and transportation regulations issued by the DOT as a motor carrierTransportation Security Administration (“TSA”) and as a property broker to arrange forCustoms and Border Protection (“CBP”) within the transportationU.S. Department of freight by truck. OurHomeland Security, and our domestic customs brokerage operations are licensed by U.S. Customs. WeCBP. Additionally, our Canada business activities are subject to similar regulationrequirements imposed by the laws and regulations of Canada, as well as its provincial laws and regulations. Regulatory requirements, and changes in Canada.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 ®,Network®, Keeping Your Business Moving Forward Air  ®, Forward Air Solutions®SM, Forward Air TLXSM, Forward Air Solutions SM, Forward Air Complete®, PROUD™ andPROUD®, Total Quality, Inc.®, TQI, Inc.®, TQI®, Central States Trucking Co.® and CSTSM. These marks are of significant value to our business. We are also in the process of registering our trademarks for TQI Inc. and Central States Trucking Co.
Website Access


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 and other reports 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 our website our Code of Business Conduct and Ethics and our reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Our website addresses are www.forwardair.com,www.forwardairsolutions.com, www.shiptqi.com and www.cstruck.com.address is www.forwardaircorp.com. Our goal is to maintain our website as a portal through which investors can easily find or navigate to pertinent information about us. The information provided on the website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Item 1A.    Risk Factors
Item 1A.Risk Factors

In addition to the other information in this Form 10-K and other documents we have filed with the SEC from time to time, the following factors should be carefully considered in evaluating our business. Such factors could affect results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us. Some or all of these factors may apply to our business.

Our business is subject to generalOverall economic and business factorsconditions that are largely out of our control, any of whichreduce freight volumes could have a material adverse effectimpact on our operating results of operations.and ability to achieve growth.

OurWe 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 is dependent upon a numbercycles of our customers, interest rate fluctuations, inflation and other economic factors beyond our control. Deterioration in the economic environment subjects our business to various risks, including the following, that may have a material and adverse effectimpact on theour operating results of our operations, many of which are beyond our control. These factors include increasesand cause us not to maintain profitability or rapid fluctuationsachieve growth:

A reduction in fuel prices,overall freight volumes capacityreduces our opportunities for growth. In addition, a decline in the trucking industry, insurance premiums, self-insured retention levels, difficultyvolume of freight shipped due to a downturn in attracting and retaining qualified owner-operators and freight handlers as well as needed outside capacity and the status ofcustomers’ business cycles or other factors (including our owner-operators as independent contractors. Our profitability would decline if we were unableability to anticipate and react to increasesassess dimensional-based weight increases) generally results in our operating costs, including purchased transportation and labor, or decreases in the amount offreight pricing and decreases in average revenue per pound of freight, shipped through our networks. As a result of competitive factors, we may be unable to raise our prices to meet increases in our operating costs, which could result in a material adverse effect on our business, results of operations and financial condition.

Economic conditions may adversely affect our customers and the amount of freight availableas carriers compete for transport. This may require us to lower our rates, and this may also result in lower volumes of freight flowing through our network. Customers

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encountering adverse economic conditions represent a greater potential for loss, and we may be required to increase our reserve for bad-debt losses.

Our results of operations may be affected by seasonal factors. Volumes of freight tend to be lower in the first quarter after the winter holiday season. In addition, it is not possible to predict the short or long-term effects of any geopolitical events on the economy or on consumer confidence in the United States, or their impact, if any, on our future results of operations. 

In order to grow our business, we will need to increase the volume and revenue per pound of the freight shipped through our networks.

Our growth depends in significant part on our ability to increase the amount and revenue per pound of freight shipped through our networks. The amount of freight shipped through our networks and our revenue per pound depend on numerous factors, many of which are beyond our control, such as economic conditions and our competitors’ pricing. Therefore, we cannot guarantee that the amount of freight shipped or the revenue per pound we realize on that freight will increase or even remain at current levels. If we fail to increase the volume of the freight shipped through our networks or the revenue per pound of the freight shipped, we may be unableloads to maintain or increase our profitability.truck productivity.

Our rates, overall revenue and expenses are subject to volatility.
Our rates are subject to change based on competitive pricing and market factors.  Our overall transportation rates consist of base transportation and fuel surcharge rates.  Our base transportation rates exclude fuel surcharges and are setdetermined based on numerous factors such as length of haul, freight class and weight per shipment.  Theshipment and freight class. During economic downturns, we may also have to lower our base transportation rates are subject to change based on competitive pricing pressures and market factors.  Most
Some of our competitors impose fuel surcharges, but there is no industry standard forcustomers 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 calculation of fuel surcharge rates.  Our fuel surcharge rates are set weekly based on the national average for fuel prices as published by the U.S. Department of Energy (“DOE”) andpast, causing our fuel surcharge table.  Historically, we have not adjusted our method for determining fuel surcharge rates.working capital needs to increase.
Our net fuel surcharge revenue is the resultA significant number of our fuel surcharge ratestransportation providers may go out of business and the tonnage transitingwe may be unable to secure sufficient equipment or other transportation services to meet our networks.  The fuel surcharge revenue is then netted with the fuel surcharge we paycommitments to our owner-operators and third party transportation providers.  Fluctuations in volumes, related load factors, and fuel prices may subject us to volatility in our net fuel surcharge revenue.  This potential volatility in net fuel surcharge revenue may adversely impact our overall revenue, base transportation revenue plus net fuel surcharge revenue, and results of operations.

Because a portion of our network costs are fixed, we will be adversely affected by any decrease in the volume or revenue per pound of freight shipped through our networks.

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 may have an adverse effect on our operating margin and our results of operations. Typically, Forward Air does not have contracts with its customers. FASI does have contracts with its customers but these contracts typically have terms allowing 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 actual shippers of the freight moved through our networks include various manufacturers, distributors and/or retailers of electronics, clothing, telecommunications equipment, machine parts, trade show exhibit materials and medical equipment. Adverse business conditions affecting these shippers or adverse general economic conditions are likely to cause a decline in the volume of freight shipped through our networks.

We operatemay not be able to appropriately adjust our expenses to changing market demands. In order to maintain high variability in highly competitive and fragmented segments of our industry, and our business will suffer if we are unablemodel, it is necessary to adequately address downward pricing pressures and other factors that may adversely affectadjust staffing levels to changing market demands. In periods of rapid change, it is more difficult to match our operations and profitability.
The segments of the freight transportation industry in which we participate are highly competitive, very fragmented and historically have few barriersstaffing levels to entry. Our principal competitors include national and regional truckload and less-than-truckload brokers and carriers. 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. We believe competition is based primarily on quality service, on-time delivery, flexibility, reliability and security, as well as 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

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the short-term. These competitors may cause a decrease in our volume of freight, require us to lower the prices we charge for our services and adversely affect both our growth prospects and profitability.needs.

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 2014,2016, owner-operators provided 49.5%61.5% of our purchased transportation. Competition for owner-operators is intense, and sometimes there are shortages of available owner-operators. In addition, we 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 owner-operators or 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. If our labor costs increase,A capacity deficit may lead to a loss of customers and a decline in the volume of freight we may be unable to offset the increased labor costs by increasing rates without adversely affecting our business. As a result, our profitability may be reduced.

If we have difficulty contracting with a sufficient number of third-party carriers to supplement our owner-operator fleet and satisfy our customers’ fast-growing transportation needs, our results of operations could be adversely affected.receive from customers.

To augment our fleet of owner-operators, from time to time we purchase transportation from third-party carriers.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 certainly will increase. This capacity deficitIf our labor costs increase, we may leadbe unable to offset the increased labor costs by increasing rates without adversely affecting our business. As a lossresult, our profitability and results of customers and a decline in the volume of freight we receive from customers.operations could be adversely affected.

Claims for property damage, personal injuries or workers’ compensationA 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 expenseslitigation can subject us to substantial costs, which 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. We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. Forward Air and FASI have a self-insured retention of $0.5 million per occurrence for vehicle and general liability claims. 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. Forward Air and FASI have a self-insured retention of approximately $0.3 million for each such claim, except in Ohio, where we are a qualified self-insured entity with an approximately $0.5 million self-insured retention. 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. Becauseour results of operations and our financial condition.

At times, the Internal Revenue Service, the Department of Labor and state authorities have asserted that owner-operators are “employees,” rather than “independent contractors.” In addition, the topic of the classification of individuals as employees or independent contractors has gained increased attention among the plaintiffs’ bar. One or more governmental authorities may challenge our position that the owner-operators we douse are not carry “stop loss”our employees. A determination by regulators that our independent owner-operators are employees rather than independent contractors could expose us to various liabilities and additional ongoing expenses, including but not limited to, employment-related expenses such as workers’ compensation insurance coverage and reimbursement of work-related expenses. Our exposure could include prior period compensation, as well as potential liability for employee benefits and tax withholdings. In addition, certain states have recently seen numerous class action lawsuits filed against transportation companies that engage independent contractors, some of which have resulted in significant damage awards and/or monetary settlements for workers who have been allegedly misclassified as independent contractors. The legal and other costs associated with any of these matters can be substantial and could have a significant increase in the numbermaterial adverse effect on our results of claims that we must cover underoperations and our self-insurance retainagefinancial condition.

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

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

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

We are subject to risks associated with the availability and price of fuel, which are subject to political, economic and market factors that are outside of our control. Fuel prices have fluctuated dramatically over recent years. 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

net fuel surcharge revenue is the result of our fuel surcharge rates and the tonnage transiting our networks. The fuel surcharge revenue is then netted with the fuel surcharge we pay to our owner-operators and third party transportation providers. 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 net fuel surcharge revenue. Fuel shortages, changes in fuel prices and the potential volatility in net 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.   Any one of the foregoing factors that results in a decrease in the volume or revenue per pound of freight shipped will adversely affect our results of operations.

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

For the calendar year ended December 31, 2016, our top 10 customers, based on revenue, accounted for approximately 34.1% of our revenue. Our Expedited LTL, TLS and Intermodal segments typically do not have long-term contracts with their customers. While our Pool segment business may involve a long-term written contract, those contracts may contain cancellation clauses, and there is no assurance that our current customers will continue to utilize our services or continue at the same levels. A reduction in or termination of our services by one or more of our major customers could have a material adverse effect on our business and operating results.

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

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



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

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

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

We have grown through acquisitions, and we intend to pursue opportunities to expand our business by acquiring other companies in the future. Acquisitions involve risks, including those relating to:

identification of appropriate acquisition candidates;
negotiation of acquisitions on favorable terms and valuations;
integration of acquired businesses and personnel;
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;
unexpected liabilities;

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potential erosion of operating profits as new acquisitions may be unable to achieve profitability comparable with our core airport-to-airportExpedited LTL business; and
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 may become impaired.

Severe economic downturns like the recession experienced in 2008 and 2009 can result in weaker demand for ground transportation services, which may have a significant negative impact on our results of operations.

During 2008 and 2009, we experienced significantly weaker demand for our airport-to-airport and pool distribution services as a result of the severe downturn in the economy.  During the time in question, we adjusted the size of our owner-operator fleet and reduced employee headcount to compensate for the drop in demand.  No assurance can be given that reductions in owner-operators and employees or other steps we may take during similar times in the future will be adequate to offset the effects of reduced demand. If we experience another economic downturn it may have a significant negative impact on our results of operations.

Extreme or unusual weather conditions can disrupt our operations, impact freight volumes and increase our costs, all of which could adversely affect our results of operations.

Certain weather conditions such as ice and snow can disrupt our operations. Increases in the cost of operations, such as towing and other maintenance activities, frequently occur during the winter months. Natural disasters such as hurricanes and flooding can also impact freight volumes and negatively impact our results of operations.

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 $72.7$106.7 million of recorded net definite-lived intangible assets on our consolidated balance sheet at December 31, 2014.2016.  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 sum of undiscounted estimated cash flows expected to result from the use of the asset is less than the carrying value.  If such measurement indicates an impairment, we would be required to record a non-cash impairment charge to our consolidated statement of comprehensive income in the amount that the carrying value of these assets exceed the estimated fair value of the assets.

     
We also have recorded goodwill of $144.4$184.7 million on our consolidated balance sheet at December 31, 2014.2016.  Goodwill is assessed for impairment annually (or more frequently if circumstances indicate possible impairment) for each of our reporting units.  This assessment includes comparing the fair value of each reporting unit to the carrying value of the assets assigned to each reporting unit.  If the carrying value of the reporting unit was to exceed our estimated fair value of the reporting unit, we would then be required to estimate the fair value of the individual assets and liabilities within the reporting unit to ascertain the amount of fair value of goodwill and any potential impairment.  If we determine that our fair value of goodwill is less than the related book value, we could be required to record a non-cash impairment charge to our consolidated statement of comprehensive income, which could have a material adverse effect on our earnings. 


We may have difficulty effectively managingare dependent on our growth, whichsenior management team and other key employees, and the loss of any such personnel could materially and adversely affect our business, operating results of operations.and financial condition.

Our growth plans will placefuture performance depends, in significant demandspart, 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 managementbusiness, operating results and operating personnel. Our ability to manage our future growth effectively will require us to regularly enhance our operating and management information systems and to continue to attract, retain, train, motivate and manage key employees. Iffinancial condition if we are unable to managesecure replacement personnel that have sufficient experience in our growth effectively,industry or in the management of our business. If we fail to develop 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 resultsstrategies and maintain our level of operations and financial condition may be adversely affected.service.

If we fail to maintain and enhance our information technology systems, or if we fail to successfully implement new technology or enhancements, we may lose ordersbe at a competitive disadvantage and customers or incur costs beyond expectations.experience a decrease in revenues.

We must maintain and enhancerely heavily on our information technology systems to remainefficiently run our business, and they are a key component of our growth strategy and competitive and effectively handle higher volumes of freight through our networks.advantage. We expect our customers to continue to demand more sophisticated, fully integrated

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information systems from their transportation providers. IfTo keep pace with changing technologies and customer demands, we aremust 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 maintain and enhance our information systems to handle our freight volumes and meetaccurately determine the demandsneeds of our customers our business and resultsthe trends in the transportation services industry or to design and implement the appropriate features and functionality of operations will be adversely affected. If our information technology systems are unable to handle higher freight volumesin a timely and increased logistics services, our service levelscost-effective manner, which could put us at a competitive disadvantage and operating efficiency may decline. This may lead to a loss of customers andresult in a decline in the volume ofour efficiency, decreased demand for our services and a corresponding decrease in our revenues. Furthermore, as technology improves, our customers may be able to find alternatives to our services for matching shipments with available freight we receive from customers.hauling capacity. We must continue to develop innovative services and capabilities in order to continue to attract and maintain customer demand for our services.

Our information technology systems are subject to risks, that we cannotmany of which are outside of our control.

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. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. The occurrence of any of these events could disrupt or damage our information technology systems and hamper our internal operations, our ability to provide services to our customers and the ability of our customers to access our information technology systems. Asystems and adversely impact our customer service, volumes, and revenues and result in increased cost. Furthermore, a material network breach in the security of our information technology systems could includeresult in the theft of our intellectual property or trade secrets, personal information of our employees and confidential information of certainour customers. To the extent that any disruptions or security breach results in a loss or damage to our data, or in inappropriate disclosure of confidential information, it could cause significant damage to our reputation, affect our relationships with our customers, reduce the demand for our services, lead to claims against us and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

A determination by regulators thatClaims for property damage, personal injuries or workers’ compensation and related expenses could significantly reduce our independent owner-operators are employees rather than independent contractors could expose us to various liabilities and additional costs.earnings.

At times, the Internal Revenue Service, the DepartmentUnder 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. We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured retention of Labor$0.8 million per occurrence for vehicle and state authorities have asserted that owner-operators are “employees,” rather than “independent contractors.” One or more governmental authoritiesgeneral liability claims. We may challenge our position that the owner-operators we use are not our employees. A determination by regulators that our independent owner-operators are employees rather than independent contractors could expose usalso be subject to various liabilities and additional costs including, but not limited to, employment-related expenses such asclaims for workers’ compensation. We maintain workers’ compensation insurance coverage that we believe is adequate to cover such claims. We have a self-insured retention of approximately $0.3 million for each such claim, except in Ohio, where we are a qualified self-insured entity with an approximately $0.5 million self-insured retention. We could incur claims in excess of our policy limits or incur claims not covered by our insurance. Any claims beyond the limits or scope of our insurance coverage may have a material adverse effect on us. Because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance retainage could adversely affect our profitability. In addition, we may be unable to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against losses.




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

We self-insure a significant portion of work-relatedour claims exposure and related expenses for cargo loss, employee medical expense, bodily injury, workers’ compensation and property damage, and maintain insurance with insurance companies above our limits of self-insurance. Self-insurance retention and other limitations are detailed in Part II, Item 7, under “Self-Insurance Loss Reserves.” Our large self-insured retention limits can make our insurance and claims expense higher or more volatile. Additionally, if our third-party insurance carriers or underwriters leave the trucking sector, as was the case during 2016, it could materially increase our insurance costs or collateral requirements, or create difficulties in finding insurance in excess of our self-insured retention limits.  Additionally, we could find it necessary to raise our self-insured retention, pay higher premiums or decrease our aggregate coverage limits when our policies are renewed or replaced, any of which will negatively impact our earnings.

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

Our business is subject to seasonal trends.

Historically, our operating results have been subject to seasonal trends when measured on a quarterly basis. Our first and second quarters have traditionally been the weakest compared with 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 and disasters.

Certain weather-related conditions such as ice and snow can disrupt our operations. Our operating expenses have historically been higher in the winter months because of cold temperatures and other adverse winter weather conditions which result in decreased fuel efficiency, increased cold weather-related maintenance costs of revenue equipment and increased insurance and claims costs. Harsh weather could also reduce our ability to transport freight, which could result in decreased revenues. Disasters, whether natural or man-made can also adversely affect our performance by reducing demand and reducing our ability to transport freight, which could result in decreased revenue and increased operating expenses.

We operate in a regulated industry, and increased costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business.
    
The DOT and various state and federal agencies have been granted broad regulatory powers over our business in the United States, and we are licensed by the DOT and U.S. Customs. Additionally, our Canada business activities are subject to the similar laws and regulations of Canada and its provinces. If we fail to comply with any applicable regulations, our licenses may be revoked or we could be subject to substantial fines or penalties and to civil and criminal liability.

The transportation industry is subject to legislative and regulatory changes that can affect the economics of our business by requiring changes in operating practices or influencing the demand for, and the cost of providing, transportation services. Heightened
The Federal Motor Carrier Safety Administration (“FMCSA”) has implemented a requirement that electronic driver logs be monitored by Electronic Log Devices ("ELDs") for most interstate commercial motor vehicle drivers by no later than December 18, 2017. The cost associated with the ELD mandate, together with other regulations, could result in a reduction in the pool of owner-operators and other third-party carriers available to us to service our customers’ demands, which could increase driver turnover, decrease asset utilization, limit growth and adversely impact our results of operations. Further, heightened security concerns may continue to result in increased regulations, including the implementation of various security measures, checkpoints or travel restrictions on trucks.
    
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 and discharge and retention of stormwater. 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

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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.

WeThe 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 senior management team, and therelationships with our customers could be damaged, which could result in a loss of any such personnel could materially and adversely affect our business.

Our future performance depends, in significant part, uponThe requirements of CSA could also shrink the continued serviceindustry’s pool of our senior management team. We cannot be certain that we can retain these employees. The loss ofdrivers as those with unfavorable scores could leave the services of one or more of these or other key personnel could haveindustry. As a material adverse effect on our business, operating results and financial condition. We must continueresult, the costs to developattract, train and retain qualified drivers, owner-operators or third-party carriers could increase. In addition, a core groupshortage of management personnelqualified drivers could increase driver turnover, decrease asset utilization, limit growth and address issuesadversely impact our results of succession planning if we are to realize our goal of growing our business. We cannot be certain that we will be able to do so.operations.

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

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

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

authorize us to issue preferred stock, the terms of which may be determined at the sole discretion of our Board of Directors and may adversely affect the voting or economic rights of our shareholders; and
establish advance notice requirements for nominations for election to the Board of Directors and for proposing matters that can be acted on by shareholders at a meeting.


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


Item 1B.    Unresolved Staff Comments

None.

Item 2.        Properties

Properties
 
Management believesWe 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 lease our 37,500 square foot headquarters in Greeneville, Tennessee from the Greeneville-Greene County Airport Authority. The initial lease term ended in 2006 and has two ten-year and one five-year renewal options. During 2007, we renewed the lease through 2016.


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We own our Columbus, Ohio central sorting facility.facility which is used by our Expedited LTL and TLS segments. The expanded Columbus, Ohio facility is 125,000 square feet with 168 trailer doors. This premier facility can unload, sort and load upwards of 3.7 million pounds in five hours. In addition to the expansion, we process-engineered the freight sorting in the expanded building to improve handling efficiencies. The benefits include reductions in the distance each shipment moves in the building to speed up the transfer process, less handling of freight to further improve service integrity and flexibility to operate multiple sorts at the same time.

We also own facilities near Dallas/Fort Worth, Texas, Chicago, Illinois and Atlanta, Georgia.Georgia, all of which are used by the Expedited LTL segment.  The Dallas/Fort Worth, Texas facility has over 216,000 square feet with 134 trailer doors and approximately 28,000 square feet of office space.  The Chicago, Illinois facility is over 125,000 square feet with 110 trailer doors and over 10,000 square feet of office space. The Atlanta, Georgia facility is over 142,000 square feet with 118 trailer doors and approximately 12,000 square feet of office space. We lease our shared services headquarters in Greeneville, Tennessee. During 2016, we renewed the lease through 2023. Our executives are headquartered within our Atlanta, Georgia and Dallas, Texas facilities.

We lease and maintain 76100 additional terminals, including our pool distribution 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 fiveseven years. TheAs a result of the Towne acquisition, we currently have 8 idle facilities that we are still leasing. Our plan is to buyout or sublease these remaining 30 terminals are agent stationsfacilities. In addition, we have operations in 27 cities operated by independent agents who handle freight for us on a commission basis.
    

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Item 3.        Legal Proceedings
 
From time to time, we are a party to ordinary, routine litigation incidental to and arising in the normal course of our business, most of which involve claims for personal injury, property damage related to the transportation and handling of freight, or workers’ compensation. We do not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or cash flow.

Item 4.        Mine Safety Disclosures
    
Not applicable.

Part II

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

Our Common Stock trades on The NASDAQ Global Select Stock Market™ under the symbol “FWRD.” The following table sets forth the high and low sales prices for Common Stock as reported by The NASDAQ Global Select Stock Market™ for each full quarterly period within the two most recent fiscal years.

2014 High Low Dividends
2016 High Low Dividends
First Quarter $46.66
 $41.36
 $0.12
 $49.01
 $36.00
 $0.12
Second Quarter 48.08
 42.09
 0.12
 48.69
 41.48
 0.12
Third Quarter 48.93
 44.45
 0.12
 47.78
 41.70
 0.12
Fourth Quarter 51.37
 43.60
 0.12
 50.72
 40.07
 0.15
            
2013 High Low Dividends
2015 High Low Dividends
First Quarter $39.58
 $35.28
 $0.10
 $57.65
 $43.30
 $0.12
Second Quarter 39.66
 35.93
 0.10
 54.99
 50.21
 0.12
Third Quarter 41.94
 36.05
 0.10
 53.30
 41.44
 0.12
Fourth Quarter 44.57
 38.26
 0.10
 50.47
 40.52
 0.12

According to a position listing thereThere were approximately 428616 shareholders of record of our Common Stock as of January 15, 2015.13, 2017.
 
Subsequent to December 31, 2014,2016, our Board of Directors declared a cash dividend of $0.12$0.15 per share that will be paid in the first quarter of 2015.2017. 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 20142016 without registration under the Securities Act.

Securities Authorized for Issuance Under Equity Compensation Plans
 
The following table provides information as of December 31, 20142016 with respect to shares of our Common Stock that may be issued under the following existing equity compensation plans,plans: the 1999 Stock Option and Incentive Plan (the “1999 Plan”), the Amended and Restated Stock Option and Incentive Plan (“1999 Amended Plan”), the 2016 Omnibus Incentive Compensation Plan (the "2016 Plan"), the Non-Employee Director Stock Option Plan (the “NED Plan”), the 2000 Non-Employee Director Award (the “2000 NED Award”), the 2005 Employee Stock Purchase Plan (the “ESPP”) and the Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”).  Our shareholders have approved each of these plans.


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Equity Compensation Plan Information
Plan Category
Number of Securities to be Issued upon Exercise or Vesting of Outstanding/Unvested Shares, Options, Warrants and Rights
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Number of Securities to be Issued upon Exercise or Vesting of Outstanding/Unvested Shares, Options, Warrants and Rights
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans




(a)
(b)


(a)
(b)
Equity Compensation Plans Approved by Shareholders
1,659,835

$28

1,659,547

881,654

$41

3,284,142
Equity Compensation Plans Not Approved by Shareholders











Total
1,659,835

$28

1,659,547

881,654

$41

3,284,142

(a)Excludes purchase rights accruing under the ESPP, which has an original shareholder-approved reserve of 500,000 shares. Under the ESPP, each eligible employee may purchase up to 2,000 shares of Common Stock at semi-annual intervals each year at a purchase price per share equal to 90.0% of the lower of the fair market value of the Common Stock at the close of (i) the first trading day of an option period or (ii) the last trading day of an option period.
(b)Includes shares available for future issuance under the ESPP. As of December 31, 2014,2016, an aggregate of 403,792381,813 shares of Common Stock were available for issuance under the ESPP.






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 20092011 and ending on the last trading day of December 2014.2016. The graph assumes a base investment of $100 made on December 31, 20092011 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.


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2009
2010
2011
2012
2013
20142011
2012
2013
2014
2015
2016
Forward Air Corporation$100

$113

$128

$140

$175

$201
$100

$109

$137

$157

$134

$148
Nasdaq Trucking and Transportation Stocks Index100

131

111

117

146

203
100

105

131

182

153

187
Nasdaq Global Select Stock Market Index100

117

115

134

184

210
100

116

160

182

193

208









Issuer Purchases of Equity Securities
No
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Maximum Number of Shares that May Yet Be Purchased Under the Program (1)
October 1-31, 2016


$




November 1-30, 2016
233,516

43

233,516

2,766,484
December 1-31, 2016







Total
233,516

$43

233,516

2,766,484

(1) On July 21, 2016, the Board of Directors approved a stock repurchase program for up to 3.0 million shares of our Common Stock were repurchased by the Company during the three months ended December 31, 2014.Company's common stock.


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Item 6.        Selected Financial Data

The following table sets forth our selected financial data. The selected financial data should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes thereto, included elsewhere in this report.
Year endedYear ended
December 31, December 31, December 31, December 31, December 31,December 31, December 31, December 31, December 31, December 31,
2014 2013 2012 2011 20102016 2015 2014 2013 2012
(In thousands, except per share data)(In thousands, except per share data)
Income Statement Data:                  
Operating revenue$780,959
 $652,481
 $584,446
 $536,402
 $483,939
$982,530
 $959,125
 $780,959
 $652,481
 $584,446
Income from operations96,406
 84,355
 83,532
 77,110
 53,739
59,979
 81,772
 96,406
 84,355
 83,532
Operating margin (1)12.3% 12.9% 14.3% 14.4% 11.1%6.1% 8.5% 12.3% 12.9% 14.3%
                  
Net income61,169
 54,467
 52,668
 47,199
 32,036
27,670
 55,575
 61,169
 54,467
 52,668
Net income per share:                  
Basic$1.99
 $1.81
 $1.82
 $1.62
 $1.11
$0.91
 $1.80
 $1.99
 $1.81
 $1.82
Diluted$1.96
 $1.77
 $1.78
 $1.60
 $1.10
$0.90
 $1.78
 $1.96
 $1.77
 $1.78
                  
Cash dividends declared per common share$0.48
 $0.40
 $0.34
 $0.28
 $0.28
$0.51
 $0.48
 $0.48
 $0.40
 $0.34
                  
Balance Sheet Data (at end of period):                  
Total assets$541,805
 $506,269
 $399,187
 $341,151
 $348,796
$641,291
 $699,932
 $539,309
 $506,269
 $399,187
Long-term obligations, net of current portion         725
 28,856
 1,275
 3
 58
1,275
 3
 58
 333
 50,883
Shareholders' equity463,563
 435,865
 351,671
 286,902
 256,086
499,069
 510,055
 463,563
 435,865
 351,671
                  
(1) Income from operations as a percentage of operating revenue


21

Table of Contents


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

Overview and Executive Summary
 
Our operations can be broadlyservices are classified into three principalfour reportable segments: Forward Air, Forward Air Solutions (“FASI”)Expedited LTL, TLS, Intermodal and Total Quality ("TQI").Pool Distribution.

Through our Forward Airthe Expedited LTL segment, we operate a comprehensive national network to provide time-definite surface transportationexpedited regional, inter-regional and related logistics services to the North American expedited ground freight market. Our licensed property broker utilizes qualified motor carriers, including our own, and other third-party transportation companies, to offer ournational LTL services. Expedited LTL offers customers local pick-up and delivery (Forward Air Complete®) and scheduled surface transportationother services including shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. Because of cargo as a cost-effective, reliable alternative to air transportation. We transport cargo that must be delivered at a specific time, but is less time-sensitive than traditional air freight. This type of cargo is frequently referred toour roots in serving the transportation industry as deferred air freight. We operatefreight market, our Forward Air segment through aterminal network of terminalsis located onat or near airports in 87 cities in the United States and Canada, including a central sorting facility in Columbus, Ohio and 12 regional hubs serving key markets. We also offerCanada.

Through our customers an array of logistics and other services including:TLS segment, we provide expedited truckload brokerage, (“TLX”); intermodal drayage; dedicated fleets; warehousing; customs brokerage;fleet services, as well as high security and shipment consolidation, deconsolidationtemperature-controlled logistics services in the United States and handling.Canada.

FASIOur Intermodal segment provides poolfirst- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and CFS warehouse and handling services. Today, Intermodal operates primarily in the Midwest, with a smaller operational presence in the Southwest and Southeast. We plan to grow Intermodal’s geographic footprint through acquisitions as well as greenfield start-ups where we do not have an acceptable acquisition target.

In our Pool Distribution segment, we provide high-frequency handling and distribution servicesof time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest continental United States. Pool distribution involves managing high-frequency handling and distribution of time-sensitive product to numerous destinations in specific geographic regions. Our primary customers for this service are regional and nationwide distributors and retailers, such as mall, strip mall and outlet based retail chains. We service these customers through a network of terminals and service centers located in 29 cities.

TQI is a provider of maximum security and temperature-controlled logistics services, primarily truckload services, to the life sciences sector (pharmaceutical and biotechnology products). In addition to core pharmaceutical services and other cold chain services, TQI provides truckload and less-than-truckload brokerage transportation services.

Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our ability to increase our earnings depends in significant part on our ability to increase the amount of freight and the revenue per pound for the freight shipped through our networks and to grow other lines of businesses, such as TLX, FASITLS, Intermodal and TQI,Pool Distribution, which will allow us to maintain revenue growth in challenging shipping environments.

Trends and Developments

Acquisition of Towne

On March 9, 2015, we completed the acquisition of CLP Towne Inc. (“Towne”). Towne is a full-service trucking provider offering time-sensitive less-than-truckload shipping, full truckload service, an extensive cartage network, container freight stations and dedicated trucking. For the acquisition of Towne, we paid $61.9 million in net cash and assumed $59.5 million in debt and capital leases. The transaction was funded with proceeds from a $125.0 million two year term loan. The assets, liabilities, and operating results of Towne have been included in the Expedited LTL reportable segment since its acquisition in 2015.
Acquisitions of CST and Related Companies

On February 2, 2014, we acquired all of the outstanding capital stock of Central States Trucking Co. and Central States Logistics, Inc. (collectively referred to as “CST”).CST. CST provides industry leading container and intermodal drayage services primarily within the Midwest region of the United States. CST also provides dedicated contract and Container Freight Station (“CFS”)CFS warehouse and handling services. We acquired all of the outstanding capital stock of CST in exchange for $83.0 million in net cash and $11.2 million in assumed debt. With the exception of the assumed capital leases, the assumed debt was immediately paid in full after funding of the acquisition. The acquisition and settlement of the assumed debt were funded using our cash on hand. The assets, liabilities, and operating results of CST have been included in the Forward Air reportable segment.

The acquisition of CST providesprovided us with a scalable platform for which to enter the intermodal drayage space and thereby continuingcontinue to expand and diversify our service offerings. As part of our strategy to scale CST's operations, in September 2014, CST acquired certain assets of Recob Great Lakes Express, Inc. ("RGL") for $1.4 million and in November 2014, acquired Multi-ModalMulti- Modal Trucking, Inc. and Multi-Modal Services, Inc. (together referred to as "MMT") for approximately $5.8 million. In January 2016, we acquired certain assets of Ace for $1.7 million. The assets, liabilities, and operating results of Ace have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Intermodal reportable segment. In August 2016, we acquired certain assets of RGLTriumph for $10.1 million and MMT's assets provideda potential earnout of $1.3 million. These acquisitions provide an opportunity for CSTour Intermodal segment to expand into additional midwestgeographic markets.

Acquisition of TQI

On March 4,Change in Reportable Segments
During the first quarter of 2016, we changed our reportable segments to separate our truckload and intermodal businesses from our Expedited LTL service and to aggregate our reporting for truckload services into a single segment. We previously reported three segments: Forward Air, Forward Air Solutions and Total Quality, Inc. Consequently, we now report four segments: Expedited LTL, TLS, Intermodal and Pool Distribution. All prior year segment amounts have been restated to reflect this new reporting structure.
Goodwill

In 2013, we entered into a Stock Purchase Agreementacquired TQI Holdings, Inc. for total consideration of $65.4 million and established the Total Quality, Inc. reporting unit ("Agreement"TQI"). In conjunction with allour policy to annually test goodwill for impairment as of June 30, 2016, we determined there were indicators of potential impairment of the shareholdersgoodwill and other long lived assets assigned to the acquisition of TQI to acquire 100%Holdings, Inc. This determination was based on TQI's financial performance falling notably short of previous projections, declining revenue from significant customers and strategic initiatives not having the required impact on financial results. As a result of these factors we reduced TQI's projected cash flows and consequently the estimate of TQI's fair value no longer exceeded its respective carrying value.  Based on the results of the outstanding stock. Pursuantimpairment test, we concluded that an impairment loss was probable and could be reasonably estimated.  Therefore, during the second quarter of 2016, we recorded impairment charges for goodwill, intangibles and other assets of $42.4 million related to the termsTQI reporting unit, which is part of the Agreement and concurrently with the execution of the Agreement, we acquired all of the outstanding capital stock of TQI in exchange for $45.3 million in net cash, $20.1 million in assumed debt and an available earn-out of up to $5.0 million. The assumed debt was immediately paid in full after funding of the acquisition. The acquisition and settlement of the assumed debt were funded using our cash on hand.TLS reporting segment. 


22


Table of Contents

Results from Operations
DuringThe following table sets forth our consolidated historical financial data for the year ended December 31, 2014, we experienced a 19.7%2016 and 14.2% increase in our consolidated revenues and income from operations, respectively, compared to the year ended December 31, 2013. The increase in revenue and income from operations was primarily attributable to our CST acquisitions, a full year of operations from TQI and increased revenue and improved operating performance from FASI. 2015 (in millions):

Year ended December 31,

2016
2015
Change
Percent Change
Operating revenue:










Expedited LTL$570.8

$577.0

$(6.2)
(1.1)%
Truckload Premium Services164.3

153.3

11.0

7.2
Pool Distribution148.6

130.0

18.6

14.3
Intermodal103.7

104.3

(0.6)
(0.6)
Eliminations and other operations(4.9)
(5.5)
0.6

(10.9)
Operating revenue982.5

959.1

23.4

2.4
Operating expenses:






   Purchased transportation413.4

408.8

4.6

1.1
   Salaries, wages, and employee benefits242.0

240.6

1.4

0.6
   Operating leases60.5

66.3

(5.8)
(8.7)
   Depreciation and amortization38.2

37.1

1.1

3.0
   Insurance and claims25.4

21.5

3.9

18.1
   Fuel expense13.2

15.9

(2.7)
(17.0)
   Other operating expenses87.4

87.1

0.3

0.3
   Impairment of goodwill, intangibles and other assets42.4



42.4

100.0
      Total operating expenses922.5

877.3

45.2

5.2
Income (loss) from operations:








Expedited LTL83.5

79.2

4.3

5.4
Truckload Premium Services(35.4)
13.3

(48.7)
(366.2)
Pool Distribution3.6

3.9

(0.3)
(7.7)
Intermodal11.0

11.9

(0.9)
(7.6)
Other operations(2.7)
(26.5)
23.8

(89.8)
Income from operations60.0

81.8

(21.8)
(26.7)
Other expense:






   Interest expense(1.6)
(2.0)
0.4

(20.0)
   Other, net

(0.1)
0.1

(100.0)
      Total other expense(1.6)
(2.1)
0.5

(23.8)
Income before income taxes58.4

79.7

(21.3)
(26.7)
Income taxes30.7

24.1

6.6

27.4
Net income$27.7

$55.6

$(27.9)
(50.2)%

During the year ended December 31, 2014, the CST acquisitions contributed $68.9 million in operating revenue and approximately $7.1 million in income from operations.

Forward Air revenue and income from operations increased 22.2% and 9.4%, respectively.  The Forward Air revenue and operating income increases were largely driven by the CST acquisitions which have been included2016, we experienced a 2.4% increase in our Forward Air segment. Higher airport-to-airport revenue attributable to increased tonnage and improved pricing drove the remaining increase in Forward Air revenue. However, increases in airport-to-airport revenue did not translate to an improved operating margin as higher operating costs, primarily purchased transportation, largely mitigated the increased revenue.

