Edgar Filing: FORWARD AIR CORP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2018

Commission file number: 001-16853

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

For the transition period from to

Commission File No. 000-22490

FORWARD AIR CORPORATION

(Exact name of Registrant as specified in its charter)




Tennessee	62-1120025
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)




1915 Snapps Ferry Road, Building N
Greeneville, Tennessee	37745
(Address of principal executive offices)	(Zip Code)

(423) 636-7000

Registrant’s telephone number, including area code

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




Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	The Nasdaq Stock Market LLC

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

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

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

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

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

Indicate by check mark 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. o

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



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting Company o	Emerging Growth Company o

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

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1,695,536,388 as of June 30, 2018.

The number of shares outstanding of the Registrant’s common stock (as of February 14, 2019): 28,788,556

Documents Incorporated By Reference

Portions of the proxy statement for the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.



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	Forward Air Corporation	Page Number
		Page Number
Part I.
Item 1.	Business	3

Item 1A.	Risk Factors	11

Item 1B.	Unresolved Staff Comments	19

Item 2.	Properties	20

Item 3.	Legal Proceedings	20

Item 4.	Mine Safety Disclosures	20

Part II.

Item 5.	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	20

Item 6.	Selected Financial Data	22

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 8.	Financial Statements and Supplementary Data	56

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56

Item 9A.	Controls and Procedures	56

Item 9B.	Other Information	59

Part III.

Item 10.	Directors, Executive Officers and Corporate Governance	59

Item 11.	Executive Compensation	60

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	60

Item 13.	Certain Relationships and Related Transactions, and Director Independence	60

Item 14.	Principal Accounting Fees and Services	60

Part IV.

Item 15.	Exhibits, Financial Statement Schedules	60

Signatures		61

Index to Financial Statements		F-2

Financial Statement Schedule		S-1

Exhibit Index

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Introductory Note

This Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (this “Form 10-K”) contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. In this Form 10-K, forward-looking statements include, but are not limited to, any projections of earnings, revenues, payment of dividends, or other financial items or related accounting treatment; any statement regarding the availability of cash; any statement of plans, strategies, and objectives of management for future operations; any statements regarding future insurance, claims and litigation; any statements concerning proposed or intended, new services or developments; any statements regarding our technology and information systems, including the effectiveness of each; any statements regarding competition, including our specific advantages, the capabilities of our segments and our geographic location; any statements regarding intended expansion through acquisition or greenfield startups; any statements regarding future business, 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, the creditworthiness of our customers and their ability to pay for services rendered, 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, the inability of our information systems to handle an increased volume of freight moving through our network, the cybersecurity risks related to our information technology systems, changes in fuel prices, our inability to maintain our historical growth rate, including because of a decreased volume of freight or decreased average revenue per pound of freight moving through our network, loss of a major customer, whether our service offerings gain market acceptance, increasing competition and pricing pressure, our ability to secure terminal facilities in desirable locations at reasonable rates, labor and employment concerns, our inability to successfully integrate acquisitions, claims for property damage, personal injuries or workers’ compensation, changes in our self-insurance and third-party insurance, seasonality, enforcement of and changes in governmental regulations, environmental matters, the impact of certain accounting and tax matters, and the handling of hazardous materials. As a result of the foregoing, no assurance can be given as to future financial condition, cash flows or results of operations. Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Part I

Item 1. Business

Overview

Forward Air is a leading asset-light freight and logistics company. We provide less-than-truckload (“LTL”), 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 common stock is listed on the Nasdaq Global Select Market under the symbol “FWRD”.

Services Provided

Our services are classified into four reportable segments: Expedited LTL, Truckload Premium Services (“TLS”), Intermodal and 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.

Expedited LTL. We operate a comprehensive national network to provide expedited regional, inter-regional and national LTL services. Expedited LTL offers customers local pick-up and delivery and other services including shipment consolidation and deconsolidation, warehousing, final mile solutions, customs brokerage and other handling. Because of our roots in serving the deferred air freight market, our terminal network is located at or near airports in the United States and Canada. During the year ended December 31, 2018, Expedited LTL accounted for 56.6% of our consolidated revenue.

TLS. We provide expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-

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controlled logistics services in the United States and Canada. During the year ended December 31, 2018, TLS accounted for 14.6% 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 linehaul service within the LTL space as well as dedicated contract and Container Freight Station (“CFS”) warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest United States. We plan to grow Intermodal’s geographic footprint through acquisitions as well as greenfield start-ups where we do not have an acceptable acquisition target. During the year ended December 31, 2018, Intermodal accounted for 15.2% of our consolidated revenue.

Pool Distribution. We provide high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States. During the year ended December 31, 2018, Pool Distribution accounted for 14.7% of our consolidated revenue.

Strategy

Our strategy is to take advantage of our core competencies to provide asset-light freight and logistics services in order to grow in the premium or high service level segments of the markets we serve. Principal components of our efforts include:

•

Expand Service Offerings. We believe we can increase freight volumes and revenues by offering new and enhanced services that address more of our customers’ premium transportation needs. In the past few years, we have added or enhanced LTL pickup and delivery, customer label integration, expedited truckload, temperature-controlled shipments, warehousing, drayage, final mile solutions, customs brokerage and shipment consolidation and handling services. These services benefit our existing customers and increase our ability to attract new customers.


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

•

Pursue Strategic Acquisitions. We continue to evaluate and pursue acquisitions that can increase our penetration of a geographic area; add new customers, business verticals and services; and increase freight volume. For example, we acquired Central States Trucking Co. (“CST”) in 2014, which created the foundation for what is now our Intermodal segment. Since our acquisition of CST in 2014, we have completed eight additional intermodal acquisitions including Multi-Modal Transport Inc. ("MMT") and Southwest Freight Distributors (“Southwest”), both acquired in 2018.

Operations

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

Expedited LTL

Overview

Our Expedited LTL segment provides expedited regional, inter-regional and national LTL and final mile services. We market our Expedited 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). We offer our customers a high level of service with a focus on on-time, damage-free deliveries. Our terminals are located on or near airports in the United States and Canada and maintain regularly scheduled transportation service between major cities. Our Expedited LTL network encompasses approximately 92% of all continental U.S. zip codes, with service in Canada.

Shipments

During 2018, approximately 30.8% of the freight handled by Expedited LTL was for overnight delivery, approximately 55.4% was for delivery within two to three days and the balance was for delivery in four or more days.

The average weekly volume of freight moving through our Expedited LTL network was approximately 50.2 million

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pounds per week in 2018. During 2018, our average shipment weighed approximately 614 pounds. Although we impose no significant size or weight restrictions, we focus our marketing and price structure on shipments of 200 pounds or more.

Expedited 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 generally do not compete directly with integrated air cargo carriers such as United Parcel Service and FedEx Corporation in the overnight delivery of small parcels.

The table below summarizes the average weekly volume of freight moving through our network for each year since 2004.



	Average Weekly
	Volume in Pounds
Year	(In millions)
2004	28.7
2005	31.2
2006	32.2
2007	32.8
2008	34.2
2009	28.5
2010	32.6
2011	34.0
2012	34.9
2013	35.4
2014	37.4
2015	47.2
2016	46.5
2017	49.5
2018	50.2

Transportation

Our licensed property broker places our customers’ cargo with qualified motor carriers, including our own, and other third-party transportation companies. Expedited LTL 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.

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

As a result of efforts to expand our logistics and other services, and in response to seasonal demands and volume surges in particular markets, we also purchase transportation from other surface transportation providers to handle overflow volume (including TLS). Of the $360.7 million incurred for Expedited LTL's transportation during 2018, we purchased 46.5% from the owner-operators of our licensed motor carrier, 3.7% from our company fleet and 49.9% from other surface transportation providers.

All of our LTL Expedited 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.

Other Services

Expedited LTL customers increasingly demand more than the movement of freight from their transportation providers.