FASI revenue increased 10.4% during the year ended December 31, 2014consolidated revenues compared to the year ended December 31, 2013.  In conjunction with the revenue growth, FASI's2015. Operating income from operations improved $3.9decreased $21.8 million, and 185.7% or 26.7%, from $2.12015 to $60.0 million for the year ended December 31, 2016.

Segment Operations

Expedited LTL's revenue decreased $6.2 million, or 1.1%, while operating income increased $4.3 million, or 5.4% for the year ended December 31, 2016, compared to the same period in 20132015. The decrease of Expedited LTL's revenue was the result of lower volumes due to $6.0a sluggish economic environment and reduced net fuel surcharge revenue as a result of lower fuel prices

for most of 2016. The revenue decrease was more than offset by improved linehaul pricing, the February 2016 implementation of our new dim-factor standard and further operating efficiencies resulting in an increase in operating income in total dollars and as a percentage of revenue.

TLS revenue increased $11.0 million, during 2014. or 7.2%, but operating income decreased $48.7 million for the year ended December 31, 2016, compared to the same period in 2015. The increase in revenue andwas due to an increase in overall miles from new business wins. The decrease of TLS' operating income was largely the corresponding increaseresult of the $42.4 million impairment charges related to the TQI reporting unit. Excluding the impairment charges, the deterioration in income from operations was due to the revenue decline of pharmaceutical business and revenue per mile declining at a faster pace than our cost per mile.

Pool Distribution revenue increased $18.6 million, or 14.3%, while operating income decreased $0.3 million, or 7.7%, for the year ended December 31, 2016, compared to the same period in 2015.  The revenue increase was due to new business, rate increases and increased volumes. The decline in Pool Distribution operating income was primarily the result of rate increases implementedhigher lease costs as Pool Distribution opened new facilities and relocated others to support business wins and dock labor inefficiencies during the first quarteronboarding of 2014 and improvement in operating processes.new business.

TQI'sIntermodal revenue decreased $0.6 million, or 0.6%, and operating income decreased $0.9 million, or 7.6%, for the year ended December 31, 2016, compared to the same period in 2015. The decreases in operating revenue and income were primarily attributable to suppressed market conditions, the negative impact of lower fuel surcharges and decreased chassis rental and rail storage revenues, partially offset by increased 16.7%volumes from the Ace and 19.4%, respectively, mostly due to 2014 including a full year of operating results as opposed to only ten months during 2013.Triumph acquisitions.

Fuel Surcharge

Our net fuel surcharge revenue is the result of our fuel surcharge rates, which are set weekly using the national average for diesel price per gallon, and the volumes shipped. Due to the acquisition of CST and improved volumes,volume transiting our net fuel surcharge revenue increased by 12.8% during the year end December 31, 2014 compared tonetwork.  During the year ended December 31, 2013.2016, total net fuel surcharge revenue decreased 24.0% as compared to the same period in 2015, mostly due to decreased fuel prices and decreased volumes in the Expedited LTL and Intermodal segments.

Interest Expense

Interest expense was $1.6 million for the year ended December 31, 2016 compared to $2.0 million for the same period of 2015. The decrease in interest expense was attributable to principal payments made on the term loan used to finance the Towne acquisition in March 2015.

Income Taxes

The combined federal and state effective tax rate for the year ended December 31, 2016 was 52.6% compared to a rate of 30.2% for the same period in 2015. The higher effective tax rate for 2016 is the result of the impairment of goodwill in the second quarter of 2016 that is non-deductible for tax purposes. Also, 2015 benefited from the amending of prior year federal and state income tax returns to take advantage of qualified production property deductions.

Net Income

As a result of the foregoing factors, net income decreased by $27.9 million, or 50.2%, to $27.7 million for the year ended December 31, 2016 compared to $55.6 million for the same period in 2015.


Expedited LTL - Year Ended December 31, 2016 compared to Year Ended December 31, 2015

The following table sets forth our historical financial data of the Expedited LTL segment for the year ended December 31, 2016 and 2015 (in millions):

23

Expedited LTL Segment Information
(In millions)
(Unaudited)













Year ended

December 31,
Percent of
December 31,
Percent of


Percent
 2016
Revenue
2015
Revenue
Change
Change
Operating revenue$570.8

100.0%
$577.0

100.0%
$(6.2)
(1.1)%












Operating expenses:










Purchased transportation225.1

39.4

242.5

42.0

(17.4)
(7.2)
Salaries, wages and employee benefits139.0

24.4

143.2

24.8

(4.2)
(2.9)
Operating leases34.4

6.0

30.7

5.3

3.7

12.1
Depreciation and amortization21.9

3.8

21.1

3.7

0.8

3.8
Insurance and claims13.2

2.3

10.1

1.8

3.1

30.7
Fuel expense3.3

0.6

4.0

0.7

(0.7)
(17.5)
Other operating expenses50.4

8.8

46.2

8.0

4.2

9.1
Total operating expenses487.3

85.4

497.8

86.3

(10.5)
(2.1)
Income from operations$83.5

14.6%
$79.2

13.7%
$4.3

5.4 %
Expedited LTL Operating Statistics







Year ended

December 31, December 31, Percent

2016 2015 Change


 
 
Operating ratio85.4% 86.3% (1.0)%


 
 
Business days255.0
 255.0
 
Business weeks51.0
 51.0
 


 
 
Expedited LTL:
 
 
Tonnage
 
 
    Total pounds ¹2,370,788
 2,408,424
 (1.6)
    Average weekly pounds ¹46,486
 47,224
 (1.6)


 
 
Linehaul shipments
 
 
    Total linehaul3,757,275
 3,764,310
 (0.2)
    Average weekly73,672
 73,810
 (0.2)


 
 
Forward Air Complete shipments782,425
 848,325
 (7.8)
As a percentage of linehaul shipments20.8% 22.5% (7.6)


 
 
Average linehaul shipment size631
 640
 (1.4)


 
 
Revenue per pound 2

 
 
    Linehaul yield$17.64
 $17.27
 1.7
    Fuel surcharge impact0.95
 1.15
 (0.9)
    Forward Air Complete impact3.33
 3.33
 
Total Expedited LTL yield$21.92
 $21.75
 0.8 %


 
 


 
 
¹ - In thousands
 
 
2 - In dollars per hundred pound; percentage change is expressed as a percent of total yield.

Revenues
Expedited LTL operating revenue decreased $6.2 million, or 1.1%, to $570.8 million for the year ended December 31, 2016 from $577.0 million for the same period of 2015. The decrease in revenue is mostly the result of a $7.8 million decrease in net fuel surcharge revenue, our local pick-up and delivery "Complete" revenue and other terminal based revenues, partly offset by a $1.6 million increase in linehaul revenue.  The increase in linehaul revenue is attributable to the linehaul yield changes noted in the preceding table. The increase in average linehaul revenue per pound was attributable to targeted rate increases implemented in the fourth quarter of 2015. Tonnage was slightly down primarily due to the attrition of acquired, poorly-priced Towne revenue since 2015 and a sluggish economic environment mostly offset by the tonnage increases attributable to a February 2016 change to our dim-factor standard. This change in dim-factor standard allows us to capture more billable tonnage on certain shipments.

Complete revenue decreased $1.2 million, or 1.6%, during the year ended December 31, 2016 compared to the same period of 2015.  The decrease in Complete revenue was attributable to declines in linehaul shipment counts and a 7.6% decrease in the attachment rate of Complete activity to linehaul shipments. These declines in Complete activity are in conjunction with the attrition of Towne revenue discussed above. Compared to the same period in 2015, net fuel surcharge revenue decreased $5.0 million largely due to the decline in fuel prices. Other terminal based revenues, which includes warehousing services and terminal handling, decreased $1.6 million, or 3.0%, to $51.0 million for the year ended December 31, 2016 from $52.6 million in the same period of 2015. The decrease in other terminal revenue was mainly attributable to attrition of acquired Towne activity.
Purchased Transportation
Expedited LTL’s purchased transportation decreased by $17.4 million, or 7.2%, to $225.1 million for the year ended December 31, 2016 from $242.5 million for the year ended December 31, 2015. As a percentage of segment operating revenue, Expedited LTL purchased transportation was 39.4% during the year ended December 31, 2016 compared to 42.0% for the same period of 2015. The decrease in total dollars and as a percentage of revenue is due to a 4.0% decrease in Expedited LTL cost per mile, improved revenue per mile due to yield and dim-factor changes discussed previously and improved network efficiency. The Expedited LTL cost per mile decrease and improvement in network efficiencies were largely the result of higher utilization of owner operators instead of more costly third party transportation providers.

Salaries, Wages, and Benefits

Salaries, wages and employee benefits of Expedited LTL decreased by $4.2 million, or 2.9%, to $139.0 million for the year ended December 31, 2016 from $143.2 million in the same period of 2015. Salaries, wages and employee benefits were 24.4% of Expedited LTL’s operating revenue for the year ended December 31, 2016 compared to 24.8% for the same period of 2015. The decrease in salaries, wages and employee benefits in total dollars was primarily attributable to a $9.9 million, or 8.4%, decrease in wages associated with the decrease in shipping volumes discussed previously as well as improved synergies in 2016 compared to 2015. This decrease was partly offset by higher workers' compensation and health insurance costs, which accounted for a $1.3 million and $2.8 million increase, respectively, and a $1.6 million increase to incentives and share based compensation.

Operating Leases
Operating leases increased $3.7 million, or 12.1%, to $34.4 million for the year ended December 31, 2016 from $30.7 million for the year ended December 31, 2015.  Operating leases were 6.0% of Expedited LTL’s operating revenue for the year ended December 31, 2016 compared with 5.3% for the year ended December 31, 2015.  The increase in cost is due to a $2.6 million increase in facility lease expenses resulting from a full year of Towne activity and $1.1 million of additional truck, trailer and equipment rentals and leases.
Depreciation and Amortization
Expedited LTL depreciation and amortization increased $0.8 million, or 3.8%, to $21.9 million for the year ended December 31, 2016 from $21.1 million for the year ended December 31, 2015.  Depreciation and amortization expense as a percentage of Expedited LTL operating revenue was 3.8% in the year ended December 31, 2016 compared to 3.7% for the year ended December 31, 2015.   The increase was primarily the result of trailers purchased during 2016, added trailers from the Towne acquisition and information technology upgrades.
Insurance and Claims
Expedited LTL insurance and claims expense increased $3.1 million, or 30.7%, to $13.2 million for the year ended December 31, 2016 from $10.1 million for the year ended December 31, 2015.  Insurance and claims as a percentage of Expedited LTL’s operating revenue was 2.3% for the year ended December 31, 2016 compared to 1.8% for the year ended December 31,

2015. The increase was due to a $3.3 million increase in insurance premiums and a $0.4 million increase in cargo claims. These increases were partly offset by a $0.6 million decrease in claims related legal and professional fees. The increase in insurance premiums is driven by higher premiums from our insurance providers a well as the addition of new trailers and equipment discussed above.
Fuel Expense
Expedited LTL fuel expense decreased $0.7 million, or 17.5%, to $3.3 million for the year ended December 31, 2016 from $4.0 million in the year ended December 31, 2015.  Fuel expense was 0.6% of Expedited LTL’s operating revenue for the years ended December 31, 2016 compared to 0.7% for the year ended December 31, 2015. Expedited LTL fuel expenses decreased due to the decline in year-over-year fuel prices.
Other Operating Expenses
Expedited LTL other operating expenses increased $4.2 million, or 9.1%, to $50.4 million for the year ended December 31, 2016 from $46.2 million for the year ended December 31, 2015.  Expedited LTL other operating expenses were 8.8% of operating revenue for the year ended December 31, 2016 compared to 8.0% for the year ended December 31, 2015.  The increase in total dollars and as percentage of revenue was the result of increases in sales promotions for a customer appreciation event during the third quarter of 2016, higher vehicle maintenance expenses and increased costs, such as tolls, associated with our increased utilization of owner operators. Also, during 2016, additional costs were incurred for the redesign of a new logo and brand image and for legal and professional fees in a successful response to a union movement at one of our locations.
Income from Operations
Expedited LTL income from operations increased by $4.3 million, or 5.4%, to $83.5 million for the year ended December 31, 2016 compared with $79.2 million for the year ended December 31, 2015.   Expedited LTL’s income from operations was 14.6% of operating revenue for the year ended December 31, 2016 compared with 13.7% for the year ended December 31, 2015.  The improvement in income from operations was mostly due to improved pricing, the change to our dim-factor standard and operating efficiencies in purchased transportation.

Truckload Premium Services - Year Ended December 31, 2016 compared to Year Ended December 31, 2015

The following table sets forth our historical financial data for the Truckload Premium Services segment for the year ended December 31, 2016 and 2015 (in millions):

Truckload Premium Services Segment Information
(In millions)
(Unaudited)
            
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2016 Revenue 2015 Revenue Change Change
Operating revenue$164.3
 100.0 % $153.3
 100.0% $11.0
 7.2 %
            
Operating expenses:           
Purchased transportation115.4
 70.2
 101.0
 65.9
 14.4
 14.3
Salaries, wages and employee benefits19.3
 11.7
 19.1
 12.5
 0.2
 1.0
Operating leases0.3
 0.2
 0.5
 0.3
 (0.2) (40.0)
Depreciation and amortization6.5
 4.0
 6.2
 4.0
 0.3
 4.8
Insurance and claims4.8
 2.9
 2.9
 1.9
 1.9
 65.5
Fuel expense2.6
 1.6
 3.3
 2.2
 (0.7) (21.2)
Other operating expenses8.4
 5.1
 7.0
 4.6
 1.4
 20.0
Impairment of goodwill, intangibles and other assets
42.4
 25.8
 
 
 42.4
 100.0
Total operating expenses199.7
 121.5
 140.0
 91.3
 59.7
 42.6
(Loss) income from operations$(35.4) (21.5)% $13.3
 8.7% $(48.7) (366.2)%

Truckload Premium Services Operating Statistics
  
 Year ended
 December 31, December 31, Percent
 2016 2015 Change
      
    Company driver 1
6,740
 7,291
 (7.6)%
    Owner operator 1
50,442
 37,597
 34.2
    Third party 1
32,358
 29,517
 9.6
Total Miles89,540
 74,405
 20.3
      
Revenue per mile$1.79
 $1.97
 (9.1)
      
Cost per mile$1.38
 $1.44
 (4.2)%
      
¹ - In thousands     

Revenues
TLS revenue increased $11.0 million, or 7.2%, to $164.3 million for the year ended December 31, 2016 from $153.3 million in the same period of 2015. TLS' revenue increase was the result of a 20.3% mileage increase due to new business wins, partly offset by a 9.1% decrease in revenue per mile. Revenue per mile declined due to the decrease in pharmaceutical revenue

which historically has a higher revenue per mile than traditional truckload business. TLS' revenue per mile also decreased as a result of a shift in business mix away from accounts that require use of more expensive third party transportation providers.

Purchased Transportation

Purchased transportation costs for our TLS revenue increased $14.4 million, or 14.3%, to $115.4 million for the year ended December 31, 2016 from $101.0 million for the year ended December 31, 2015. For the year ended December 31, 2016, TLS purchased transportation costs represented 70.2% of TLS revenue compared to 65.9% for the same period in 2015. The increase in TLS purchased transportation was attributable to a 23.4% increase in non-Company miles driven during the year ended December 31, 2016 compared to the same period in 2015. The increase in miles was slightly offset by a 5.1% decrease in non-Company cost per mile during the year ended December 31, 2016 compared to the same period of 2015. The increase in TLS miles driven was attributable to new business wins discussed above. The decrease in cost per mile was due to TLS' ability to utilize owner operators to cover the additional miles instead of more costly third party transportation providers. The increase in TLS purchased transportation as a percentage of revenue was attributable to TLS cost per mile not decreasing in proportion with the decline in TLS revenue per mile.

Salaries, Wages, and Benefits

Salaries, wages and employee benefits of TLS increased by $0.2 million, or 1.0%, to $19.3 million in the year ended December 31, 2016 from $19.1 million in the same period of 2015. Salaries, wages and employee benefits were 11.7% of TLS’s operating revenue in the year ended December 31, 2016 compared to 12.5% for the same period of 2015. The decrease in salaries, wages and employee benefits as a percentage of revenue was mostly attributable to TLS maintaining relatively flat salaries, wages and employee benefits during a period of revenue growth.

Operating Leases

Operating leases decreased $0.2 million, or 40.0%, to $0.3 million for the year ended December 31, 2016 from $0.5 million for the same period in 2015. Operating leases were 0.2% of TLS operating revenue for the year ended December 31, 2016 compared to 0.3% for the same period of 2015. The decrease in expense is due to reduced trailer rentals.

Depreciation and Amortization

Depreciation and amortization increased $0.3 million, or 4.8%, to $6.5 million for the year ended December 31, 2016 from $6.2 million for the year ended December 31, 2015.  Depreciation and amortization expense as a percentage of TLS operating revenue was 4.0% for the years ended December 31, 2016 and 2015. The increase in total dollars was due to trailers purchased during 2016 and a full year of depreciation for tractors purchased during 2015. These increases were partly offset by the impairment of TQI intangible assets in the second quarter of 2016 leading to a lower amortization expense of acquired customer relationships and non-compete agreements.

Insurance and Claims

TLS insurance and claims increased $1.9 million, or 65.5%, to $4.8 million for the year ended December 31, 2016 from $2.9 million for the year ended December 31, 2015. As a percentage of operating revenue, insurance and claims was 2.9% for the year ended December 31, 2016 compared to 1.9% for the year ended December 31, 2015. The increase was due to a $0.8 million increase in vehicle insurance premiums, a $0.9 million increase in vehicle accident claim reserves and a $0.2 increase in vehicle accident damage repairs. The higher insurance premiums were driven by current year insurance renewals and the increase in vehicle accident claim reserves was due a a single accident that resulted in a $0.8 million reserve.

Fuel Expense

TLS fuel expense decreased $0.7 million, or 21.2%, to $2.6 million for the year ended December 31, 2016 from $3.3 million for the year ended December 31, 2015.  Fuel expenses were 1.6% of TLS operating revenue during the year ended December 31, 2016 compared to 2.2% for the year ended December 31, 2015.  The decrease was attributable to a decline in year-over-year fuel prices and a decrease in Company-employed driver miles, which are primarily for our pharmaceutical business.

Other Operating Expenses

TLS other operating expenses increased $1.4 million, or 20.0%, to $8.4 million for the year ended December 31, 2016 compared to $7.0 million for the year ended December 31, 2015.  TLS other operating expenses were 5.1% of operating revenue

for the year ended December 31, 2016 compared to 4.6% for the year ended December 31, 2015. The increase was attributable to owner operator and company driver recruiting costs increasing $0.2 million on efforts to add additional drivers throughout the network. An additional $0.5 million was attributable to a $0.2 million loss on destroyed trailers in 2016 compared to a $0.3 million gain on the sale of trailers during 2015. The remaining increase was due to $0.3 million in legal expenses and $0.4 million in additional costs to handle the expanding TLS business mentioned above, such as tolls and vehicle maintenance.

Impairment of goodwill, intangibles and other assets
In conjunction with our policy to test goodwill annually for impairment, as of June 30, we determined there were indicators of potential impairment of goodwill and other long lived assets assigned to the TQI reporting unit. As a result, we performed fair value estimates as of June 30, 2016. Based on these estimates, we recorded $42.4 million in total impairment charges related to TQI’s goodwill and other long lived assets.
Income from Operations
TLS results from operations decreased by $48.7 million to a $35.4 million loss from operations for the year ended December 31, 2016 compared with $13.3 million in income from operations for the same period in 2015.  In addition to the impairment charges, the deterioration in results from operations was due to the revenue decline in the pharmaceutical business and TLS revenue per mile declining at a faster pace than our cost per mile.


Pool Distribution - Year Ended December 31, 2016 compared to Year Ended December 31, 2015

The following table sets forth our historical financial data of the Pool Distribution segment for the year ended December 31, 2016 and 2015 (in millions):

Pool Distribution Segment Information
(In millions)
(Unaudited)
            
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2016 Revenue 2015 Revenue Change Change
Operating revenue$148.6
 100.0% $130.0
 100.0% $18.6
 14.3 %
            
Operating expenses:           
Purchased transportation40.0
 26.9
 35.0
 26.9
 5.0
 14.3
Salaries, wages and employee benefits56.8
 38.2
 48.8
 37.5
 8.0
 16.4
Operating leases12.7
 8.5
 10.2
 7.8
 2.5
 24.5
Depreciation and amortization6.0
 4.0
 6.0
 4.6
 
 
Insurance and claims4.4
 3.0
 3.7
 2.8
 0.7
 18.9
Fuel expense4.8
 3.2
 5.4
 4.2
 (0.6) (11.1)
Other operating expenses20.3
 13.7
 17.0
 13.1
 3.3
 19.4
Total operating expenses145.0
 97.6
 126.1
 97.0
 18.9
 15.0
Income from operations$3.6
 2.4% $3.9
 3.0% $(0.3) (7.7)%

Revenues
Pool operating revenue increased $18.6 million, or 14.3%, to $148.6 million for the year ended December 31, 2016 from $130.0 million for the year ended December 31, 2015.  The increase was attributable to new customer business wins, current year rate increases and increased volumes from previously existing customers. These increases were partially offset by a decrease in net fuel surcharge revenue.

Purchased Transportation

Pool purchased transportation increased $5.0 million, or 14.3%, to $40.0 million for the year ended December 31, 2016 from $35.0 million for the year ended December 31, 2015.  Pool purchased transportation as a percentage of revenue was 26.9% for the years ended December 31, 2016 and 2015.  The $5.0 million increase in Pool purchased transportation was attributable to an increase in owner operator and third party carrier usage to handle the additional revenue mentioned above.

Salaries, Wages, and Benefits
Salaries, wages and employee benefits of Pool increased by $8.0 million, or 16.4%, to $56.8 million for the year ended December 31, 2016 from $48.8 million for the year ended December 31, 2015.  As a percentage of Pool operating revenue, salaries, wages and benefits increased to 38.2% for the year ended December 31, 2016 compared to 37.5% for the year ended December 31, 2015.  The increase in salaries, wages and benefits as a percentage of revenue was the result of a 1.3% increase as a percentage of revenue in dock pay. The increase in dock pay is attributable to dock inefficiencies created by the onboarding of new business. This was partly offset by decreases as a percentage of revenue in administrative salaries, wages and benefits and driver pay.

Operating Leases

Operating leases increased $2.5 million, or 24.5%, to $12.7 million for the year ended December 31, 2016 from $10.2 million for the year ended December 31, 2015.  Operating leases were 8.5% of Pool operating revenue for the year ended December 31, 2016 compared with 7.8% for the year ended December 31, 2015.  Operating leases increased due to $2.0 million of additional

facility rent expense as certain terminals moved to larger facilities to handle additional business wins. The remaining $0.5 million increase is attributable to higher truck rentals for additional business wins throughout the network.

Depreciation and Amortization

Depreciation and amortization was $6.0 million for the year ended December 31, 2016 and 2015.  Depreciation and amortization expense as a percentage of Pool operating revenue was 4.0% for the year ended December 31, 2016 compared to 4.6% for the year ended December 31, 2015.  Depreciation and amortization decreased as a percentage of revenue as Pool utilized more truck rentals, owner operators and purchased transportation instead of Company-owned equipment to provide the capacity for the increase in revenue.

Insurance and Claims

Pool insurance and claims increased $0.7 million, or 18.9%, to $4.4 million for the year ended December 31, 2016 from $3.7 million for the year ended December 31, 2015. As a percentage of operating revenue, insurance and claims was 3.0% for the year ended December 31, 2016 compared to 2.8% for the year ended December 31, 2015. The increase in Pool insurance and claims in total dollars and as a percentage of revenue was attributable to a $0.4 million increase in claims related fees, a $0.3 million increase in insurance premiums and a $0.2 increase in vehicle accident claims. These increases were slightly offset by a $0.2 million decrease cargo claims.

Fuel Expense

Pool fuel expense decreased $0.6 million, or 11.1%, to $4.8 million for the year ended December 31, 2016 from $5.4 million for the year ended December 31, 2015.  Fuel expenses were 3.2% of Pool operating revenue during the year ended December 31, 2016 compared to 4.2% for the year ended December 31, 2015.  Pool fuel expenses decreased due to a decline in year-over-year fuel prices, but were partially offset by the impact of higher revenue volumes.

Other Operating Expenses

Pool other operating expenses increased $3.3 million, or 19.4%, to $20.3 million for the year ended December 31, 2016 compared to $17.0 million for the year ended December 31, 2015.  Pool other operating expenses were 13.7% of operating revenue for the year ended December 31, 2016 compared to 13.1% for the year ended December 31, 2015.  As a percentage of revenue the increase was attributable to a 0.4% increase in dock and facility related costs and a 0.2% increase in legal fees. The dock and facility related cost increase was mainly attributable to the start up of new business. The legal fees are primarily related to a Department of Transportation safety audit.

Income from Operations

Pool income from operations deteriorated by $0.3 million, or 7.7% to $3.6 million for the year ended December 31, 2016 from $3.9 million for the year ended December 31, 2015.  Pool income from operations was 2.4% of operating revenue for the year ended December 31, 2016 compared with 3.0% of operating revenue for the year ended December 31, 2015.  The decline in Pool operating results was primarily the result of increased facility and dock handling costs for the on-boarding of new business. These increases in expenses were partly negated by the increased revenue from new business wins and current year customer rate increases.


Intermodal - Year Ended December 31, 2016 compared to Year Ended December 31, 2015

The following table sets forth our historical financial data of the Intermodal segment for the year ended December 31, 2016 and 2015 (in millions):

Intermodal Segment Information
(In millions)
(Unaudited)
            
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2016 Revenue 2015 Revenue Change Change
Operating revenue$103.7
 100.0% $104.3
 100.0% $(0.6) (0.6)%
            
Operating expenses:           
Purchased transportation36.2
 34.9
 33.8
 32.4
 2.4
 7.1
Salaries, wages and employee benefits25.2
 24.3
 24.4
 23.4
 0.8
 3.3
Operating leases12.0
 11.6
 11.7
 11.2
 0.3
 2.6
Depreciation and amortization3.9
 3.8
 3.8
 3.6
 0.1
 2.6
Insurance and claims3.0
 2.9
 2.6
 2.5
 0.4
 15.4
Fuel expense2.5
 2.4
 3.2
 3.1
 (0.7) (21.9)
Other operating expenses9.9
 9.5
 12.9
 12.4
 (3.0) (23.3)
Total operating expenses92.7
 89.4
 92.4
 88.6
 0.3
 0.3
Income from operations$11.0
 10.6% $11.9
 11.4% $(0.9) (7.6)%

Revenues

Intermodal operating revenue decreased $0.6 million, or 0.6%, to $103.7 million for the year ended December 31, 2016 from $104.3 million for the same period in 2015. The decrease in operating revenue was primarily attributable to the negative impact of reduced fuel surcharges, decreased rental and storage revenues and suppressed market conditions. The decrease was partially alleviated by increased volumes associated with the acquisition of Ace and Triumph.

Purchased Transportation

Intermodal purchased transportation increased $2.4 million, or 7.1%, to $36.2 million for the year ended December 31, 2016 from $33.8 million for the same period in 2015.  Intermodal purchased transportation as a percentage of revenue was 34.9% for the year ended December 31, 2016 compared to 32.4% for the year ended December 31, 2015.  The increase in Intermodal purchased transportation as a percentage of revenue was attributable to higher utilization of owner-operators as opposed to Company-employed drivers in select markets. The increase as a percentage of revenue was also due to a change in business mix as revenues, such as rental and storage revenues, that do not not utilize owner operators decreased during the year ended December 31, 2016 compared to the same period of 2015.

Salaries, Wages, and Benefits

Intermodal salaries, wages and employee benefits increased $0.8 million, or 3.3%, to $25.2 million for the year ended December 31, 2016 compared to $24.4 million for the year ended December 31, 2015.  As a percentage of Intermodal operating revenue, salaries, wages and benefits increased to 24.3% for the year ended December 31, 2016 compared to 23.4% for the same period in 2015. The deterioration in salaries, wages and employee benefits as a percentage of revenue is attributable to increased administrative staffing due to the acquisitions, merit increases and increased workers' compensation and health insurance costs. These increases were partially offset by less reliance on Company-employed drivers.





Operating Leases

Operating leases increased $0.3 million, or 2.6% to $12.0 million for the year ended December 31, 2016 from $11.7 million for the same period in 2015.  Operating leases were 11.6% of Intermodal operating revenue for the year ended December 31, 2016 compared with 11.2% in the same period of 2015.  Operating leases increased due to a $0.6 million increase in rent expense for additional facilities assumed with the acquisitions, partly offset by a decrease in tractor rentals.

Depreciation and Amortization

Depreciation and amortization increased $0.1 million, or 2.6%, to $3.9 million for the year ended December 31, 2016 from $3.8 million for the same period in 2015. Depreciation and amortization expense as a percentage of Intermodal operating revenue was 3.8% for the year ended December 31, 2016 compared to 3.6% for the same period of 2015. The increase in depreciation and amortization was due to increased tractor depreciation due to additional tractors acquired from Triumph.

Insurance and Claims

Intermodal insurance and claims expense increased $0.4 million, or 15.4%, to $3.0 million for the year ended December 31, 2016 from $2.6 million for the year ended December 31, 2015.   Intermodal insurance and claims were 2.9% of operating revenue for the year ended December 31, 2016 compared with 2.5% for the same period in 2015. The increase in Intermodal insurance and claims was attributable to higher insurance premiums and an increased vehicle fleet as a result of the acquisitions.

Fuel Expense

Intermodal fuel expense decreased $0.7 million, or 21.9%, to $2.5 million for the year ended December 31, 2016 from $3.2 million in the same period of 2015.  Fuel expenses were 2.4% of Intermodal operating revenue for the year ended December 31, 2016 compared to 3.1% in the same period of 2015.  Intermodal fuel expenses decreased primarily as a result of the year-over-year decline in fuel prices, declining revenue and increased utilization of owner-operators.

Other Operating Expenses

Intermodal other operating expenses decreased $3.0 million, or 23.3%, to $9.9 million for the year ended December 31, 2016 compared to $12.9 million for the same period of 2015.  Intermodal other operating expenses for the year ended December 31, 2016 were 9.5% compared to 12.4% for the same period of 2015.  The decrease in Intermodal other operating expenses was due mostly to a decline in container related rental and storage charges.

Income from Operations

Intermodal’s income from operations decreased by $0.9 million, or 7.6%, to $11.0 million for the year ended December 31, 2016 compared with $11.9 million for the same period in 2015.  Income from operations as a percentage of Intermodal operating revenue was 10.6% for the year ended December 31, 2016 compared to 11.4% in the same period of 2015.  The deterioration in operating income was primarily attributable to decreased fuel surcharges, decreased rental and storage revenues and suppressed market conditions. The deterioration was partially offset by the operating income contributed by the Ace and Triumph acquisitions.

Other Operations

Other operations improved from a $26.5 million operating loss during the year ended December 31, 2015 to a $2.7 million operating loss during the year ended December 31, 2016. The year-over-year improvement in other operations and corporate activities was largely due to $23.5 million of Towne acquisition and integration costs included in results for the year ended December 31, 2015 and no similar costs being included in the same period of 2016. The prior year acquisition and integration costs included $2.6 million of severance obligations and $11.7 million in reserves for remaining net payments, on duplicate facilities vacated during the year ended December 31, 2015. The expenses associated with the severance obligations and vacated, duplicate facility costs were recognized in the salaries, wages and benefits and operating lease line items, respectively. During the year ended December 31, 2015, we also incurred expense of $9.2 million for various other integration and transaction related costs which are largely included in other operating expenses. Other operations for the year ended December 31, 2015 also included approximately $3.0 million of additional expenses associated with our semi-annual actuarial analyses of vehicle and workers' compensation claims. The $2.7 million in operating loss included in other operations and corporate activities for the year ended December 31, 2016, was primarily for $1.7 million in loss development reserves resulting from our semi-annual actuarial analyses of our workers' compensation claims. Other operations for the year ended December 31, 2016 also included a $1.0 million increase to our reserve for remaining net payments on duplicate facilities vacated following the Towne acquisition, as several facilities have yet to be sub-leased.



Results of Operations

The following table sets forth our historical financial data for the years ended December 31, 20142015 and 20132014 (in millions):
Year endedYear ended December 31,
December 31, December 31,   Percent2015 2014 Change Percent Change
2014 2013 Change Change
Operating revenue:       
Expedited LTL$577.0
 $458.9
 $118.1
 25.7 %
Truckload Premium Services153.3
 133.3
 20.0
 15.0
Pool Distribution130.0
 118.3
 11.7
 9.9
Intermodal104.3
 75.9
 28.4
 37.4
Eliminations and other operations(5.5) (5.4) (0.1) 1.9
Operating revenue$781.0
 $652.5
 $128.5
 19.7 %959.1
 781.0
 178.1
 22.8
Operating expenses:              
Purchased transportation334.6
 285.7
 48.9
 17.1
408.8
 334.6
 74.2
 22.2
Salaries, wages, and employee benefits182.1
 151.1
 31.0
 20.5
240.6
 182.1
 58.5
 32.1
Operating leases34.0
 29.3
 4.7
 16.0
66.3
 34.0
 32.3
 95.0
Depreciation and amortization31.1
 23.6
 7.5
 31.8
37.1
 31.1
 6.0
 19.3
Insurance and claims15.7
 12.5
 3.2
 25.6
21.5
 15.7
 5.8
 36.9
Fuel expense20.2
 15.2
 5.0
 32.9
15.9
 20.2
 (4.3) (21.3)
Other operating expenses66.9
 50.7
 16.2
 32.0
87.1
 66.9
 20.2
 30.2
Total operating expenses684.6
 568.1
 116.5
 20.5
877.3
 684.6
 192.7
 28.1
Income (loss) from operations:       
Expedited LTL79.2
 75.8
 3.4
 4.5
Truckload Premium Services13.3
 9.0
 4.3
 47.8
Pool Distribution3.9
 4.5
 (0.6) (13.3)
Intermodal11.9
 7.4
 4.5
 60.8
Other operations(26.5) (0.3) (26.2) NM
Income from operations96.4
 84.4
 12.0
 14.2
81.8
 96.4
 (14.6) (15.1)
Other income (expense):       
Other expense:       
Interest expense(0.6) (0.5) (0.1) 20.0
(2.0) (0.6) (1.4) 233.3
Other, net0.3
 0.1
 0.2
 200.0
(0.1) 0.3
 (0.4) (133.3)
Total other expense(0.3) (0.4) 0.1
 (25.0)(2.1) (0.3) (1.8) 600.0
Income before income taxes96.1
 84.0
 12.1
 14.4
79.7
 96.1
 (16.4) (17.1)
Income taxes34.9
 29.5
 5.4
 18.3
24.1
 34.9
 (10.8) (30.9)
Net income$61.2
 $54.5
 $6.7
 12.3 %$55.6
 $61.2
 $(5.6) (9.2)%






Expedited LTL - Year Ended December 31, 2015 compared to Year Ended December 31, 2014






















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The following table sets forth our historical financial data by segment for the years ended December 31, 2014 and 2013 (in millions):
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2014 Revenue 2013 Revenue Change Change
Operating revenue           
      Forward Air$612.4
 78.4 % $501.1
 76.8 % $111.3
 22.2 %
      FASI125.2
 16.0
 113.4
 17.4
 11.8
 10.4
      TQI48.8
 6.3
 41.8
 6.4
 7.0
 16.7
      Intercompany eliminations(5.4) (0.7) (3.8) (0.6) (1.6) 42.1
            Total781.0
 100.0
 652.5
 100.0
 128.5
 19.7
            
Purchased transportation           
      Forward Air277.3
 45.3
 230.9
 46.1
 46.4
 20.1
      FASI36.6
 29.3
 34.5
 30.4
 2.1
 6.1
      TQI24.7
 50.6
 23.2
 55.5
 1.5
 6.5
      Intercompany eliminations(4.0) 74.1
 (2.9) 76.3
 (1.1) 37.9
            Total334.6
 42.8
 285.7
 43.8
 48.9
 17.1
            
Salaries, wages and employee benefits           
      Forward Air131.7
 21.5
 105.4
 21.0
 26.3
 25.0
      FASI42.0
 33.5
 39.3
 34.7
 2.7
 6.9
      TQI8.4
 17.2
 6.4
 15.3
 2.0
 31.3
            Total182.1
 23.3
 151.1
 23.2
 31.0
 20.5
            
Operating leases           
      Forward Air24.9
 4.1
 20.2
 4.0
 4.7
 23.3
      FASI9.0
 7.2
 9.0
 7.9
 
 
      TQI0.1
 0.2
 0.1
 0.2
 
 
            Total34.0
 4.4
 29.3
 4.5
 4.7
 16.0
            
Depreciation and amortization           
      Forward Air21.7
 3.5
 16.2
 3.2
 5.5
 34.0
      FASI5.8
 4.6
 5.0
 4.4
 0.8
 16.0
      TQI3.6
 7.4
 2.4
 5.8
 1.2
 50.0
            Total31.1
 4.0
 23.6
 3.6
 7.5
 31.8
            
Insurance and claims           
      Forward Air11.8
 1.9
 8.7
 1.8
 3.1
 35.6
      FASI3.1
 2.5
 3.3
 2.9
 (0.2) (6.1)
      TQI0.8
 1.7
 0.5
 1.2
 0.3
 60.0
            Total15.7
 2.0
 12.5
 1.9
 3.2
 25.6
            
Fuel expense           
      Forward Air8.4
 1.4
 4.0
 0.8
 4.4
 110.0
      FASI7.3
 5.8
 7.0
 6.2
 0.3
 4.3
      TQI4.5
 9.2
 4.2
 10.1
 0.3
 7.1
            Total20.2
 2.6
 15.2
 2.3
 5.0
 32.9
            
Other operating expenses           
      Forward Air50.5
 8.2
 37.0
 7.4
 13.5
 36.5
      FASI15.4
 12.3
 13.2
 11.6
 2.2
 16.7
      TQI2.4
 4.9
 1.4
 3.3
 1.0
 71.4
      Intercompany eliminations(1.4) 25.9
 (0.9) 23.7
 (0.5) 55.6
            Total66.9
 8.6
 50.7
 7.8
 16.2
 32.0
            
Income from operations           
      Forward Air86.1
 14.1
 78.7
 15.7
 7.4
 9.4
      FASI6.0
 4.8
 2.1
 1.9
 3.9
 185.7
      TQI4.3
 8.8
 3.6
 8.6
 0.7
 19.4
            Total$96.4
 12.3 % $84.4
 12.9 % $12.0
 14.2 %


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The following table presents the components of the Forward Air segment’s operating revenue and purchased transportation for the years ended December 31, 2014 and 2013 (in millions):
 Year ended
 December 31,Percent of December 31,Percent of  Percent
 2014Revenue 2013Revenue ChangeChange
Operating Revenue        
Forward Air        
      Airport-to-airport$429.4
70.1 % $393.3
78.5 % $36.1
9.2%
      Logistics services        
Expedited full truckload - TLX77.7
12.7
 74.4
14.8
 3.3
4.4
Intermodal/drayage55.3
9.0
 5.1
1.0
 50.2
984.3
Total Logistics services133.0
21.7
 79.5
15.8
 53.5
67.3
      Other Forward Air services50.0
8.2
 28.3
5.7
 21.7
76.7
Forward Air - Total revenue612.4
78.4
 501.1
76.8
 111.3
22.2
TQI - Pharmaceutical services48.8
6.3
 41.8
6.4
 7.0
16.7
Forward Air Solutions - Pool distribution125.2
16.0
 113.4
17.4
 11.8
10.4
Intersegment eliminations(5.4)(0.7) (3.8)(0.6) (1.6)42.1
Consolidated operating revenue$781.0
100.0 % $652.5
100.0 % $128.5
19.7%
         
 Year ended
 December 31,Percent of December 31,Percent of  Percent
 2014Revenue 2013Revenue ChangeChange
Purchased Transportation        
Forward Air        
      Airport-to-airport$183.3
42.7 % $163.3
41.5 % $20.0
12.2%
      Logistics services        
Expedited full truckload - TLX59.8
77.0
 56.2
75.5
 3.6
6.4
Intermodal/drayage21.7
39.2
 3.1
60.8
 18.6
600.0
Total Logistics services81.5
61.3
 59.3
74.6
 22.2
37.4
      Other Forward Air services12.5
25.0
 8.3
29.3
 4.2
50.6
Forward Air - Total purchased transportation277.3
45.3
 230.9
46.1
 46.4
20.1
TQI - Pharmaceutical services24.7
50.6
 23.2
55.5
 1.5
6.5
Forward Air Solutions - Pool distribution36.6
29.3
 34.5
30.4
 2.1
6.1
Intersegment eliminations(4.0)74.1
 (2.9)76.3
 (1.1)37.9
Consolidated purchased transportation$334.6
42.8 % $285.7
43.8 % $48.9
17.1%


Year ended December 31, 2014 compared to Year ended December 31, 2013

Revenues
Operating revenue increased by $128.5 million, or 19.7%, to $781.0 million for the year ended December 31, 2014 from $652.5 million for the year ended December 31, 2013.