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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;


•	final mile solutions;


•	warehousing, dock and office space;


•	hotshot or ad-hoc ultra expedited services; and


•	shipment consolidation and handling, such as shipment build-up and break-down and reconsolidation of air or ocean pallets or containers.

Customers

Our wholesale customer base is primarily comprised of freight forwarders, third-party logistics (“3PL”) companies, integrated air cargo carriers and passenger, cargo airlines and steamship 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 3PL providers , which is one of the fastest growing segments in the transportation industry. Because we deliver dependable service, integrated air cargo carriers use our network to provide overflow capacity and other services, including shipment of bigger packages and pallet-loaded cargo. In 2018, LTL's ten largest customers accounted for approximately 41% of its operating revenue and had one customer with revenue greater than 10% of LTL operating revenue for 2018. No single customer accounted for more than 10% of our consolidated revenue.

Truckload Premium Services

Overview

Our TLS segment is an asset-light provider of transportation management services, including, but not limited to, expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-controlled logistics services. We market our TLS services to 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 United States and Canada.

Operations

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

Operating Statistics

The table below summarizes the average weekly miles driven for each year since 2004.



	Average Weekly Miles
Year	(In thousands)
2004	260
2005	248
2006	331
2007	529
2008	676
2009	672
2010	788
2011	876
2012	1,005
2013	1,201
2014	1,185
2015	1,459
2016	1,756
2017	1,902
2018	1,547

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Transportation

TLS utilizes a fleet of owner-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 serve 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 6,008 qualified carriers. Of the $155.0 million incurred for TLS transportation during 2018, we purchased 28.5% from the owner-operators of our licensed motor carrier, 6.6% from our company fleet and 64.9% from other surface transportation providers.

We have access to a pool of 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, passenger and cargo airlines, and LTL carriers, including our own LTL Expedited segment, 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 2018, TLS’ ten largest customers accounted for approximately 67% of its operating revenue and had three customers with revenue greater than 10% of TLS operating revenue each. No single customer accounted for more than 10% of our consolidated revenue.

Intermodal

Overview

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


•	Immediate proof of delivery ("POD") and Signature Capture capability via tablets;


•	All drivers receive dispatch orders on hand-held units and are trackable via GPS; and


•	Daily container visibility and per diem management reports.

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Operations

Intermodal’s primary office is located in Oak Brook, Illinois. Intermodal’s network consists of 20 locations primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest United States.

Transportation

Intermodal utilizes a mix of Company-employed drivers, owner-operators and third-party carriers. During 2018, approximately 21.0% of Intermodal’s direct transportation expenses were provided by Company-employed drivers, 76.6% by owner-operators and 2.4% 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, beneficial cargo owners and steamship lines. In 2018, Intermodal’s ten largest customers accounted for approximately 33% of its operating revenue and had no customers with revenue greater than 10% of Intermodal operating revenue for 2018. No single customer accounted for more than 10% of our consolidated revenue.

Pool Distribution

Overview

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

Transportation

Pool Distribution provides transportation services through a mix of Company-employed drivers, owner-operators and third-party carriers. The mix of sources utilized to provide Pool transportation services is dependent on the individual markets and related customer routes. During 2018, approximately 32.1% of Pool's direct transportation expenses were provided by Company-employed drivers, 35.0% by owner-operators and 32.9% was provided by third-party carriers.

Customers

Pool Distribution’s customer base is primarily composed of national and regional retailers and distributors. Pool’s ten largest customers accounted for approximately 77% of Pool Distribution’s 2018 operating revenue and had two customers with revenue greater than 10% of Pool Distribution’s 2018 operating revenue. No single customer accounted for more than 10% of our consolidated revenue.

Competition

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

Our Expedited LTL, TLS and Pool Distribution segments primarily compete 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

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passenger and cargo airlines, while our TLS segment also competes with property brokers and 3PLs. Our Intermodal segment primarily competes with national and regional drayage providers.

We believe competition in our segments is based primarily on quality service, available capacity, on-time delivery, flexibility, reliability, security, transportation rates, location of facilities, and business relationships, and we believe we compete favorably with other transportation service companies. To that end, we believe our Expedited 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 TLS 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 enables our Pool Distribution segment to provide consistent, high-quality service to our customers regardless of location, which is a competitive advantage over other pool distribution providers.

Marketing

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

Seasonality

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

Employees and Equipment

As of December 31, 2018, we had 4,362 full-time employees, 1,553 of whom were freight handlers. Also, as of that date, we had an additional 1,007 part-time employees, of whom the majority were freight handlers. None of our employees are covered by a collective bargaining agreement. We recognize that our workforce, including our freight handlers, is one of our most valuable assets. The recruitment, training and retention of qualified employees are essential to support our continued growth and to meet the service requirements of our customers.

We manage a trailer pool that is utilized by all of our reportable segments to move freight through our networks. Our trailer pool includes dry van, refrigerated and roller-bed trailers, and substantially all of our trailers are 53 feet long. We own the majority of the trailers we use, but we supplement at times with leased trailers. As of December 31, 2018, we had 6,182 owned trailers in our fleet with an average age of approximately 4.3 years. In addition, as of December 31, 2018, we also had 465 leased trailers in our fleet. As of December 31, 2018, we had 585 owned tractors and straight trucks in our fleet, with an average age of approximately 6.1 years. In addition, as of December 31, 2018, we also had 600 leased tractors and straight trucks in our fleet.

Environmental Protection Efforts

Forward Air is committed to protecting the environment and we have taken a variety of steps to improve the sustainability of our operations. We are implementing new practices and technologies, improving our training, and incorporating sustainability objectives in our growth strategies.

As a partner of the U.S. Environmental Protection Agency ("EPA") SmartWay program since 2008, Forward Air has continued to adopt new environmentally safe policies and innovations to improve fuel efficiency and reduce emissions. For example, we actively seek to utilize equipment with reduced environmental impact. We utilize trailers with light weight composites and employ trailer skirts to decrease aerodynamic drag, both of which improve fuel efficiency. We are also increasing our use of electronic forklifts and transitioning to automatic transmission tractors, which will decrease our fuel consumption.

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Through vendor partnerships, we are implementing new solutions to manage waste and improve recycling across our facilities. Annually, we recycle tons of dunnage and thousands of aluminum load bars. Forward Air also participates in ReCaps, providing and purchasing recycled trailer tires. We recognize the value in describing our sustainability focus and will continue to update our future disclosures accordingly.

Risk Management and Litigation

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

We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured retention ("SIR") of $3.0 million per occurrence for vehicle and general liability claims and will be responsible for any damages and personal injuries below that self-insured amount. We are also responsible for varying annual aggregate deductible amounts of liability for claims in excess of the SIR/deductible. For the policy year that began April 1, 2018, we have an annual $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million. We also have a $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. As a result, we are responsible for the first $7.5 million per claim, until we meet the $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million and the $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. We cannot guarantee that our SIR levels will not increase and/or that we have to agree to more unfavorable policy terms as a result of market conditions, poor claims experience or other factors. This insurance covers claims for the LTL Expedited and Pool Distribution segments. TLS maintains separate liability insurance coverage for claims between $0 and $5.0 million, and for the policy year that began April 1, 2018, TLS had no SIR for claims in this layer. Intermodal maintains separate liability insurance coverage for all liability claims. For the policy year that began April 1, 2018, Intermodal had an SIR of $50 thousand for each claim.

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

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

Regulation

We are regulated by various United States and state agencies, including but not limited to the DOT. These regulatory authorities have broad powers, generally governing matters such as authority to engage in motor carrier operations, as well as motor carrier registration, driver hours of service, safety and fitness of transportation equipment and drivers, transportation of hazardous materials, certain mergers and acquisitions and periodic financial reporting. The trucking industry is also subject to regulatory and legislative changes from a variety of other governmental authorities, which address matters such as: increasingly stringent environmental, occupational safety and health regulations, limits on vehicle weight and size, ergonomics, port security, and hours of service. In addition, we are subject to compliance with cargo-security and transportation regulations issued by the Transportation Security Administration and Customs and Border Protection (“CBP”) within the U.S. Department of Homeland Security, and our domestic customs brokerage operations are licensed by CBP. Additionally, our Canada business activities are subject to similar requirements imposed by the laws and regulations of Canada, as well as its provincial laws and regulations. Regulatory requirements, and changes in regulatory requirements, may affect our business or the economics of the industry by requiring changes in operating practices or by influencing the demand for and increasing the costs of providing transportation services.

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Service Marks

Through one of our subsidiaries, we hold federal trademark registrations or applications for federal trademark registration, associated with the following service marks: Forward Air, Inc.®, North America’s Most Complete Roadfeeder Network®, Keeping Your Business Moving Forward®, Forward Air®, Forward Air Solutions®, Forward Air Complete®, PROUD®, Total Quality, Inc.®, TQI, Inc.®, TQI®, Central States Trucking Co.® and CST^SM. These marks are of significant value to our business.

Available Information

We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K. other reports and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended from time to time. We are an electronic filer and the SEC maintains an Internet site at www.sec.gov that contains these reports and other information filed electronically. We make available free of charge through the Investor Relations portion of our website such reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Our website address is www.forwardaircorp.com. Our goal is to maintain our website as a portal through which investors can easily find or navigate to pertinent information about us. The information provided on the website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.


Item 1A.	Risk Factors

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

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

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

•

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


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


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


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


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

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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 2018, owner-operators provided 49.2% of our purchased transportation. Competition for owner-operators is intense, and sometimes there are shortages of available owner-operators. In addition, a decline in the availability of trucks, tractors and trailers for owner-operator purchase or use may negatively affect our ability to hire, attract or retain available owner-operators. We also need a large number of freight handlers to operate our business efficiently. During periods of low unemployment in the areas where our terminals are located, we may have difficulty hiring and retaining a sufficient number of freight handlers. If we have difficulty attracting and retaining enough qualified freight handlers and owner-operators, we may be forced to increase wages and benefits or to increase the cost at which we contract with our owner-operators, either of which would increase our operating costs. This difficulty may also impede our ability to maintain our delivery schedules, which could make our service less competitive and force us to curtail our planned growth. A capacity deficit may lead to a loss of customers and a decline in the volume of freight we receive from customers.

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

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

At times, the Internal Revenue Service, the Department of Labor and state authorities have asserted that owner-operators are “employees,” rather than “independent contractors.” 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 use are not 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 material adverse effect on our results of operations and our financial condition.

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

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

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

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revenue.

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

Our information technology systems are subject to cybersecurity risks, some of which are beyond our control.

We depend on the proper functioning and availability of our information systems in operating our business, including communications and data processing systems. It is important that the data processed by these systems remains confidential, as it often includes competitive customer information, confidential customer transaction data, employee records, and key financial and operational results and statistics. Some of our software applications are utilized by third parties who provide outsourced administrative functions, which exposes us to additional cybersecurity risks. Although our information systems are protected through physical and software safeguards as well as backup systems considered appropriate by management, it is difficult to fully protect against the possibility of damage or breach created by cybersecurity attacks or other security attacks in every potential circumstance that may arise. As cybersecurity attacks are increasing in frequency and sophistication it becomes even more difficult to protect against a breach of our information systems.

Cybersecurity incidents that impact the availability, reliability, speed, accuracy, or other proper functioning of these information systems could have a significant impact on our operations. Failure to prevent or mitigate data loss or system intrusions from cybersecurity attacks, including system failure, security breach, disruption by malware, or other damage, could expose us or our vendors or customers to a risk of loss or misuse of such information, interrupt or delay our operations, damage our reputation, cause a loss of customers, result in litigation or potential liability for us and otherwise harm our business. Likewise, data privacy breaches by employees and others who access our systems may pose a risk that sensitive customer or vendor data may be exposed to unauthorized persons or to the public, adversely impacting our customer service, employee relationships and our reputation.

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

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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, 2018, our top 10 customers, based on revenue, accounted for approximately 31% 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 required to devote substantial resources to educate our customers, with no assurance that a sufficient number of customers will use our services for commercial success to be achieved. We may not identify trends correctly, or may not be able to bring new services to market as quickly, effectively or price-competitively as our competitors. In addition, new services may alienate existing customers or cause

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us to lose business to our competitors. If any of the foregoing occurs, it could have a material adverse effect on our results of operations.

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;


•	non-employee driver attrition;


•	unexpected liabilities;


•	detrimental issues not discovered during due diligence.

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

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 $113.7 million of recorded net definite-lived intangible assets on our consolidated balance sheet at December 31, 2018. Our definite-lived intangible assets primarily represent the value of customer relationships and non-compete agreements that were recorded in conjunction with our various acquisitions. We review our long-lived assets, such as our definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is recognized on these assets when the estimated fair value is less than the carrying value. If such measurement indicates impairment, we would be required to record a non-cash impairment charge to our consolidated statement of comprehensive income in the amount that the carrying value of these assets exceed the estimated fair value of the assets.

We also have recorded goodwill of $199.1 million on our consolidated balance sheet at December 31, 2018. 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 are dependent on our senior management team and other key employees, and the loss of any such personnel could materially and adversely affect our business, operating results and financial condition.

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

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

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

We currently maintain liability insurance coverage that we believe is adequate to cover third-party claims. We have a self-insured retention ("SIR") of $3.0 million per occurrence for vehicle and general liability claims and will be responsible for any damages and personal injuries below that self-insured amount. We are also responsible for varying annual aggregate deductible amounts of liability for claims in excess of the SIR/deductible. For the policy year that began April 1, 2018, we have an annual $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million. We also have a $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. As a result, we are responsible for the first $7.5 million per claim, until we meet the $6.0 million aggregate deductible for claims between $3.0 million and $5.0 million and the $2.5 million aggregate deductible for claims between $5.0 million and $10.0 million. This insurance covers claims for the LTL Expedited and Pool Distribution segments. TLS maintains separate liability insurance coverage for claims between $0 and $5.0 million, and for the policy year that began April 1, 2018, TLS had no SIR for claims in this layer. Intermodal maintains separate liability insurance coverage for all liability claims. For the policy year that began April 1, 2018, Intermodal had an SIR of $50 thousand for each claim. We cannot guarantee that our SIR levels will not increase and/or that we have to agree to more unfavorable policy terms as a result of market conditions, poor claims experience or other factors.

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

We self-insure a significant portion of our claims exposure and related expenses for cargo loss, employee medical expense, bodily injury, workers’ compensation and property damage, and maintain insurance with insurance companies above our limits of self-insurance. Self-insurance retention and other limitations are detailed in Part II, Item 7, under “Self-Insurance Loss Reserves.” 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 2017, or if they decline to renew us as an insured, 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 to our third and fourth quarters. This trend is dependent on numerous factors including economic conditions, customer demand and weather. Because revenue is directly related to the available working days of shippers, national holidays and the number of business days during a given period may also create seasonal impact on our results of operations. After the winter holiday season and during the remaining winter months, our freight volumes are typically lower because some customers reduce shipment levels. In addition, a substantial portion of our revenue is derived from customers in industries whose shipping patterns are tied closely to consumer demand which can sometimes be difficult to predict

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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.

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

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

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

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

In addition, as global warming issues become more prevalent, federal and local governments and our customers are beginning to respond to these issues. This increased focus on sustainability may result in new regulations and customer requirements that could negatively affect us. This could cause us to incur additional direct costs or to make changes to our operations in order

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to comply with any new regulations and customer requirements, as well as increased indirect costs or loss of revenue resulting from, among other things, our customers incurring additional compliance costs that affect our costs and revenues. We could also lose revenue if our customers divert business from us because we have not complied with their sustainability requirements. These costs, changes and loss of revenue could have a material adverse effect on our business, financial condition and results of operations. Even without any new legislation or regulation, increased public concern regarding greenhouse gases emitted by transportation carriers could harm the reputations of companies operating in the transportation logistics industries and shift consumer demand toward more locally sourced products and away from our services.