Forward Air
Forward Air operating revenue increased $111.3 million, or 22.2%, to $612.4 million from $501.1 million, accounting for 78.4% of consolidated operating revenue for the year ended December 31, 2014. Airport-to-airport revenue, which is the largest component of our consolidated operating revenue, increased $36.1 million, or 9.2%, from $393.3 million. Airport-to-airport revenue accounted for 70.1% of the Forward Air’s operating revenue during the years ended December 31, 2014 compared to

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78.5%Expedited LTL segment for the year ended December 31, 2013.  An2015 and 2014 (in millions):

Expedited LTL Segment Information
(In millions)
(Unaudited)
            
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2015 Revenue 2014 Revenue Change Change
Operating revenue$577.0
 100.0% $458.9
 100.0% $118.1
 25.7%
            
Operating expenses:           
Purchased transportation242.5
 42.0
 192.0
 41.8
 50.5
 26.3
Salaries, wages and employee benefits143.2
 24.8
 106.2
 23.1
 37.0
 34.8
Operating leases30.7
 5.3
 19.7
 4.3
 11.0
 55.8
Depreciation and amortization21.1
 3.7
 16.6
 3.6
 4.5
 27.1
Insurance and claims10.1
 1.8
 8.6
 1.9
 1.5
 17.4
Fuel expense4.0
 0.7
 4.0
 0.9
 
 
Other operating expenses46.2
 8.0
 36.0
 7.8
 10.2
 28.3
Total operating expenses497.8
 86.3
 383.1
 83.5
 114.7
 29.9
Income from operations$79.2
 13.7% $75.8
 16.5% $3.4
 4.5%
Expedited LTL Operating Statistics
      
 Year ended
 December 31, December 31, Percent
 2015 2014 Change
      
Operating ratio86.3% 83.5% 3.4 %
      
Business days255.0
 254.0
 0.4
Business weeks51.0
 50.8
 0.4
      
Expedited LTL:     
Tonnage     
    Total pounds ¹2,408,424
 1,902,218
 26.6
    Average weekly pounds ¹47,224
 37,445
 26.1
      
Linehaul shipments     
    Total linehaul3,764,310
 2,925,257
 28.7
    Average weekly73,810
 57,584
 28.2
      
Forward Air Complete shipments848,325
 528,422
 60.5
As a percentage of linehaul shipments22.5% 18.1% 24.3
      
Average linehaul shipment size640
 650
 (1.5)
      
Revenue per pound 2
     
    Linehaul yield$17.27
 $17.61
 (1.5)
    Fuel surcharge impact1.15
 1.93
 (3.5)
    Forward Air Complete impact3.33
 3.03
 1.3
Total Expedited LTL yield$21.75
 $22.57
 (3.6)%
      
      
¹ - In thousands     
2 - In dollars per hundred pound; percentage change is expressed as a percent of total yield.

Revenues
Expedited LTL operating revenue increased $118.1 million, or 25.7%, to $577.0 million from $458.9 million for the year ended December 31, 2014. The increase is partially attributable to a 26.6% increase in tonnage and increaseoffset by a 1.5% decrease in our base revenue per pound, excluding net fuel surcharge revenue and Forward Air Complete™ (“Complete”) revenue,Complete revenue. This accounted for $27.4$84.8 million of the increase in airport-to-airportExpedited LTL revenue. Our airport-to-airport business is priced on a per pound basis and theThe decrease in average base revenue per pound excluding the impact of fuel surcharges and Complete, increased 3.2% for the year ended December 31, 2014 versus the year ended December 31, 2013. Tonnage that transited our network increased by 5.5% during the year ended December 31, 2014 compared with the year ended December 31, 2013.  The remaining increase in airport-to-airport revenue was attributable to higherthe acquisition of Towne, as Towne's base revenue per pound was notably lower than our legacy Expedited LTL base revenue per pound. Targeted rate increases implemented in September 2015 helped partially mitigate Towne's impact on base revenue per pound. The increase in tonnage is mainly due to the Towne acquisition.

The increase in Expedited LTL revenue is also the result of increased revenue from our Complete pick-up and delivery revenue andservice offset by a decrease in net fuel surcharge revenue. Complete pick-up and delivery revenue increased $5.9$19.3 million, or 11.3%, during the year ended December 31, 2014 compared to the year ended December 31, 2013.  The increase in Complete revenue is attributable to an increase in the attachment rate of our Complete service to our standard airport-to-airport linehaul service, to 18.1% in 2014 compared to 17.3% in 2013. Net fuel surcharge revenue increased $2.9 million, or 8.7%33.6%, during the year ended December 31, 2015 compared to the same period of 2014. The increase in Complete revenue was attributable to improved shipping volumes in our Expedited LTL network and a 24.3% increase in the attachment rate of Complete activity to linehaul shipments, both of which were largely attributable to the Towne acquisition. Compared to the same period in 2014, net fuel surcharge revenue decreased largely due to the decline in fuel prices. The decline in net fuel surcharge revenue due to lower fuel prices was partially offset by volume increases related to the acquisition of Towne for a net decrease of $9.1 million during the year ended December 31, 2015 compared to the same period in 2013. Net fuel surcharge revenue increased largely on improved airport-to-airport tonnage volumes.2014.

Logistics revenue, which is primarily TLX and intermodal drayage and priced on a per mile basis, increased $53.5 million, or 67.3%, to $133.0 million for the year ended December 31, 2014 from $79.5 million for the year ended December 31, 2013.  The increase in logistics revenue was mostly attributable to a $50.2 million increase in intermodal drayage revenue in conjunction with the acquisition of CST. TLX revenue also increased $3.3 million, or 4.4%, during the year ended December 31, 2014, compared to the same period in 2013. The increase in TLX revenue was attributable to a 13.9% increase in revenue per mile partially offset by a 8.3% decrease in miles driven to support our TLX revenue. TLX's revenue per mile increased on a shift in business mix that provided a higher revenue per mile due to the required use of more expensive third party transportation providers.
Other revenue, which includes warehousing services and terminal handling, accounts for the final component of Forward AirExpedited LTL operating revenue. Other revenue increased $21.7$23.1 million, or 76.7%78.2%, to $50.0 million during the year ended December 31, 2014 from $28.3$52.6 million during the year ended December 31, 2013.2015 from $29.5 million during the year ended December 31, 2014. The increase in Forward Air other revenue was mainly attributable to $20.3 million in local delivery work, warehousing and handling revenues associatedother revenue obtained with the acquisition of CST and a $1.4 million increase in our previously existing Forward Air operations.Towne.

FASIPurchased Transportation
FASI operating revenueExpedited LTL’s purchased transportation increased $11.8by $50.5 million, or 10.4%26.3%, to $125.2$242.5 million for the year ended December 31, 20142015 from $113.4$192.0 million for the year ended December 31, 2013.  Approximately $5.1 million of the increase in revenue was attributable to new business wins from two new customers that were initiated during February and April 2013. Another $3.0 million of the revenue increase was attributable to new business wins from new customers added during 2014. The remaining increase is the net volume increases from previously existing customers and the impact of rate increases initiated with all customers during the first quarter of 2014. In order to service this new business, FASI opened three new agent stations and two new service centers.
TQI

TQI operating revenue increased $7.0 million, or 16.7%, to $48.8 million for the year ended December 31, 2014 from $41.8 million for the year ended December 31, 2013.  Increase in operating revenue attributable to the year ended December 31, 2014 including a full twelve months of activity as opposed to only ten months during 2013 due to the timing of the TQI acquisition. The impact of a full year of operations was partially offset by a decrease in net fuel surcharge revenue.

Intercompany Eliminations
Intercompany eliminations increased $1.6 million, or 42.1%, to $5.4 million during the year ended December 31, 2014 from $3.8 million during the year ended December 31, 2013.   The intercompany eliminations are the result of truckload, airport-to-airport, and handling services provided between our segments during the years ended December 31, 2014 and 2013.

Purchased Transportation
Purchased transportation increased by $48.9 million, or 17.1%, to $334.6 million for the year ended December 31, 2014 from $285.7 million for the year ended December 31, 2013.  As a percentage of total operating revenue, purchased transportation was 42.8% during the year ended December 31, 2014 compared to 43.8% for the year ended December 31, 2013.






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Forward Air
Forward Air’s purchased transportation increased by $46.4 million, or 20.1%, to $277.3 million for the year ended December 31, 2014 from $230.9 million for the year ended December 31, 2013. As a percentage of segment operating revenue, Forward AirExpedited LTL purchased transportation was 45.3%42.0% during the year ended December 31, 2014 compared to 46.1% for the year ended December 31, 2013.
Purchased transportation costs for our airport-to-airport network increased $20.0 million, or 12.2%,2015 compared to $183.3 million41.8% for the year ended December 31, 2014 from $163.3 million for the year ended December 31, 2013.  For the year ended December 31, 2014, purchased transportation for our airport-to-airport network increased to 42.7%same period of airport-to-airport revenue from 41.5% for the year ended December 31, 2013.2014. The $20.0 million increase is mostly attributable to a 6.6%an 18.3% increase in miles driven by our network of owner-operators or third party transportation providers in addition toand a 6.0%4.1% increase in the cost per mile paid to our network of owner-operators or third party transportation providers. The increase inhigher miles increased purchased transportation by $8.4$26.4 million while the increase inhigher cost per mile increased purchased transportation $8.2by $2.9 million. Miles driven byThe increase in miles was attributable to the increase in revenue activity discussed previously. The increase in Expedited LTL cost per mile was attributable to a rate increase awarded to our network of owner-operators orin January 2015 and higher rates charged by third party transportation providersproviders.

Expedited LTL purchased transportation also increased in conjunction with the tonnage increase discussed above anddue to a shift in our customer and route mix. The shift in customer shipping patterns resulted in increased miles run, higher empty miles, and increased usage of third party transportation providers. The shift in customer shipping patterns as well as the need to obtain additional third party power to properly service the higher revenue activity resulted in the increase in the airport-to-airport cost per mile. The remaining $3.4$12.8 million increase in airport-to-airport purchased transportation was attributable to increased third party transportation costs associated with the higher Complete volumesrevenue discussed above.
Purchased transportation costs for our logistics revenue increased $22.2 million, or 37.4%, to $81.5 million for the year ended December 31, 2014 from $59.3 million for the year ended December 31, 2013. For the year ended December 31, 2014, logistics’ purchased transportation costs represented 61.3% of logistics revenue versus 74.6% for the year ended December 31, 2013. The increase in logistics’ purchased transportation in total dollars was mostly attributable to a $18.6 million increase in intermodal drayage purchased transportation in conjunction with the acquisition of CST. The decline in logistics' purchased transportation as a percentage of revenue was attributable to CST utilizing more Company-employed drivers and less owner-operators and third party transportation providers than our legacy Forward Air operations. TLX purchased transportation also increased $3.6 million and 6.4%. TLX cost per mile increased 15.8% during the year ended December 31, 2014 compared to the same period in 2013, but the increase in cost per mile was partially offset by a 8.3% decrease in miles driven to support our TLX revenue. The changes in TLX miles driven and cost per mile were attributable to the impact of severe weather in the first quarter of 2014 and a shift in customer mix that resulted in the increased use of more expensive third party transportation providers.

Purchased transportation costs related to our other revenue increased $4.2$8.4 million, or 50.6%92.3%, to $12.5$17.6 million for the year ended December 31, 20142015 from $8.3$9.2 million for the year ended December 31, 2013.2014. Other purchased transportation costs as a percentage of other revenue decreasedincreased to 25.0%33.5% of other revenue for the year ended December 31, 20142015 from 29.3%31.2% for the year ended December 31, 2013.  Other purchased transportation decreased2014. The increase as a percentage of the associated revenue on increased warehousingwas primarily due to dedicated pick up and handling revenuesdelivery activity associated with the acquisition of CST. These CST services have a lower associated purchased transportation cost.Towne acquisition.

FASISalaries, Wages, and Benefits

FASI purchased transportationSalaries, wages and employee benefits of Expedited LTL increased $2.1by $37.0 million, or 6.1%34.8%, to $36.6$143.2 million for the year ended December 31, 20142015 from $34.5$106.2 million for the year ended December 31, 2013.  FASI purchased transportation as a percentage of revenue was 29.3% for the year ended December 31, 2014 compared to 30.4% for the year ended December 31, 2013.  The improvement in FASI purchased transportation as a percentage of revenue was attributable to improved revenue quality due to customer rate increases initiated in the first quartersame period of 2014 and reduced usage of more costly third party transportation providers. With the on boarding of significant new business in the first and second quarters of 2013, FASI was required to utilize more costly third party transportation providers in order to properly service the new business. However, since start-up of the 2013 business FASI has been able to replace third party transportation providers with less costly owner-operators or Company-employed drivers, modify routes for improved load efficiency and obtain rate increases from the related customers.








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TQI

TQI purchased transportation increased $1.5 million, or 6.5%, to $24.7 million for the year ended December 31, 2014 from $23.2 million for the year ended December 31, 2013.  TQI purchased transportation as a percentage of revenue was 50.6% for the year ended December 31, 2014 compared to 55.5% for the year ended December 31, 2013.  The improvement in TQI purchased transportation as a percentage of revenue was largely due to increased utilization of less costly owner-operators and Company-employed drivers and vehicles as opposed to third party transportation providers and operating efficiencies obtained since installing a new operating system at the beginning of 2014.

Intercompany Eliminations
Intercompany eliminations increased $1.1 million, or 37.9%, to $4.0 million during the year ended December 31, 2014 from $2.9 million during the year ended December 31, 2013.  The intercompany eliminations are the result of truckload and airport-to-airport services provided between our segments during the years ended December 31, 2014 and 2013.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits increased $31.0 million, or 20.5%, to $182.1 million for the year ended December 31, 2014 from $151.1 million for the year ended December 31, 2013.  As a percentage of total operating revenue, salaries, wages and employee benefits was 23.3% during the year ended December 31, 2014 compared to 23.2% in December 31, 2013.

Forward Air
Salaries, wages and employee benefits of Forward Air increased by $26.3 million, or 25.0%, to $131.7 million for the year ended December 31, 2014 from $105.4 million for the year ended December 31, 2013. Salaries, wages and employee benefits were 21.5%24.8% of Forward Air’sExpedited LTL’s operating revenue for the year ended December 31, 20142015 compared to 21.0%23.1% for the year ended December 31, 2013.same period of 2014. The increase in salaries, wages and employee benefits in total dollars and as a percentage of revenue was partiallyprimarily attributable to $17.4a $33.4 million, of salaries, wages and employee benefits from CST. CST salaries, wages and employee benefits are higher as a percentage of revenue than our legacy Forward Air operations due to higher utilization of Company-employed drivers. The remaining $8.9 millionor 39.3%, increase is attributable to pre-existing Forward Air operations. Approximately $6.2 million of this increase was attributable to increasedin wages associated with the higherincrease in shipping volumes discussed previously and 2013 and 2014 wage increases.previously. The remaining increase was due to a $1.9$2.6 million increase in employee incentives and share based compensation and a $0.5$1.6 million increase in share-based compensation and $0.3 million increase in employee insurance costs. Employee incentives were increased in conjunction with certain key employees meeting their 2014 performance goals. Share-based compensation increased in conjunction with our 2014 annual share-based grants to employees. Employee insurances costs increased on Affordable Care Act fees and larger health insurance claims incurred during the year ended December 31, 2014 compared to the year ended December 31, 2013.

FASI
Salaries, wages and employee benefits of FASI increased by $2.7 million, or 6.9%, to $42.0 million for the year ended December 31, 2014 from $39.3 million for the year ended December 31, 2013.  As a percentage of FASI operating revenue, salaries, wages and benefits decreased to 33.5% for the year ended December 31, 2014 compared to 34.7% for the year ended December 31, 2013.  FASI salaries, wages and employee benefits are higher as a percentage of operating revenue than our Forward Air segment, as a larger percentage of FASI transportation services are performed by Company-employed drivers.  The increase in salaries, wages and employee benefits in total dollars is largely due to higher wages and benefits which grew in conjunction with the revenue volume increases discussed previously. The improvement as a percentage of revenue was driven by improved dock wages net of increased health insurance costs. TheThese increases were slightly offset by a $0.6 million decrease in dock wages was largely the result of installing and improving our terminal conveyor systems. Health insurance costs increased on several large claims incurred during the second and third quarters of 2014.
TQIworkers' compensation costs.

Salaries, wages and employee benefits of TQIOperating Leases

Operating leases increased by $2.0$11.0 million, or 31.3%55.8%, to $8.4$30.7 million for the year ended December 31, 20142015 from $6.4$19.7 million for the year ended December 31, 2013.  As a percentage of TQI operating revenue, salaries, wages and benefits increased to 17.2% for the year ended December 31, 2014 compared to 15.3% for the year ended December 31, 2013.The increase in salaries, wages and employee benefits as a percentage of revenue was driven by higher utilization of Company-employed drivers and increased health insurance costs, which accounted for 1.3% and 0.6%, respectively, of the 1.9% increase in salaries, wages and benefits as a percentage of revenue. Company-employed driver utilization increased in conjunction with new tractors purchased during 2014 and was offset by the decrease in purchased transportation discussed previously.

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Operating Leases
Operating leases increased by $4.7 million, or 16.0%, to $34.0 million for the year ended December 31, 2014 from $29.3 million in the year ended December 31, 2013.  Operating leases, the largest component of which is facility rent, were 4.4% of consolidated operating revenue for the year ended December 31, 2014 compared with 4.5% for the year ended December 31, 2013.

Forward Air
Operating leases increased $4.7 million, or 23.3%, to $24.9 million for the year ended December 31, 2014 from $20.2 million for the year ended December 31, 2013.2014.  Operating leases were 4.1%5.3% of Forward Air’s operating revenue for the year ended December 31, 2014 compared with 4.0% for the year ended December 31, 2013.  Office and equipment rentals associated with CST accounted for $4.4 million of the increase in operating leases. The remaining increase was driven by a $0.3 million increase in office rentals. The increase in office rent was primarily due to relocations to new facilities or expansion of current facilities.

FASI
Operating leases were $9.0 million during the years ended December 31, 2014 and 2013.  Operating leases were 7.2% of FASIExpedited LTL’s operating revenue for the year ended December 31, 20142015 compared with 7.9%4.3% for the year ended December 31, 2013.  2014.  The increase was due to $6.2 million in

TQI

Operatingadditional facility lease expenses and a $4.8 million increase in truck, trailer and equipment rentals and leases, were $0.1 million duringboth primarily as a result of the years ended December 31, 2014 and 2013.  Operating leases were 0.2% of FASI operating revenue for the years ended December 31, 2014 and 2013. Towne acquisition.

Depreciation and Amortization

DepreciationExpedited LTL depreciation and amortization increased $7.5$4.5 million,, or 31.8%27.1%, to $31.1$21.1 million for the year ended December 31, 20142015 from $23.6$16.6 million for the year ended December 31, 2013.2014.  Depreciation and amortization was 4.0%expense as a percentage of consolidatedExpedited LTL operating revenue was 3.7% for the year ended December 31, 2014 and2015 compared to 3.6% for the year ended December 31, 2013.

Forward Air
Depreciation and amortization decreased $5.5 million, or 34.0%, to $21.7 million for the year ended December 31, 2014 from $16.2 million for the year ended December 31, 2013.  Depreciation and2014.  Amortization on acquired Towne intangible assets increased amortization expense as a percentage of Forward Air operating revenue was 3.5% in the year ended December 31, 2014 compared to 3.2% for the year ended December 31, 2013.  CST depreciation on property and equipment of $0.7 million and amortization on acquired intangibles of $2.6 million accounted for $3.3 million of the increase in depreciation and amortization.by $1.9 million. The remaining increase was primarily the result of new trailers, tractors and forklifts added with the Towne acquisition or purchased for during 2014.2015.

FASIInsurance and Claims

DepreciationExpedited LTL insurance and amortizationclaims expense increased $0.8$1.5 million, or 16.0%17.4%, to $5.8$10.1 million for the year ended December 31, 20142015 from $5.0$8.6 million for the year ended December 31, 2013.  Depreciation2014.  Insurance and amortization expenseclaims as a percentage of FASIExpedited LTL’s operating revenue was 4.6%1.8% for the year ended December 31, 2014 compared to 4.4% for the year ended December 31, 2013.  The increase in FASI depreciation is attributable to new tractors purchased to replace rented trucks, new conveyors and conveyor improvements purchased during 2014.

TQI

Depreciation and amortization increased $1.2 million, or 50.0%, to $3.6 million for the year ended December 31, 2014 from $2.4 million for the year ended December 31, 2013.  Depreciation and amortization expense as a percentage of TQI operating revenue was 7.4% for the year ended December 31, 2014 compared to 5.8% for the year ended December 31, 2013. The increase in depreciation and amortization as a percentage of revenue is attributable to new trailers and tractors purchased for TQI during 2014 and software amortization related to TQI's new operating system.   





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Insurance and Claims
Insurance and claims expense increased $3.2 million, or 25.6%, to $15.7 million for the year ended December 31, 2014 from $12.5 million for the year ended December 31, 2013.  Insurance and claims was 2.0% of consolidated operating revenue during the year ended December 31, 20132015 compared to 1.9% for the year ended December 31, 2013.

Forward Air
Forward Air insurance and claims expense increased $3.1 million, or 35.6%, to $11.8 million for the year ended December 31, 2014 from $8.7 million for the year ended December 31, 2013.  Insurance and claims as a percentage of Forward Air’s operating revenue was 1.9% for the year ended December 31, 2014 compared to 1.8% for the year ended December 31, 2013. Approximately $1.7 million of the2014. The increase was attributable to insurance and claims associated with CST. The remaining increase wasin total dollars is attributable to a $0.6 million increase in cargo claims, $0.5$1.0 million increase in vehicle accident damage repairs, $0.2a $0.4 million increase in vehicle insurance premiums and accident claims and $0.1a $0.3 million increase in claims related legal and professional fees.

FASI
FASI insurance and claims decreased $0.2 million. or 6.1%, to $3.1 million for the year ended December 31, 2014 from $3.3 million for the year ended December 31, 2013. As These increases were slightly offset by a percentage of operating revenue, insurance and claims was 2.5% for the year ended December 31, 2014 compared to 2.9% for the year ended December 31, 2013. The decrease in FASI insurance and claims was largely attributable to a $0.7$0.2 million decrease in cargo claims netclaims. These increases were primarily the result of a $0.5 million increase in vehicle insurancethe Towne acquisition and accident claims. The increase in vehicle insurance and accident claims was driven by reserves for an accident that occurred in the fourth quarter of 2014.additional equipment required to handle the volumes previously mentioned.

TQIFuel Expense

TQI insurance and claims increased $0.3 million, or 60.0%, to $0.8Expedited LTL fuel expense was $4.0 million for the year ended December 31, 2014 from $0.52015 and 2014.  Fuel expense was 0.7% of Expedited LTL’s operating revenue for the years ended December 31, 2015 compared to 0.9% for the year ended December 31, 2014. The decrease in fuel expense as a percentage of revenue was attributable to a decrease in fuel price per gallon compared to the same period in 2014. The decrease in fuel prices was partly offset by the impact of the Towne acquisition.

Other Operating Expenses

Expedited LTL other operating expenses increased $10.2 million, or 28.3%, to $46.2 million for the year ended December 31, 2013. As a percentage of operating revenue, insurance and claims was 1.7% for the year ended December 31, 2014 compared to 1.2% for the year ended December 31, 2013. The increase in total dollars was attributable to higher insurance premiums as a result of the increase in tractor count in conjunction with capital expenditures discussed previously.

Fuel Expense
Fuel expense increased $5.0 million, or 32.9%, to $20.2 million the year ended December 31, 20142015 from $15.2 million$36.0 million for the year ended December 31, 2013.  Fuel expense was 2.6% of consolidated operating revenue for the year ended December 31, 2014 compared to 2.3% for the year ended December 31, 2013.

Forward Air
Forward Air fuel expense increased $4.4 million, or 110.0%, to $8.4 million for the year ended December 31, 2014 from $4.0 million in the year ended December 31, 2013.  Fuel expense was 1.4% of Forward Air’s operating revenue for the years ended December 31, 2014 compared to 0.8% for the year ended December 31, 2013. Approximately $4.3 million was attributable to fuel expense associated with CST. The remaining increase in fuel was attributable to our previously existing operations and increased in conjunction with the volume increases discussed previously.
FASI
FASI fuel expense increased $0.3 million, or 4.3%, to $7.3 million for the year ended December 31, 2014 from $7.0 million for the year ended December 31, 2013.  Fuel expenses were 5.8% of FASI operating revenue during the year ended December 31, 2014 compared to 6.2% for the year ended December 31, 2013.  FASI fuel expense is significantly higher as a percentage of operating revenue than Forward Air’s fuel expense, as FASI utilizes a higher ratio of Company-employed drivers and Company-owned or leased vehicles in its operations than Forward Air.  The increase in FASI fuel expense was mostly the result of increased Company miles associated with the higher business volumes discussed previously and changes in average fuel prices.





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TQI

TQI fuel expense increased $0.3 million, or 7.1%, to $4.5 million for the year ended December 31, 2014 from $4.2 million for the year ended December 31, 2013.  Fuel expenses were 9.2% of FASI operating revenue during the year ended December 31, 2014 compared to 10.1% for the year ended December 31, 2013.  TQI fuel expense is significantly higher as a percentage of operating revenue than Forward Air and FASI's fuel expense, as TQI utilizes a higher ratio of Company-employed drivers and Company-owned vehicles in its operations. The 0.9% decrease as percentage of revenue was attributable to lower year-over-year fuel prices during the second half of 2014 and new vehicles with improved transmissions put in service during the second quarter of 2014 that have reduced TQI's fuel cost per mile.

Other Operating Expenses

Other operating expenses increased $16.2 million, or 32.0%, to $66.9 million for the year ended December 31, 2014 from $50.7 million for the year ended December 31, 2013.  Other operating expenses were 8.6% of consolidated operating revenue for the year ended December 31, 2014 compared with 7.8% for the year ended December 31, 2013.

Forward Air
Forward Air other operating expenses increased $13.5 million, or 36.5%, to $50.5 million for the year ended December 31, 2014 from $37.0 million for the year ended December 31, 2013.  Forward Air2014.  Expedited LTL other operating expenses were 8.2%8.0% of operating revenue for the year ended December 31, 20142015 compared to 7.4%7.8% for the year ended December 31, 2013.  Approximately $10.9 million of the2014.  The increase in total dollars, or 0.9% as a percentage of revenue, was attributable to other operating expenses associated with CST. The remaining increase in total dollars was attributable to increased variable costs, such as vehicle maintenance and dock and terminal supplies, which increased in conjunction with the Towne related volume increases discussed previously.

FASIIncome from Operations

FASI other operating expensesExpedited LTL income from operations increased $2.2by $3.4 million, or 16.7%4.5%, to $15.4$79.2 million for the year ended December 31, 20142015 compared to $13.2with $75.8 million for the year ended December 31, 2013.  FASI other operating expenses were 12.3%2014.   Expedited LTL’s income from operations was 13.7% of operating revenue for the year ended December 31, 20142015 compared to 11.6%with 16.5% for the year ended December 31, 2013.2014.  The increasedeterioration in FASI's other operating expensesincome from operations as a percentagepercent of revenue and in terms of total dollars was driven by a $1.7 million increase in agent station costs. As noted above, we opened additional agent stations to service the new business initiated during the first and second quarters of 2013. Agent station expense grewmostly due to a shift in customer shipping destinationsreduced net fuel surcharge and increased network costs attributable to include more volume to our agent locations. As percentage of revenue the increase in agent stationsTowne acquisition. These costs were partially offsetmitigated by the increaseimpact of rate increases initiated in revenue exceeding2015 as well as improved cost management in the increase in other operating expenses such as vehicle maintenance and dock and terminal supplies.second half of the year.

TQI

TQI other operating expenses
Truckload Premium Services - Year Ended December 31, 2015 compared to Year Ended December 31, 2014

The following table sets forth our historical financial data of the Truckload Premium Services segment for the year ended December 31, 2015 and 2014 (in millions):

Truckload Premium Services Segment Information
(In millions)
(Unaudited)
            
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2015 Revenue 2014 Revenue Change Change
Operating revenue$153.3
 100.0% $133.3
 100.0% $20.0
 15.0 %
            
Operating expenses:           
Purchased transportation101.0
 65.9
 90.2
 67.7
 10.8
 12.0
Salaries, wages and employee benefits19.1
 12.5
 16.1
 12.1
 3.0
 18.6
Operating leases0.5
 0.3
 0.4
 0.3
 0.1
 25.0
Depreciation and amortization6.2
 4.0
 5.4
 4.1
 0.8
 14.8
Insurance and claims2.9
 1.9
 2.1
 1.6
 0.8
 38.1
Fuel expense3.3
 2.2
 4.5
 3.4
 (1.2) (26.7)
Other operating expenses7.0
 4.6
 5.6
 4.2
 1.4
 25.0
Total operating expenses140.0
 91.3
 124.3
 93.2
 15.7
 12.6
Income from operations$13.3
 8.7% $9.0
 6.8% $4.3
 47.8 %

Truckload Premium Services Operating Statistics
  
 Year ended
 December 31, December 31, Percent
 2015 2014 Change
      
    Company driver 1
7,291
 6,656
 9.5 %
    Owner operator 1
37,597
 28,523
 31.8
    Third party 1
29,517
 25,019
 18.0
Total Miles74,405
 60,198
 23.6
      
Revenue per mile$1.97
 $2.07
 (4.8)
      
Cost per mile$1.44
 $1.56
 (7.7)%
      
¹ - In thousands     

Revenues
TLS revenue increased $1.0$20.0 million, or 71.4%15.0%, to $2.4$153.3 million for the year ended December 31, 2014 compared2015 from $133.3 million in the same period of 2014. The increase in TLS revenue was attributable to $1.4business obtained with the Towne acquisition in our legacy truckload services partially offset by a decline in pharmaceutical revenue. TLS had an 4.8% decrease in average revenue per mile and a 23.6% increase in miles driven to support revenue. Revenue per mile declined due to the decrease in pharmaceutical revenue which historically has a higher revenue per mile than traditional truckload business. TLS' revenue per

mile also decreased on a shift in business mix that moved away from revenue requiring use of more expensive third party transportation providers.

Purchased Transportation

Purchased transportation costs for our TLS revenue increased $10.8 million, or 12.0%, to $101.0 million for the year ended December 31, 2013.  FASI2015 from $90.2 million for the year ended December 31, 2014. For the year ended December 31, 2015, TLS purchased transportation costs represented 65.9% of TLS revenue compared to 67.7% for the same period in 2014. The increase in TLS purchased transportation was attributable to a 25.4% increase in non-Company miles driven during the year ended December 31, 2015 compared to the same period in 2014. The increase in miles was slightly offset by a 8.3% decrease in non-Company cost per mile during the year ended December 31, 2015 compared to the same period of 2014. The increase in TLS miles driven was attributable to additional to business obtained with the Towne acquisition discussed above. The decrease in cost per mile and TLS purchased transportation as a percentage of revenue was due to TLS' ability to utilize owner operators to cover the additional miles instead of more costly third party transportation providers.

Salaries, Wages, and Benefits

Salaries, wages and employee benefits of TLS increased by $3.0 million, or 18.6%, to $19.1 million in the year ended December 31, 2015 from $16.1 million in the same period of 2014. Salaries, wages and employee benefits were 12.5% of TLS’s operating revenue in the year ended December 31, 2015 compared to 12.1% for the same period of 2014. Approximately $2.0 million was attributable to increased TLS management and operations salaries, wages and employee benefits associated with the additional business discussed previously and 2015 wage increases for previously existing TLS employees. Another $0.4 million was due to incentive and share based compensation increases as well as a $0.6 million increase in workers' compensation and health insurance costs.

Operating Leases

Operating leases increased $0.1 million, or 25.0%, to $0.5 million for the year ended December 31, 2015 from $0.4 million for the same period in 2014. Operating leases were 0.3% of TLS operating revenue for the year ended December 31, 2015 and 2014. The increase in expense is due to additional trailer rentals to handle additional business discussed above.

Depreciation and Amortization

Depreciation and amortization increased $0.8 million, or 14.8%, to $6.2 million for the year ended December 31, 2015 from $5.4 million for the year ended December 31, 2015.  Depreciation and amortization expense as a percentage of TLS operating revenue was 4.0% for the year ended December 31, 2015 compared to 4.1% for the year ended December 31, 2014. These increases were primarily the result of trailers and tractors added with the Towne acquisition or purchased during 2015.

Insurance and Claims

TLS insurance and claims increased $0.8 million, or 38.1%, to $2.9 million for the year ended December 31, 2015 from $2.1 million for the year ended December 31, 2014. As a percentage of operating revenue, insurance and claims was 1.9% for the year ended December 31, 2015 compared to 1.6% for the year ended December 31, 2014. These increases were attributable to higher insurance premiums as a result of the increase in tractor and trailer count and higher vehicle accident damage repairs. These increases were primarily the result of the Towne acquisition and the additional equipment required to handle the volumes previously mentioned.

Fuel Expense

TLS fuel expense decreased $1.2 million, or 26.7%, to $3.3 million for the year ended December 31, 2015 from $4.5 million for the year ended December 31, 2014.  Fuel expenses were 2.2% of TLS operating revenue during the year ended December 31, 2015 compared to 3.4% for the year ended December 31, 2014.  The decrease was attributable to a decline in year-over-year fuel prices and was slightly offset by an increase in Company-employed driver miles, which are primarily for our pharmaceutical business.

Other Operating Expenses

TLS other operating expenses increased $1.4 million, or 25.0%, to $7.0 million for the year ended December 31, 2015 compared to $5.6 million for the year ended December 31, 2014.  TLS other operating expenses were 4.9%4.6% of operating revenue

for the year ended December 31, 2015 compared to 4.2% for the year ended December 31, 2014. The increase was attributable to approximately $0.5 million in higher vehicle maintenance costs due to the additional equipment acquired to handle the increased business volumes previously discussed. Owner operator and company driver recruiting and on-boarding costs increased $0.5 million in efforts to add additional drivers throughout the network. The remaining $0.4 million increase was due to $0.6 million of additional costs to handle the expanding business mentioned above, such as tolls, and licenses and permits, partly offset by a $0.2 million gain on the sale of trailers during 2015.

Income from Operations

TLS income from operations improved by $4.3 million, or 47.8%, to $13.3 million for the year ended December 31, 2015 from $9.0 million for the year ended December 31, 2014.  TLS income from operations was 8.7% of operating revenue for the year ended December 31, 2014 compared to 3.3% for the year ended December 31, 2013. The increase in other operating expenses as percentage of revenue was attributable to the year ended December 31, 2013 being reduced by a $0.6 million gain on the reduction in the fair value of the earn out liability associated with the acquisition of TQI. The reduction in the liability was the result of reductions in the projected cash flows used to estimate the fair value of the liability. The remaining increase in total dollars was attributable to increased variable costs, such as vehicle maintenance and dock and terminal supplies, which increased in conjunction with the volume increases discussed previously.

Intercompany Eliminations
Intercompany eliminations were $1.4 million during the year ended December 31, 2014 compared to $0.9 million for the year ended December 31, 2013. The intercompany eliminations are for agent station services Forward Air and FASI provided each other during the years ended December 31, 2014 and 2013.

Income from Operations
Income from operations increased by $12.0 million, or 14.2%, to $96.4 million for the year ended December 31, 20142015 compared with $84.4 million for the year ended December 31, 2013.  Income from operations was 12.3% of consolidated operating revenue for the year ended December 31, 2014 compared with 12.9% for the year ended December 31, 2013.


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Forward Air
Forward Air income from operations increased by $7.4 million, or 9.4%, to $86.1 million for the year ended December 31, 2014 compared with $78.7 million for the year ended December 31, 2013.   Forward Air’s income from operations was 14.1%6.8% of operating revenue for the year ended December 31, 2014 compared with 15.7% for the year ended December 31, 2013.  The increase in operating income was attributable to the acquisition of CST which accounted for $7.1 million of operating income. Excluding CST, the remaining increase in operating income was driven by the increase in airport-to-airport revenue largely offset by higher purchased transportation costs.

FASI
FASI income from operations improved by $3.9 million, to $6.0 million for the year ended December 31, 2014 from $2.1 million for the year ended December 31, 2013.  FASI income from operations was 4.8% of operating revenue for the year ended December 31, 2014 compared 1.9% of operating revenue for the year ended December 31, 2013.  The improvement in operating performance is largely attributable to the increase in revenue as well as improved efficiencies and savings obtained primarily in our dock and total driver costs during the year ended December 31, 2014 compared to the same period in 2013.

TQI

TQI income from operations improved by $0.7 million, or 19.4%, to $4.3 million for the year ended December 31, 2014 from $3.6 million for the year ended December 31, 2013.  TQI income from operations was 8.8% of operating revenue for the year ended December 31, 2014 compared 8.6% of operating revenue for the year ended December 31, 2013.2014. Improvement in income from operations as percentage of revenue was mainly attributable to higher revenueadditional business from the Towne acquisition and increaseddecreased utilization of owner-operators and Company-employed drivers as opposed to more costlyexpensive third party transportation providers. These decreases were largely offset by a $0.6 million gain on the reductionproviders in favor of the earn out liability increasing income from operations for the year endedowner operators and company drivers.

Pool Distribution - Year Ended December 31, 2013.2015 compared to Year Ended December 31, 2014

Interest Expense
Interest expense was $0.6 million for the year ended December 31, 2014 and increased $0.1 million, or 20.0%, from $0.5 million for the year ended December 31, 2013. Increase is primarily attributable to accrued interest on income tax contingency accruals.
Other, Net
Other, net of $0.3 million for the year ended December 31, 2014, primarily represents interest income earned on excess cash balances and unrealized gains on trading securities held.

Provision for Income Taxes
The combined federal and state effective tax rate for the year ended December 31, 2014 was 36.3% compared to an effective rate of 35.1% for the year ended December 31, 2013.  The increase in our effective tax rate was largely due to the timing of deductions for incentive stock options.

Net Income
As a result of the foregoing factors, net income increased by $6.7 million, or 12.3%, to $61.2 million for the year ended December 31, 2014 compared to $54.5 million for the year ended December 31, 2013.


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Results of Operations

The following table sets forth our historical financial data of the Pool Distribution segment for the yearsyear ended December 31, 20132015 and 20122014 (in millions):

 Year ended
 December 31, December 31,   Percent
 2013 2012 Change Change
Operating revenue$652.5
 $584.4
 $68.1
 11.7 %
Operating expenses:       
   Purchased transportation285.7
 252.7
 33.0
 13.1
   Salaries, wages, and employee benefits151.1
 135.0
 16.1
 11.9
   Operating leases29.3
 28.0
 1.3
 4.6
   Depreciation and amortization23.6
 21.1
 2.5
 11.8
   Insurance and claims12.5
 11.3
 1.2
 10.6
   Fuel expense15.2
 10.0
 5.2
 52.0
   Other operating expenses50.7
 42.8
 7.9
 18.5
      Total operating expenses568.1
 500.9
 67.2
 13.4
Income from operations84.4
 83.5
 0.9
 1.1
Other income (expense):       
   Interest expense(0.5) (0.4) (0.1) 25.0
   Other, net0.1
 
 0.1
 100.0
      Total other expense(0.4) (0.4) 
 
Income before income taxes84.0
 83.1
 0.9
 1.1
Income taxes29.5
 30.4
 (0.9) (3.0)
Net income$54.5
 $52.7
 $1.8
 3.4 %




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The following table sets forth our historical financial data by segment for the years ended December 31, 2013 and 2012 (in millions):
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2013 Revenue 2012 Revenue Change Change
Operating revenue           
      Forward Air$501.1
 76.8 % $501.7
 85.9 % $(0.6) (0.1)%
      FASI113.4
 17.4
 85.0
 14.5
 28.4
 33.4
      TQI41.8
 6.4
 
 
 41.8
 100.0
      Intercompany eliminations(3.8) (0.6) (2.3) (0.4) (1.5) 65.2
            Total652.5
 100.0
 584.4
 100.0
 68.1
 11.7
            
Purchased transportation           
      Forward Air230.9
 46.1
 231.4
 46.1
 (0.5) (0.2)
      FASI34.5
 30.4
 23.3
 27.4
 11.2
 48.1
      TQI23.2
 55.5
 
 
 23.2
 100.0
      Intercompany eliminations(2.9) 76.3
 (2.0) 87.0
 (0.9) 45.0
            Total285.7
 43.8
 252.7
 43.3
 33.0
 13.1
            
Salaries, wages and employee benefits           
      Forward Air105.4
 21.0
 103.1
 20.6
 2.3
 2.2
      FASI39.3
 34.7
 31.9
 37.5
 7.4
 23.2
      TQI6.4
 15.3
 
 
 6.4
 100.0
            Total151.1
 23.2
 135.0
 23.1
 16.1
 11.9
            
Operating leases           
      Forward Air20.2
 4.0
 20.4
 4.1
 (0.2) (1.0)
      FASI9.0
 7.9
 7.6
 9.0
 1.4
 18.4
      TQI0.1
 0.2
 
 
 0.1
 100.0
            Total29.3
 4.5
 28.0
 4.8
 1.3
 4.6
            
Depreciation and amortization           
      Forward Air16.2
 3.2
 16.4
 3.3
 (0.2) (1.2)
      FASI5.0
 4.4
 4.7
 5.5
 0.3
 6.4
      TQI2.4
 5.8
 
 
 2.4
 100.0
            Total23.6
 3.6
 21.1
 3.6
 2.5
 11.8
            
Insurance and claims           
      Forward Air8.7
 1.8
 8.9
 1.8
 (0.2) (2.2)
      FASI3.3
 2.9
 2.4
 2.8
 0.9
 37.5
      TQI0.5
 1.2
 
 
 0.5
 100.0
            Total12.5
 1.9
 11.3
 1.9
 1.2
 10.6
            
Fuel expense           
      Forward Air4.0
 0.8
 4.2
 0.8
 (0.2) (4.8)
      FASI7.0
 6.2
 5.8
 6.8
 1.2
 20.7
      TQI4.2
 10.1
 
 
 4.2
 100.0
            Total15.2
 2.3
 10.0
 1.7
 5.2
 52.0
            
Other operating expenses           
      Forward Air37.0
 7.4
 35.8
 7.1
 1.2
 3.4
      FASI13.2
 11.6
 7.3
 8.6
 5.9
 80.8
      TQI1.4
 3.3
 
 
 1.4
 100.0
      Intercompany eliminations(0.9) 23.7
 (0.3) 13.0
 (0.6) 200.0
            Total50.7
 7.8
 42.8
 7.3
 7.9
 18.5
            
Income from operations           
      Forward Air78.7
 15.7
 81.5
 16.2
 (2.8) (3.4)
      FASI2.1
 1.9
 2.0
 2.4
 0.1
 5.0
      TQI3.6
 8.6
 
 
 3.6
 100.0
            Total$84.4
 12.9 % $83.5
 14.3 % $0.9
 1.1 %


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Table of Contents

The following table presents the components of the Forward Air segment’s operating revenue and purchased transportation for the years ended December 31, 2013 and 2012 (in millions):
 Year ended
 December 31,Percent of December 31,Percent of  Percent
 2013Revenue 2012Revenue ChangeChange
Operating Revenue        
Forward Air        
      Airport-to-airport$393.3
78.5 % $391.2
78.0 % $2.1
0.5 %
      Logistics services        
Expedited full truckload - TLX74.4
14.8
 77.0
15.3
 (2.6)(3.4)
Intermodal/drayage5.1
1.0
 5.9
1.2
 (0.8)(13.6)
Total Logistics services79.5
15.8
 82.9
16.5
 (3.4)(4.1)
      Other Forward Air services28.3
5.7
 27.6
5.5
 0.7
2.5
Forward Air - Total revenue501.1
76.8
 501.7
85.9
 (0.6)(0.1)
TQI - Pharmaceutical services41.8
6.4
 

 41.8
100.0
Forward Air Solutions - Pool distribution113.4
17.4
 85.0
14.5
 28.4
33.4
Intersegment eliminations(3.8)(0.6) (2.3)(0.4) (1.5)65.2
Consolidated operating revenue$652.5
100.0 % $584.4
100.0 % $68.1
11.7 %
         
 Year ended
 December 31,Percent of December 31,Percent of  Percent
 2013Revenue 2012Revenue ChangeChange
Purchased Transportation        
Forward Air        
      Airport-to-airport$163.3
41.5 % $160.7
41.1 % $2.6
1.6 %
      Logistics services        
Expedited full truckload - TLX56.2
75.5
 59.2
76.9
 (3.0)(5.1)
Intermodal/drayage3.1
60.8
 3.5
59.3
 (0.4)(11.4)
Total Logistics services59.3
74.6
 62.7
75.6
 (3.4)(5.4)
      Other Forward Air services8.3
29.3
 8.0
29.0
 0.3
3.8
Forward Air - Total purchased transportation230.9
46.1
 231.4
46.1
 (0.5)(0.2)
TQI - Pharmaceutical services23.2
55.5
 

 23.2
100.0
Forward Air Solutions - Pool distribution34.5
30.4
 23.3
27.4
 11.2
48.1
Intersegment eliminations(2.9)76.3
 (2.0)87.0
 (0.9)45.0
Consolidated purchased transportation$285.7
43.8 % $252.7
43.3 % $33.0
13.1 %


Year ended December 31, 2013 compared to Year ended December 31, 2012
Pool Distribution Segment Information
(In millions)
(Unaudited)
            
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2015 Revenue 2014 Revenue Change Change
Operating revenue$130.0
 100.0% $118.3
 100.0% $11.7
 9.9 %
            
Operating expenses:           
Purchased transportation35.0
 26.9
 31.4
 26.5
 3.6
 11.5
Salaries, wages and employee benefits48.8
 37.5
 41.8
 35.3
 7.0
 16.7
Operating leases10.2
 7.8
 9.0
 7.6
 1.2
 13.3
Depreciation and amortization6.0
 4.6
 5.8
 4.9
 0.2
 3.4
Insurance and claims3.7
 2.8
 3.1
 2.6
 0.6
 19.4
Fuel expense5.4
 4.2
 7.3
 6.2
 (1.9) (26.0)
Other operating expenses17.0
 13.1
 15.4
 13.0
 1.6
 10.4
Total operating expenses126.1
 97.0
 113.8
 96.2
 12.3
 10.8
Income from operations$3.9
 3.0% $4.5
 3.8% $(0.6) (13.3)%

Revenues
OperatingPool operating revenue increased by $68.1$11.7 million, or 11.7%9.9%, to $652.5$130.0 million for the year ended December 31, 20132015 from $584.4$118.3 million for the year ended December 31, 2012.

Forward Air
Forward Air operating revenue decreased $0.6 million, or 0.1%, to $501.1 million from $501.7 million, accounting for 76.8% of consolidated operating revenue for the year ended December 31, 2013. Airport-to-airport revenue, which is the largest component of our consolidated operating revenue, increased $2.1 million, or 0.5%, to $393.3 million from $391.2 million. Airport-to-airport revenue accounted for 78.5% of the Forward Air’s operating revenue during the years ended December 31, 2013 compared

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to 78.0% for the year ended December 31, 2012.  An increase in tonnage net of a decline in our base revenue per pound, excluding net fuel surcharge revenue and Forward Air Complete™ (“Complete”) revenue, accounted for $2.9 million of the increase in airport-to-airport revenue. Our airport-to-airport business is priced on a per pound basis and the average revenue per pound, excluding the impact of fuel surcharges and Complete, decreased 0.4% for the year ended December 31, 2013 versus the year ended December 31, 2012. Tonnage that transited our network increased by 1.4% during the year ended December 31, 2013 compared with the year ended December 31, 2012.2014.  The increase in airport-to-airportwas attributable to current year rate increases, increased volume from previously existing customers and new revenue wasfrom business wins. These increases were partially offset by a decrease in Complete pick-up and delivery revenue.  Complete pick-up and delivery revenue decreased $0.9 million, or 1.7%, during the year ended December 31, 2013 compared to the year ended December 31, 2012.  The decrease in Complete revenue is attributable to a reduction in the attachment rate of our Complete service to our standard airport-to-airport linehaul service, to 17.3% in 2013 compared to 23.1% in 2012. The decline in the Complete attachment rate was mainly attributable to the loss of a customer. Airport-to-airport net fuel surcharge revenue for the year ended December 31, 2013 was flat compared to the year ended December 31, 2012.revenue.

Logistics revenue, which is primarily TLX and priced on a per mile basis,Purchased Transportation

Pool purchased transportation decreased $3.4$3.6 million, or 4.1%11.5%, to $79.5$35.0 million for the year ended December 31, 20132015 from $82.9$31.4 million for the year ended December 31, 2012.  TLX revenue decreased $2.6 million, or 3.4%, year-over-year as miles driven to support our TLX revenue decreased 3.8%. However, the decline in TLX mileage was partially offset by a 0.4% increase in TLX average revenue per mile.  The change in miles and average revenue per mile is mostly attributable to a change in customer mix.  The remaining $0.8 million decrease in logistics revenue was attributable to declines in our drayage business and other non-mileage based services. Drayage services declined $0.8 million on the loss of a customer.
Other revenue, which includes warehousing services and terminal handling, accounts for the final component of Forward Air operating revenue. Other revenue increased $0.7 million, or 2.5%, to $28.3 million during the year ended December 31, 2013 from $27.6 million during the year ended December 31, 2012.  The increase in revenue was mainly attributable to container handling services performed at certain terminals.

FASI
FASI operating revenue increased $28.4 million, or 33.4%, to $113.4 million for the year ended December 31, 2013 from $85.0 million for the year ended December 31, 2012.  The increase in revenue was attributable to new business wins, primarily from two new customers that were initiated during the fourth quarter of 2012, February 2013 and April 2013. In order to service this new business FASI opened three new agent stations and two new service centers.
TQI

TQI operating revenue of $41.8 million represents temperature-controlled truckload and less-than-truckload services provided from the acquisition date of March 4, 2013 through December 31, 2013.

Intercompany Eliminations
Intercompany eliminations increased $1.5 million, or 65.2%, to $3.8 million during the year ended December 31, 2013 from $2.3 million during the year ended December 31, 2012.   The intercompany eliminations are the result of truckload, airport-to-airport, and handling services Forward Air provided to FASI, truckload services Forward Air provided to TQI and FASI cartage and handling services provided to Forward Air.

Purchased Transportation
Purchased transportation increased by $33.0 million, or 13.1%, to $285.7 million for the year ended December 31, 2013 from $252.7 million for the year ended December 31, 2012.  As a percentage of total operating revenue, purchased transportation was 43.8% during the year ended December 31, 2013 compared to 43.3% for the year ended December 31, 2012.

Forward Air
Forward Air’s purchased transportation decreased by $0.5 million, or 0.2%, to $230.9 million for the year ended December 31, 2013 from $231.4 million for the year ended December 31, 2012. The decrease in purchased transportation is primarily attributable to 0.6% decrease in the total cost per mile, net of a 0.4% increase in miles driven for the year ended December 31, 2013 versus the year ended December 31, 2012. As a percentage of segment operating revenue, Forward Air purchased transportation was 46.1% during the years ended December 31, 2013 and 2012.

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Purchased transportation costs for our airport-to-airport network increased $2.6 million, or 1.6%, to $163.3 million for the year ended December 31, 2013 from $160.7 million for the year ended December 31, 2012.  For the year ended December 31, 2013, purchased transportation for our airport-to-airport network increased to 41.5% of airport-to-airport revenue from 41.1% for the year ended December 31, 2012.  The $2.6 million increase is partially attributable to a 2.3% increase in miles driven by our network of owner-operators or third party transportation providers in addition to a 0.3% increase in cost per mile paid to our network of owner-operators or third party transportation providers.  The increase in miles increased purchased transportation by $2.9 million while the increase in cost per mile increased purchased transportation $0.4 million.  Miles driven by our network of owner-operators or third party transportation providers increased in conjunction with the tonnage increase discussed above and a shift in our customer and route mix. The 0.3% increase in airport-to-airport cost per mile was mostly the result of increased utilization of more costly third party transportation providers as opposed to our network of owner-operators. These increases associated with higher airport-to-airport mileage and cost per mile, were partially offset by a $0.7 million decrease in third party transportation costs associated with the reduced Complete volumes discussed above.
Purchased transportation costs for our logistics revenue decreased $3.4 million, or 5.4%, to $59.3 million for the year ended December 31, 2013 from $62.7 million for the year ended December 31, 2012. For the year ended December 31, 2013, logistics’ purchased transportation costs represented 74.6% of logistics revenue versus 75.6% for the year ended December 31, 2012. The reduction in logistics’ purchased transportation was largely attributable to a $3.0 million, or 5.1%, decrease in TLX purchased transportation.  Miles driven to support our TLX revenue decreased 3.8% and the cost per mile decreased 1.3% year-over-year.   The improvement in the cost per mile was the result of increased utilization of our network of owner-operators, as opposed to more costly third party transportation providers. The remaining $0.4 million decrease in logistics purchase transportation was attributable to $0.4 million decrease in our drayage business. Purchased transportation for our drayage services declined in conjunction with the drayage revenue decline discussed previously.
     Purchased transportation costs related to our other revenue increased $0.3 million, or 3.8%, to $8.3 million for the year ended December 31, 2013 from $8.0 million for the year ended December 31, 2012. Other purchased transportation costs as a percentage of other revenue increased to 29.3% of other revenue for the year ended December 31, 2013 from 29.0% for the year ended December 31, 2012.  Other purchased transportation increased as a percentage of the associated revenue as certain airport-to-airport linehaul business required the use of local pick-up and delivery services. This new business required us to incur other purchased transportation costs without direct corresponding other revenue.

FASI
FASI purchased transportation increased $11.2 million, or 48.1%, to $34.5 million for the year ended December 31, 2013 from $23.3 million for the year ended December 31, 2012.  FASI2014.  Pool purchased transportation as a percentage of revenue was 30.4%26.9% for the year ended December 31, 20132015 compared to 27.4%26.5% for the year ended December 31, 2012.2014.  The increase in FASIPool purchased transportation as a percentage of revenue was attributable to an increase in owner operator usage, as opposed to Company drivers to handle the new business discussed above having an increased linehaul component which increased the utilization of owner-operators and third-party transportation providers.additional revenue mentioned above.

TQI

TQI purchased transportation of $23.2 million, or 55.5% of revenue, represents costs associated with payments to owner-operators, Forward Air and third party transportation providers for services performed from the acquisition date of March 4, 2013 through December 31, 2013.

Intercompany Eliminations
Intercompany eliminations increased $0.9 million, or 45.0%, to $2.9 million during the year ended December 31, 2013 from $2.0 million during the year ended December 31, 2012. The intercompany eliminations are the result of truckload, airport-to-airport, and handling services Forward Air provided to FASI, truckload services Forward Air provided to TQI and FASI cartage and handling services provided to Forward Air.
Salaries, Wages, and Benefits
Salaries, wages and employee benefits of Pool increased $16.1by $7.0 million, or 11.9%16.7%, to $151.1$48.8 million for the year ended December 31, 20132015 from $135.0$41.8 million for the year ended December 31, 2012.2014.  As a percentage of total operating revenue, salaries, wages and employee benefits was 23.2% during the year ended December 31, 2013 compared to 23.1% in December 31, 2012.



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Forward Air
Salaries, wages and employee benefits of Forward Air increased by $2.3 million, or 2.2%, to $105.4 million for the year ended December 31, 2013 from $103.1 million for the year ended December 31, 2012.  Salaries, wages and employee benefits were 21.0% of Forward Air’s operating revenue for the year ended December 31, 2013 compared to 20.6% for the year ended December 31, 2012. The increase in salaries, wages and employee benefits in total dollars and as a percentage of revenue was mainly due to increased health insurance and workers' compensation expenses and higher wages and benefits paid to employees, net of reductions in employee incentives. Health insurance and workers' compensation expenses increased $2.0 million for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was largely driven by increased health insurance claims in 2013 and favorable claim development in the second quarter of 2012 identified in our semi-annual actuarial review. A similar favorable development did not recur in 2013. Wages and benefits paid to employees increased $2.5 million, or 3.0%, mainly as a result of 2013 cost of living increases and a full year of 2012 merit pay increases. Accruals for employee incentives decreased approximately $2.2 million as incentives were reduced in conjunction with Forward Air not meeting earnings and performance goals.

FASI
Salaries, wages and employee benefits of FASI increased by $7.4 million, or 23.2%, to $39.3 million for the year ended December 31, 2013 from $31.9 million for the year ended December 31, 2012.  As a percentage of FASIPool operating revenue, salaries, wages and benefits decreased to 34.7% for the year ended December 31, 2013 comparedincreased to 37.5% for the year ended December 31, 2012.  FASI salaries, wages and employee benefits are higher as2015 compared to 35.3% for the year ended December 31, 2014. The $7.0 million increase is partly due to a percentage of operating revenue than our Forward Air segment, as a larger percentage of FASI transportation services are performed by Company-employed drivers.  The$3.9 million increase in salaries, wagesdock and employee benefitsdriver pay to handle the additional business discussed previously. New administrative hires and 2015 pay increases accounted for an additional $2.1 million increase from the same period in total dollars is largely2014. The remaining increase of $1.0 million was due to higher wagesincreases in health insurance and benefits that increased in conjunction with the revenue volumes discussed previously. The decline as a percentage of revenue is largely attributable to improved terminal labor efficiency during 2013 and leverage on fixed salaries and benefits as a result of the increased revenue volumes discussed above.
Despite the improvement as percentage of revenue FASI salaries, wages and benefits were adversely impacted by the new business start up in late February 2013. Due to the anticipated volumes from the new business, FASI maintained higher headcount, primarily of driver personnel, during January and February which resulted in approximately $0.1 million of additional costs during the first quarter of 2013.

TQI

TQI salaries, wages and employee benefits were $6.4 million, or 15.3% of revenue, and represent salaries, wages and benefits for Company-employed drivers, other operations personnel and TQI management since the acquisition on March 4, 2013 through December 31, 2013.workers' compensation costs.

Operating Leases

Operating leases increased by $1.3$1.2 million, or 4.6%13.3%, to $29.3$10.2 million for the year ended December 31, 20132015 from $28.0 million in the year ended December 31, 2012.  Operating leases, the largest component of which is facility rent, were 4.5% of consolidated operating revenue for the year ended December 31, 2013 compared with 4.8% for the year ended December 31, 2012.

Forward Air
Operating leases decreased $0.2 million, or 1.0%, to $20.2 million for the year ended December 31, 2013 from $20.4 million for the year ended December 31, 2012.  Operating leases were 4.0% of Forward Air’s operating revenue for the year ended December 31, 2013 compared with 4.1% for the year ended December 31, 2012.  The decrease in operating leases was the result of a $0.4 million decrease in trailer and $0.2 million decrease in truck rentals, partially offset by a $0.4 million increase in facility rent. The decline in trailer and truck rentals was in conjunction with new trailers and trucks purchased during 2013. Office rent increased on relocation of certain facilities to larger, more expensive facilities.

FASI
Operating leases increased $1.4 million, or 18.4%, to $9.0 million for the year ended December 31, 2013 from $7.62014.  Operating leases were 7.8% of Pool operating revenue for the year ended

December 31, 2015 compared with 7.6% for the year ended December 31, 2014.  The $1.2 million increase is attributable to a $0.8 million increase in facility rent expense due to the opening of a new terminal in the second quarter of 2015 and certain terminals moving into larger facilities to handle additional business. The remaining $0.4 million increase is due to truck rental expense primarily associated with the new terminal opened in the second quarter of 2015.

Depreciation and Amortization

Depreciation and amortization increased $0.2 million, or 3.4%, to $6.0 million for the year ended December 31, 2012.  Operating leases were 7.9% of FASI operating revenue for the year ended December 31, 2013 compared with 9.0% for the year ended December 31, 2012.  The increase in total dollars was attributable to $1.4 million increase for additional trailer and truck leases and rentals due to the increased revenue volumes discussed previously.

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Further, FASI facility lease expense did not increase for the new locations opened in conjunction with the new business, as the new locations were either agent stations or service centers operated within a customer's facility.

TQI

Operating lease expense for TQI was $0.1 million, or 0.2% of operating revenue, for the year ended December 31, 2013, as currently TQI does not utilize leased or rented equipment and only leases one facility for its administrative offices.

Depreciation and Amortization
Depreciation and amortization increased $2.5 million, or 11.8%, to $23.62015 from $5.8 million for the year ended December 31, 2013 from $21.1 million for the year ended December 31, 2012.  Depreciation and amortization was 3.6% of consolidated operating revenue for the years ended December 31, 2013 and 2012.

Forward Air
Depreciation and amortization decreased $0.2 million, or 1.2%, to $16.2 million for the year ended December 31, 2013 from $16.4 million for the year ended December 31, 2012.2014.  Depreciation and amortization expense as a percentage of Forward AirPool operating revenue was 3.2% in the year ended December 31, 2013 compared to 3.3%4.6% for the year ended December 31, 2012.  Depreciation decreased year-over-year as certain internally developed software2015 compared to 4.9% for the year ended December 31, 2014.  The increase in Pool depreciation in total dollars is attributable to information technology equipment, conveyors and older trailers became fully depreciated, but these decreases were partially offset by depreciation on new trucks and trailersconveyor improvements purchased during 2013.2015.

FASIInsurance and Claims

DepreciationPool insurance and amortizationclaims increased $0.3$0.6 million, or 6.4%19.4%, to $5.0$3.7 million for the year ended December 31, 20132015 from $4.7$3.1 million for the year ended December 31, 2012.  Depreciation and amortization expense as a percentage of FASI operating revenue was 4.4% for the year ended December 31, 2013 compared to 5.5% for the year ended December 31, 2012.  The increase in FASI depreciation is attributable to new tractors purchased to replace aging, fully depreciated equipment.

TQI

TQI depreciation and amortization of $2.4 million, or 5.8% of revenue, represents $0.9 million of depreciation on acquired equipment and $1.5 million of amortization on acquired intangible assets since the acquisition of TQI on March 4, 2013.

Insurance and Claims
Insurance and claims expense increased $1.2 million, or 10.6%, to $12.5 million for the year ended December 31, 2013 from $11.3 million for the year ended December 31, 2012.  Insurance and claims was 1.9% of consolidated operating revenue during the years ended December 31, 2013 and 2012.

Forward Air
Forward Air insurance and claims expense decreased $0.2 million, or 2.2%, to $8.7 million for the year ended December 31, 2013 from $8.9 million for the year ended December 31, 2012.  Insurance and claims as a percentage of Forward Air’s operating revenue was 1.8% for the years ended December 31, 2013 and 2012. The decrease in Forward Air insurance and claims was driven by a $0.9 million decrease in cargo claims partially offset by a $0.5 million increase in vehicle accident repairs and a $0.2 million increase in insurance related costs. Cargo claims decreased due to 2012 including several unusually large claims, while 2013 did not include any similar claims.

FASI
FASI insurance and claims increased $0.9 million. or 37.5%, to $3.3 million for the year ended December 31, 2013 from $2.4 million for the year ended December 31, 2012.2014. As a percentage of operating revenue, insurance and claims was 2.9% for the year ended December 31, 2013 compared to 2.8% for the year ended December 31, 2012.2015 compared to 2.6% for the year ended December 31, 2014. The increase in FASIPool insurance and claims in total dollars was largely attributable to a $0.4$0.6 million increase in cargo claims and a $0.3 million$0.2 increase in vehicle accident repairs anddamage repairs. The increases were slightly offset by a $0.2 million increase in reserves for accident claims and related insurance costs.




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TQI

TQI insurance and claims of $0.5 million, or 1.2% of revenue, includes $0.4 million for insurance premiums and $0.1 million ofdecrease in vehicle accident repairs since the TQI acquisition on March 4, 2013 through December 31, 2013.insurance claims as 2014 included a large reserve for a fourth quarter 2014 accident.

Fuel Expense

FuelPool fuel expense increased $5.2decreased $1.9 million, or 52.0%26.0%, to $15.2$5.4 million for the year ended December 31, 2013 and2015 from $10.0$7.3 million for the year ended December 31, 2012.  Fuel expense was 2.3% of consolidated operating revenue for the year ended December 31, 2013 compared to 1.7% for the year ended December 31, 2012.

Forward Air
Forward Air fuel expense decreased $0.2 million, or 4.8%, to $4.0 million for the year ended December 31, 2013 from $4.2 million in the year ended December 31, 2012.  Fuel expense was 0.8% of Forward Air’s operating revenue for the years ended December 31, 2013 and 2012.

FASI
FASI fuel expense increased $1.2 million, or 20.7%, to $7.0 million for the year ended December 31, 2013 from $5.8 million for the year ended December 31, 2012.2014.  Fuel expenses were 6.2%4.2% of FASIPool operating revenue during the year ended December 31, 20132015 compared to 6.8%6.2% for the year ended December 31, 2012.  FASI2014. Pool fuel expense is significantly higher asexpenses decreased due to a percentage of operating revenue than Forward Air’sdecline in year-over-year fuel expense, as FASI utilizes a higher ratio of Company-employed drivers and Company-owned or leased vehicles in its operations than Forward Air.  The increase in FASI fuel expense was mostly the result of increased Company miles associated with the higher business volumes discussed previously and changes in average fuel prices.

TQI

TQI fuel expense was $4.2 million, or 10.1% of revenue, and represents fuel expense incurred since the acquisition of TQI on March 4, 2013 through December 31, 2013. TQI fuel expense is significantly higher as a percentage of operating revenue than Forward Air and FASI's fuel expense, as TQI utilizes a higher ratio of Company-employed drivers and Company-owned vehicles in its operations.

Other Operating Expenses

OtherPool other operating expenses increased $7.9$1.6 million, or 18.5%10.4%, to $50.7$17.0 million for the year ended December 31, 2013 from $42.82015 compared to $15.4 million for the year ended December 31, 2012.  Other operating expenses were 7.8% of consolidated operating revenue for the year ended December 31, 2013 compared with 7.3% for the year ended December 31, 2012.

Forward Air
Forward Air other operating expenses increased $1.2 million, or 3.4%, to $37.0 million for the year ended December 31, 2013 from $35.8 million for the year ended December 31, 2012.  Forward Air2014.  Pool other operating expenses were 7.4%13.1% of operating revenue for the year ended December 31, 20132015 compared to 7.1%13.0% for the year ended December 31, 2012.  The2014. Pool's slight increase in other operating expenses in total dollars is attributable to increased variable costs, such as vehicle maintenance and dock and terminal supplies, during the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase in other operating expenses as a percentagepercent of revenue was mostly attributable to $1.1 millionvehicle and dock maintenance costs, largely due to opening a new facility in the second quarter of merger2015 and acquisition related costs, $0.2 million increasemoving certain facilities in bad debt reserves and $0.8 million increase in other taxes and licenses. These increases were partially offsetthe third quarter of 2015 to accommodate business wins mentioned above.

Income from Operations

Pool income from operations deteriorated by a $0.8 million increase in gains on the disposal of operating equipment for the year ended December 31, 2013 compared to the year ended December 31, 2012.
FASI
FASI other operating expenses increased $5.9$0.6 million, or 80.8%,13.3% to $13.2$3.9 million for the year ended December 31, 2013 compared to $7.32015 from $4.5 million for the year ended December 31, 2012.  FASI other operating expenses were 11.6%2014.  Pool income from operations was 3.0% of operating revenue for the year ended December 31, 2013 compared to 8.6% for the year ended December 31, 2012. The increase in FASI's other operating expenses as a percentage of revenue and in terms of total dollars, was driven by a $4.5 million increase in agent station costs. As noted above, we opened additional agent stations to service the new business initiated during February and April 2013.

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The remaining increase is attributable to higher variable terminal and maintenance costs which increased in conjunction with the revenue volumes discussed previously.

TQI

TQI other operating expenses were $1.4 million, or 3.3% of revenue, and represent costs such as vehicle maintenance and miscellaneous office and administrative expenses incurred since the acquisition of TQI on March 4, 2013 through December 31, 2013. Other operating expenses for TQI were reduced by $0.6 million reduction in the fair value of the earn out liability associated with the acquisition of TQI. The reduction in the liability was the result of reductions in the projected cash flows used to estimate the fair value of the liability.

Intercompany Eliminations
Intercompany eliminations were $0.9 million during the year ended December 31, 2013 compared to $0.3 million for the year ended December 31, 2012. The intercompany eliminations are for agent station services Forward Air and FASI provided each other during the years ended December 31, 2013 and 2012.

Income from Operations
Income from operations increased by $0.9 million, or 1.1%, to $84.4 million for the year ended December 31, 20132015 compared with $83.5 million for the year ended December 31, 2012.  Income from operations was 12.9% of consolidated operating revenue for the year ended December 31, 2013 compared with 14.3% for the year ended December 31, 2012.

Forward Air
Forward Air income from operations decreased by $2.8 million, or 3.4%, to $78.7 million for the year ended December 31, 2013 compared with $81.5 million for the year ended December 31, 2012.   Forward Air’s income from operations was 15.7%3.8% of operating revenue for the year ended December 31, 20132014.  The decline in Pool operating income was primarily the result of increases in health insurance costs, reduced net fuel surcharge revenue, cargo claims and costs associated with opening new facilities during 2015.

Intermodal - Year Ended December 31, 2015 compared with 16.2%to Year Ended December 31, 2014

The following table sets forth our historical financial data of the Intermodal segment for the year ended December 31, 2012.  The decline in income from operations was primarily the result of reduced revenue2015 and increased workers' compensation and health insurance costs.2014 (in millions):

FASI
Intermodal Segment Information
(In millions)
(Unaudited)
            
 Year ended
 December 31, Percent of December 31, Percent of   Percent
 2015 Revenue 2014 Revenue Change Change
Operating revenue$104.3
 100.0% $75.9
 100.0% $28.4
 37.4 %
            
Operating expenses:           
Purchased transportation33.8
 32.4
 25.0
 32.9
 8.8
 35.2
Salaries, wages and employee benefits24.4
 23.4
 18.1
 23.8
 6.3
 34.8
Operating leases11.7
 11.2
 4.8
 6.3
 6.9
 143.8
Depreciation and amortization3.8
 3.6
 3.4
 4.5
 0.4
 11.8
Insurance and claims2.6
 2.5
 1.7
 2.2
 0.9
 52.9
Fuel expense3.2
 3.1
 4.3
 5.7
 (1.1) (25.6)
Other operating expenses12.9
 12.4
 11.2
 14.8
 1.7
 15.2
Total operating expenses92.4
 88.6
 68.5
 90.3
 23.9
 34.9
Income from operations$11.9
 11.4% $7.4
 9.7% $4.5
 60.8 %
FASI income from operations improved by $0.1
Revenues

Intermodal operating revenue increased $28.4 million, or 5.0%37.4%, to $2.1$104.3 million for the year ended December 31, 20132015 from $2.0$75.9 million for the same period in 2014.   The increase in operating revenue was primarily attributable to 2015 including a full year of CST, RGL and MMT compared to the same period of 2014.

Purchased Transportation

Intermodal purchased transportation increased $8.8 million, or 35.2%, to $33.8 million for the year ended December 31, 2012.  FASI income2015 from operations$25.0 million for the same period in 2014.  Intermodal purchased transportation as a percentage of revenue was 1.9%32.4% for the year ended December 31, 2015 compared to 32.9% for the year ended December 31, 2014.  The decrease as a percentage of revenue was due to a change in business mix as revenues, such as rental and storage revenues, that do not not utilize owner operators increased for the year ended December 31, 2015 compared to the same period of 2014.