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

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

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

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

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

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

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


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


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

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

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

LIBOR, the London interbank offered rate, is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. We use LIBOR as a reference rate in our revolving credit facility to calculate interest due to our lender. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced its intention to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. If LIBOR ceases to exist, we may need to renegotiate our credit agreement with our lender. This could have an adverse effect on our financing costs.

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Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Properties

We believe that we have adequate facilities for conducting our business, including properties owned and leased. Management further believes that in the event replacement property is needed, it will be available on terms and at costs substantially similar to the terms and costs experienced by competitors within the transportation industry.

We own our Columbus, Ohio central sorting facility which is used by our Expedited LTL and TLS segments. The 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.

We also own facilities near Dallas/Fort Worth, Texas, Chicago, Illinois and Atlanta, 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. We also lease our executive headquarters in Atlanta, Georgia.

We lease and maintain 143 additional terminals, office spaces and other properties located in major cities throughout the United States and Canada. Lease terms for these terminals are typically for three to seven years. As a result of the Towne acquisition, we currently have 2 idle facilities that we are still leasing. In addition, we have operations in 25 cities operated by independent agents who handle freight for us on a commission basis.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not applicable.

Part II

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

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

There were approximately 638 shareholders of record of our Common Stock as of January 16, 2019.

Subsequent to December 31, 2018, our Board of Directors declared a cash dividend of $0.18 per share that will be paid in the first quarter of 2019. 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 2018 without registration under the Securities Act.

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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 2013 and ending on the last trading day of December 2018. The graph assumes a base investment of $100 made on December 31, 2013 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.



	2013		2014		2015		2016		2017		2018
Forward Air Corporation	$	100	$	115	$	98	$	108	$	131	$	125
Nasdaq Trucking and Transportation Stocks Index	100		139		117		142		178		161
Nasdaq Global Select Stock Market Index	100		114		121		130		167		161

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Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program (1) (2)
October 1-31, 2018	15,000	$	59.1	15,000	1,039,048
November 1-30, 2018	285,151	61.7		285,151	753,897
December 1-31, 2018	44,502	59.7		44,502	709,395
Total	344,653	$	61.3	344,653	709,395

(1) On July 21, 2016, the Board of Directors approved a stock repurchase program for up to 3.0 million shares of the Company's common stock.

(2) On February 5, 2019, the Board of Directors canceled the Company’s remaining 2016 share repurchase authorization and approved a stock repurchase authorization for up to 5.0 million shares of the Company’s common stock.

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 ended
	December 31,			December 31,			December 31,			December 31,			December 31,
	2018			2017			2016			2015			2014
				(As Adjusted)			(As Adjusted)			(As Adjusted)			(As Adjusted)
	(In thousands, except per share data)
Income Statement Data:
Operating revenue	$	1,320,886		$	1,169,346		$	1,030,210		$	987,894		$	824,654
Income from operations	122,031			108,757			59,703			81,674			96,325
Operating margin (1)	9.2		%	9.3		%	5.8		%	8.3		%	11.7		%

Net income	92,051			87,255			27,505			55,516			61,120
Net income per share:
Basic	$	3.14		$	2.90		$	0.90		$	1.79		$	1.98
Diluted	$	3.12		$	2.89		$	0.90		$	1.78		$	1.95

Cash dividends declared per common share	$	0.63		$	0.60		$	0.51		$	0.48		$	0.48

Balance Sheet Data (at end of period):
Total assets	$	760,215		$	692,622		$	644,048		$	702,327		$	541,493
Long-term obligations, net of current portion	47,335			40,588			725			28,856			1,275
Shareholders' equity	553,244			532,699			498,344			509,497			463,064

(1) Income from operations as a percentage of operating revenue
Note: Prior period balances have been adjusted to confirm with revenue guidance issued in 2014 (Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers). See additional discussion in Note 1, Accounting Policies to our Consolidated Financial Statements.

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

Overview and Executive Summary

Our services are classified into four reportable segments: Expedited LTL, TLS, Intermodal and Pool Distribution.

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Through the Expedited LTL segment, we operate a comprehensive national network to provide expedited regional, inter-regional and national LTL services. Expedited LTL offers customers local pick-up and delivery and other services including shipment consolidation and deconsolidation, warehousing, final mile solutions, customs brokerage and other handling. Because of our roots in serving the deferred air freight market, our terminal network is located at or near airports in the United States and Canada.

Through our TLS segment, we provide expedited truckload brokerage, dedicated fleet services, as well as high security and temperature-controlled logistics services in the United States and Canada.

Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and CFS warehouse and handling services. Intermodal operates primarily in the Midwest and Southeast, with a smaller operational presence in the Southwest. 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 of time sensitive product to numerous destinations within a specific geographic region. We offer this service throughout the Mid-Atlantic, Southeast, Midwest and Southwest United States.

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 TLS, Intermodal and Pool Distribution, which will allow us to maintain revenue growth in challenging shipping environments.

Trends and Developments

Appointment of New President and Chief Executive Officer

Effective September 1, 2018 ("Effective Date"), Thomas Schmitt was named the Company's President and Chief Executive Officer and Bruce A. Campbell, our then President and Chief Executive Officer, assumed the position of Executive Chairman. The Company's Board of Directors (the "Board") appointed Mr. Schmitt to the Board as of the Effective Date. On February 5, 2019, Mr. Campbell informed the Board of his intent to retire from his position as Executive Chairman of the Company and decision not to stand for re-election to the Board immediately preceding the Company’s 2019 annual meeting of shareholders (the “2019 Annual Meeting”) which is expected to occur on May 7, 2019. The Board and Mr. Campbell agreed that he will continue to serve the Company as a consultant for 24 months following his retirement. Following Mr. Campbell’s retirement, Tom Schmitt is expected to become the Chairman of the Board and Craig Carlock is expected to become the Company’s Lead Independent Director, subject to their reelection to the Board at the Company’s 2019 Annual Meeting.

Intermodal Acquisitions

As part of our strategy to expand our Intermodal operations, in January 2016, we acquired certain assets of Ace for $1.7 million and in August 2016, we acquired certain assets of Triumph for $10.1 million and an earnout of $1.3 million paid in September 2017. In May 2017, we acquired certain assets of Atlantic for $22.5 million and in October 2017, we acquired certain assets of KCL for $0.7 million. In July 2018, we acquired certain assets of MMT for $3.7 million and in October 2018 we acquired certain assets of Southwest for $16.3 million. These acquisitions provide an opportunity for our Intermodal segment to expand into additional geographic markets or add volumes to our existing locations. The assets, liabilities, and operating results of these acquisitions have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Intermodal reportable segment.

Goodwill

In 2013, we acquired TQI Holdings, Inc. for total consideration of $65.4 million and established the Total Quality, Inc. reporting unit ("TQI"). In conjunction with our policy to annually test goodwill for impairment as of June 30, 2016, we determined there were indicators of potential impairment of the goodwill and other long lived assets assigned to the acquisition of TQI Holdings, Inc. This determination was based on TQI's financial performance falling notably short of previous projections. As a result, 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 impairment test, during the second quarter of 2016, we recorded impairment charges for goodwill, intangibles and other assets of $42.4 million related to the TQI reporting unit, which is part of the TLS reportable segment.