Salaries, Wages, and Benefits

Intermodal salaries, wages and employee benefits increased $6.3 million, or 34.8%, to $24.4 million for the year ended December 31, 2015 compared to $18.1 million for the year ended December 31, 2014.  As a percentage of Intermodal operating revenue, salaries, wages and benefits decreased to 23.4% for the year ended December 31, 2015 compared to 23.8% for the same period in 2014. The improvement as a percentage of revenue was due to a change in business mix as revenues, such as rental and storage revenues, that do not not utilize Company-employed drivers increased for the year ended December 31, 2015 compared to the same period of 2014.

Operating Leases

Operating leases increased $6.9 million to $11.7 million for the year ended December 31, 2015 from $4.8 million for the same period in 2014.  Operating leases were 11.2% of Intermodal operating revenue for the year ended December 31, 2015 compared with 6.3% in the same period of 2014.  Operating leases increased due to a $6.3 million increase in trailer and tractor rentals to handle additional revenue and a $0.6 million increase in rent expense for additional facilities assumed with the acquisitions.

Depreciation and Amortization

Depreciation and amortization increased $0.4 million, or 11.8%, to $3.8 million for the year ended December 31, 2015 from $3.4 million for the same period in 2014. Depreciation and amortization expense as a percentage of Intermodal operating revenue was 3.6% for the year ended December 31, 2015 compared to 4.5% for the same period of 2015. Depreciation and amortization increased in total dollars due to 2015 including a full year of amortization on intangible assets for the CST, RGL and MMT acquisitions.

Insurance and Claims

Intermodal insurance and claims expense increased $0.9 million, or 52.9%, to $2.6 million for the year ended December 31, 2015 from $1.7 million for the year ended December 31, 2014.   Intermodal insurance and claims were 2.5% of operating revenue for the year ended December 31, 20132015 compared 2.4%with 2.2% for the same period in 2014. The increase in Intermodal insurance and claims was attributable to a full year of insurance premiums for the CST, RGL and MMT acquisitions.

Fuel Expense

Intermodal fuel expense decreased $1.1 million, or 25.6%, to $3.2 million for the year ended December 31, 2015 from $4.3 million in the same period of 2014.  Fuel expenses were 3.1% of Intermodal operating revenue for the year ended December 31, 2012.  The2015 compared to 5.7% in the same period of 2014.  Intermodal fuel expenses decreased primarily as a result of the year-over-year decline in incomefuel prices offset by increased revenue from operations as a percentagefull year of revenue is largely attributable to start upthe CST, RGL and integration costs as FASI's struggled to efficiently integrate new business.MMT acquisitions.

TQIOther Operating Expenses

TQI income from operations was $3.6Intermodal other operating expenses increased $1.7 million, or 8.6% of revenue, since the acquisition of TQI on March 4, 2013 through December 31, 2013. TQI income from operations benefited from the $0.6 million reduction in the fair value of the earn out liability associated with the acquisition of TQI.

Interest Expense
Interest expense was $0.515.2%, to $12.9 million for the year ended December 31, 20132015 compared to $11.2 million for the same period of 2015.  Intermodal other operating expenses for the year ended December 31, 2015 were 12.4% compared to 14.8% for the same period of 2014.  The increase in Intermodal other operating expenses was due mostly to a $1.6 million increase in container related rental and storage charges. The remaining increase was due to terminal expenses and other variable costs corresponding with a full year of CST, RGL and MMT acquisitions.

Income from Operations

Intermodal’s income from operations increased $0.1by $4.5 million, or 25.0%60.8%, from $0.4to $11.9 million for the year ended December 31, 2012. Increase is primarily2015 compared with $7.4 million for the same period in 2014.  Income from operations as a full yearpercentage of fees associated with our line of credit and accrued interest on income tax contingency accruals.
Other, Net
Other, net of $0.1 millionIntermodal operating revenue was 11.4% for the year ended December 31, 2013,2015 compared to 9.7% in the same period of 2014.  The improvement in operating income was primarily represents interestattributable to a full year of operating income earned on excess cash balancescontributions for the CST, RGL and unrealized gains on trading securities held.MMT acquisitions.



Other Operations


42

TableOther operations deteriorated to a $26.5 million operating loss during the year ended December 31, 2015 from a $0.3 million operating loss during the year ended December 31, 2014. The year-over-year decline in other operations and corporate activities was largely due to $23.5 million of Contents

Provision for Income Taxes
The combined federalTowne acquisition and state effective tax rateintegration costs included in results for the year ended December 31, 2013 was 35.1% compared to an effective rate2015 and no similar costs being included in the same period of 36.7%2014. The acquisition and integration costs included $2.6 million of severance obligations and $11.7 million in reserves for remaining net payments, on duplicate facilities vacated during the year ended December 31, 2015. The expenses associated with the severance obligations and vacated, duplicate facility costs were recognized in the salaries, wages and benefits and operating lease line items, respectively. During the year ended December 31, 2015, we also incurred expense of $9.2 million for various other integration and transaction related costs which are largely included in other operating expenses. Other operations for the year ended December 31, 2012.2015 also included approximately $3.0 million of additional expenses associated with our semi-annual actuarial analyses of workers' compensation and vehicles claims. The reduction$0.3 million in our effective tax rate was due to the 2013 retroactive reinstatement of alternative fuel tax credits for 2012operating loss included in other operations and benefits obtained from disqualified dispositions by employees of previously non-deductible incentive stock options.

Net Income
As a result of the foregoing factors, net income increased by $1.8 million, or 3.4%, to $54.5 millioncorporate activities for the year ended December 31, 2013 compared2014 was primarily for increases to $52.7 million for the year ended December 31, 2012.loss development reserves resulting from our semi-annual actuary analyses of our vehicle claims.

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Discussion of Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).  The preparation of financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Our estimates and assumptions are based on historical experience and changes in the business environment.  However, actual results may differ from estimates under different conditions, sometimes materially.  Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require management’s most subjective judgments.

Allowance for Doubtful Accounts

We evaluateThe Company evaluates the collectibilitycollectability of ourits accounts receivable based on a combination of factors. In circumstances in which managementthe Company is aware of a specific customer’s inability to meet its financial obligations to usthe Company (for example, bankruptcy filings, or accounts turned over for collection or litigation), we recordthe Company records a specific reserve for these bad debts against amounts due to reduce the net recognized receivable to the amount wethe Company reasonably believebelieves will be collected. For all other customers, we recognizethe Company recognizes reserves for these bad debts based on the length of time the receivables are past due. Specifically, amounts that are 90 days or more past due are reserved at 50%50.0% for Forward Air's airport-to-airportExpedited LTL, 10.0% for Intermodal, 25.0% for Pool and TLX operations, 10%up to 50.0% for Forward Air's intermodal drayage operations, 25% for FASI, 10% for TQI's pharmaceutical operations and 50% for TQI's non-pharmaceutical operations.TLS. If circumstances change (i.e., we experiencethe Company experiences higher than expected defaults or an unexpected material adverse change in a customer’s ability to meet its financial obligations to us)the Company), the estimates of the recoverability of amounts due to usthe Company could be changed by a material amount. Accounts are written off after all means of collection, including legal action, have been exhausted.

Allowance for Revenue Adjustments

Our allowance for revenue adjustments consists of amounts reserved for billing rate changes that are not captured upon load initiation. These adjustments generally arise: (i) when the sales department contemporaneously grants small rate changes (“spot quotes”) to customers that differ from the standard rates in the system; (ii) when freight requires dimensionalization or is reweighed resulting in a different required rate; (iii) when billing errors occur; and (iv) when data entry errors occur. When appropriate, permanent rate changes are initiated and reflected in the system. We monitor the manual revenue adjustments closely through the employment of various controls that are in place to ensure that revenue recognition is not compromised and that fraud does not occur. During 2014,2016, average revenue adjustments per month were approximately $0.2 million, on average revenue per month of approximately $65.1$81.9 million (approximately 0.3%0.2% of monthly revenue). In order to estimate the allowance for revenue adjustments related to ending accounts receivable, we prepare an analysis that considers average monthly revenue adjustments and the average lag for identifying and quantifying these revenue adjustments. Based on this analysis, we establish an allowance for approximately 45-10035-65 days (dependent upon experience by operating segment in the preceding twelve months) of average revenue adjustments, adjusted for rebates and billing errors. The lag is periodically adjusted based on actual historical experience. Additionally, the average amount of revenue adjustments per month can vary in relation to the level of sales or based on other factors (such as personnel issues that could result in excessive manual errors or in excessive spot quotes being granted). Both of these significant assumptions are continually evaluated for validity.appropriateness.




Self-Insurance Loss Reserves
 
Given the nature of our operating environment, we are subject to vehicle and general liability, workers' compensation and employee health insurance claims. To mitigate a portion of these risks, we maintain insurance for individual vehicle and general liability claims exceeding $0.5$0.8 million and workers' compensation claims and employee health insurance claims exceeding approximately $0.3 million, except in Ohio, where we are a qualified self-insured entity with an approximately $0.5 million self-insured retention. The amount of self-insurance loss reserves and loss adjustment expenses is determined based on an estimation process that uses information obtained from both company-specific and industry data, as well as general economic information. The estimation process for self-insurance loss exposure requires management to continuously monitor and evaluate the life cycle of claims. Using data obtained from this monitoring and our assumptions about the emerging trends, management develops information about the size of ultimate claims based on its historical experience and other available market information. The most significant assumptions used in the estimation process include determining the trend in loss costs, the expected consistency in the frequency and severity of claims incurred but not yet reported, changes in the timing of the reporting of losses from the loss date to the notification date, and expected costs to settle unpaid claims. We utilize semi-annual actuarial analysis to evaluate the open vehicle liability and workers' compensation claims and estimate the ongoing development exposure.

Changes in the inputs described above, such as claim life cycles, severity of claims and trends in loss costs, can result in material changes to our self-insurance loss reserves. Historically, significant changes in one assumption or changes in several

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assumptions have resulted in both increases and decreases to self-insurance loss reserves. Based on facts and circumstances one significant claim, such as a dock or vehicle accident, could result in an immediate increase in our self-insurance loss reserves of at least $0.3 million to $0.5$0.8 million, our self-insured retention limits. Significant facts and circumstances for a claim would involve the degree of injuries, whether fatalities occurred, the amount of property damage, the degree of our involvement and whether or not our employees or representatives followed our processes and procedures. However, changes in the above variables could also reduce our self-insurance loss reserves. For example, during the second quarter of 2012,in previous periods we have reduced our workers' compensation loss reserve by approximately $1.1over $1.0 million as the result of improvements in our loss experience and in the severity of claims incurred over a certain period of time.

As of December 31, 2016, we have recognized an offsetting insurance proceeds receivable and claims payable of $6.7 million for open vehicle and workers’ compensation claims in excess of our stop-loss limits.
Revenue Recognition

Operating revenue and related costs are recognized as of the date shipments are completed.  The transportation rates we charge our customers consist of base transportation rates and fuel surcharge rates.  The revenues earned and related direct freight expenses incurred from our base transportation services are recognized on a gross basis in revenue and in purchased transportation.  Transportation revenue is recognized on a gross basis as we are the primary obligor.  The fuel surcharges billed to customers and paid to owner-operators and third party transportation providers are recorded on a net basis in revenue as we are not the primary obligor with regards to the fuel surcharges.
 
Income Taxes

We account for income taxes using the liability method, whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be recovered or settled.  Also, we report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.  We recognize interest and penalties, if any, related to unrecognized tax benefits in interest expense and operating expenses, respectively. 

At December 31, 2014,2016, we had state net operating loss carryforwards of $6.5$18.2 million for certain legal entities that will expire between 20152016 and 2029.2030.   The use of these state net operating losses is limited to the future taxable income of separate legal entities.  Based on expectations of future taxable income, management believes that it is more likely than not that the results of operations for the relatedcertain legal entities will not generate sufficient taxable income to realize the net operating loss benefits for these state loss carryforwards.  As a result, a valuation allowance has been provided for these specific state loss carryforwards. The valuation allowance on these certain state loss carryforwards was approximately $0.3 million at December 31, 2014.2016 and 2015.

Valuation of Goodwill
 
We test our goodwill for impairment annually or more frequently if events or circumstances indicate impairment may exist. Examples of such events or circumstances could include a significant change in business climate or a loss of significant

customers. We complete our annual analysis of our reporting units as of the last day of our second quarter, June 30th. We first consider our operating segmentreporting unit and related components in accordance with U.S. GAAP. Goodwill is allocated to reporting units that are expected to benefit from the business combinations generating the goodwill. We have threefive reporting units - Forward Air, FASIExpedited LTL, Truckload Expedited, Intermodal, Pool Distribution and TQI. The Truckload Expedited and the TQI reporting units are included in the Truckload Premium Services reportable segment. In evaluating reporting units, we first assess qualitative factors to determine whether it is more likely than not that the fair value of any of itsthe reporting unitsunit is less than its carrying amount, including goodwill. When performing the qualitative assessment, we consider the impact of factors including, but not limited to, macroeconomic and industry conditions, overall financial performance of each reporting unit, litigation and new legislation. If based on the qualitative assessments, we believe it is more likely than not that the fair value of any reporting unit is less than the reporting unit's carrying amount, or periodically as deemed appropriate by management, we will prepare an estimation of the respective reporting unit's fair value utilizing a quantitative approach. If this estimation of fair value indicates that impairment potentially exists, we will then measure the amount of the impairment, if any. Goodwill impairment exists when the calculated implied fair value of goodwill is less than its carrying value.
We determine the fair value of our reporting units based on a combination of a market approach, which considers comparable companies, and the income approach, using a discounted cash flow model. Under the market approach, valuation multiples are derived based on a selection of comparable companies and applied to projected operating data for each reporting unit to arrive at an indication of fair value. Under the income approach, the discounted cash flow model determines fair value based on the present value of management prepared projected cash flows over a specific projection period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects our best estimate of the weighted average cost of capital of a market participant, and is adjusted for appropriate risk factors. We believe the most sensitive estimate used in our income approach is the management prepared projected cash flows. Consequently, as necessary we perform sensitivity tests on select reporting units to ensure reductions of the present value of the projected cash flows by at least 10% would not adversely impact

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the results of the goodwill impairment tests. Historically, we have equally weighted the income and market approaches as we believed the quality and quantity of the collected information were approximately equal. The inputs used in the fair value calculations for goodwill are classified within level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.
In 2014,2016, we performed a fair value estimation for each reporting unit, except Intermodal as we did not believe it was more likely than not that Intermodal's fair value was less than the carrying amount. Currently, there is no goodwill assigned to the Truckload Expedited reporting unit. Our 20142016 calculations for each reporting unitLTL and Pool Distribution indicated that, as of June 30, 2014,2016, the fair value of each reporting unit exceeded their carrying value by approximately 122.0% and 76.0%, respectively. However, due to TQI's financial performance falling notably short of our prior year projections, declining revenue from significant customers and strategic initiatives not having the required impact on financial results, we reduced TQI's projected cash flows and as a rangeresult our estimate of approximately 9.0%TQI's fair value no longer exceeded the respective carrying value as of June 30, 2016. We concluded that an impairment loss was probable and could be reasonably estimated. Consequently, we recorded a goodwill impairment charge of $25.7 million for the TQI reporting unit.
Additionally, the Company reviews its other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In conjunction with the TQI impairment analysis we obtained fair value information or prepared new fair value estimates for TQI's other long term assets. Impairment is recognized on assets classified as held and used when the sum of undiscounted estimated cash flows expected to 175.0%result from the use of the asset is less than the carrying value. If such measurement indicates a possible impairment, the estimated fair value of the asset is compared to its net book value to measure the impairment charge, if any. Through our TQI goodwill impairment calculations we determined there were indicators that TQI's customer relationship and non-compete intangible assets were impaired as the undiscounted cash flows associated with the applicable assets no longer exceeded the related assets' net book values. We then estimated the current market values of the customer relationship and non-compete assets using an income approach (level 3). Under this method, an intangible asset's fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To estimate fair value, we used cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. We believe the level and timing of cash flows appropriately reflect market participant assumptions. As a result of these analyses, we recorded an impairment charge of $16.5 million.

In addition, during the three months ended June 30, 2016, we also discontinued use of an owned maintenance facility and began efforts to sell the property. In conjunction with these actions, we incurred a $0.2 million impairment charge that was estimated using current offers we received to sell the property (level 1).


For our 20142016 analysis, the significant assumptions used for the income approach were 10 years of projected net cash flows discount rates between 11.5% and 16.0%the following discount and long-term growth rates between 4.0% and 5.0%. These estimatesrates:
  LTL Pool Distribution TQI
Discount rate 12.5% 17.0% 14.5%
Long-term growth rate 5.0% 5.0% 4.0%
As shown with the TQI impairment, these assumptions used to calculateestimate the fair value of each reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of the reporting unit's fair value and goodwill impairment for the reporting unit. For example, during the first quarter of 2009, we determined there were indicators of potential impairment of the goodwill assigned to the FASI segment. This determination was based on the continuing economic recession, declines in current market valuations, FASI operating losses in excess of expectations and reductions of projected net cash flows. As a result, we performed an interim impairment test as of March 31, 2009. Based on the results of the interim impairment test, we concluded that an impairment loss was probable and could be reasonably estimated. Consequently, we recorded a goodwill impairment charge of $7.0 million related to the FASI segment during the first quarter of 2009.

Share-Based Compensation
 
Our general practice has been to make a single annual grant to key employees and to generally make other grants only in connection with new employment or promotions.  In addition, we make annual grants to non-employee directors in conjunction with their annual election to our Board of Directors or at the time of their appointment to the Board of Directors.   For employees, we have granted stock options, non-vested shares and performance shares.  For non-employee directors, we have granted non-vested shares annually beginning in 2006.
 
Stock options typically expire seven years from the grant date and vest ratably over a three-year period. The share-based compensation for stock options are recognized, net of estimated forfeitures, ratably over the requisite service period, or vesting period. Forfeitures were estimated based on our historical experience. We used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted. The following table contains the weighted-average assumptions used to estimate the fair value of options granted.  These assumptions are highly subjective and changes in these assumptions can materially affect the fair value estimate.
 

December 31,
2014

December 31,
2013

December 31,
2012
December 31,
2016

December 31,
2015

December 31,
2014
Expected dividend yield1.2%
1.2%
0.9%1.0%
1.0%
1.2%
Expected stock price volatility38.5%
43.7%
46.6%28.9%
33.3%
38.5%
Weighted average risk-free interest rate1.6%
0.9%
0.8%1.3%
1.6%
1.6%
Expected life of options (years)5.28

5.2

4.2
5.8

5.9

5.3

The fair value of non-vested shares issued were estimated using the closing market prices for the business day of the grant. The share-based compensation for the non-vested shares is recognized, net of estimated forfeitures, ratably over the requisite service period or vesting period. Forfeitures are estimated based on our historical experience, but will be adjusted for future changes in forfeiture experience.

We have also granted performance shares to key employees. Under the terms of the performance share agreements, on the third anniversary of the grant date, we will issue to the employees a calculated number of common stock shares based on the three year performance of our common stock share pricetotal shareholder return as compared to the share price performancetotal shareholder return of a selected peer group. No shares may be issued if the share pricetotal shareholder return performance outperforms 30% or less of the peer group, but the number of shares issued may be doubled if the share pricetotal shareholder return performs better than 90% of the peer group. The share-based compensation for performance shares are recognized, net of estimated forfeitures, ratably over the requisite service period, or vesting period. The fair value of the performance shares was estimated using a Monte Carlo simulation. The following table contains the weighted-average assumptions used to estimate the fair value of performance shares granted.  These assumptions are highly subjective and changes in these assumptions can materially affect the fair value estimate.

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  Year ended    Year ended  

December 31,
2014
 December 31,
2013

December 31,
2012
December 31,
2016
 December 31,
2015

December 31,
2014
Expected stock price volatility32.5% 34.5%
40.8%22.3% 23.5%
32.5%
Weighted average risk-free interest rate0.7% 0.4%
0.4%0.8% 1.0%
0.7%

Under the ESPP, which has been approved by our shareholders, we are authorized to issue shares of Common Stock to our employees. These shares may be issued at a price equal to 90% of the lesser of the market value on the first day or the last

day of each six-month purchase period. Common Stock purchases are paid for through periodic payroll deductions and/or up to two large lump sum contributions.  We recognize share-based compensation on the date of purchase based on the difference between the purchase date fair market value and the employee purchase price.

Operating Leases
 
Certain operating leases include rent increases during the initial lease term. For these leases, we recognize the related rental expenses on a straight-line basis over the term of the lease, which includes any rent holiday period, and recordsrecord the difference between the amounts charged to operations and amount paid as rent as a rent liability.  Leasehold improvements are amortized over the shorter of the estimated useful life or the initial term of the lease. Reserves for idle facilities are initially measured at fair value of the portion of the lease payments associated with the vacated facilities, reduced by estimated sublease rentals.

ImpactRecent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued guidance that changes the accounting for certain aspects of Recent Account Pronouncementsshare-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital ("APIC") pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The guidance is effective in 2017 with early adoption permitted. We plan to adopt this guidance in January 2017 and while the elimination of APIC pools will result in increased volatility of our effective tax rate, the overall impact is expected to be minimal.

In February 2016, the FASB, issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The guidance will be effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. We are evaluating the impact of the future adoption of this standard on our consolidated financial statements.

In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual periods beginning on or after December 15, 20162017 (early adoption is not permitted)permitted for interim and annual periods beginning on or after December 15, 2016). The guidance permits the use of either a full retrospective or modified retrospective adoption approach with a cumulative effect transition method. We have not yet selectedadjustment recorded in either scenario as necessary upon transition. Based on a transition method and arereview of our customer shipping arrangements, we currently evaluatingbelieve the impactimplementation of this standard will change our revenue recognition policy from recognizing revenue upon shipment completion to recognizing revenue over time based on the amended guidanceprogress toward completion of shipments in transit as of each period end. While the timing of revenue recognition will be accelerated, due to the short duration of our transit times the anticipated impact on our consolidated financial position, revenue, results offrom operations and related disclosures.disclosures is expected to be minor. At this time we have not determined our transition method.

Liquidity and Capital Resources
     We have historically financed our working capital needs, including capital expenditures, with cash flows from operations and borrowings under our bank lines of credit.

Year Ended December 31, 20142016 Cash Flows compared to December 31, 20132015 Cash Flows

Net cash provided by operating activities totaled approximately $91.7$130.4 million for the year ended December 31, 20142016 compared to approximately $90.8$85.7 million for the year ended December 31, 2013.2015. The $0.9$44.7 million increase in cash provided by operating activities is mainly attributable to a $8.9$7.1 million increase in net earnings after consideration of non-cash items and a $5.6$52.7 million decrease in cash used to fund accounts payable and prepaid assets, net ofpartially offset by a $13.6$15.1 million increasedecrease in cash collected from accounts receivable associated with the revenue growth discussed previously.receivable. The decreases in cash used for accounts payable and prepaid assets is mainly attributable to the prior year having cash paid to settle trade payables assumed with the Towne acquisition and thereduced estimated income tax

payments. The decrease in cash received from accounts receivables areis attributable to collections on acquired accounts receivable in 2015 related to the increased revenue activity discussed previously and the resulting impact on working capital.Towne acquisition.

Net cash used in investing activities was approximately $127.7$52.4 million for the year ended December 31, 20142016 compared with approximately $78.9$100.9 million during the year ended December 31, 2015. Investing activities during the year ended December 31, 2016 consisted primarily of $11.8 million used to acquire Ace and Triumph, which is included in the Intermodal segment, and net capital expenditures of $40.3 million for new trailers, forklifts, computer hardware and internally developed software.  Investing activities during the year ended December 31, 2015 consisted primarily of $61.9 million used to acquire Towne and net capital expenditures of $38.8 million for new tractors and trailers to replace aging units. The proceeds from disposal of property and equipment during the year ended December 31, 2016 and 2015 were primarily from sales of older trailers and vehicles.
Net cash used in financing activities totaled approximately $102.8 million for the year ended December 31, 2016 compared with net cash provided by financing activities of $7.1 million for the year ended December 31, 2015.  The $109.9 million change in cash from financing activities was attributable to the prior year including $125.0 million of proceeds from executing a two year term loan in conjunction with the Towne acquisition. The decrease in cash from term loan proceeds was partly offset by a $45.6 million decrease in payments on debt and capital leases. Additionally, there was a $9.7 million decrease in cash from employee stock transactions and related tax benefits. Payments on debt and capital leases decreased as 2015 included the settlement of debt assumed with the acquisition of Towne. The year ended December 31, 2016 also included $40.0 million used to repurchase shares of our Common Stock, compared to $20.0 million used to repurchase shares of our Common Stock during the year ended December 31, 2015. Dividends increased on new shares issued through stock option exercises and our Board of Directors increasing the quarterly cash dividend from $0.12 per share to $0.15 per share during the fourth quarter of 2016.
Year Ended December 31, 2015 Cash Flows compared to December 31, 2014 Cash Flows

Net cash provided by operating activities totaled approximately $85.7 million for the year ended December 31, 2015 compared to approximately $91.7 million for the year ended December 31, 2014. The $6.0 million decrease in cash provided by operating activities is mainly attributable to a $41.4 million increase in cash used to fund accounts payable and income tax receivables, net of a $17.8 million increase in net earnings after consideration of non-cash items and a $17.6 million increase in cash collected from accounts receivable. The increases in cash used for accounts payable is mainly attributable to cash paid to settle trade payables assumed with the Towne acquisition. Favorable amendments to prior year returns and net operating loss carryforwards acquired with Towne and applied to current year earnings increased the income tax receivable, driving a $22.9 million increase in cash used for income taxes. The increase in net earnings after consideration of non-cash items is primarily attributable to the increase in deferred income taxes due to provisions for bonus tax depreciation offset by a decrease in net income. Decrease in net income was driven by Towne transaction and integration costs previously discussed. The increase in cash received from accounts receivables is attributable to the collection of acquired Towne trade receivables.

Net cash used in investing activities was approximately $100.9 million for the year ended December 31, 2015 compared with approximately $127.7 million used in investing activities during the year ended December 31, 2013.2014. Investing activities during the year ended December 31, 2015 consisted primarily of $61.9 million used to acquire Towne and net capital expenditures of $38.8 million primarily for new tractors and trailers to replace aging units.  Investing activities during the year ended December 31, 2014 consisted primarily of $90.2 million used to acquire CST and RGL and MMT and net capital expenditures of $37.5 million primarily for new trailers, vehicles and forklifts to replace aging units. Investing activities during the year ended December 31, 2013 consisted primarily of $45.3 million used to acquire TQI and net capital expenditures of $33.5 million primarily for new trailers, vehicles and forklifts to replace aging units. The proceeds from disposal of property and equipment during the year ended December 31, 20142015 and 2013 were primarily from sales of older trailers and vehicles.


47


Net cash used in financing activities totaled approximately $49.9 million for the year ended December 31, 2014 compared with net cash provided by financing activities of $3.3 million for the year ended December 31, 2013. The $53.2 million decrease in in cash from financing activities was attributable to $40.0 million used to repurchase shares of our common stock, a $21.5 million decline in cash from employee stock transactions and related tax benefits and a $2.7 million increase in dividends paid. These decreases in cash flows were partially offset by a $10.6 million decrease in payments on debt and capital leases. Payments on debt and capital leases decreased as the result of lower debt assumed and settled with the acquisition of CST as compared to TQI. Dividends increased on new shares issued through stock option exercises and our Board of Directors increasing the quarterly cash dividend from $0.10 per share to $0.12 per share during the each quarter of 2014.
Year Ended December 31, 2013 Cash Flows compared to December 31, 2012 Cash Flows

Net cash provided by operating activities totaled approximately $90.8 million for the year ended December 31, 2013 compared to approximately $68.6 million for the year ended December 31, 2012. The $22.3 million increase in cash provided by operating activities is mainly attributable to a $3.4 million increase in net earnings after consideration of non-cash items, a $8.0 million increase in cash collected from accounts receivable and a $10.9 million decrease in cash used to fund accounts payable and prepaid assets. Improvement in cash used for accounts payable and prepaid assets is largely due to reduced estimated income tax prepayments.

Net cash used in investing activities was approximately $78.9 million for the year ended December 31, 2013 compared with approximately $20.7 million used in investing activities during the year ended December 31, 2012. Investing activities during the year ended December 31, 2013 consisted primarily of $45.3 million used to acquire TQI and capital expenditures of $35.4 million. Capital expenditures in 2013 and 2012 were primarily for new trailers, vehicles and forklifts to replace aging units. The proceeds from disposal of property and equipment during the years ended December 31, 2013 and 2012 were primarily from sales of older trailers and vehicles.

Net cash provided by financing activities totaled approximately $3.3$7.1 million for the year ended December 31, 20132015 compared with $5.5net cash used in financing activities of $49.9 million for the year ended December 31, 2012. Changes2014. The $57.0 million change in cash from financing activities are mainlywas attributable to $125.0 million of proceeds from executing a two year term loan in conjunction with the settlementTowne acquisition partly offset by a $91.6 million increase in payments on debt and capital leases. Additionally, there was a $3.6 million decrease in cash from employee stock transactions and related tax benefits. Payments on debt and capital leases increased as the result of the $20.1 million inhigher debt assumed and settled with the acquisition of TQI, net of a $20.6 million increase in cash received from the exercise of stock options and the related income tax benefit. Cash from financing for theTowne as compared to CST. The year ended December 31, 2013 and 20122015 also included quarterly dividend payments which increased $2.2$20.0 million year over year as duringused to repurchase shares of our common stock, compared to $40.0 million used to repurchase shares of our common stock for the third quarter of 2012 our Board of the Directors increased the quarterly cash dividend from our historic $0.07 per share to $0.10 per share.same period in 2014.

Liquidity and Capital Resources

In February 2012, we entered into $150.0 million credit facility. This facility had a term of five years and was to mature in February 2017. Interest rates for advances under the facility were LIBOR plus 1.1% based upon covenants related to total indebtedness to earnings (1.3% at December 31, 2014). The agreement contained certain covenants and restrictions related to new indebtedness, investment types and dispositions of property. No assets were pledged as collateral against the credit facility. As of December 31, 2014, we had no borrowings outstanding under the credit facility. At December 31, 2014, we had utilized $9.7 million of availability for outstanding letters of credit and had $140.3 million of available borrowing capacity under this credit facility.

On February 4, 2015, we entered into a five-year senior, unsecured credit facility (the “Facility”) with a maximum aggregate principal amount of $275$275.0 million, including a revolving credit facility of $150.0 million withand a term loan facility of $125 million. The revolving credit facility has a sublimit of $25.0 million for letters of credit and a sublimit of $15.0 million for swing line loans. The Facility also includes a term loan facility of $125.0 million, which is available for ninety (90) days following closing, and which, if drawn, is payable in quarterly installments of 11.1% of the original principal amount of the term loan plus accrued and unpaid interest, and which matures in March 2017. The revolving credit facility is scheduled to expire in February 2020 and may be used to refinance existing

indebtedness of the Company and for working capital, capital expenditures and other general corporate purposes. The Facility replaced our prior existing $150.0 million unsecured revolving credit facility. Unless we elect otherwise under the credit agreement, interest on borrowings under the Facility are based on the highest of (a) the federal funds rate plus 0.5%, (b) the administrative agent's prime rate and (c) the LIBOR (not less than 0%)Rate plus 1.0%, in each case plus a margin that can range from 0.1% to 0.6% with respect to the term loan facility and from 0.3% to 0.8% with respect to the revolving credit facility depending on our ratio of consolidated funded indebtedness to earnings as set forth in the credit agreement. The Facility contains financial covenants and other covenants that, among other things, restrict our ability, without the approval of the lenders, to engage in certain mergers, consolidations, asset sales, investments, other transactions or to incur liens or indebtedness, as set forth in the credit agreement.


48


      In July 2007, our Board of Directors approved a stock repurchase program (“Repurchase Plan”) for up to two million shares of our common stock. During the year ended December 31, 2013,2016, we repurchased 8,675 shares of common stockhad no borrowings outstanding under the Repurchase Plan for $0.4 million, or $40.84 per share. No shares were repurchased during the year endedrevolving credit facility. At December 31, 2012.2016, we had utilized $7.5 million of availability for outstanding letters of credit and had $142.5 million of available borrowing capacity outstanding under the revolving credit facility.  

Also,In conjunction with the acquisition of Towne (see note 2 to our consolidated financial statements), we borrowed $125.0 million on the available term loan. The term loan is payable in quarterly installments of 11.1% of the original principal amount of the term loan plus accrued and unpaid interest, and matures in March 2017. The interest rate on the term loan was 2.0% at December 31, 2016. The remaining balance on the term loan was $27.8 million as of December 31, 2016 and is a current liability.

     On February 7, 2014, our Board of Directors approved a stock repurchase authorization for up to two million shares of the Company’s common stock.Common Stock. In connection with this action, the board cancelled the Company’s Repurchase Plan.remaining stock repurchase authorization under its previous program. During the year ended December 31, 2014,2016, we repurchased 881,979676,773 shares for $30.0 million, or an average of $44.31 per share on the 2014 plan.

On July 21, 2016, our Board of Directors approved a stock repurchase authorization for up to three million shares of commonthe Company's Common Stock. In connection with this action, the board cancelled the Company's 2014 repurchase plan. During the year ended December 31, 2016, we repurchased 233,516 shares of Common Stock for $10.0 million, or $42.80 per share under the 2016 plan. When combining the stock repurchases under the 2014 and 2016 plans, we repurchased 910,289 shares of Common Stock for $40.0 million, or $45.32$43.92 per share.share during the year ended December 31, 2016. As of December 31, 2014, 1,118,0212016, 2,766,484 shares remain that may be repurchased.repurchased under the 2016 plan.

During each quarter of 2014 and 2015 and the first, second and secondthird quarters of 2012,2016, our Board of Directors declared a cash dividend of $0.07$0.12 per share of Common Stock.share. During each quarter of 2013 and the third and fourth quarter of 2012,2016, our Board of Directors declared a cash dividend of $0.10 per share of Common Stock. During each quarter of 2014, our Board of Directors declared a cash dividend of $0.12$0.15 per share. We expect to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by our Board of Directors. We expect to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by our Board of Directors.

On February 4, 2015, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire CLP Towne Inc. (“Towne”). Upon completion of the Merger, Towne will be an indirect, wholly-owned subsidiary of the Company. The acquisition is expected to close in the first quarter of 2015, subject to the satisfaction of closing conditions, including among others the continuing accuracy of representations and warranties, compliance with covenants and agreements in the Merger Agreement and the execution of restrictive covenants agreements by certain equity holders. We expect to pay aggregate cash consideration of approximately $125.0 million. The purchase price may be increased or reduced based upon Towne’s net working capital as of the closing date.

We believe that our available cash, investments, expected cash generated from future operations and borrowings under the available credit facility will be sufficient to satisfy our anticipated cash needs for at least the next twelve months. However, we continue to evaluate and pursue acquisitions that can increase our penetration ofinto a geographic area, add new customers, add new business verticals, increase freight volume and add new service offerings.  In addition, we expect to explore acquisitions that may enable us to offer additional services. Acquisitions may affect our short-term cash flow, liquidity and net income as we expend funds, potentially increase indebtedness and incur additional expenses.

Off-Balance Sheet Arrangements
 
At December 31, 2014,2016, we had letters of credit outstanding from banks totaling $9.7$7.5 million required primarily by our workers’ compensation and vehicle liability insurance providers.
 
Contractual Obligations and Commercial Commitments

Our contractual obligations and other commercial commitments as of December 31, 20142016 (in thousands) are summarized below:
Contractual Obligations
Payment Due Period
Payment Due Period (in thousands)










2020 and








2022 and


Total
2015
2016-2017
2018-2019
Thereafter
Total
2017
2018-2019
2020-2021
Thereafter
Capital lease obligations
$1,765

$349

$694

$667

55

$1,171

$395

$716

$60


Equipment purchase commitments
5,708

5,708







2,122

2,122






Operating leases
64,516

22,295

28,361

11,390

2,470

103,923

36,106

46,769

18,058

2,990
Term loan payments
27,788

27,788






Total contractual cash obligations
$71,989

$28,352

$29,055

$12,057

$2,525

$135,004

$66,411

$47,485

$18,118

$2,990

Not included in the above table are reserves for unrecognized tax benefits and self insurance claims of $1.3$0.8 million and $11.5$18.8 million, respectively. The equipment purchase commitments are for various trailers, vehicles and forklifts.  All of the above commitments are expected to be funded by cash on hand and cash flows from operations.

Forward-Looking Statements

This report contains “forward-looking statements,” as defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are statements other than historical information or statements of current condition

49


and relate to future events or our future financial performance. 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 inability to maintain our historical growth rate because of a decreased volume of freight moving through our network or decreased average revenue per pound of freight moving through our network, increasing competition and pricing pressure, surplus inventories, loss of a major customer, the creditworthiness of our customers and their ability to pay for services rendered, our ability to secure terminal facilities in desirable locations at reasonable rates, the inability of our information systems to handle an increased volume of freight moving through our network, changes in fuel prices, claims for property damage, personal injuries or workers’ compensation, employment matters including rising health care costs, enforcement of and changes in governmental regulations, environmental and tax matters, the handling of hazardous materials, the availability and compensation of qualified independent owner-operators and freight handlers as well as contracted third-party carriers needed to serve our transportation needs and our inability to successfully integrate acquisitions. As a result of the foregoing, no assurance can be given as to future financial condition, cash flows or results of operations. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
 
Our exposure to market risk relates principally to changes in interest rates and fuel prices. Our interest rate exposure relates principally to changes in interest rates for borrowings under our senior unsecured credit facility. The revolving credit facility, for which no balance wasand term loan facilities had $27.8 million outstanding at or during December 31, 2014 bears2016 and bear interest at variable rates. However, assuming the entire credit facility had been outstanding for 2014, a hypothetical increase in our credit facility borrowing rate of 150 basis points, or an increase in the total effective interest rate from 1.3%1.8% to 2.8%3.3%, would increase our annual interest expense by approximately $2.3$0.9 million and would have decreased our annual cash flow from operations by approximately $2.3$0.9 million.  
 