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Results from Operations

The following table sets forth our consolidated historical financial data for the years ended December 31, 2018 and 2017 (in millions):



	Year ended December 31,
	2018			2017			Change			Percent Change
				(As Adjusted)
Operating revenue:
Expedited LTL	$	747.6		$	655.8		$	91.8		14.0	%
Truckload Premium Services	192.6			201.7			(9.1		)	(4.5	)
Intermodal	201.0			154.7			46.3			29.9
Pool Distribution	194.1			168.5			25.6			15.2
Eliminations and other operations	(14.4		)	(11.4		)	(3.0		)	26.3
Operating revenue	1,320.9			1,169.3			151.6			13.0
Operating expenses:
Purchased transportation	613.6			545.1			68.5			12.6
Salaries, wages, and employee benefits	300.2			265.8			34.4			12.9
Operating leases	75.7			63.8			11.9			18.7
Depreciation and amortization	42.2			41.1			1.1			2.7
Insurance and claims	35.2			29.6			5.6			18.9
Fuel expense	23.1			16.5			6.6			40.0
Other operating expenses	108.8			98.6			10.2			10.3
Total operating expenses	1,198.8			1,060.5			138.3			13.0
Income (loss) from operations:
Expedited LTL	96.4			88.0			8.4			9.5
Truckload Premium Services	5.1			3.2			1.9			59.4
Intermodal	23.3			13.0			10.3			79.2
Pool Distribution	5.9			6.4			(0.5		)	(7.8	)
Other operations	(8.6		)	(1.8		)	(6.8		)	377.8
Income from operations	122.1			108.8			13.3			12.2
Other expense:
Interest expense	(1.8		)	(1.2		)	(0.6		)	50.0
Total other expense	(1.8		)	(1.2		)	(0.6		)	50.0
Income before income taxes	120.3			107.6			12.7			11.8
Income taxes	28.2			20.3			7.9			38.9
Net income and comprehensive income	$	92.1		$	87.3		$	4.8		5.5	%

Note: Prior period balances have been adjusted to conform with revenue guidance issued in 2014 (ASU 2014-09, Revenue from Contracts with Customers). See additional discussion in Note 1, Accounting Policies to our Consolidated Financial Statements.

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Revenues

During the year ended December 31, 2018, revenue increased 13.0% compared to the year ended December 31, 2017. The revenue increase was primarily driven by increased revenue from our LTL Expedited segment of $91.8 million driven by increased network revenue, fuel surcharge revenue and other terminal based revenue over the prior year. The Company's other segments also had revenue growth over prior year with the exception of the TLS Segment where revenue decreased due to deliberate shedding of lower margin business.

Our 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 volume transiting our network. During the year ended December 31, 2018, total fuel surcharge revenue increased 49.5% as compared to the same period in 2017, mostly due to increased fuel prices, rate increases and increased volumes across the network.

Operating Expenses

Operating expenses increased $138.3 million primarily driven by purchased transportation increases of $68.5 million and salaries, wages and employee benefits increases of $34.4 million. Purchased transportation increased primarily due to increased volumes, increased utilization of third-party transportation providers, which are typically more costly than owner-operators and rate increases to owner-operators. Salaries, wages and employee benefits increased primarily due to increased personnel needs to support the additional volumes.

Operating Income and Segment Operations

As a result of the above, operating income increased $13.3 million, or 12.2%, from 2017 to $122.1 million for the year ended December 31, 2018. The results for our four reportable segments are discussed in detail in the following sections.

Interest Expense

Interest expense was $1.8 million for the year ended December 31, 2018 compared to $1.2 million for the same period in 2017. The increase in interest expense was attributable to additional borrowings on our revolving credit facility.

Income Taxes

The combined federal and state effective tax rate for the year ended December 31, 2018 was 23.4% compared to a rate of 18.9% for the same period in 2017. The effective tax rate for 2018 is primarily the result of the enactment of the Tax Cuts and Jobs Act, which lowered the statutory federal income tax rate to 21.0% from 35.0%. The lower effective tax rate for 2017 is the result of the impact of lowering the value of our net deferred tax liabilities as of December 31, 2017 following the enactment of the Tax Cuts and Jobs Act.

Net Income

As a result of the foregoing factors, net income increased by $4.8 million, or 5.5%, to $92.1 million for the year ended December 31, 2018 compared to $87.3 million for the same period in 2017.

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Expedited LTL - Year Ended December 31, 2018 compared to Year Ended December 31, 2017

The following table sets forth our historical financial data of the Expedited LTL segment for the years ended December 31, 2018 and 2017 (in millions):



Expedited LTL Segment Information
(In millions)
(Unaudited)

	Year ended
	December 31,		Percent of		December 31,		Percent of					Percent
	2018		Revenue		2017		Revenue		Change			Change
					(As Adjusted)
Operating revenue	$	747.6	100.0	%	$	655.8	100.0	%	$	91.8		14.0	%

Operating expenses:
Purchased transportation	347.4		46.5		290.1		44.2		57.3			19.8
Salaries, wages and employee benefits	163.8		21.9		146.5		22.3		17.3			11.8
Operating leases	41.4		5.5		36.7		5.6		4.7			12.8
Depreciation and amortization	22.5		3.0		22.1		3.4		0.4			1.8
Insurance and claims	14.3		1.9		15.4		2.3		(1.1		)	(7.1	)
Fuel expense	6.2		0.8		3.8		0.6		2.4			63.2
Other operating expenses	55.6		7.4		53.2		8.1		2.4			4.5
Total operating expenses	651.2		87.1		567.8		86.6		83.4			14.7
Income from operations	$	96.4	12.9	%	$	88.0	13.4	%	$	8.4		9.5	%



Expedited LTL Operating Statistics

	Year ended
	December 31,		December 31,		Percent
	2018		2017		Change
			(As Adjusted)

Business days	255		254		0.4	%

Tonnage
Total pounds ¹	2,562,205		2,478,059		3.4
Pounds per day ¹	10,048		9,756		3.0

Shipments
Total shipments ¹	4,173		4,048		3.1
Shipments per day ¹	16.4		15.9		3.1
Total shipments with pickup and/or delivery ¹	1,002		945		6.0

Weight per shipment	614		612		0.3

Revenue per hundredweight	$	26.06	$	23.91	9.0
Revenue per hundredweight, ex fuel	$	22.01	$	21.30	3.3

Revenue per shipment	$	160	$	146	9.6
Revenue per shipment, ex fuel	$	135	$	130	3.8	%

¹ - In thousands

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Revenues

Expedited LTL operating revenue increased $91.8 million, or 14.0%, to $747.6 million for the year ended December 31, 2018 from $655.8 million for the same period of 2017. This increase was due to increased network revenue, fuel surcharge revenue and other terminal based revenue over the prior year. Network revenue increased $37.7 million due to a 3.1% increase in shipments, a 3.4% increase in tonnage and a 3.3% increase in revenue per hundredweight, ex fuel over prior year. The increase in tonnage was due to an increase in class-rated shipments and the increase in revenue per hundredweight was due to increased shipment size and revenue per shipment. Fuel surcharge revenue increased $39.1 million largely due to rate increases to our fuel surcharges and increases in fuel prices and tonnage volumes. Other terminal based revenue, which includes dedicated local pickup and delivery services, warehousing and terminal handling, increased $15.0 million, or 23.9%, to $77.4 million for the year ended December 31, 2018 from $62.4 million in the same period of 2017. The increase in other terminal revenue was mainly attributable to increases in certain final mile, dedicated local pickup and delivery revenues.

Purchased Transportation

Expedited LTL purchased transportation increased by $57.3 million, or 19.8%, to $347.4 million for the year ended December 31, 2018 from $290.1 million for the year ended December 31, 2017. As a percentage of segment operating revenue, Expedited LTL purchased transportation was 46.5% during the year ended December 31, 2018 compared to 44.2% for the same period of 2017. The increase is mostly due to an increase in our cost per mile as a result of increased utilization of third-party transportation providers, which are typically more costly than owner-operators and rate increases to owner-operators.

Salaries, Wages, and Benefits

Salaries, wages and employee benefits of Expedited LTL increased by $17.3 million, or 11.8%, to $163.8 million for the year ended December 31, 2018 from $146.5 million in the same period of 2017. Salaries, wages and employee benefits were 21.9% of Expedited LTL’s operating revenue for the year ended December 31, 2018 compared to 22.3% for the same period of 2017. The decrease in salaries, wages and employee benefits as a percentage of revenue was primarily attributable to a 0.5% decrease in health insurance costs as a percentage of revenue and a 0.2% decrease in Expedited LTL terminal and management salaries as a percentage of revenue. The decrease in salaries as a percentage of revenue is the impact of additional revenue on fixed salaries and improved operating efficiencies. These decreases were slightly offset by increased use of Company-employed drivers for transportation services.

Operating Leases

Operating leases increased $4.7 million, or 12.8%, to $41.4 million for the year ended December 31, 2018 from $36.7 million for the year ended December 31, 2017. Operating leases were 5.5% of Expedited LTL’s operating revenue for the year ended December 31, 2018 compared to 5.6% for the year ended December 31, 2017. The increase in cost is due to a $3.8 million increase in tractor rentals and leases and $2.2 million of additional facility lease expenses partly offset by a $1.4 million decrease in trailer leases and equipment rentals. Tractor leases increased due to the increased usage of Company-employed drivers mentioned above and facility leases increased due to the expansion of certain facilities. Trailer leases and equipment rentals decreased due to prior year rentals and leases that were replaced with purchased units.

Depreciation and Amortization

Expedited LTL depreciation and amortization increased $0.4 million, or 1.8%, to $22.5 million for the year ended December 31, 2018 from $22.1 million for the year ended December 31, 2017. Depreciation and amortization expense as a percentage of Expedited LTL operating revenue was 3.0% in the year ended December 31, 2018 compared to 3.4% for the year ended December 31, 2017. The decrease as a percentage of revenue was due to lower amortization expenses partly offset by the purchase of new trailers during 2018. The lower amortization expense was due to the completion of the useful life for an acquired customer relationship.

Insurance and Claims

Expedited LTL insurance and claims expense decreased $1.1 million, or 7.1%, to $14.3 million for the year ended December 31, 2018 from $15.4 million for the year ended December 31, 2017. Insurance and claims as a percentage of Expedited LTL’s operating revenue was 1.9% for the year ended December 31, 2018 compared to 2.3% for the year ended December 31, 2017. The decrease as a percentage of revenue was attributable to lower vehicle liability claims and insurance premiums. At a consolidated level, vehicle claims reserves increased; see discussion in the "Other operations" section below.

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Fuel Expense

Expedited LTL fuel expense increased $2.4 million, or 63.2%, to $6.2 million for the year ended December 31, 2018 from $3.8 million in the year ended December 31, 2017. Fuel expense was 0.8% of Expedited LTL’s operating revenue for the years ended December 31, 2018 compared to 0.6% for the same period in 2017. LTL fuel expenses increased due to higher year-over-year fuel prices and increased Company-employed driver miles.

Other Operating Expenses

Expedited LTL other operating expenses increased $2.4 million, or 4.5%, to $55.6 million for the year ended December 31, 2018 from $53.2 million for the year ended December 31, 2017. Expedited LTL other operating expenses were 7.4% of operating revenue for the year ended December 31, 2018 compared to 8.1% for the year ended December 31, 2017. Other operating expenses include equipment maintenance, terminal and office expenses, professional fees and other over-the-road costs. The decrease as percentage of revenue was primarily the result of lower owner-operator costs, such as tolls, and lower maintenance due to the increased utilization of brokered transportation mentioned above. Additional decrease as a percentage of revenue was due to the year ended December 31, 2018 including the recovery of previously reserved receivables, while the same period of 2017 included an increase in receivables allowance.

Income from Operations

Expedited LTL income from operations increased by $8.4 million, or 9.5%, to $96.4 million for the year ended December 31, 2018 compared to $88.0 million for the year ended December 31, 2017. Expedited LTL’s income from operations was 12.9% of operating revenue for the year ended December 31, 2018 compared to 13.4% for the year ended December 31, 2017. The increase in income from operations was due to increases in revenue due to higher shipments, tonnage and fuel surcharge revenue. These improvements were mostly offset by increased utilization of third-party transportation providers, which caused the deterioration in income from operations as a percentage of revenue.

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Truckload Premium Services - Year Ended December 31, 2018 compared to Year Ended December 31, 2017

The following table sets forth our historical financial data for the Truckload Premium Services segment for the years ended December 31, 2018 and 2017 (in millions):



Truckload Premium Services Segment Information
(In millions)
(Unaudited)

	Year ended
	December 31,		Percent of		December 31,		Percent of					Percent
	2018		Revenue		2017		Revenue		Change			Change
					(As Adjusted)
Operating revenue	$	192.6	100.0	%	$	201.7	100.0	%	$	(9.1	)	(4.5	)%

Operating expenses:
Purchased transportation	144.8		75.2		153.7		76.2		(8.9		)	(5.8	)
Salaries, wages and employee benefits	19.1		9.9		20.4		10.1		(1.3		)	(6.4	)
Operating leases	0.5		0.3		0.9		0.5		(0.4		)	(44.4	)
Depreciation and amortization	6.4		3.3		6.3		3.1		0.1			1.6
Insurance and claims	4.5		2.4		5.4		2.7		(0.9		)	(16.7	)
Fuel expense	3.3		1.7		3.3		1.6		—			—
Other operating expenses	8.9		4.6		8.5		4.2		0.4			4.7
Total operating expenses	187.5		97.4		198.5		98.4		(11.0		)	(5.5	)
Income from operations	$	5.1	2.6	%	$	3.2	1.6	%	$	1.9		59.4	%



Truckload Premium Services Operating Statistics

	Year ended
	December 31,			December 31,			Percent
	2018			2017			Change
				(As Adjusted)

Total Miles ¹	78,889			96,598			(18.3	)%
Empty Miles Percentage	9.0		%	9.6		%	(6.3	)
Tractors (avg)	315			386			(18.4	)
Miles per tractor per week ²	2,178			2,700			(19.3	)

Revenue per mile	$	2.35		$	2.02		16.3
Cost per mile	$	1.89		$	1.66		13.9	%

¹ - In thousands
² - Calculated using Company driver and owner-operator miles

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Revenues

TLS revenue decreased $9.1 million, or 4.5%, to $192.6 million for the year ended December 31, 2018 from $201.7 million in the same period of 2017. TLS revenue decreased due to a 18.3% decrease in overall miles mostly offset by a 16.3% increase in average revenue per mile. The decrease in overall miles was due to deliberate shedding of lower margin business as well as reduced fleet capacity versus the prior year period. The increased revenue per mile was primarily driven by rate increases to existing customers, higher fuel surcharges and, to a lesser extent, the aforementioned shedding of lower margin business.

Purchased Transportation

Purchased transportation costs for our TLS revenue decreased $8.9 million, or 5.8%, to $144.8 million for the year ended December 31, 2018 from $153.7 million for the year ended December 31, 2017. For the year ended December 31, 2018, TLS purchased transportation costs represented 75.2% of TLS revenue compared to 76.2% for the same period in 2017. TLS purchased transportation includes owner-operators and third-party carriers, while company-employed drivers are included in salaries, wages and benefits. The decrease in purchased transportation was attributable to an 18.4% decrease in purchased transportation miles mostly offset by a 14.6% increase in cost per mile during the year ended December 31, 2018 compared to the same period in 2017. The decrease in TLS purchased transportation miles was attributable to the revenue activity discussed above. The increase in cost per mile was due to increased utilization of third-party carriers, which are more costly than owner-operators.

Salaries, Wages, and Benefits

Salaries, wages and employee benefits of TLS decreased by $1.3 million, or 6.4%, to $19.1 million in the year ended December 31, 2018 from $20.4 million in the same period of 2017. Salaries, wages and employee benefits were 9.9% of TLS’s operating revenue in the year ended December 31, 2018 compared to 10.1% for the same period of 2017. The slight decrease in salaries, wages and employee benefits as a percentage of revenue was mostly attributable to a decrease in Company-employed driver miles partly offset by an increase in employee incentives and share-based compensation.