Our only other debt is capital lease obligations totaling $1.5$1.1 million.  These lease obligations all bear interest at a fixed rate.  Accordingly, there is no exposure to market risk related to these capital lease obligations.
 
We are exposed to the effects of changes in the price and availability of diesel fuel, as more fully discussed in Item 1A, “Risk Factors.”

Our cash and cash equivalents are also subject to market risk, primarily interest-rate and credit risk.

Item 8.        Financial Statements and Supplementary Data

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



Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Disclosure Controls and Procedures

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2014.2016.  Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this annual report on Form 10-K has been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.  Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting  


50


Management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance to management and the Board of Directors regarding the preparation and fair presentation of financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2014.2016. In making this assessment, management used the framework set forth by the Committee on Sponsoring Organizations of the Treadway

Commission in Internal Control — Integrated Framework (1992 Framework)"2013 Framework"). Based on our assessment, we have concluded, as of December 31, 2014,2016, that our internal control over financial reporting was effective based on those criteria.
The SEC's general guidance permits the exclusion of an assessment of the effectiveness of a registrant's disclosure controls and procedures as they relate to its internal controls over financial reporting for an acquired business during the first year following such acquisition, if among other circumstances and factors there is not adequate time between the acquisition date and the date of assessment. As previously disclosed, the Company completed its acquisition of Central States Trucking Co. and Central States Logistics, Inc. (collectively referred to as “CST”) on February 2, 2014. CST represents approximately 20.4% and 20.8% of the Company's total and net assets, respectively, as of December 31, 2014 and 9.3% and 7.5% of revenues and net income, respectively, for the year then ended. Management's assessment and conclusion on the effectiveness of the Company's disclosure controls and procedures as of December 31, 2014 excluded an assessment of the internal control over financial reporting of CST.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements for the year ended December 31, 2014,2016, has issued an attestation report on the Company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of 20142016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

51


Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders of Forward Air Corporation,

We have audited Forward Air Corporation’s internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) (the COSO criteria). Forward Air Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Central States Trucking Co. and Central States Logistics, Inc., which are included in the 2014 consolidated financial statements of Forward Air Corporation  and constituted $110.5 million and $96.6 million of total and net assets, respectively, as of December 31, 2014 and $72.3 million and $4.6 million of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Forward Air Corporation also did not include an evaluation of the internal control over financial reporting of Central States Trucking Co. and Central States Logistics, Inc.

In our opinion, Forward Air Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 20142016 and 2013,2015, and the related consolidated statements of comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 20142016 of Forward Air Corporation and our report dated February 20, 201522, 2017 expressed an unqualified opinion thereon.




 /s/ Ernst & Young LLP
Nashville, Tennessee 
February 20, 201522, 2017 

52


Item 9B.    Other Information

Not applicable.

Part III

Item 10.        Directors, Executive Officers and Corporate Governance

Executive Officers of the Registrant

Pursuant to Instruction 3 to Item 401(b) of Regulation S-K of the Securities Act and General Instruction G(3) to Form 10-K, the following information is included in Part IIII of this report. The ages listed below are as of December 31, 2014.2016.

The following are our executive officers:
Name Age Position
Bruce A. Campbell 6365 Chairman, President and Chief Executive Officer
Rodney L. BellMichael J. Morris 5248 Chief Financial Officer, Senior Vice President and Treasurer
Craig A. Drum 5961 Senior Vice President, Sales
Michael L. Hance 4345 Senior Vice President, Chief Legal Officer & Secretary
Matthew J. Jewell 4850 Executive Vice President Intermodal- Logistics Services & Chief Strategy Officer
Michael P. McLean 4143 Chief Accounting Officer, Vice President & Controller
Chris C. Ruble 5254 Executive Vice President Operations- Expedited Services

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

Bruce A. Campbell has served as a director since April 1993, as President since August 1998, as Chief Executive Officer since October 2003 and as Chairman of the Board since May 2007. Mr. Campbell was Chief Operating Officer from April 1990 until October 2003 and Executive Vice President from April 1990 until August 1998. Prior to joining us, Mr. Campbell served as Vice President of Ryder-Temperature Controlled Carriage in Nashville, Tennessee from September 1985 until December 1989.
 
Rodney L. BellMichael J. Morris began serving as Chief Financial Officer, Senior Vice President and Treasurer in June 2006.2016. From 2010 to 2015, Mr. Bell, who is a Certified Public Accountant (inactive),Morris was appointed Chief Accounting Officer in February 2006 and continued to serve asthe Senior Vice President of Finance & Treasurer at Con-way Inc. (“Con-way”) and Controller, positions held since October 2000 and February 1995, respectively. Mr. Bell joinedin 2016 he transitioned to be the Company in March 1992 as Assistant Controller after serving as a senior manager with the accounting firmSenior Vice President of Adams and Plucker in Greeneville, Tennessee.Finance & Treasurer at XPO Logistics Inc. (“XPO”) following XPO's acquisition of Con-way.
 
Craig A. Drum has served as Senior Vice President, Sales since July 2001 after joining us in January 2000 as Vice President, Sales for one of our subsidiaries.  In February 2001, Mr. Drum was promoted to Vice President of National Accounts. Prior to January 2000, Mr. Drum spent most of his 24-year career in air freight with Delta Air Lines, Inc., most recently as the Director of Sales and Marketing - Cargo.

Michael L. Hance has served as Senior Vice President, Chief Legal Officer and Secretary since May 2014. From May 2010 until May 2014, he served as Senior Vice President of Human Resources and General Counsel. From January 2008 until May 2010, he served as Senior Vice President and General Counsel, and from August 2006 until January 2008, he served as Vice President and Staff Counsel. Before joining us, Mr. Hance practiced law with the law firms of Baker, Donelson, Bearman, Caldwell and Berkowitz, P.C. from October 2003 until August 2006 and with Bass, Berry & Sims, PLC from September 1999 to September 2003.
    
Matthew J. Jewell haswas promoted to President - Logistics Services, effective January 2016. Prior to this promotion, he served as Executive Vice President, Intermodal Services & Chief Strategy Officer since May 2014. From January 2008 until May 2014, he served as Executive Vice President and Chief Legal Officer. 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.


53


Michael P. McLean began serving as Chief Accounting Officer, Vice President and Controller in February 2008. From June 2006 until February 2008, Mr. McLean, who is a Certified Public Accountant, served as Vice President of Accounting and Controller. Mr. McLean joined the Company as Vice President, Accounting in February 2006 and served in that position until May 2006. Prior to joining us in February 2006, Mr. McLean served as Director of Financial Reporting at CTI Molecular Imaging, Inc., a publicly-traded medical technology company since February 2003. From July 2001 until January 2003, Mr. McLean was an audit manager with the accounting firm of Coulter & Justus, PC in Knoxville, Tennessee.    
    
Chris C. Ruble haswas promoted to President - Expedited Services, effective January 2016. Prior to this promotion, he served as Executive Vice President, Operations since August 2007.  From October 2001 until August 2007, he served as Senior Vice President, Operations. 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 us 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.

Other information required by this item with respect to our directors is incorporated herein by reference to our proxy statement for the 20142017 Annual Meeting of Shareholders (the “2015“2017 Proxy Statement”). The 20152017 Proxy Statement will be filed with the SEC not later than 120 days subsequent to December 31, 2014.2016.


Item 11.        Executive Compensation

The information required by this item is incorporated herein by reference to the 20152017 Proxy Statement.

Item 12.        Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this item is incorporated herein by reference to the 20152017 Proxy Statement.

Item 13.        Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to the 20152017 Proxy Statement.

Item 14.        Principle Accounting Fees and Services

The information required by this item is incorporated herein by reference to the 20152017 Proxy Statement.

Part IV

Item 15.        Exhibits, Financial Statement Schedules

(a)(1) and (2)List of Financial Statements and Financial Statement Schedules.

The response to this portion of Item 15 is submitted as a separate section of this report.

(a)(3)List of Exhibits.

The response to this portion of Item 15 is submitted as a separate section of this report.

(b)Exhibits.
        
The response to this portion of Item 15 is submitted as a separate section of this report.

(c)Financial Statement Schedules.

The response to this portion of Item 15 is submitted as a separate section of this report.


54


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   Forward Air Corporation
     
Date:February 20, 201522, 2017 By:   /s/ Rodney L. BellMichael J. Morris
    Rodney L. BellMichael J. Morris
    Chief Financial Officer, Senior Vice President
    and Treasurer (Principal Financial Officer)
     
   By:   /s/ Michael P. McLean
    Michael P. McLean
    Chief Accounting Officer, Vice President
    and Controller (Principal Accounting Officer)


55


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature TitleDate
/s/ Bruce A. Campbell Chairman, President and Chief ExecutiveFebruary 20, 201522, 2017
Bruce A. Campbell Officer (Principal Executive Officer) 
    
/s/ Rodney L. BellMichael J. Morris Chief Financial Officer, Senior Vice PresidentFebruary 20, 201522, 2017
Rodney L. BellMichael J. Morris and Treasurer ( Principal(Principal Financial Officer) 
    
/s/ Michael P. McLean Chief Accounting Officer, Vice President andFebruary 20, 201522, 2017
Michael P. McLean Controller (Principal Accounting Officer) 
    
/s/ C. Robert Campbell Lead DirectorFebruary 20, 201522, 2017
C. Robert Campbell   
    
/s/ Ronald W. Allen DirectorFebruary 20, 201522, 2017
Ronald W. Allen
/s/ Craig CarlockDirectorFebruary 22, 2017
Craig Carlock   
    
/s/ C. John Langley, Jr. DirectorFebruary 20, 201522, 2017
C. John Langley, Jr.   
    
/s/ Tracy A. Leinbach DirectorFebruary 20, 201522, 2017
Tracy A. Leinbach   
    
/s/ Larry D. Leinweber DirectorFebruary 20, 201522, 2017
Larry D. Leinweber   
    
/s/ G. Michael Lynch DirectorFebruary 20, 201522, 2017
G. Michael Lynch   
    
/s/ Ray A. MundyDouglas M. Madden DirectorFebruary 20, 201522, 2017
Ray A. Mundy
/s/ Gary L. PaxtonDirectorFebruary 20, 2015
Gary L. PaxtonDouglas M. Madden   


56


Annual Report on Form 10-K

Item 8, Item 15(a)(1) and (2), (a)(3), (b) and (c)

List of Financial Statements and Financial Statement Schedule

Financial Statements and Supplementary Data

Certain Exhibits

Financial Statement Schedule

Year Ended December 31, 20142016

Forward Air Corporation

Greeneville, Tennessee


F-1


Forward Air Corporation

Form 10-K — Item 8 and Item 15(a)(1) and (2)

Index to Financial Statements and Financial Statement Schedule

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


The following financial statement schedule of Forward Air Corporation is included as a separate section of this report.


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


F-2


Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Forward Air Corporation

We have audited the accompanying consolidated balance sheets of Forward Air Corporation as of December 31, 20142016 and 2013,2015, and the related consolidated statements of comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2014.2016.  Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Forward Air Corporation at December 31, 20142016 and 2013,2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014,2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Forward Air Corporation’s internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) and our report dated February 20, 201522, 2017 expressed an unqualified opinion thereon.

 
 
 /s/ Ernst & Young LLP
Nashville, Tennessee 
February 20, 201522, 2017 

F-3


Forward Air CorporationConsolidated Balance Sheets(Dollars in thousands)
December 31,
2014
 December 31,
2013
December 31,
2016
 December 31,
2015
Assets      
Current assets:      
Cash and cash equivalents$41,429
 $127,367
$8,511
 $33,312
Accounts receivable, less allowance of $2,563 in 2014 and $1,919 in 201395,326
 76,500
Accounts receivable, less allowance of $1,714 in 2016 and $2,405 in 2015116,602
 109,165
Inventories1,056
 1,052
1,306
 1,310
Prepaid expenses and other current assets9,648
 14,296
9,851
 10,794
Deferred income taxes2,496
 1,145
Income tax receivable
 18,876
Total current assets149,955
 220,360
136,270
 173,457
Property and equipment: 
  
 
  
Land16,998
 16,998
16,928
 16,998
Buildings66,477
 66,474
65,857
 66,502
Equipment212,216
 178,752
273,463
 241,391
Leasehold improvements7,957
 6,263
10,694
 9,228
Construction in progress1,540
 2,563
12,079
 9,028
Total property and equipment305,188
 271,050
379,021
 343,147
Less accumulated depreciation and amortization132,699
 116,287
178,816
 155,859
Net property and equipment172,489
 154,763
200,205
 187,288
Goodwill and other acquired intangibles: 
  
 
  
Goodwill144,412
 88,496
184,675
 205,609
Other acquired intangibles, net of accumulated amortization of $40,307 in 2014 and $31,790 in 201372,705
 40,110
Other acquired intangibles, net of accumulated amortization of $61,334 in 2016 and $51,212 in 2015106,650
 127,800
Total net goodwill and other acquired intangibles217,117
 128,606
291,325
 333,409
Other assets2,244
 2,540
13,491
 5,778
Total assets$541,805
 $506,269
$641,291
 $699,932

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

F-4



Forward Air CorporationConsolidated Balance Sheets (Continued)(Dollars in thousands)
December 31,
2014
 December 31,
2013
December 31,
2016
 December 31,
2015
Liabilities and Shareholders’ Equity      
Current liabilities:      
Accounts payable$20,572
 $16,267
$18,012
 $23,334
Accrued payroll and related items8,122
 6,325
11,522
 10,051
Insurance and claims accruals6,042
 5,105
10,122
 8,935
Payables to owner-operators4,182
 4,710
5,597
 7,901
Collections on behalf of customers374
 416
349
 517
Other accrued expenses2,571
 1,719
4,243
 2,419
Income taxes payable1,292
 
70
 
Current portion of capital lease obligations276
 69
347
 331
Current portion of long-term debt27,665
 55,556
Total current liabilities43,431
 34,611
77,927
 109,044
Capital lease obligations, less current portion1,275
 3
725
 1,074
Long-term debt, less current portion
 27,543
Other long-term liabilities8,356
 8,940
21,699
 12,340
Deferred income taxes25,180
 26,850
41,871
 39,876
Commitments and contingencies (Note 7)

 



 

Shareholders’ equity: 
  
 
  
Preferred stock, $0.01 par value: Authorized shares - 5,000,000; no shares issued
 

 
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 30,255,182 in 2014 and 30,522,079 in 2013303
 305
Common stock, $0.01 par value: Authorized shares - 50,000,000; issued and outstanding shares - 30,090,335 in 2016 and 30,543,864 in 2015301
 305
Additional paid-in capital130,107
 107,726
179,512
 160,855
Retained earnings333,153
 327,834
319,256
 348,895
Total shareholders’ equity463,563
 435,865
499,069
 510,055
Total liabilities and shareholders’ equity$541,805
 $506,269
$641,291
 $699,932

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

F-5


Forward Air CorporationConsolidated Statements of Comprehensive Income(In thousands, except per share data)
  
Year endedYear ended
December 31,
2014
 December 31,
2013
 December 31,
2012
December 31,
2016
 December 31,
2015
 December 31,
2014
Operating revenue$780,959
 $652,481
 $584,446
$982,530
 $959,125
 $780,959
          
Operating expenses: 
  
  
 
  
  
Purchased transportation334,576
 285,690
 252,720
413,355
 408,769
 334,576
Salaries, wages and employee benefits182,105
 151,097
 135,006
242,002
 240,604
 182,105
Operating leases33,994
 29,310
 27,989
60,492
 66,272
 33,994
Depreciation and amortization31,133
 23,579
 21,021
38,210
 37,157
 31,133
Insurance and claims15,736
 12,619
 11,309
25,392
 21,483
 15,736
Fuel expense20,148
 15,145
 10,038
13,233
 15,903
 20,148
Other operating expenses66,861
 50,686
 42,831
87,425
 87,165
 66,861
Impairment of goodwill and other intangible assets42,442
 
 
Total operating expenses684,553
 568,126
 500,914
922,551
 877,353
 684,553
Income from operations96,406
 84,355
 83,532
59,979
 81,772
 96,406
          
Other income (expense): 
  
  
 
  
  
Interest expense(610) (532) (391)(1,597) (2,047) (610)
Other, net289
 99
 14
4
 (58) 289
Total other expense(321) (433) (377)(1,593) (2,105) (321)
Income before income taxes96,085
 83,922
 83,155
58,386
 79,667
 96,085
Income taxes34,916
 29,455
 30,487
30,716
 24,092
 34,916
Net income and comprehensive income$61,169
 $54,467
 $52,668
$27,670
 $55,575
 $61,169
          
Net income per share: 
  
  
 
  
  
Basic$1.99

$1.81

$1.82
$0.91

$1.80

$1.99
Diluted$1.96

$1.77

$1.78
$0.90

$1.78

$1.96
          
Dividends per share:$0.48
 $0.40
 $0.34
$0.51
 $0.48
 $0.48

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

F-6


Forward Air CorporationConsolidated Statements of Shareholders' Equity(In thousands, except per share data)
Common Stock Additional
Paid-in
Capital
 Retained Earnings Total
Shareholders'
Equity
Common Stock Additional
Paid-in
Capital
 Retained Earnings Total
Shareholders'
Equity
Shares Amount  Shares Amount  
Balance at December 31, 201128,553
 $285
 $42,212
 $244,405
 $286,902
Net income and comprehensive income for 2012
 
 
 52,668
 52,668
Exercise of stock options582
 6
 15,734
 
 15,740
Common stock issued under employee stock purchase plan9
 
 259
 
 259
Share-based compensation
 
 6,050
 
 6,050
Dividends ($0.34 per share)
 
 5
 (9,952) (9,947)
Cash settlement of share-based awards for minimum tax withholdings(11) 


 (386) (386)
Share repurchases
 
 
 
 
Vesting of previously non-vested shares62
 1
 (1) 
 
Income tax benefit from stock options exercised
 
 385
 
 385
Balance at December 31, 201229,195
 292
 64,644
 286,735
 351,671
Net income and comprehensive income for 2013
 
 
 54,467
 54,467
Exercise of stock options1,263
 12
 32,990
 
 33,002
Common stock issued under employee stock purchase plan9
 
 296
 
 296
Share-based compensation
 
 6,178
 
 6,178
Dividends ($0.40 per share)
 
 7
 (12,148) (12,141)
Cash settlement of share-based awards for minimum tax withholdings(23) 


 (866) (866)
Share repurchases(9) 
 
 (354) (354)
Vesting of previously non-vested shares87
 1
 (1) 
 
Income tax benefit from stock options exercised
 
 3,612
 
 3,612
Balance at December 31, 201330,522
 305
 107,726
 327,834
 435,865
30,522
 305
 107,726
 327,834
 435,865
Net income and comprehensive income for 2014
 
 
 61,169
 61,169

 
 
 61,169
 61,169
Exercise of stock options469
 5
 13,230
 
 13,235
469
 5
 13,230
 
 13,235
Common stock issued under employee stock purchase plan9
 
 354
 
 354
9
 
 354
 
 354
Share-based compensation
 
 6,681
 
 6,681

 
 6,681
 
 6,681
Dividends ($0.48 per share)
 
 9
 (14,804) (14,795)
 
 9
 (14,804) (14,795)
Cash settlement of share-based awards for minimum tax withholdings(25) 


 (1,083) (1,083)(25) 
 
 (1,083) (1,083)
Share repurchases(882) (9) 
 (39,963) (39,972)(882) (9) 
 (39,963) (39,972)
Vesting of previously non-vested shares162
 2
 (2) 
 
162
 2
 (2) 
 
Income tax benefit from stock options exercised
 
 2,109
 
 2,109

 
 2,109
 
 2,109
Balance at December 31, 201430,255
 $303
 $130,107
 $333,153
 $463,563
30,255
 303
 130,107
 333,153
 463,563
Net income and comprehensive income for 2015
 
 
 55,575
 55,575
Exercise of stock options605
 6
 17,394
 (3,087) 14,313
Common stock issued under employee stock purchase plan11
 
 449
 
 449
Share-based compensation
 
 7,486
 
 7,486
Dividends ($0.48 per share)
 
 7
 (14,828) (14,821)
Cash settlement of share-based awards for minimum tax withholdings(38) 
 
 (1,931) (1,931)
Share repurchases(423) (5) 
 (19,987) (19,992)
Vesting of previously non-vested shares134
 1
 (1) 
 
Income tax benefit from stock options exercised
 
 5,413
 
 5,413
Balance at December 31, 201530,544
 305
 160,855
 348,895
 510,055
Net income and comprehensive income for 2016
 
 
 27,670
 27,670
Exercise of stock options346
 3
 8,145
 
 8,148
Common stock issued under employee stock purchase plan11
 
 442
 
 442
Share-based compensation
 
 8,334
 
 8,334
Dividends ($0.51 per share)
 
 6
 (15,535) (15,529)
Cash settlement of share-based awards for minimum tax withholdings(42) 


 (1,800) (1,800)
Share repurchases(910) (9) 
 (39,974) (39,983)
Vesting of previously non-vested shares141
 2
 (2) 
 
Income tax benefit from stock options exercised
 
 1,732
 
 1,732
Balance at December 31, 201630,090
 $301
 $179,512
 $319,256
 $499,069
 
The accompanying notes are an integral part of the consolidated financial statements.

F-7


Forward Air CorporationConsolidated Statements of Cash Flows(In thousands)
Year endedYear ended
December 31,
2014
 December 31,
2013
 December 31,
2012
December 31,
2016
 December 31,
2015
 December 31,
2014
Operating activities:          
Net income$61,169
 $54,467
 $52,668
$27,670
 $55,575
 $61,169
Adjustments to reconcile net income to net cash provided by operating activities 
  
  
 
  
  
Depreciation and amortization31,133
 23,579
 21,021
38,210
 37,157
 31,133
Gain on change in fair value of earn-out liability
 (615) 
Impairment of goodwill, intangible and other assets
42,442
 
 
Share-based compensation6,681
 6,178
 6,050
8,334
 7,486
 6,681
(Gain) loss on disposal of property and equipment(383) (454) 318
Loss (gain) on disposal of property and equipment291
 (181) (383)
Provision for loss on receivables241
 423
 199
258
 33
 241
Provision for revenue adjustments2,465
 2,531
 2,003
2,020
 4,793
 2,465
Deferred income taxes(3,021) 4,856
 2,043
3,525
 14,531
 (3,021)
Tax benefit for stock options exercised(2,109) (3,707) (385)(1,732) (5,413) (2,109)
Changes in operating assets and liabilities, net of acquisition of business 
  
  
 
  
  
Accounts receivable(12,193) 1,447
 (6,542)(9,715) 5,403
 (12,193)
Prepaid expenses and other current assets(280) (215) (1,331)
Prepaid expenses and other assets283
 (1,378) (280)
Accounts payable and accrued expenses(199) 2,588
 (3,477)(1,413) (17,513) (199)
Income taxes8,156
 (239) (3,981)20,177
 (14,771) 8,156
Net cash provided by operating activities91,660
 90,839
 68,586
130,350
 85,722
 91,660
          
Investing activities: 
  
  
 
  
  
Proceeds from disposal of property and equipment1,947
 1,973
 911
1,929
 1,720
 1,947
Purchases of property and equipment(39,487) (35,439) (21,353)(42,186) (40,495) (39,487)
Acquisition of business, net of cash acquired(90,172)
(45,328)

(11,800)
(61,878)
(90,172)
Other2
 (129) (263)(336) (265) 2
Net cash used in investing activities(127,710) (78,923) (20,705)(52,393) (100,918) (127,710)
          
Financing activities: 
  
  
 
  
  
Proceeds from term loan
 125,000
 
Payments of debt and capital lease obligations(9,736) (20,375) (551)(55,768) (101,352) (9,736)
Payments on line of credit
 
 
Proceeds from exercise of stock options13,235
 33,002
 15,740
8,148
 14,313
 13,235
Payments of cash dividends(14,795) (12,141) (9,947)(15,529) (14,821) (14,795)
Repurchase of common stock (repurchase program)(39,972) (354) 
Purchase of common stock under repurchase program(39,983) (19,992) (39,972)
Common stock issued under employee stock purchase plan354
 296
 259
442
 449
 354
Cash settlement of share-based awards for minimum tax withholdings(1,083) (866) (386)(1,800) (1,931) (1,083)
Tax benefit for stock options exercised2,109
 3,707
 385
1,732
 5,413
 2,109
Net cash (used in) provided by financing activities(49,888) 3,269
 5,500
(102,758) 7,079
 (49,888)
Net (decrease) increase in cash(85,938) 15,185
 53,381
Net decrease in cash(24,801) (8,117) (85,938)
Cash at beginning of year127,367
 112,182
 58,801
33,312
 41,429
 127,367
Cash at end of year$41,429
 $127,367
 $112,182
$8,511
 $33,312
 $41,429


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

F-8

Table of Contents        
FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20142016
(In thousands, except share and per share data)



1.        Accounting Policies

Basis of Presentation and Principles of Consolidation

Forward Air Corporation's (“the Company”, “We”, “Our”) services can be classified into threefour principal reportingreportable segments: Forward Air, Forward Air SolutionsExpedited LTL, Truckload Premium Services (“FASI”TLS”), Intermodal and Pool Distribution ("Pool") and Total Quality ("TQI")(See note 10).

Through the Forward AirExpedited LTL segment, the Company provide time-definite transportation and related logistics services to the North American deferred air freight market and its activities can be classified into three categories of service: airport-to-airport, logistics, and other. Forward Air’s airport-to-airport service operateswe operate a comprehensive national network for the time-definite surface transportation ofto provide expedited ground freight. The airport-to-airport serviceregional, inter-regional and national less-than-truckload ("LTL") services. Expedited LTL offers customers local pick-up and delivery and scheduled surface transportation of cargo as a cost effective, reliable alternative to air transportation. Forward Air’s logistics services provide expedited truckload brokerage, intermodal drayage and dedicated fleet services. Forward Air’s other services includeincluding shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. The Forward Air

Through our TLS segment, primarily provides its transportationwe provide expedited truckload brokerage, dedicated fleet services, through a network of terminals located at or near airportsas well as high security and temperature-controlled logistics services in the United States and Canada.

FASIOur Intermodal segment provides poolfirst- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and CFS warehouse and handling services. Today, Intermodal operates primarily in the Midwest, with a smaller operational presence in the Southwest and Southeast.

In our Pool Distribution segment, we provide high-frequency handling and distribution servicesof time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest continental United States. Pool distribution involves managing high-frequency handling and distribution of time-sensitive product to numerous destinations in specific geographic regions. FASI’s primary customers for this service are regional and nationwide distributors and retailers, such as mall, strip mall and outlet based retail chains.

TQI is a provider of maximum security and temperature-controlled logistics services, primarily truckload services, to the life sciences sector (pharmaceutical and biotechnology products). In addition to core pharmaceutical services and other cold chain services, TQI provides truckload and less-than-truckload brokerage transportation services.

The accompanying consolidated financial statements of the Company include Forward Air Corporation and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas requiring management estimates include the following key financial areas:

Allowance for Doubtful Accounts
 
The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances in which the Company is aware of a specific customer’s inability to meet its financial obligations to the Company (for example, bankruptcy filings, accounts turned over for collection or litigation), the Company records a specific reserve for these bad debts against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes reserves for these bad debts based on the length of time the receivables are past due. Specifically, amounts that are 90 days or more past due are reserved at 50.0% for Forward Air's airport-to-airport and TLX operations,Expedited LTL, 10.0% for Forward Air's intermodal drayage operations, Intermodal, 25.0% for FASIPool and 10.0% for TQI's pharmaceutical operations andup to 50.0% for TQI's non-pharmaceutical operations.TLS. If circumstances change (i.e., the Company experiences higher than expected defaults or an unexpected material adverse change in a customer’s ability to meet its financial obligations to the Company), the estimates of the recoverability of amounts due to the Company could be changed by a material amount. Accounts are written off after all means of collection, including legal action, have been exhausted.

Allowance for Revenue Adjustments
 
The Company’s allowance for revenue adjustments consists of amounts reserved for billing rate changes that are not captured upon load initiation. These adjustments generally arise: (1) when the sales department contemporaneously grants small rate changes (“spot quotes”) to customers that differ from the standard rates in the system; (2) when freight requires

F-9

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)

dimensionalization or is reweighed resulting in a different required rate; (3) when billing errors occur; and (4) when data entry errors occur. When appropriate, permanent rate changes are initiated and reflected in the system. The Company monitors the manual revenue adjustments closely through the employment of various controls that are in place to ensure that revenue recognition is not compromised and that fraud does not occur. During 2014,2016, average revenue adjustments per month were approximately $205 $168

F-9

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)

on average revenue per month of approximately $65,080 (0.3%$81,878 (0.2% of monthly revenue). In order to estimate the allowance for revenue adjustments related to ending accounts receivable, the Company prepares an analysis that considers average monthly revenue adjustments and the average lag for identifying and quantifying these revenue adjustments. Based on this analysis, the Company establishes an allowance covering approximately 4535-10065 days (dependent upon experience in the last twelve months) of average revenue adjustments, adjusted for rebates and billing errors. The lag is periodically adjusted based on actual historical experience. Additionally, the average amount of revenue adjustments per month can vary in relation to the level of sales or based on other factors (such as personnel issues that could result in excessive manual errors or in excessive spot quotes being granted). Both of these significant assumptions are continually evaluated for validity.appropriateness.

Self-Insurance Loss Reserves

Given the nature of the Company’s operating environment, the Company is subject to vehicle and general liability, workers’ compensation and employee health insurance claims. To mitigate a portion of these risks, the Company maintains insurance for individual vehicle and general liability claims exceeding $500750 and workers’ compensation claims and employee health insurance claims exceeding $250, except in Ohio, where for workers’ compensation we are a qualified self-insured entity with a $500 self-insured retention. The amount of self-insurance loss reserves and loss adjustment expenses is determined based on an estimation process that uses information obtained from both company-specific and industry data, as well as general economic information. The estimation process for self-insurance loss exposure requires management to continuously monitor and evaluate the life cycle of claims. Using data obtained from this monitoring and the Company’s assumptions about the emerging trends, management develops information about the size of ultimate claims based on its historical experience and other available market information. The most significant assumptions used in the estimation process include determining the trend in loss costs, the expected consistency in the frequency and severity of claims incurred but not yet reported, changes in the timing of the reporting of losses from the loss date to the notification date, and expected costs to settle unpaid claims. The Company utilizes a semi-annual actuarial analyses to evaluate open claims and estimate the ongoing development exposure.

As of December 31, 2016, we have recognized an insurance proceeds receivable and claims payable of $6,711 for open vehicle and workers’ compensation claims in excess of our stop-loss limits.
Revenue Recognition

Operating revenue and related costs are recognized as of the date shipments are completed. The transportation rates the Company charges its customers consist of base transportation rates and fuel surcharge rates.  The revenues earned and related direct freight expenses incurred from the Company’s base transportation services are recognized on a gross basis in revenue and in purchased transportation.  Transportation revenue is recognized on a gross basis as the Company is the primary obligor.  The fuel surcharges billed to customers and paid to owner-operators and third party transportation providers are recorded on a net basis as the Company is not the primary obligor with regards to the fuel surcharges.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash and cash equivalents.
 
Inventories

Inventories of tires, replacement parts, supplies, and fuel for equipment are stated at the lower of cost or market utilizing the FIFO (first-in, first-out) method of determining cost. Inventories of tires and replacement parts are not material in the aggregate. Replacement parts are expensed when placed in service, while tires are capitalized and amortized over their expected life. Replacement parts and tires are included as a component of other operating expenses in the consolidated statements of comprehensive income.








F-10

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)


Property and Equipment

Property and equipment are stated at cost. Expenditures for normal repair and maintenance are expensed as incurred. Depreciation of property and equipment is calculated based upon the cost of the asset, reduced by its estimated salvage value, using the straight-line method over the estimated useful lives as follows:
Buildings 30-40 years
Equipment 3-10 years
Leasehold improvements Lesser of Useful Life or Initial Lease Term

Depreciation expense for each of the three years ended December 31, 20142016, 20132015 and 20122014 was $22,616, $17,817$28,088, $26,252 and $16,45522,616 respectively.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is recognized on assets classified as held and used when the sum of undiscounted estimated cash flows expected to result from the use of the asset is less than the carrying value. If such measurement indicates a possible impairment, the estimated fair value of the asset is compared to its net book value to measure the impairment charge, if any. When the criteria have been met for long-lived assets to be classified as held for sale, the assets are recorded at the lower of carrying value or fair market value (less selling costs). See additional discussion in Note 2, Acquisition, Goodwill and Other Long-Lived Assets.
 
Operating Leases
 
Certain operating leases include rent increases during the initial lease term. For these leases, the Company recognizes the related rental expenses on a straight-line basis over the term of the lease, which includes any rent holiday period, and records the difference between the amounts charged to operations and amount paid as rent as a rent liability. Reserves for idle facilities are initially measured at the fair value of the portion of the lease payments associated with the vacated facilities, reduced by estimated sublease rentals. See additional discussion in Note 2, Acquisition, Goodwill and Other Long-Lived Assets.

Goodwill and Other Intangible Assets

Goodwill is recorded at cost based on the excess of purchase price over the fair value of net assets acquired. Goodwill and intangible assets with indefinite lives are not amortized but the Company conducts an annual (or more frequently if circumstances indicate possible impairment) impairment test of goodwill for each reportable segment at June 30 of each year.  Other intangible assets are amortized over their useful lives. Results of impairment testing are described in Note 2, Acquisition, Goodwill and Other Long-Lived Assets.

Acquisitions are accounted for using the purchase method.  The definite-lived intangible assets of the Company resulting from acquisition activity and the related amortization are described in Note 2, Acquisition, Goodwill and Other Long-Lived Assets.

Software Development

Costs related to software developed or acquired for internal use are expensed or capitalized based on the applicable stage of software development and any capitalized costs are amortized over their estimated useful life.  The Company typically uses a five-year straight line amortization for the capitalized amounts of software development costs.  At December 31, 20142016 and 20132015 the Company had $13,246$16,268 and $11,76314,866, respectively, of capitalized software development costs included in property and equipment.  Accumulated amortization on these assets was $9,065$10,716 and $7,64410,584 at December 31, 20142016 and 20132015, respectively.  Included in depreciation expense is amortization of capitalized software development costs.  Amortization of capitalized software development for the years ended December 31, 20142016, 20132015 and 20122014 was $1,464,$1,658, $1,2281,526 and $1,1001,464 respectively.  As of December 31, 20142016 the estimated amortization expense for the next five years of capitalized software development costs is as follows:


F-11

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

2015$1,374
20161,080
2017767
$1,719
2018509
1,400
2019211
1,142
2020849
2021368
Total$3,941
$5,478

Income Taxes

The Company accounts for income taxes using the liability method, whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to be recovered or settled.  We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.  We recognize interest and penalties, if any, related to unrecognized tax benefits in interest expense and operating expenses, respectively.

Net Income Per Share

The Company calculates net income per share in accordance with the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, Earnings per Share (the “FASB Codification“ASC 260”).  Under the FASB Codification 260, basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. The Company's non-vested shares contain non-forfeitable rights to dividends and are therefore considered participating securities for purposes of computing net income per share pursuant to the two-class method. Net income allocated to participating securities was $404$212 and $369 in 2014.2016 and 2015, respectively. Net losses are not allocated to participating securities in periods in which the Company incurs a net loss. Diluted net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding after considering the additional dilution from any dilutive non-participating securities. The Company's non-participating securities include options and performance shares.

Share-Based Payments
 
The Company’s general practice has been to make a single annual grant of share-based compensation to key employees and to generally make other grants only in connection with new employment or promotions.  In addition, the Company makes annual grants to non-employee directors in conjunction with their annual election to our Board of Directors or at the time of their appointment to the Board of Directors.  For employees, the Company has granted stock options, non-vested shares and performance shares.  For non-employee directors, the Company has generally issued non-vested shares during the years ended December 31, 2014, 2013 and 2012.shares.
 
Stock options typically expire seven years from the grant date and vest ratably over a three-year period. The share-based compensation for stock options is recognized, net of estimated forfeitures, ratably over the requisite service period, or vesting period. Based on the Company’s historical experience, forfeitures have been estimated. The Company uses the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted.  The following table contains the weighted-average assumptions used to estimate the fair value of options granted.  These assumptions are highly subjective and changes in these assumptions can materially affect the fair value estimate.

December 31,
2014

December 31,
2013

December 31,
2012
December 31,
2016

December 31,
2015

December 31,
2014
Expected dividend yield1.2%
1.2%
0.9%1.0%
1.0%
1.2%
Expected stock price volatility38.5%
43.7%
46.6%28.9%
33.3%
38.5%
Weighted average risk-free interest rate1.6%
0.9%
0.8%1.3%
1.6%
1.6%
Expected life of options (years)5.3

5.2

4.2
5.8

5.9

5.3

The fair value of non-vested shares issued were estimated using the closing market prices for the business day of the grant. The share-based compensation for the non-vested shares is recognized, net of estimated forfeitures, ratably over the requisite

F-12

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

service period or vesting period. Forfeitures are estimated based on our historical experience, but will beand are adjusted for future changes in forfeiture experience.

The fair value of the performance shares was estimated using a Monte Carlo simulation. The share-based compensation for performance shares are recognized, net of estimated forfeitures, ratably over the requisite service period, or vesting period. The following table contains the weighted-average assumptions used to estimate the fair value of performance shares granted.  These assumptions are highly subjective and changes in these assumptions can materially affect the fair value estimate.

  Year ended    Year ended  

December 31,
2014
 December 31,
2013

December 31,
2012
December 31,
2016
 December 31,
2015

December 31,
2014
Expected stock price volatility32.5% 34.5%
40.8%22.3% 23.5%
32.5%
Weighted average risk-free interest rate0.7% 0.4%
0.4%0.8% 1.0%
0.7%

Under the 2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by shareholders, the Company is authorized to issue shares of Common Stock to eligible employees. These shares may be issued at a price equal to 90% of the lesser of the market value on the first day or the last day of each six-month purchase period. Common Stock purchases are paid for through periodic payroll deductions and/or up to two large lump sum contributions.  WeThe Company recognize share-based compensation on the date of purchase based on the difference between the purchase date fair market value and the employee purchase price.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital ("APIC") pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The guidance is effective in 2017 with early adoption permitted. We plan to adopt this guidance in January 2017 and while the elimination of APIC pools will result in increased volatility of our effective tax rate, the overall impact is expected to be minimal.

In February 2016, the FASB, issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The guidance will be effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. We are evaluating the impact of the future adoption of this standard on our consolidated financial statements.
In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual periods beginning on or after December 15, 2016 (early adoption is not permitted).2017. The guidance permits the use of either a full retrospective or modified retrospective adoption approach with a cumulative effect transition method. The Company has not yet selectedadjustment recorded in either scenario as necessary upon transition. Based on a transition method and isreview of our customer shipping arrangements, we currently evaluatingbelieve the impactimplementation of this standard will change our revenue recognition policy from recognizing revenue upon shipment completion to recognizing revenue over time based on the amended guidanceprogress toward completion of shipments in transit as of each period end. While the timing of revenue recognition will be accelerated, due to the short duration of our transit times the anticipated impact on our consolidated financial position, revenue, results offrom operations and related disclosures.disclosures is expected to be minor. At this time we have not determined our transition method.
  




F-13

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)


2.        Acquisitions, Goodwill and Other Long-Lived Assets
 
Acquisition of Towne

On March 9, 2015, the Company acquired CLP Towne Inc. (“Towne”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) resulting in Towne becoming an indirect, wholly-owned subsidiary of the Company. For the acquisition of Towne, the Company paid $61,878 in net cash and assumed $59,544 in debt and capital leases. With the exception of assumed capital leases, the assumed debt was immediately paid in full after funding of the acquisition. Of the total aggregate cash consideration paid, $16,500 was placed into an escrow account, with $2,000 of such amount being available to settle any shortfall in Towne’s net working capital and with $14,500 of such amount being available for a period of time to settle certain possible claims against Towne’s common stockholders for indemnification. To the extent the escrow fund is insufficient, certain equity holders have agreed to indemnify Forward Air, subject to certain limitations set forth in the Merger Agreement, as a result of inaccuracies in or breaches of certain of Towne’s representations, warranties, covenants and agreements and other matters. Forward Air financed the Merger Agreement with a $125,000 2 year term loan available under the senior credit facility discussed in note 3.

Towne was a full-service trucking provider offering time-sensitive less-than-truckload shipping, full truckload service, an extensive cartage network, container freight stations and dedicated trucking. Towne’s LTL network provided scheduled deliveries to 61 service points. A fleet of approximately 525 independent contractor tractors provided the line-haul between those service points. The acquisition of Towne provided the Expedited LTL segment with opportunities to expand its service points and service offerings, such as pick up and delivery services. Additional benefits of the acquisition included increased linehaul network shipping density and a significant increase to our owner operator fleet, both of which are key to the profitability of Expedited LTL.
Towne had 2014 revenue of approximately $230,000. The assets, liabilities, and operating results of Towne have been included in the Company's consolidated financial statements from the date of acquisition and have been included in the Expedited LTL reportable segment. As the operations of Towne were fully integrated into the existing Expedited LTL network and operations, the Company is not able to provide the revenue and operating results of Towne which are included in the consolidated revenue and results since the date of acquisition.

Effective with the acquisition of Towne, the Company immediately entered into a restructuring plan to remove duplicate costs, primarily in the form of, but not limited to salaries, wages and benefits and facility leases. As a result of these plans, during the year ended December 31, 2015, the Company recognized expense of $2,624 and $11,722 for severance obligations and reserves for idle facilities, respectively. The expenses associated with the severance obligations and idle facilities were recognized in the salaries, wages and benefits and operating lease line items, respectively. The Company also incurred expense of $9,197 for various other integration and transaction related costs which are largely included in other operating expenses.

During 2015, the Company vacated certain duplicate facilities under long-term non-cancelable leases and recorded contract termination costs. The following is a summary of the vacated facility reserve:

Balance at December 31, 2015$6,731
Reserves for vacated facilities990
Payments(4,058)
Balance at December 31, 2016$3,663

Acquisition of CST

On February 2, 2014, the Company acquired all of the outstanding capital stock of Central States Trucking Co. and Central States Logistics, Inc. (collectively referred to as “CST”). Pursuant to the terms of the Agreement and concurrently with the execution of the Agreement, the Company acquired all of the outstanding capital stock of CST in exchange for $82,998$82,997 in net cash and $11,215 in assumed debt. With the exception of capital leases, the assumed debt was immediately paid in full after funding of the acquisition. The acquisition and settlement of the assumed debt were funded using the Company's cash on hand. Under the purchase agreement, $10,000 of the purchase price was paid into an escrow account to protect the Company against potential unknown liabilities. The amount held in escrow will bewas remitted to the sellers onin February 2, 2015.

F-14

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)


CST provides industry leading container and intermodal drayage services primarily within the Midwest region of the United States. CST also provides dedicated contract and Container Freight Station (“CFS”) warehouse and handling services. The acquisition of CST provides us with a scalable platform for which to enter the intermodal drayage space and thereby continuing to expand and diversify our service offerings.

For the acquisition of CST, the Company incurred total transaction costs related to the acquisitions of approximately $900, which were expensed during the year ended December 31, 2014. These transaction costs were primarily included in "Other operating expenses" in the consolidated statements of comprehensive income.

The assets, liabilities, and operating results of CST have been included in the Company's consolidated financial statements from the date of acquisition and are included in the Intermodal reportable segment. The results of CST operations are reflected in the Company's consolidated statements of comprehensive income for the year ended December 31, 2014 from the dates of acquisition are as follows (in thousands, except per share data):


Dates of Acquisition to December 31, 2014
Intermodal revenue$72,314
Operating income7,525
Net income4,586
Net income per share
Basic$0.15
Diluted$0.15

As part of our strategy to scale CST'sIntermodal operations, we have executed several smaller acquisitions in the Intermodal market. In September 2014, CSTwe acquired certain assets of Recob Great Lakes Express, Inc. ("RGL") for $1,350 and in November 2014, acquired Multi-Modal Trucking, Inc. and Multi-Modal Services, Inc. (together referred to as "MMT") for approximately $5,825 in cash and $1,000 in available earn out. The MMT earn out is based on acquired operations exceeding 2015 earnings goals, and the earn out was fully accruedsettled in 2016. In January 2016, the Company also acquired certain assets of Ace Cargo, LLC ("Ace") for $1,700, and in August 2016, we acquired certain assets of Triumph Transport, Inc. and Triumph Repair Service, Inc. (together referred to as “Triumph”) for $10,100 and a potential earnout of December 31, 2014. The acquisition of RGL and MMT's assets$1,250. These acquisitions provided an opportunity for CSTour Intermodal operations to expand into additional Midwest markets.

F-13

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)

The Company incurred total transaction costs related to the acquisitions of approximately $900, which were expensed during the nine months ended September 30, 2014, in accordance with U.S. GAAP. These transaction costs were primarily included in "Other operating expenses" in the consolidated statements of comprehensive income.

The assets, liabilities, and operating results of CST, RGL and MMT ("CST acquisitions")these collective acquisitions have been included in the Company's consolidated financial statements from thetheir dates of acquisition and have been assigned to the Forward Air reportable segment. The results of CST, RGL and MMT operations are reflectedincluded in the Company's consolidated statements of comprehensive income for the year ended December 31, 2014 from the dates of acquisition are as follows (in thousands, except per share data):


Dates of Acquisition to December 31, 2014
Logistics revenue$52,061
Other revenues20,253
Operating income7,525
Net income4,586
Net income per share
Basic$0.15
Diluted$0.15

Acquisition of TQI

On March 4, 2013, the Company entered into a Stock Purchase Agreement ("Agreement") with all of the shareholders of TQI to acquire 100% of the outstanding stock. Pursuant to the terms of the Agreement and concurrently with the execution of the Agreement, the Company acquired all of the outstanding capital stock of TQI in exchange for $45,328 in net cash, $20,113 in assumed debt and an available earn-out of up to $5,000. The assumed debt was immediately paid in full after funding of the acquisition. The acquisition and settlement of the assumed debt were funded using the Company's cash on hand. Under the purchase agreement, $4,500 of the purchase price was paid into an escrow account to protect the Company against potential unknown liabilities. The amount held in escrow was remitted to the sellers in September 2014.

Pursuant to the terms of the Agreement, the Company could pay the former shareholders of TQI additional cash consideration from $0 to $5,000 if certain earnings before interest, taxes, depreciation and amortization ("EBITDA") goals are exceeded. The ultimate payout is based on the level by which TQI operating results exceed specified thresholds as defined by the Agreement in both 2013 and 2014. At the time of acquisition the Company recognized an estimated earn-out liability of $615. The fair value of the earn-out liability (level 3) was estimated using an income approach based on the present value of probability-weighted amounts payable under a range of performance scenarios for 2013 and 2014 and a discount rate of 10.9%. However, based on the most probable outcomes the estimated earn-out liability was reduced to $0 and recognized as a gain in our results from operations during the fourth quarter of 2013. TQI's 2014 EBITDA performance did not exceed the goals established by the Agreement and therefore no earn out payments were required.

The Company incurred total transaction costs related to the acquisition of approximately $943, which was expensed during the year ended December 31, 2013, in accordance with U.S. GAAP. These transaction costs were primarily included in "Other operating expenses" expense in the consolidated statements of comprehensive income.

The acquisition allows the Company to expand and diversify its complimentary truckload operations while maintaining its goal of offering high-value added services.     Intermodal reportable segment.

    



F-14

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)

Included in the assumed liabilities of TQI is a liability for unrecognized tax benefits for $1,120. The liability is attributable to TQI not filing income tax returns in all jurisdictions in which it operated. The $1,120 consists of unrecognized tax benefits of $853 and related penalties and interest of $174 and $93, respectively. In accordance with the Agreement, the former shareholders of TQI have indemnified the Company against this tax exposure. As a result, the Company also recognized an offsetting receivable net of the estimated federal tax benefit for $728.

The assets, liabilities, and operating results of TQI have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to a new TQI reportable segment. The results of TQI reflected in the Company's consolidated statements of comprehensive income are as follows (in thousands, except per share data):


March 4, 2013 to December 31, 2013
Logistics revenue$41,842
Operating income3,600
Net income1,961
Net income per share
Basic$0.07
Diluted$0.06


F-15

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

Allocations of Purchase Prices

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


CSTRGL & MMTTQITowneCSTAce & TriumphRGL & MMT

February 2, 2014September & November 2014March 4, 2013March 9, 2015February 2, 2014January & August 2016September & November 2014
Tangible assets:





 





Accounts receivable$9,339
$
$5,639
$24,068
$9,339
$
$
Prepaid expenses and other current assets101

1,093
2,916
101


Property and equipment2,132
287
5,103
2,095
2,132
1,294
287
Other assets35

728
614
35


Deferred income taxes

947




Total tangible assets11,607
287
13,510
29,693
11,607
1,294
287
Intangible assets:





 





Non-compete agreements930
92
470

930
139
92
Trade name500

1,000

500


Customer relationships36,000
3,590
22,300
66,000
36,000
5,335
3,590
Goodwill51,710
4,206
45,164
59,666
51,710
6,282
4,206
Total intangible assets89,140
7,888
68,934
125,666
89,140
11,756
7,888
Total assets acquired100,747
8,175
82,444
155,359
100,747
13,050
8,175


 
Liabilities assumed:
 
Current liabilities6,535
1,000
4,725
28,920
6,535

1,000
Other liabilities

1,735
3,886

1,250

Debt and capital lease obligations11,215

20,113
59,544
11,215


Deferred income taxes

10,543
1,131



Total liabilities assumed17,750
1,000
37,116
93,481
17,750
1,250
1,000
Net assets acquired$82,997
$7,175
$45,328
$61,878
$82,997
$11,800
7,175

The acquired definite-live intangible assets have the following useful lives:

Useful Lives

TowneCST
Ace & Triumph
RGL & MMT
TQI
Customer relationships20 years15 years
15 years
15 years
Non-competes-5 years
5 years
5 years
Trade names-2 years
-
5 years-

The fair value of the non-compete agreements trade name and customer relationshiprelationships assets were estimated using an income approach (level 3). Under this method, an intangible asset's fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To calculateestimate fair value, the Company used cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes thatbelieved the level and timing of cash flows appropriately reflectreflected market participant assumptions. The fair value of the acquired trade names were estimated using an income approach, specifically known as the relief from royalty method. The relief from

F-16

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

value of the TQI and CST trades names were estimated using an income approach, specifically known as the relief from royalty method. The relief from royalty method is based on a hypothetical royalty stream that would be paid if the Company did not own the TQI nameapplicable names and had to license the trade name. The Company derived the hypothetical royalty income from the projected revenues of TQI.CST. Cash flows were assumed to extend through the remaining economic useful life of each class of intangible asset.
    
The following unaudited pro forma information presents a summary of the Company's consolidated results of operations as if the CST acquisitionsTowne and TQICST acquisition occurred as of January 1, 20132014 (in thousands, except per share data).

Year ended

December 31,
2014
 December 31,
2013
Operating revenue$786,048
 $710,107
Income from operations96,596
 91,215
Net income61,286
 58,713
Net income per share
 
Basic$2.00
 $1.95
Diluted$1.97
 $1.91

See note 12 for discussion of subsequent events related to acquisitions.

Year ended

December 31,
2016
 December 31,
2015
 December 31,
2014
Operating revenue$982,530
 $993,352
 $1,017,005
Income from operations59,979
 79,465
 89,650
Net income27,670
 53,096
 56,092
Net income per share  
 
Basic$0.91
 $1.72
 $1.82
Diluted$0.90
 $1.70
 $1.79

Goodwill

The following is a summary of the changes in goodwill for the year ended December 31, 2014. All goodwill, except the goodwill assigned to TQI, is deductible for tax purposes.


Forward Air
FASI
TQI
Total


Accumulated

Accumulated

Accumulated


GoodwillImpairment
GoodwillImpairment
GoodwillImpairment
Net
Beginning balance, December 31, 2013$37,926
$

$12,359
$(6,953)
$45,164
$

$88,496
CST acquisitions55,916








55,916
Ending balance, December 31, 2014$93,842
$

$12,359
$(6,953)
$45,164
$

$144,412

The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2014 and no impairment charges were required. The Company conducts an annual (or more frequently if circumstances indicate possible impairment) impairment test of goodwill for each reporting unit at June 30 of each year.2016.  The first step of the goodwill impairment test is the Company assessesCompany's assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, including goodwill. When performing the qualitative assessment, the Company considers the impact of factors including, but not limited to, macroeconomic and industry conditions, overall financial performance of each reporting unit, litigation and new legislation. If based on the qualitative assessments, the Company believes it more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, or periodically as deemed appropriate by management, the Company will prepare an estimation of the respective reporting unit's fair value utilizing a quantitative approach.  If a quantitative fair value estimation is required, the Company calculatesestimates the fair value of the applicable reportable units, using a combination of discounted projected cash flows and market valuations for comparable companies as of the valuation date.  The Company's inputs into the fair value calculationsestimates for goodwill are classified within level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the FASB Codification”). If thisthe estimation of fair value indicates thatthe impairment potentially exists, the Company will then measure the amount of the impairment, if any.  Goodwill impairment exists when the calculatedestimated implied fair value of goodwill is less than its carrying value.  Changes in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances.

Our 2016 assessments and calculations for Expedited LTL, Intermodal and Pool Distribution indicated that, as of June 30, 2016, the fair value of each reporting unit exceeded the carrying value. However, due to the financial performance of the Total Quality, Inc. ("TQI") reporting unit falling notably short of previous projections, declining revenue from significant customers and strategic initiatives not having the required impact on financial results, the estimate of TQI's fair value no longer exceeded the respective carrying value. As a result, the Company recorded a goodwill impairment charge of $25,686 for the TQI reporting unit during the year ended December 31, 2016.


F-17

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

The following is a summary of the changes in goodwill for the year ended December 31, 2016. Approximately $105,531 of goodwill is deductible for tax purposes.


Expedited LTL
Truckload Premium
Pool Distribution Intermodal
Total


Accumulated

Accumulated

Accumulated  Accumulated


GoodwillImpairment
GoodwillImpairment
GoodwillImpairment GoodwillImpairment
Net
Beginning balance, December 31, 2015$99,123
$
 $45,164
$
 $12,359
$(6,953) $55,916
$
 $205,609
Ace & Triumph acquisitions

 

 

 6,282

 6,282
TQI Impairment

 
(25,686) 

 

 (25,686)
Adjustment of Towne acquisition(1,530)
 

 

 

 (1,530)
Ending balance, December 31, 2016$97,593
$
 $45,164
$(25,686) $12,359
$(6,953) $62,198
$
 $184,675

Other Acquired Intangibles

Through acquisitions, between 2005 and 2014, including TQI and CST, the Company acquired customer relationships, non-compete agreements and trade names of $108,240, $3,272 and $1,500, respectively, having weighted-average useful lives of 13.5,16.0, 5.3 and 4.0 years, respectively.  Amortization expense on acquired customer relationships, non-compete agreements and trade names for each of the three years ended December 31, 2016, 2015 and 2014 2013was $10,122, $10,905 and 2012 was $8,517, $5,762 and $4,566, respectively.

As of December 31, 2016, definite-lived intangible assets are comprised of the following:
 Acquired Intangibles Accumulated Amortization Accumulated Impairment Net Acquired Intangibles
Customer relationships$179,575
 $57,390
 $16,501
 $105,684
Non-compete agreements3,410
 2,677
 
 733
Trade name1,500
 1,267
 
 233
Total$184,485
 $61,334
 $16,501
 $106,650


The estimated amortization expense for the next five years on definite-lived intangible assets as of December 31, 20142016 is as follows:


2015
2016
2017
2018
20192017
2018
2019
2020
2021
Customer relationships$7,387

$6,856

$6,741

$5,236

$5,156
$8,995

$7,490

$7,410

$7,410

$7,267
Non-compete agreements318

318

310

220

30
244

232

58

28

15
Trade name450

221

200

33


200

33






Total$8,155

$7,395

$7,251

$5,489

$5,186
$9,439

$7,755

$7,468

$7,438

$7,282

Additionally, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is recognized on assets classified as held and used when the sum of undiscounted estimated cash flows expected to result from the use of the asset is less than the carrying value. If such measurement indicates a possible impairment, the estimated fair value of the asset is compared to its net book value to measure the impairment charge, if any. In conjunction with the TQI goodwill impairment assessment the Company determined there were indicators that TQI's customer relationship and non-compete intangible assets were impaired, as the undiscounted cash flows associated with the applicable assets no longer exceeded the related assets' net book values. The Company estimated the current market values of the customer relationship and non-compete assets using an income approach (level 3). Under this method, an intangible asset's fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely

F-18

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)

to the intangible asset over its remaining useful life. To estimate fair value, the Company used cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believed the level and timing of cash flows appropriately reflected market participant assumptions. As a result of these estimates the Company recorded an impairment charge of $16,501 related to TQI customer relationships.

In addition, during the year ended December 31, 2016, the Company discontinued use of an owned maintenance facility and began efforts to sell the property. In conjunction with these actions, the Company incurred a $255 impairment charge that was estimated using current offers received to sell the property less estimated selling costs.

3.        Debt and Capital Lease Obligations

Credit Facilities
 
InOn February 2012,4, 2015, the Company entered into a new $150,000five-year senior, unsecured credit facility. Thisfacility (the “Facility”) with a maximum aggregate principal amount of $275,000, including a revolving credit facility of $150,000 and a term loan facility of $125,000. The revolving credit facility has a termsublimit of five years$25,000 for letters of credit and maturesa sublimit of $15,000 for swing line loans. The revolving credit facility is scheduled to expire in February 2017. Interest rates2020 and may be used to refinance existing indebtedness of the Company and for advancesworking capital, capital expenditures and other general corporate purposes. Unless the Company elects otherwise under the credit agreement, interest on borrowings under the Facility are based on the highest of (a) the federal funds rate plus 0.5%, (b) the administrative agent's prime rate and (c) the LIBOR Rate plus 1.0%, in each case plus a margin that can range from 0.1% to 0.6% with respect to the term loan facility are LIBOR plus 1.1% based upon covenants relatedand from 0.3% to total0.8% with respect to the revolving credit facility depending on the Company’s ratio of consolidated funded indebtedness to earnings (1.3% at December 31, 2014).as set forth in the credit agreement. The agreementFacility contains certainfinancial covenants and restrictions related to new indebtedness, investment types and dispositions of property. Noneother covenants that, among other things, restrict the ability of the covenants are expectedCompany, without the approval of the lenders, to significantly affect the Company's operationsengage in certain mergers, consolidations, asset sales, investments, transactions or ability to pay dividends. No assets are pledgedincur liens or indebtedness, as collateral againstset forth in the credit facility.agreement. As of December 31, 2014,2016, the Company had no borrowings outstanding under the revolving credit facility. At December 31, 2014,2016, the Company had utilized $9,749$7,514 of availability for outstanding letters of credit and had $140,251$142,486 of available borrowing capacity outstanding under the revolving credit facility.  See

In conjunction with the acquisition of Towne (see note 12 for discussion2), the Company borrowed $125,000 on the available term loan. The term loan is payable in quarterly installments of subsequent events related to11.1% of the credit facility.original principal amount of the term loan plus accrued and unpaid interest, and matures in March 2017. The interest rate on the term loan was 2.0% at December 31, 2016. The remaining balance on the term loan was $27,788 as of December 31, 2016 and will be paid in March 2017.

Capital Leases

ThroughPrimarily through acquisitions, the Company assumed several equipment leases that met the criteria for classification as a capital lease.  The leased equipment is being amortized over the shorter of the lease term or useful life.

Property and equipment include the following amounts for assets under capital leases:

December 31,
2014

December 31,
2013
 December 31,
2016

December 31,
2015
Equipment$793

$685
 $635

$635
Accumulated amortization(253)
(680) (307)
(105)

$540

$5
 $328

$530

Amortization of assets under capital leases is included in depreciation and amortization expense.
    

F-19

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)

Future minimum payments, by year and in the aggregate, under non-cancelable capital leases with initial or remaining terms of one year or more consist of the following at December 31, 2014:2016:

F-18

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)

2015 $349
2016 347
2017 347
 $395
2018 347
 391
2019 320
 325
2020 60
2021 
Thereafter 55
 
Total 1,765
 1,171
Less amounts representing interest 214
 99
Present value of net minimum lease payments (including current portion of $276) $1,551
Present value of net minimum lease payments (including current portion of $347) $1,072

Interest Payments

Interest payments during 2016, 2015 and 2014 2013were $1,770, $2,017 and 2012 were $495, $482 and $365, respectively.  No interest was capitalized during the years ended December 31, 2014, 20132016, 2015 and 2012.2014.


4.        Shareholders' Equity, Stock Options and Net Income per Share
 
Preferred Stock

There are 5,000,000 shares of preferred stock with a par value of $0.01 authorized, but no shares have been issued to date.    

Cash Dividends

During the fourth quarter of 2016, the Company’s Board of Directors declared a cash dividend of $0.15 per share of Common Stock. During the first, second and third quarters of 2016 and each quarter of 2015 and 2014, , the Company’sCompany's Board of Directors declared a cash dividend of $0.12 per share of Common Stock. During each quarter of 2013 and the third and fourth quarter of 2012, the Company's Board of Directors declared a cash dividend of $0.10 per share of Common Stock. During the first and second quarter of 2012, the Company's Board of Directors declared a cash dividend of $0.07 per share of Common Stock. On February 10, 2015,7, 2017, the Company’s Board of Directors declared a $0.12$0.15 per share dividend that will be paid in the first quarter of 2015.2017. The Company expects to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by the Board of Directors.

Repurchase of Common StockStock
In July 2007, our Board of Directors approved a stock repurchase program (“Repurchase Plan”) for up to 2,000,000 shares of our common stock. During the year ended December 31, 2013, we repurchased 8,675 shares of common stock under the Repurchase Plan for $354, or $40.84 per share. No shares were repurchased during the year ended December 31, 2012.

Also, onOn February 7, 2014, our Board of Directors approved a stock repurchase authorization for up to 2,000,000 shares of the Company’s common stock. In connection with this action, the board cancelled the Company’s Repurchase Plan.Common Stock. During the yearyears ended December 31, 2016, 2015 and 2014, we repurchased 676,773 shares of common stock for $29,986, or $44.31 per share, 422,404 shares of common stock for $19,992, or $47.33 per share and 881,979 shares of common stock for $39,972, or $45.32 per share, respectively.

On July 21, 2016, our Board of Directors canceled the Company's 2014 repurchase plan and approved a stock repurchase plan that authorized the repurchase of up to 3,000,000 shares of the Company's Common Stock. Under the 2016 repurchase plan, during the year ended December 31, 2016, we repurchased 233,516 shares of Common Stock for $9,997, or $42.80 per share. As of December 31, 20142016, 1,118,0212,766,484 shares remain that may be repurchased.

Share-Based Compensation

The Company had previously reserved for issuance 4,500,000 common shares under the 1999 Stock Option and Incentive Plan (the “1999 Plan”). Options issued under the 1999 Plan have seven to ten-year terms and vested over a one to five year period.

In May 2008, with the approval of shareholders, the Company amended and restated the 1999 Stock Option and Incentive Plan (the “1999 Amended Plan”) to reserve for issuance an additional 3,000,000 common shares, increasing the total number of reserved common shares under the 1999 Amended Plan to 7,500,000. Options issued under these plans have 7,500,000seven. As of December 31, 2014, there were approximately 746,000 shares remaining available for grant. to ten-year terms and vested over a one to five year period.


F-19F-20

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)


In May 2016, with the approval of shareholders, the Company adopted the 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) to reserve for issuance 2,000,000 common shares. With the adoption of the Omnibus Plan, no further awards will be issued under the 1999 Amended Plan. As of December 31, 2016, there were approximately 1,976,119 shares remaining available for grant under the Omnibus Plan.

Employee Activity - Options

The following tables summarize the Company’s employee stock option activity and related information for the years ended December 31, 20142016, 20132015 and 20122014:

2014 2013 20122016 2015 2014
  Weighted-   Weighted-   Weighted-  Weighted-   Weighted-   Weighted-
  Average   Average   Average  Average   Average   Average
Options Exercise Options Exercise Options ExerciseOptions Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price(000) Price (000) Price (000) Price
                      
Outstanding at beginning of year1,732
 $27
 2,874
 $26
 3,363
 $26
786
 $32
 1,363
 $28
 1,732
 $27
Granted106
 43
 118
 38
 94
 37
137
 44
 96
 50
 106
 43
Exercised(450) 28
 (1,260) 26
 (570) 27
(346) 24
 (659) 26
 (450) 28
Forfeited(25) 37
 
 
 (13) 29
(13) 35
 (14) 29
 (25) 37
Outstanding at end of year1,363
 $28
 1,732
 $27
 2,874
 $26
564
 $41
 786
 $32
 1,363
 $28
Exercisable at end of year1,160
 $26
 1,514
 $26
 2,487
 $26
331
 $37
 586
 $28
 1,160
 $26
Weighted-average fair value of options granted during the year$14
   $14
   $13
  $12
   $15
   $14
  
Aggregate intrinsic value for options exercised$7,259
   $15,477
   $3,924
  $7,803
   $16,191
   $7,259
  
Average aggregate intrinsic value for options outstanding$24,425
          $2,305
          
Average aggregate intrinsic value for exercisable options$23,274
          $2,516
          









Outstanding


Exercisable





Outstanding


Exercisable







Weighted-
Weighted-


Weighted-





Weighted-
Weighted-


Weighted-
Range ofRange of
Number
Average
Average
Number
AverageRange of
Number
Average
Average
Number
Average
ExerciseExercise
Outstanding
Remaining
Exercise
Exercisable
ExerciseExercise
Outstanding
Remaining
Exercise
Exercisable
Exercise
PricePrice
(000)
Contractual Life
Price
(000)
PricePrice
(000)
Contractual Life
Price
(000)
Price
$22.47
-24.98
 672
 1.7 $22.66
 672
 $22.66
22.47
-22.47

14

0.1
$22.47

14

$22.47
28.6128.61
-29.44
 401
 0.9 28.95
 401
 28.95
28.61
-28.61

76

1.1
28.61

76

28.61
36.5536.55
-41.80
 184
 4.7 37.03
 87
 36.90
36.55
-37.14

138

2.6
36.87

138

36.87
42.48
-45.97
 106
 6.2 43.17
 
 
41.3241.32
-43.67

210

5.3
43.15

56

42.48
44.4944.49
-48.32

40

5.2
45.93

18

45.20
50.7150.71
-52.03

86

5.1
50.79

29

50.79
$22.47
-45.97
 1,363
 2.2 $28.05
 1,160
 $25.91
22.47
-52.03

564

3.9
$40.52

331

$37.00

    

Year ended

December 31,
2014

December 31,
2013

December 31,
2012
Shared-based compensation for options$1,302

$1,410

$2,585
Tax benefit for option compensation$497

$508

$713
Unrecognized compensation cost for options, net of estimated forfeitures$1,632








F-20F-21

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)


Year ended

December 31,
2016

December 31,
2015

December 31,
2014
Shared-based compensation for options$1,473

$1,386

$1,302
Tax benefit for option compensation$546

$542

$497
Unrecognized compensation cost for options, net of estimated forfeitures$1,784





Weighted average period over which unrecognized compensation will be recognized (years)
1.8
    

Employee Activity – Non-vested shares
 
Non-vested share grants to employees vest ratably over a three-year period. The following tables summarize the Company's employee non-vested share activity and related information:


Year endedYear ended

2014
2013
20122016
2015
2014



Weighted-


Weighted-


Weighted-

Weighted-


Weighted-


Weighted-

Non-vested
Average
Non-vested
Average
Non-vested
AverageNon-vested
Average
Non-vested
Average
Non-vested
Average

Shares
Grant Date
Shares
Grant Date
Shares
Grant DateShares
Grant Date
Shares
Grant Date
Shares
Grant Date

(000)
Fair Value
(000)
Fair Value
(000)
Fair Value(000)
Fair Value
(000)
Fair Value
(000)
Fair Value

Outstanding and non-vested at beginning of year186

$35

168

$33

108

$29
191

$46

190

$40

186

$35
Granted99

42

98

37

103

37
134

44

100

51

99

42
Vested(94)
43

(68)
37

(36)
29
(94)
44

(93)
39

(94)
43
Forfeited(1)
37

(12)
36

(7)
33
(9)
45

(6)
45

(1)
37
Outstanding and non-vested at end of year190

$40

186

$35

168

$33
222

$45

191

$46

190

$40
Aggregate grant date fair value$7,585



$6,588



$5,579


$10,108



$8,773



$7,585


Total fair value of shares vested during the year$4,008



$2,503



$1,249


$4,064



$4,694



$4,008




Year endedYear ended

December 31,
2014

December 31,
2013

December 31,
2012
December 31,
2016

December 31,
2015

December 31,
2014
Shared-based compensation for non-vested shares$3,626

$3,058

$2,039
$4,614

$4,070

$3,626
Tax benefit for non-vested share compensation$1,385

$1,165

$785
$1,712

$1,591

$1,385
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures$4,325





$5,900





Weighted average period over which unrecognized compensation will be recognized (years)1.8
    

Employee Activity – Performance shares

In 2014, 20132016, 2015 and 2012,2014, the Company granted performance shares to key employees. Under the terms of the performance share agreements, on the third anniversary of the grant date, the Company will issue to the employees a calculated number of common stock shares based on the three year performance of the Company's common stock share pricetotal shareholder return as compared to the total

F-22

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share price performanceand per share data)

shareholder return of a selected peer group. No shares may be issued if the Company share price performancetotal shareholder return outperforms 30% or less of the peer group, but the number of shares issued may be doubled if the Company share pricetotal shareholder return performs better than 90% of the peer group.

The following tables summarize the Company's employee performance share activity, assuming median share awards, and related information:


F-21

Year ended

2016
2015
2014



Weighted-


Weighted-


Weighted-

Non-vested
Average
Non-vested
Average
Non-vested
Average

Shares
Grant Date
Shares
Grant Date
Shares
Grant Date

(000)
Fair Value
(000)
Fair Value
(000)
Fair Value












Outstanding and non-vested at beginning of year77

$52

74

$44

88

$37
Granted29

49

27

67

23

48
Additional shares awarded based on performance7

40





19

30
Vested(33)
40

(24)
45

(56)
30
Forfeited










Outstanding and non-vested at end of year80

$55

77

$52

74

$44
Aggregate grant date fair value$4,373



$4,016



$3,279




Year ended

December 31,
2016

December 31,
2015

December 31,
2014
Shared-based compensation for performance shares$1,447

$1,308

$1,098
Tax benefit for performance share compensation$537

$512

$419
Unrecognized compensation cost for performance shares, net of estimated forfeitures$1,709






Weighted average period over which unrecognized compensation will be recognized (years)1.7
    


F-23

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)


Year ended

2014
2013
2012



Weighted-


Weighted-


Weighted-

Non-vested
Average
Non-vested
Average
Non-vested
Average

Shares
Grant Date
Shares
Grant Date
Shares
Grant Date

(000)
Fair Value
(000)
Fair Value
(000)
Fair Value












Outstanding and non-vested at beginning of year88

$37

62

$36

38

$30
Granted23

48

26

40

24

45
Additional shares awarded based on performance19

30








Vested(56)
30








Forfeited










Outstanding and non-vested at end of year74

$44

88

$37

62

$36
Aggregate grant date fair value$3,279



$3,278



$2,205




Year ended

December 31,
2014

December 31,
2013

December 31,
2012
Shared-based compensation for performance shares$1,098

$1,055

$699
Tax benefit for performance share compensation$419

$402

$269
Unrecognized compensation cost for performance shares, net of estimated forfeitures$1,225







Employee Activity – Employee Stock Purchase Plan

Under the ESPP, at December 31, 2014,2016, the Company is authorized to issue up to a remaining 403,792381,813 shares of Common Stock to employees of the Company. For the years ended December 31, 2014, 20132016, 2015 and 2012,2014, participants under the planESPP purchased 8,530,11,174, 8,80010,805, and 8,8468,530 shares, respectively, at an average price of $41.51,$39.50, $33.6841.55, and $29.2641.51 per share, respectively. The weighted-average fair value of each purchase right under the ESPP granted for the years ended December 31, 2014, 20132016, 2015 and 2012,2014, which is equal to the discount from the market value of the Common Stock at the end of each six month purchase period, was $7.74,$6.46, $7.525.82, and $4.477.74 per share, respectively. Share-based compensation expense of $66,$72, $6661, and $4066 was recognized in salaries, wages and employee benefits, during the years ended December 31, 2014, 20132016, 2015 and 2012,2014, respectively.

Non-employee Directors – Non-vested shares
 
OnIn May 23, 2006, the Company’s shareholders approved the Company’s 2006 Non-Employee Director Stock Plan (the “2006 Plan”).  The Company’s shareholders then approved the Company’s Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”) on May 22, 2007.  The Amended Plan was then further amended and restated on December 17, 2008.  Under the Amended Plan, on the first business day after each Annual Meeting of Shareholders, each non-employee director will automatically be granted an award (the “Annual Grant”), in such form and size as the Board determines from year to year.  Unless otherwise determined by the Board, Annual Grants will become vested and nonforfeitable one year after the date of grant so long as the non-employee director’s service with the Company does not earlier terminate.  Each director may elect to defer receipt of the shares under a non-vested share award until the director terminates service on the Board of Directors.  If a director elects to defer receipt, the Company will issue deferred stock units to the director, which do not represent actual ownership
in shares and the director will not have voting rights or other incidents of ownership until the shares are issued.  However, the Company will credit the director with dividend equivalent payments in the form of additional deferred stock units for each cash dividend payment made by the Company.