Operating Leases

Operating leases decreased $0.4 million, or 44.4%, to $0.5 million for the year ended December 31, 2018 from $0.9 million for the same period in 2017. Operating leases were 0.3% of TLS operating revenue for the year ended December 31, 2018 compared to 0.5% for the same period of 2017. The decrease was due to a decrease in trailer rentals, as TLS utilized purchased trailers during 2018 compared to rentals in the same period in 2017.

Depreciation and Amortization

Depreciation and amortization increased $0.1 million, or 1.6%, to $6.4 million for the year ended December 31, 2018 from $6.3 million for the year ended December 31, 2017. Depreciation and amortization expense as a percentage of TLS operating revenue was 3.3% for the year ended December 31, 2018 compared to 3.1% for the same period in 2017. The increase was due to increased trailer depreciation on trailers purchased during 2018 and a full year of depreciation for new operating software placed in service during the fourth quarter of 2017. These increases were partly offset by lower amortization expense following the completion of the useful life for an acquired customer relationship.

Insurance and Claims

TLS insurance and claims decreased $0.9 million, or 16.7%, to $4.5 million for the year ended December 31, 2018 from $5.4 million for the year ended December 31, 2017. As a percentage of operating revenue, insurance and claims was 2.4% for the year ended December 31, 2018 compared to 2.7% for the year ended December 31, 2017. The decrease was due to lower vehicle liability claims. At a consolidated level, vehicle claims reserves increased; see discussion in the "Other operations" section below.

Fuel Expense

TLS fuel expense was $3.3 million for the year ended December 31, 2018 and 2017. Fuel expenses were 1.7% of TLS operating revenue during the year ended December 31, 2018 compared to 1.6% for the year ended December 31, 2017. The increase as a percentage of revenue was mostly attributable to higher year-over-year fuel prices partly offset by a decrease in Company-employed driver miles.

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Other Operating Expenses

TLS other operating expenses increased $0.4 million, or 4.7%, to $8.9 million for the year ended December 31, 2018 compared to $8.5 million for the year ended December 31, 2017. TLS other operating expenses were 4.6% of operating revenue for the year ended December 31, 2018 compared to 4.2% for the year ended December 31, 2017. Other operating expenses includes equipment maintenance, terminal and office expenses, professional fees and other costs of transiting shipments. The increase in other operating expenses was due to an increase in driver recruiting expenses.

Income from Operations

TLS income from operations increased $1.9 million, or 59.4%, to $5.1 million in income from operations for the year ended December 31, 2018 compared to $3.2 million for the same period in 2017. TLS income from operations was 2.6% of operating revenue for the year ended December 31, 2018 compared to 1.6% for the year ended December 31, 2017. The improvement in income from operations was due to rate increases and higher fuel surcharges to existing customers, the deliberate shedding of lower margin business and lower vehicle claims reserves.

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Intermodal - Year Ended December 31, 2018 compared to Year Ended December 31, 2017

The following table sets forth our historical financial data of the Intermodal segment for the years ended December 31, 2018 and 2017 (in millions):



Intermodal Segment Information
(In millions)
(Unaudited)

	Year ended
	December 31,		Percent of		December 31,		Percent of				Percent
	2018		Revenue		2017		Revenue		Change		Change
					(As Adjusted)
Operating revenue	$	201.0	100.0	%	$	154.7	100.0	%	$	46.3	29.9	%

Operating expenses:
Purchased transportation	77.1		38.4		63.6		41.1		13.5		21.2
Salaries, wages and employee benefits	43.9		21.8		34.0		22.0		9.9		29.1
Operating leases	15.9		7.9		13.5		8.7		2.4		17.8
Depreciation and amortization	6.3		3.1		5.8		3.8		0.5		8.6
Insurance and claims	5.8		2.9		4.2		2.7		1.6		38.1
Fuel expense	6.6		3.3		3.9		2.5		2.7		69.2
Other operating expenses	22.1		11.0		16.7		10.8		5.4		32.3
Total operating expenses	177.7		88.4		141.7		91.6		36.0		25.4
Income from operations	$	23.3	11.6	%	$	13.0	8.4	%	$	10.3	79.2	%



Intermodal Operating Statistics

	Year ended
	December 31,		December 31,		Percent
	2018		2017		Change
			(As Adjusted)

Drayage shipments	305,239		233,093		31.0	%
Drayage revenue per shipment	$	567	$	554	2.3
Number of locations	20		19		5.3	%

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Revenues

Intermodal operating revenue increased $46.3 million, or 29.9%, to $201.0 million for the year ended December 31, 2018 from $154.7 million for the same period in 2017. The increases in operating revenue was primarily attributable to a full year of revenue from Atlantic, which was acquired in May 2017, the impact of increased fuel surcharges and increased rental and storage revenues.

Purchased Transportation

Intermodal purchased transportation increased $13.5 million, or 21.2%, to $77.1 million for the year ended December 31, 2018 from $63.6 million for the same period in 2017. Intermodal purchased transportation as a percentage of revenue was 38.4% for the year ended December 31, 2018 compared to 41.1% for the year ended December 31, 2017. The decrease in Intermodal purchased transportation as a percentage of revenue was attributable to a change in revenue mix, as Intermodal had higher increases to revenue lines that did not require the use of purchased transportation. This was partly offset by a higher utilization of owner-operators as opposed to Company-employed drivers during 2018 compared to the same period of 2017, as Atlantic utilized more owner-operators than Company-employed drivers.

Salaries, Wages, and Benefits

Intermodal salaries, wages and employee benefits increased $9.9 million, or 29.1%, to $43.9 million for the year ended December 31, 2018 compared to $34.0 million for the year ended December 31, 2017. As a percentage of Intermodal operating revenue, salaries, wages and benefits decreased to 21.8% for the year ended December 31, 2018 compared to 22.0% for the same period in 2017. The improvement in salaries, wages and employee benefits as a percentage of revenue was attributable to lower workers' compensation and health insurance costs as a percentage of revenue partly offset by higher employee incentives and share-based compensation.

Operating Leases

Operating leases increased $2.4 million, or 17.8% to $15.9 million for the year ended December 31, 2018 from $13.5 million for the same period in 2017. Operating leases were 7.9% of Intermodal operating revenue for the year ended December 31, 2018 compared to 8.7% in the same period of 2017. Operating leases decreased as a percentage of revenue since revenue that does not require trailer rentals increased at a faster pace than those that required trailer rental charges. The decrease as a percentage of revenue is also attributable to utilization of owned equipment acquired from Atlantic and the increase in revenue out-pacing the increase in facility rents.

Depreciation and Amortization

Depreciation and amortization increased $0.5 million, or 8.6%, to $6.3 million for the year ended December 31, 2018 from $5.8 million for the same period in 2017. Depreciation and amortization expense as a percentage of Intermodal operating revenue was 3.1% for the year ended December 31, 2018 compared to 3.8% for the same period of 2017. The increase in depreciation and amortization is due the amortization of intangible assets acquired during 2017 and 2018. Depreciation and amortization decreased as a percentage of revenue since revenue that does not require equipment increased at a faster pace than those that required equipment.

Insurance and Claims

Intermodal insurance and claims expense increased $1.6 million, or 38.1%, to $5.8 million for the year ended December 31, 2018 from $4.2 million for the year ended December 31, 2017. Intermodal insurance and claims were 2.9% of operating revenue for the year ended December 31, 2018 compared to 2.7% for the same period in 2017. The increase in Intermodal insurance and claims was attributable to higher insurance premiums for the additional volumes and higher claims reserves. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.

Fuel Expense

Intermodal fuel expense increased $2.7 million, or 69.2%, to $6.6 million for the year ended December 31, 2018 from $3.9 million in the same period of 2017. Fuel expenses were 3.3% of Intermodal operating revenue for the year ended December 31, 2018 compared to 2.5% in the same period of 2017. Intermodal fuel expenses increased due to higher year-over-year fuel prices and increased Company-employed driver activity.