In May 2016, with the approval of shareholders, the Company further amended the Amended Plan to reserve for issuance an additional 160,000 common shares, increasing the total number of reserved common shares and shares available for grant under the Amended Plan to 360,000 and 159,259, respectively.
The following tables summarize the Company's non-employee non-vested share activity and related information:
F-22

Year ended

2016
2015
2014

Non-vested


Non-vested


Non-vested


Shares and
Weighted-
Shares and
Weighted-
Shares and
Weighted-

Deferred
Average
Deferred
Average
Deferred
Average

Stock Units
Grant Date
Stock Units
Grant Date
Stock Units
Grant Date

(000)
Fair Value
(000)
Fair Value
(000)
Fair Value












Outstanding and non-vested at beginning of year15

$51

15

$44

15

$38
Granted16

44

14

51

15

44
Vested(15)
51

(14)
43

(15)
38
Forfeited










Outstanding and non-vested at end of year16

$44

15

$51

15

$44
Aggregate grant date fair value$688



$740



$650


Total fair value of shares vested during the year$639



$727



$632



F-24

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

The following tables summarize the Company's non-employee non-vested share activity and related information:

Year ended

2014
2013
2012

Non-vested


Non-vested


Non-vested


Shares and
Weighted-
Shares and
Weighted-
Shares and
Weighted-

Deferred
Average
Deferred
Average
Deferred
Average

Stock Units
Grant Date
Stock Units
Grant Date
Stock Units
Grant Date

(000)
Fair Value
(000)
Fair Value
(000)
Fair Value












Outstanding and non-vested at beginning of year15

$38

20

$32

24

$33
Granted15

44

15

38

20

32
Vested(15)
38

(20)
32

(24)
32
Forfeited










Outstanding and non-vested at end of year15

$44

15

$38

20

$32
Aggregate grant date fair value$650



$560



$640


Total fair value of shares vested during the year$632



$762



$752



Year endedYear ended

December 31,
2014

December 31,
2013

December 31,
2012
December 31,
2016

December 31,
2015

December 31,
2014
Shared-based compensation for non-vested shares$589

$589

$687
$728

$661

$589
Tax benefit for non-vested share compensation$225

$225

$264
$263

$259

$225
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures$256





$246





Weighted average period over which unrecognized compensation will be recognized (years)0.4
    

Non-employee Directors - Options
 
In addition to the above activity, each May from 1995 to 2005, options were granted to the non-employee directors of the Company.  The options have terms of ten years and are fully exercisable.  The following table summarizes the Company’s non-employee stock option activity and related information for the years ended December 31, 2014, 20132015 and 2012:2014:

F-23
 2015 2014
   Weighted-   Weighted-
   Average   Average
 Options Exercise Options Exercise
 (000) Price (000) Price
        
Outstanding at beginning of year8
 $26
 26
 $23
Granted
 
 
 
Exercised(8) 26
 (18) 22
Forfeited
 
 
 
Outstanding and exercisable at end of year
 $
 8
 $26
Aggregate intrinsic value for options exercised$208
   $412
  
Average aggregate intrinsic value for options outstanding and exercisable       


F-25

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

 2014 2013 2012
   Weighted-   Weighted-   Weighted-
   Average   Average   Average
 Options Exercise Options Exercise Options Exercise
 (000) Price (000) Price (000) Price
            
Outstanding at beginning of year26
 $23
 29
 $23
 41
 $21
Granted
 
 
 
 
 
Exercised(18) 22
 (3) 20
 (12) 16
Forfeited
 
 
 
 
 
Outstanding and exercisable at end of year8
 $26
 26
 $23
 29
 $23
Aggregate intrinsic value for options exercised$412
   $54
   $207
  
Average aggregate intrinsic value for options outstanding and exercisable$151
          

At December 31, 2014, weighted average remaining contractual term for these options was 0.4 years.   

Net Income per Share

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

2014
2013
20122016 2015
2014
Numerator:




  



Net income and comprehensive income$61,169

$54,467

$52,668
$27,670
 $55,575

$61,169

Income allocated to participating securities(404) 
 
(212) (369) (404) 
Numerator for net income and comprehensive income to common shareholders60,765
 54,467
 52,668
Numerator for basic and diluted income per share - net income27,458
 55,206
 60,765
 






  



Denominator:




  



Denominator for basic net income per share - weighted-average shares (in thousands)30,599

30,135

28,967
30,283
 30,728

30,599

Effect of dilutive stock options (in thousands)431
 615
 528
130
 277
 431
 
Effect of dilutive performance shares (in thousands)42
 12
 41
31
 35
 42
 
Denominator for diluted net income per share - adjusted weighted-average shares (in thousands)31,072

30,762

29,536
30,444
 31,040

31,072

Basic net income per share$1.99

$1.81

$1.82
$0.91
 $1.80

$1.99

Diluted net income per share$1.96

$1.77

$1.78
$0.90
 $1.78

$1.96


The number of instruments that could potentially dilute net income per basic share in the future, but that were not included in the computation of net income per diluted share because to do so would have been anti-dilutive for the periods presented, are as follows:

2014 2013 20122016 2015 2014
Anti-dilutive stock options (in thousands)99
 192
 226
310
 184
 99
Anti-dilutive performance shares (in thousands)
 
 22

 24
 
Total anti-dilutive shares (in thousands)99
 192
 248
310
 208
 99


F-24

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)


5.        Income Taxes

The provision for income taxes consists of the following:

2014
2013
20122016
2015
2014
Current: 
 
  
 
 
Federal$33,631

$22,466

$24,981
$24,139

$8,319

$33,631
State4,306

2,133

3,462
3,052

1,242

4,306
37,937

24,599

28,443
27,191

9,561

37,937
Deferred: 

 

 
 

 

 
Federal(2,102)
4,367

2,452
3,256

12,477

(2,102)
State(919)
489

(408)269

2,054

(919)
(3,021)
4,856

2,044
3,525

14,531

(3,021)
$34,916

$29,455

$30,487
$30,716

$24,092

$34,916

The tax benefit associated with the exercise of stock options and the vesting of non-vested shares recorded to additional paid in capital during the years ended December 31, 20142016, 20132015 and 20122014 were $2,109, $3,612$1,732, $5,413 and $385,$2,109, respectively, and are reflected as an increase in additional paid-in capital in the accompanying consolidated statements of shareholders’ equity.

F-26

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)

 
The historical income tax expense differs from the amounts computed by applying the federal statutory rate of 35.0% to income before income taxes as follows:
2014 2013 20122016 2015 2014
Tax expense at the statutory rate$33,630
 $29,373
 $29,125
$20,435
 $27,883
 $33,630
State income taxes, net of federal benefit1,879
 1,876
 1,842
2,229
 2,178
 1,879
Non-deductible transaction costs

394


Incentive stock options(96) (908) (154)(88) (120) (96)
Meals and entertainment186
 139
 172
Other permanent differences474
 216
 186
TQI goodwill impairment8,990
 
 
Deferred tax asset valuation allowance39
 (85) (39)(2) (11) 39
Federal qualified property deductions(1,311)
(6,066)

Federal income tax credits(533) (1,023) (619)
 (732) (533)
Other(189) 83
 160
(11) 350
 (189)
$34,916
 $29,455
 $30,487
$30,716
 $24,092
 $34,916

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows:

F-25

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)


December 31,
2014

December 31,
2013
Deferred tax assets: 
 
Accrued expenses$6,313

$4,287
Allowance for doubtful accounts1,002

745
Share-based compensation5,698

6,066
Accruals for income tax contingencies300

547
Impairment of goodwill and other intangible assets534

854
Net operating loss carryforwards280

253
Total deferred tax assets14,127

12,752
Valuation allowance(273)
(234)
Total deferred tax assets, net of valuation allowance13,854

12,518
Deferred tax liabilities: 
 
Tax over book depreciation19,222

21,806
Non-compete agreements3,639

5,149
Prepaid expenses deductible when paid2,488

2,354
Goodwill11,189

8,914
Total deferred tax liabilities36,538

38,223
Net deferred tax liabilities$(22,684)
$(25,705)

The balance sheet classification of deferred income taxes is as follows:
 December 31,
2014
 December 31,
2013
Current assets$2,496
 $1,145
Noncurrent liabilities(25,180) (26,850)
 $(22,684) $(25,705)

December 31,
2016

December 31,
2015
Deferred tax assets: 
 
Accrued expenses$9,647

$11,952
Allowance for doubtful accounts662

936
Share-based compensation5,005

5,242
Accruals for income tax contingencies252

268
Net operating loss carryforwards10,231

13,620
Total deferred tax assets25,797

32,018
Valuation allowance(282)
(284)
Total deferred tax assets, net of valuation allowance25,515

31,734
Deferred tax liabilities: 
 
Tax over book depreciation29,416

28,027
Intangible assets17,588

25,399
Prepaid expenses deductible when paid4,862

5,018
Goodwill15,520

13,166
Total deferred tax liabilities67,386

71,610
Net deferred tax liabilities$(41,871)
$(39,876)

Total income tax payments, net of refunds, during fiscal years 20142016, 20132015 and 20122014 were $30,08710,628, $25,16825,264 and $32,21430,087, respectively.

As a result of the Towne acquisition the Company has approximately $27,050 and $36,034 of federal net operating losses as of December 31, 2016 and 2015 respectively, that will expire between 2020 and 2030. The Company expects to be able to fully utilize these federal net operating losses before they expire.

At December 31, 20142016 and 20132015, the Company had state net operating loss carryforwards of $6,50018,155 and $5,46823,595, respectively, that will expire between 20152016 and 2029. The2030. Also, the use of these state net operating losses is limited to the future taxable income of separate legal entities. Based on expectations of future taxable income, management believes that it is more

F-27

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)

likely than not that the results of operations for thesecertain separate legal entities will not generate sufficient taxable income to realize portions of these net operating loss benefits for state loss carryforwards.  As a result, a valuation allowance has been provided for most of thesethe state loss carryforwards.carryforwards for these specific legal entities. The valuation allowance on these state loss carryforwards decreased $2 during 2016, but the valuation allowance increased $39$11 during 2013 but decreased $85 during 2012.2015.

Income Tax Contingencies

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and Canada. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years before 2010.2012.
     





F-26

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)

A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

Liability forLiability for
Unrecognized TaxUnrecognized Tax
BenefitsBenefits
Balance at December 31, 2011481
Reductions for settlement with state taxing authorities(204)
Balance at December 31, 2012277
Additions for tax positions of current year209
Additions for tax positions of prior years - TQI853
Balance at December 31, 20131,339
$1,339
Reductions for settlement with state taxing authorities(697)(697)
Additions for tax positions of prior years - TQI63
63
Additions for tax positions of current year66
66
Balance at December 31, 2014$771
771
Reductions for settlement with state taxing authorities(64)
Additions for tax positions of current year66
Balance at December 31, 2015773
Reductions for settlement with state taxing authorities(247)
Additions for tax positions of current year56
Balance at December 31, 2016$582

Included in the liability for unrecognized tax benefits at December 31, 20142016 and December 31, 20132015 are tax positions of $771582 and $1,339773, respectively, which represents tax positions where the realization of the ultimate benefit is uncertain and the disallowance of which would affect the Company’s annual effective income tax rate.

Included in the liability for unrecognized tax benefits at December 31, 20142016 and December 31, 20132015, are accrued penalties of $170103 and $277,$156, respectively.  The liability for unrecognized tax benefits at December 31, 20142016 and December 31, 20132015 also included accrued interest of $414184 and $299371, respectively.  


6.        Operating Leases

The Company leases certain facilities under noncancellable operating leases that expire in various years through 2020.2024. Certain leases may be renewed for periods varying from one to ten years.  Primarily,The Company has entered into or assumed through acquisitions, the Company assumedacquisition several operating leases for tractors, straight trucks and trailers with original lease terms between three and sixfive years.  These leases expire in various years through 20212020 and may not be renewed beyond the original term. 

Sublease rental income, was $1,517, $1,611 and $980 $914in 2016, 2015 and $813 in 2014, 2013 and 2012, respectively.  In 2015,2017, the Company expects to receive aggregate future minimum rental payments under noncancellable subleases of approximately $74.$1,011.  Noncancellable subleases expire between 20152017 and 2017.2019.
 
Future minimum rental payments under noncancellable operating leases with initial or remaining terms in excess of one year consisted of the following at December 31, 2014:
2015$22,295
201616,909
201711,452
20187,563
20193,827
Thereafter2,470
Total$64,516
2016:


F-27F-28

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

2017$36,106
201827,320
201919,449
202012,604
20215,454
Thereafter2,990
Total$103,923

7.        Commitments and Contingencies
 
From time to time, the Company is party to ordinary, routine litigation incidental to and arising in the normal course of business.  The Company does not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations or cash flows.
    
The primary claims in the Company’s business relate to workers’ compensation, property damage, vehicle liability and employee medical benefits. Most of the Company’s insurance coverage provides for self-insurance levels with primary and excess coverage which management believes is sufficient to adequately protect the Company from catastrophic claims. Such insurance coverage above the applicable self-insurance levels continues to be an important part of the Company's risk management process.
In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured limits, including provision for estimated claims incurred but not reported.
 
The Company estimates its self-insurance loss exposure by evaluating the merits and circumstances surrounding individual known claims and by performing hindsight and actuarial analysis to determine an estimate of probable losses on claims incurred but not reported.  Such losses could be realized immediately as the events underlying the claims have already occurred as of the balance sheet dates. 

Because of the uncertainty of the ultimate resolution of outstanding claims, as well as uncertainty regarding claims incurred but not reported, it is possible that management’s provision for these losses could change materially in the near term. However, no estimate can currently be made of the range of additional loss that is at least reasonably possible.
 
As of December 31, 2014,2016, the Company had commitments to purchase various trailers, vehiclesforklifts and forkliftsother equipment for approximately $5,708$2,122 during 2015.2017. 

8.        Employee Benefit Plan
 
The Company has a retirement savings plan (the “401(k) Plan”). The 401(k) Plan is a defined contribution plan whereby employees who have completed 90 days of service, a minimum of 1,000 hours of service and are age 21 or older are eligible to participate. The 401(k) Plan allows eligible employees to make contributions of 2.0% to 80.0% of their annual compensation. For all periods presented, employer contributions were made at 25.0% of the employee’s contribution up to a maximum of 6.0% of total annual compensation, except where government limitations prohibit.
    
Employer contributions vest 20.0% after two years of service and continue vesting 20.0% per year until fully vested. The Company’s matching contributions expensed in 20142016, 20132015 and 20122014 were approximately $895,$1,056, $8231,178 and $675895, respectively.

9.        Financial Instruments

Off Balance Sheet Risk

At December 31, 2014,2016, the Company had letters of credit outstanding totaling $9,749.$7,514.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

F-29

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
(In thousands, except share and per share data)


Accounts receivable and accounts payable: The carrying amounts reported in the balance sheet for accounts receivable and accounts payable approximate their fair value based on their short-term nature.

The Company’s revolving credit facility at December 31, 2014 boreand term loan bear variable interest at LIBORrates plus 1.1%additional basis points based upon covenants related to total indebtedness to earnings. As the term loan bears a variable interest rate, the carrying value approximates fair value. Using interest rate quotes currently available in the market and remainingdiscounted cash flows, on these arrangements, the Company estimated the fair value of its outstanding capital lease obligations as follows:

F-28

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)

 December 31,
2014
 December 31,
2013
 Carrying Value Fair Value Carrying Value Fair Value
Capital lease obligations$1,551
 $1,578
 $72
 $99
 December 31,
2016
 December 31,
2015
 Carrying Value Fair Value Carrying Value Fair Value
Capital lease obligations$1,072
 $1,139
 $1,405
 $1,434

The Company's fair value calculations for the above financial instruments are classified within level 3 of the fair value hierarchy as defined in the FASB Codification.

10.        Segment Reporting
 
The Company operates in threehas four reportable segments based on information available to and used by the chief operating decision maker.  Forward Air, which includes our Forward AirExpedited LTL operates a comprehensive national network that provides expedited regional, inter-regional and CST operating segments,national LTL services.  The TLS segment provides time-definite transportation and logistics services including expedited truckload brokerage, dedicated fleet services and intermodal drayage. FASI provides pool distribution services primarily to regional and national distributors and retailers. TQI is a provider of maximumhigh security and temperature-controlled logistics services. The Intermodal segment primarily provides first- and last-mile high value intermodal container drayage services primarilyboth to and from seaports and railheads. Pool Distribution provides high-frequency handling and distribution of time sensitive product to numerous destinations.

During the first quarter of 2016, the Company changed its reportable segments to separate its truckload and intermodal businesses from our Expedited LTL service and to aggregate reporting for truckload services into a single segment. The Company previously reported three segments: Forward Air, Forward Air Solutions and Total Quality, Inc. Consequently, the Company now reports four segments: Expedited LTL, Truckload Premium Services, Intermodal and Pool Distribution. All prior year segment amounts have been restated to the life sciences sector (pharmaceutical and biotechnology products).reflect this new reporting structure.
TheExcept for certain insurance activity, the accounting policies of the segments are the same as those described in the summary of significant accounting policies disclosed in Note 11. For workers compensation and vehicle claims each segment is charged an insurance premium and is also charged a deductible that corresponds with the our corporate deductibles disclosed in Note 1. However, any losses beyond our deductibles and any loss development factors applied to our outstanding claims as a result of actuary analysis are not passed to the Consolidated Financial Statements. segments, but kept at the corporate level.

Segment data includes intersegment revenues.  Assets and costsCosts of the corporate headquarters and shared services are allocated to the segments based on usage. The expense associated with shared operating assets, such as trailers, are allocated between operating segments based on usage. However, asset basis is not allocated. The Company evaluates the performance of its segments based on net income (loss).from operations.  The Company’s business is conducted in the U.S. and Canada.
 
The following tables summarize segment information about net incomeresults from operations and assets used by the chief operating decision maker of the Company in making decisions regarding allocation of assets and resources as of and for the years ended December 31, 2014, 20132016, 2015 and 2012.   2014.   


F-29F-30

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)

Year ended December 31, 2014 Forward Air FASI TQI Eliminations Consolidated
Year ended December 31, 2016 Expedited LTL Truckload Premium Services Pool Distribution Intermodal Eliminations & Other Consolidated
External revenues $608,118
 $124,382
 $48,459
 $
 $780,959
 $567,711
 $163,254
 $148,054
 $103,511
 $
 $982,530
Intersegment revenues 4,219
 831
 365
 (5,415) 
 3,067
 1,018
 607
 160
 (4,852) 
Depreciation and amortization 21,721
 5,811
 3,601
 
 31,133
 21,919
 6,441
 5,975
 3,876
 (1) 38,210
Share-based compensation expense 6,470
 176
 35
 
 6,681
 7,209
 332
 334
 459
 
 8,334
Impairment of goodwill and other intangible assets 
 42,442
 
 
 
 42,442
Interest expense 602
 2
 6
 
 610
 1,687
 3
 
 83
 (176) 1,597
Interest income 8
 
 
 
 8
Income tax expense 31,792
 2,203
 921
 
 34,916
Net income 53,985
 3,790
 3,394
 
 61,169
Income (loss) from operations 83,518
 (35,405) 3,633
 10,956
 (2,723) 59,979
Total assets 607,765
 47,516
 88,781
 (202,257) 541,805
 632,698
 53,695
 50,271
 129,714
 (225,087) 641,291
Capital expenditures 26,170
 7,133
 6,184
 
 39,487
 37,501
 1,828
 2,637
 220
 
 42,186
          
Year ended December 31, 2013 Forward Air FASI TQI Eliminations Consolidated
External revenues $497,993
 $112,766
 $41,722
 $
 $652,481
Intersegment revenues 3,075
 645
 120
 (3,840) 
Depreciation and amortization 16,222
 4,945
 2,412
 
 23,579
Share-based compensation expense 5,959
 140
 79
 
 6,178
Interest expense 513
 8
 11
 
 532
Interest income 36
 
 1
 
 37
Income tax expense 26,981
 846
 1,628
 
 29,455
Net income 51,251
 1,255
 1,961
 
 54,467
Total assets 478,790
 42,049
 85,490
 (100,060) 506,269
Capital expenditures 25,017
 6,901
 3,521
 
 35,439
          
Year ended December 31, 2012 Forward Air FASI TQI Eliminations Consolidated
External revenues $500,621
 $83,825
 $
 $
 $584,446
Intersegment revenues 1,116
 1,152
 
 (2,268) 
Depreciation and amortization 16,356
 4,665
 
 
 21,021
Share-based compensation expense 5,857
 193
 
 
 6,050
Interest expense 369
 22
 
 
 391
Interest income 41
 
 
 
 41
Income tax expense 30,053
 434
 
 
 30,487
Net income 51,127
 1,541
 
 
 52,668
Total assets 395,936
 37,135
 
 (33,884) 399,187
Capital expenditures 15,910
 5,443
 
 
 21,353

Year ended December 31, 2015 Expedited LTL Truckload Premium Services Pool Distribution Intermodal Eliminations & Other Consolidated
External revenues $573,476
 $152,251
 $128,826
 $103,977
 $595
 $959,125
Intersegment revenues 3,550
 1,080
 1,169
 315
 (6,114) 
Depreciation and amortization 21,125
 6,206
 6,003
 3,773
 50
 37,157
Share-based compensation expense 6,088
 840
 300
 258
 
 7,486
Interest expense 1,959
 5
 
 83
 
 2,047
Income (loss) from operations 79,193
 13,288
 3,820
 11,949
 (26,478) 81,772
Total assets 641,360
 89,312
 46,970
 118,081
 (195,791) 699,932
Capital expenditures 29,995
 5,972
 3,983
 545
 
 40,495
             
Year ended December 31, 2014 Expedited LTL Truckload Premium Services Pool Distribution Intermodal Eliminations & Other Consolidated
External revenues $456,230
 $131,478
 $117,429
 $75,822
 $
 $780,959
Intersegment revenues 2,673
 1,788
 831
 123
 (5,415) 
Depreciation and amortization 16,580
 5,405
 5,754
 3,365
 29
 31,133
Share-based compensation expense 5,561
 717
 259
 144
 
 6,681
Interest expense 523
 6
 2
 79
 
 610
Income (loss) from operations 75,754
 8,986
 4,543
 7,428
 (305) 96,406
Total assets 494,522
 88,789
 45,428
 110,055
 (199,485) 539,309
Capital expenditures 25,764
 6,184
 7,133
 406
 
 39,487


F-30F-31

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 20142016
(In thousands, except share and per share data)


11.        Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations for the years ended December 31, 20142016 and 20132015
 2014 2016
 March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
Operating revenue $171,569
 $193,852
 $201,477
 $214,061
 229,548
 238,637
 249,552
 264,793
Income from operations 16,271
 27,595
 26,906
 25,634
 21,404
 (14,348) 24,700
 28,223
Net income 10,202
 17,178
 16,744
 17,045
 13,099
 (10,066) 11,931
 12,706
                
Net income per share:                
Basic $0.33
 $0.56
 $0.55
 $0.56
 $0.43
 $(0.33) $0.39
 $0.42
Diluted $0.33
 $0.55
 $0.54
 $0.55
 $0.43
 $(0.33) $0.39
 $0.42
                
 2013 2015
 March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
Operating revenue $141,560
 $159,804
 $170,033
 $181,084
 $205,918
 $249,694
 $247,093
 $256,420
Income from operations 15,790
 22,505
 22,857
 23,203
 8,248
 19,908
 24,601
 29,015
Net income 10,855
 13,831
 14,197
 15,584
 4,836
 11,824
 15,687
 23,228
                
Net income per share:                
Basic $0.37
 $0.46
 $0.47
 $0.51
 $0.16
 $0.38
 $0.51
 $0.75
Diluted $0.36
 $0.45
 $0.46
 $0.50
 $0.16
 $0.38
 $0.50
 $0.75
        


12.        Subsequent Event

Pending Acquisition

On February 4, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire CLP Towne Inc. (“Towne”). Upon completion of the Merger, Towne will be an indirect, wholly-owned subsidiary of the Company. The acquisition is expected to close in the first quarter of 2015, subject to the satisfaction of closing conditions, including among others the continuing accuracy of representations and warranties, compliance with covenants and agreements in the Merger Agreement and the execution of restrictive covenants agreements by certain equity holders.

The Company will pay aggregate cash consideration of approximately $125,000. The purchase price may be increased or reduced based upon Towne’s net working capital as of the closing date. The Merger Agreement also provides that $16,500 of the $125,000 purchase price will be placed into an escrow account, with $2,000 of such amount being available to settle any shortfall in Towne’s net working capital and with $14,500 of such amount being available for a period of time to settle certain possible claims against Towne’s common stockholders for indemnification. To the extent the escrow fund is insufficient, certain equity holders have agreed to indemnify the Company, subject to certain limitations set forth in the Merger Agreement, as a result of inaccuracies in or breaches of certain of Towne’s representations, warranties, covenants and agreements and other matters. The Company intends to finance the Merger with borrowings under its credit facility.
New Credit Facility

On February 4, 2015, the Company entered into a five-year senior, unsecured credit facility (the “Facility”) with a maximum aggregate principal amount of $275,000, including a revolving credit facility of $150,000 with a sublimit of $25,000 for letters of credit and a sublimit of $15,000 for swing line loans. The Facility also includes a term loan facility of $125,000,

F-31

FORWARD AIR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2014
(In thousands, except share and per share data)

which is available for ninety (90) days following closing, and which, if drawn, is payable in quarterly installments of 11.1% of the original principal amount of the term loan plus accrued and unpaid interest, and which matures in March 2017. The revolving credit facility is scheduled to expire in February 2020 and may be used to refinance existing indebtedness of the Company and for working capital, capital expenditures and other general corporate purposes. The Facility replaced the Company’s prior existing $150,000 unsecured revolving credit facility. Unless the Company elects otherwise under the credit agreement, interest on borrowings under the Facility are based on the highest of (a) the federal funds rate plus 0.5%, (b) the administrative agent's prime rate and (c) the LIBOR Rate plus 1.0%, in each case plus a margin that can range from 0.1% to 0.6% with respect to the term loan facility and from 0.3% to 0.8% with respect to the revolving credit facility depending on the Company’s ratio of consolidated funded indebtedness to earnings as set forth in the credit agreement. The Facility contains financial covenants and other covenants that, among other things, restrict the ability of the Company, without the approval of the lenders, to engage in certain mergers, consolidations, asset sales, investments, transactions or to incur liens or indebtedness, as set forth in the credit agreement.


F-32



Forward Air Corporation
Schedule II — Valuation and Qualifying Accounts
(In thousands)
 
Col. A Col. B Col. C Col. D Col. E Col. B Col. C Col. D Col. E
 
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
Charged to
Other Accounts
Described
 
Deductions
-Describe
 
Balance at
End of
Period
 
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
Charged to
Other Accounts
Described
 
Deductions
-Describe
 
Balance at
End of
Period
Year ended December 31, 2014          
Allowance for doubtful accounts $1,583
 $241
 $
 $(331)
(2) 
$2,155
Allowance for revenue adjustments
(1) 
336
 2,465
 
 2,393
(3) 
408
Income tax valuation 234
 39
 
 
 273
 2,153
 2,745
 
 2,062
 2,836
Year ended December 31, 2013          
Year ended December 31, 2016          
Allowance for doubtful accounts $1,149
 $423
 $
 $(11)
(2) 
$1,583
 $1,310
 $258
 $
 $259
(2) 
$1,309
Allowance for revenue adjustments(1)
(1) 
295
 2,531
 
 2,490
(3) 
336

1,095
 2,020
 
 2,710
(3) 
405
Income tax valuation 319
 (85) 
 
 234
 284
 (2) 
 
 282
 1,763
 2,869
 
 2,479
 2,153
 2,689
 2,276
 
 2,969
 1,996
Year ended December 31, 2012          
Year ended December 31, 2015          
Allowance for doubtful accounts $1,219
 $199
 $
 $269
(2) 
$1,149
 $2,155
 $33
 $
 $878
(2) 
$1,310
Allowance for revenue adjustments
(1) 
284
 2,003
 
 1,992
(3) 
295
Allowance for revenue adjustments(1)
408
 4,793
 
 4,106
(3) 
1,095
Income tax valuation 348
 (29) 
 
 319
 273
 11
 
 
 284
 1,851
 2,173
 
 2,261
 1,763
 2,836
 4,837
 
 4,984
 2,689
Year ended December 31, 2014          
Allowance for doubtful accounts $1,583
 $241
 $
 $(331)
(2) 
$2,155
Allowance for revenue adjustments (1)

336
 2,465
 
 2,393
(3) 
408
Income tax valuation 234
 39
 
 
 273
 2,153
 2,745
 
 2,062
 2,836

(1) Represents an allowance for adjustments to accounts receivable due to disputed rates, accessorial charges and other aspects of previously billed shipments.
(2) Represents uncollectible accounts written off, net of recoveries
(3) Represents adjustments to billed accounts receivable


S-1


EXHIBIT INDEX
No. Exhibit
3.1 Restated Charter of the registrant (incorporated herein by reference to Exhibit 3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 1999 (File No. 0-22490))
3.2 Amended and Restated Bylaws of the registrant (incorporated herein by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2009 (File No. 0-22490))
4.1 Form of Forward Air Corporation Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998 filed with the Securities and Exchange Commission on November 16, 1998 (File No. 0-22490))
10.1*Forward Air Corporation 2005 Employee Stock Purchase Plan (incorporated herein by reference to the registrant's Proxy Statement filed with the Securities and Exchange Commission on April 20, 2005 (File No. 0-22490))
10.2 Lease Agreement, dated as of June 1, 2006, between the Greeneville-Greene County Airport Authority and the registrant (incorporated herein by reference to Exhibit 10.3 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the Securities and Exchange Commission on February 27, 2007 (File No. 0-22490))
10.3Air Carrier Certificate, effective August 28, 2003 (incorporated herein by reference to Exhibit 10.5 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission on March 11, 2004 (File No. 0-22490))
10.410.3*Amendment to the Non-Employee Director Stock Plan (incorporated herein by reference to Exhibit 10.7 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Securities and Exchange Commission on March 11, 2004 (File No. 0-22490))
10.510.4 Credit Agreement dated February 14, 2012 among the registrant and certain of its subsidiaries and Bank of America, N.A., as administrative agent and other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2012 (File No. 0-22490))
10.610.5*Employment Agreement dated October 30, 2007, between Forward Air Corporation and Bruce A. Campbell, including Attachment B, Restrictive Covenants Agreement entered into contemporaneously with and as part of the Employment Agreement (incorporated herein by reference to Exhibit 99.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2007 (File No. 0-22490))
10.710.6*Amendment dated December 30, 2008 to Employment Agreement dated October 30, 2007, between Forward Air Corporation and Bruce A. Campbell (incorporated herein by reference to Exhibit 10.9 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission on February 26, 2009 (File No. 0-22490))
10.810.7*Second Amendment dated February 24, 2009 to Employment Agreement dated October 30, 2007, between Forward Air Corporation and Bruce A. Campbell (incorporated herein by reference to Exhibit 10.10 to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission on February 26, 2009 (File No. 0-22490))
10.9010.8*Third Amendment dated December 15, 2010 to Employment Agreement dated October 30, 2007, between Forward Air Corporation and Bruce A. Campbell (incorporated herein by reference to Exhibit 10.10 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on February 24, 2011 (File No. 0-22490))
10.1010.9*Form of Incentive Stock Option Agreement under the registrant's Amended and Restated Stock Option and Incentive Plan, as amended and 1999 Stock Option and Incentive Plan, as amended, for grants prior to February 12, 2006 (incorporated herein by reference to Exhibit 10.12 to the registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission on March 22, 2006 (File No. 0-22490))
10.1110.10*Form of Non-Qualified Stock Option Agreement under the registrant's Non-Employee Director Stock Option Plan, as amended, for grants prior to February 12, 2006 (incorporated herein by reference to Exhibit 10.13 to the registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission on March 22, 2006 (File No. 0-22490))
10.1210.11*Forward Air Corporation Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Appendix A of the registrant's Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 3, 2008 (File No. 0-22490))




10.1310.12*Form of Incentive Stock Option Agreement under the registrant's Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.19 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the Securities and Exchange Commission on February 26, 2009 (File No. 0-22490))
10.1410.13*Form of Non-Qualified Stock Option Agreement under the registrant's Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on February 24, 2011 (File No. 0-22490))
10.1510.14*Form of Restricted Stock Agreement for an award of restricted stock under the registrant's 1999 Stock Option and Incentive Plan, as amended, granted during 2006 (incorporated herein by reference to Exhibit 10.19 to the registrant's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission on March 22, 2006 (File No. 0-22490))
10.1610.15*Form of Restricted Stock Agreement under the registrant's Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.19 to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on February 24, 2011 (File No. 0-22490))
10.1710.16*Form of Non-Employee Director Restricted Stock Agreement for an award of restricted stock under the registrant's 2006 Non-Employee Director Stock Plan (incorporated herein by reference to Exhibit 99.2 to the registrant's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 19, 2006 (File No. 0-22490))
10.1810.17*Form of Performance Share Agreement for performance shares granted in February 2011, under the registrant's Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed with the Securities and Exchange Commission on April 25, 2011 (File No. 0-22490))
10.1910.18*Forward Air Corporation Executive Severance and Change in Control Plan, effective as of January 1, 2013 (incorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 14, 2012 (File No. 0-22490))
10.2010.19*Forward Air Corporation Recoupment Policy, effective as of January 1, 2013 (incorporated herein by reference to Exhibit 10.2 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 14, 2012 (File No. 0-22490))
10.2110.20*Forward Air Corporation Amended and Restated Stock Option and Incentive Plan, as further amended and restated on February 7, 2013 (incorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 13, 2013 (File No. 0-22490))
10.2210.21*Form of Performance Share Agreement for performance shares granted in February 2013, under the registrant's Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the Securities and Exchange Commission on April 25, 2013 (File No. 0-22490))
10.2310.22*Form of Restricted Stock Agreement for an award granted in February 2013, under the registrant's Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the Securities and Exchange Commission on April 25, 2013 (File No. 0-22490))
10.2410.23*Form onof Non-Qualified Stock Option Agreement for an award granted in February 2013, under the registrant's Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the Securities and Exchange Commission on April 25, 2013 (File No. 0-22490))
10.2510.24*Amended and Restated Non-Employee Director Stock Plan, as further amended and restated on February 8, 2013 (incorporated herein by reference to Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, filed with the Securities and Exchange Commission on April 25, 2013 (File No. 0-22490))
10.2610.25 Stock Purchase Agreement dated March 4, 2013, by and among Forward Air Corporation, TQI Holdings, Inc. and the sellers named therein (incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 4, 2013 (File No. 0-22490))
10.27Agreement of Purchase and Sale, dated as of July 10, 2006, among AMB Property II, L.P., Headlands Realty Corporation and Forward Air, Inc. (incorporated herein by reference to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 filed with the Securities and Exchange Commission on August 4, 2006 (File No. 0-22490))
10.28Agreement of Purchase and Sale, dated as of September 14, 2006, by and between Headlands Realty Corporation and Forward Air, Inc. (incorporated herein by reference to Exhibit 10.2 to the registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 filed with the Securities and Exchange Commission on November 3, 2006 (File No. 0-22490))



10.29Asset Purchase Agreement dated November 26, 2007 by and among Forward Air Corporation, Black Hawk Freight Services, Inc. and the stockholders of Black Hawk Freight Services, Inc. (incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 30, 2007 (File No. 0-22490))
10.3010.26 Stock Purchase Agreement dated January 23, 2014, by and among Forward Air Corporation, Central States Trucking Co., Central States Logistics, Inc., Central States, Inc., and the stockholders of Central States, Inc. (incorporated herein by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2014 (File No. 0-22490))
10.3110.27 First amendmentAgreement and Plan of Merger, dated February 4, 2015 by and among CLP Towne Inc., Forward Air, Inc., FAC Subsidiary, Inc., ZM Private Equity Fund I, L.P., as the Equity Holders’ Representative, and the Indemnifying Equity Holders party thereto (incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2015 (File No. 0-22490))

10.28Credit Agreement dated February 14, 2012 by4, 2015 among Forward Air Corporation and amongForward Air, Inc., as borrowers, the Company, certainsubsidiaries of its subsidiaries, the lenders referred toborrowers identified therein, and Bank of America, N.A., as administrative agentFirst Tennessee Bank, N.A. and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the registrant'sregistrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2015 (File No. 0-22490))
10.29First Amendment dated June 19, 2015 to the Credit Agreement dated February 4, 2015 among Forward Air Corporation and Forward Air, Inc., as borrowers, the subsidiaries of the borrowers identified therein, Bank of America, N.A., First Tennessee Bank, N.A. and the other lenders party thereto (incorporated herein by reference to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on July 24, 2015 (File No. 0-22490))
10.30First Amendment to the Forward Air Corporation Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, filed with the Securities and Exchange Commission on April 27, 2016 (File No. 0-22490))
10.31*Form of Nonqualified Stock Option Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.32*Form of CEO Nonqualified Stock Option Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.33*Form of Restricted Stock Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.34*Form of CEO Restricted Stock Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.35*Form of Performance Share Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.36*Form of CEO Performance Share Agreement under the registrant’s Amended and Restated Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2016 (File No. 0-22490))
10.37*Form of Non-Employee Director Restricted Stock Units Agreement under the registrant’s Amended and Restated Non- Employee Director Stock Plan (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 21, 201410, 2016 (File No. 0-22490))
10.38*Form of Non-Employee Director Restricted Stock Agreement under the registrant’s Amended and Restated Non-Employee Director Stock Plan (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 10, 2016 (File No. 0-22490))
10.39*Michael J. Morris Offer Letter dated as of May 24, 2016 (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2016 (File No. 0-22490))
10.40*Form of Employee Restricted Share Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 filed with the Securities and Exchange Commission on July 27, 2016))
10.41*Form of CEO Nonqualified Stock Option Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
10.42*Form of CEO Performance Share Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
10.43*Form of CEO Restricted Stock Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
10.44*Form of Nonqualified Stock Option Agreement under the registrant’s 2016 Omnibus Incentive Compensation Plan
10.45*Form of Performance Share Agreement under the registrant’s 2016 Omnibus Compensation Plan
21.1 Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
31.1 Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR 240.13a-14(a))
31.2 Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) (17 CFR 240.13a-14(a))
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*Denotes a management contract or compensatory plan or arrangement.