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Other Operating Expenses

Intermodal other operating expenses increased $5.4 million, or 32.3%, to $22.1 million for the year ended December 31, 2018 compared to $16.7 million for the same period of 2017. Intermodal other operating expenses as a percentage of revenue for the year ended December 31, 2018 were 11.0% compared to 10.8% for the same period of 2017. The increase in Intermodal other operating expenses was due mostly due to a $4.6 million increase in container related rental and storage charges associated with revenue increases discussed previously. The remaining increase was due to increased equipment maintenance, facility costs and professional fees. These increases were partly offset by a $0.5 million reduction in the earn-out liability for the Atlantic acquisition during 2018.

Income from Operations

Intermodal’s income from operations increased by $10.3 million, or 79.2%, to $23.3 million for the year ended December 31, 2018 compared to $13.0 million for the same period in 2017. Income from operations as a percentage of Intermodal operating revenue was 11.6% for the year ended December 31, 2018 compared to 8.4% in the same period of 2017. The increase in operating income as a percentage of revenue was primarily attributable to the increase in high-margin storage and fuel revenues and a full year of the Atlantic acquisition.

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Pool Distribution - Year Ended December 31, 2018 compared to Year Ended December 31, 2017

The following table sets forth our historical financial data of the Pool Distribution segment for the years ended December 31, 2018 and 2017 (in millions):



Pool Distribution Segment Information
(In millions)
(Unaudited)

	Year ended
	December 31,		Percent of		December 31,		Percent of					Percent
	2018		Revenue		2017		Revenue		Change			Change
					(As Adjusted)
Operating revenue	$	194.1	100.0	%	$	168.5	100.0	%	$	25.6		15.2	%

Operating expenses:
Purchased transportation	57.4		29.6		47.5		28.2		9.9			20.8
Salaries, wages and employee benefits	71.3		36.7		62.7		37.2		8.6			13.7
Operating leases	17.6		9.1		13.3		7.9		4.3			32.3
Depreciation and amortization	6.9		3.6		6.8		4.0		0.1			1.5
Insurance and claims	4.6		2.4		4.7		2.8		(0.1		)	(2.1	)
Fuel expense	7.0		3.6		5.5		3.3		1.5			27.3
Other operating expenses	23.4		12.1		21.6		12.8		1.8			8.3
Total operating expenses	188.2		97.0		162.1		96.2		26.1			16.1
Income from operations	$	5.9	3.0	%	$	6.4	3.8	%	$	(0.5	)	(7.8	)%



Pool Distribution Operating Statistics

	Year ended
	December 31,		December 31,		Percent
	2018		2017		Change
			(As Adjusted)

Cartons ¹	92,976		82,196		13.1	%
Revenue per carton	$	2.09	$	2.05	2.0
Terminals	28		28		—

¹ In thousands

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Revenues

Pool operating revenue increased $25.6 million, or 15.2%, to $194.1 million for the year ended December 31, 2018 from $168.5 million for the year ended December 31, 2017. The revenue increase was due to increased volumes from previously existing customers, new business and rate increases.

Purchased Transportation

Pool purchased transportation increased $9.9 million, or 20.8%, to $57.4 million for the year ended December 31, 2018 from $47.5 million for the year ended December 31, 2017. Pool purchased transportation as a percentage of revenue was 29.6% for the year ended December 31, 2018 compared to 28.2% for the same period in 2017. The increase in Pool purchased transportation as a percentage of revenue was attributable to increased rates charged by, and increased utilization of, third-party carriers to cover the increases in revenue.

Salaries, Wages, and Benefits

Salaries, wages and employee benefits of Pool increased by $8.6 million, or 13.7%, to $71.3 million for the year ended December 31, 2018 from $62.7 million for the year ended December 31, 2017. As a percentage of Pool operating revenue, salaries, wages and benefits were 36.7% for the year ended December 31, 2018 compared to 37.2% for the same period in 2017. The decrease in salaries, wages and benefits as a percentage of revenue was the result of decreases in employee incentives, driver pay and group health insurance costs partly offset by increased dock pay. Dock pay deteriorated as a percentage of revenue as increasing revenue volumes required the use of more costly contract labor.

Operating Leases

Operating leases increased $4.3 million, or 32.3%, to $17.6 million for the year ended December 31, 2018 from $13.3 million for the year ended December 31, 2017. Operating leases were 9.1% of Pool operating revenue for the year ended December 31, 2018 compared to 7.9% for the year ended December 31, 2017. Operating leases increased as a percentage of revenue due to increases in facility lease expenses and tractor leases for the additional revenue discussed above and the use of leased tractors to replace old purchased equipment. The increase in facility lease expenses is mostly due to a $1.0 million charge to vacate a facility.

Depreciation and Amortization

Depreciation and amortization increased $0.1 million, or 1.5%, to $6.9 million for the year ended December 31, 2018 compared to $6.8 million for the same period in 2017. Depreciation and amortization expense as a percentage of Pool operating revenue was 3.6% for the year ended December 31, 2018 compared to 4.0% for the year ended December 31, 2017. The decrease in Pool depreciation and amortization as a percentage of revenue was due to the increase in leased tractors mentioned above instead of purchased equipment, partly offset by increased trailer depreciation on trailers purchased during 2018.

Insurance and Claims

Pool insurance and claims decreased $0.1 million, or 2.1%, to $4.6 million for the year ended December 31, 2018 from $4.7 million for the year ended December 31, 2017. As a percentage of operating revenue, insurance and claims was 2.4% for the year ended December 31, 2018 compared to 2.8% for the year ended December 31, 2017. The decrease as a percentage of revenue was due to a $0.5 million reimbursement of legal fees in the year ended December 31, 2018 for expenses incurred in prior periods. The decrease as a percentage of revenue was also due to a decrease in vehicle liability claims. At a consolidated level, vehicle claims reserves increased; see discussion in the "Other operations" section below.

Fuel Expense

Pool fuel expense increased $1.5 million, or 27.3%, to $7.0 million for the year ended December 31, 2018 from $5.5 million for the year ended December 31, 2017. Fuel expenses were 3.6% of Pool operating revenue during the year ended December 31, 2018 compared to 3.3% for the year ended December 31, 2017. Pool fuel expenses increased due to higher year-over-year fuel prices, higher revenue volumes and increased Company-employed driver miles.

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Other Operating Expenses

Pool other operating expenses increased $1.8 million, or 8.3%, to $23.4 million for the year ended December 31, 2018 compared to $21.6 million for the year ended December 31, 2017. Pool other operating expenses were 12.1% of operating revenue for the year ended December 31, 2018 compared to 12.8% for the year ended December 31, 2017. Other operating expenses includes equipment maintenance, terminal and office expenses, professional fees and other over-the-road costs. As a percentage of revenue the decrease was attributable to a 0.6% decrease in equipment maintenance costs and a 0.3% decrease in agent terminal handling costs. These decreases were partly offset by a 0.1% increase as a percentage of revenue in recruiting expenses.

Income from Operations

Pool income from operations decreased by $0.5 million, or 7.8% to $5.9 million for the year ended December 31, 2018 from $6.4 million for the year ended December 31, 2017. Pool income from operations was 3.0% of operating revenue for the year ended December 31, 2018 compared to 3.8% of operating revenue for the year ended December 31, 2017. The deterioration in Pool operating income was primarily the result of increased utilization of and higher rates charged by third-party carriers and increasing revenue volumes required the use of more costly contract labor. Pool's operating income also decreased due to the one-time charge to vacate a facility during 2018.

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Other operations - Year Ended December 31, 2018 compared to Year Ended December 31, 2017

Other operating activity declined from a $1.8 million operating loss during the year ended December 31, 2017 to a $8.6 million operating loss during the year ended December 31, 2018. The year ended December 31, 2018 included a $6.0 million increase in self-insurance reserves related to existing vehicular claims and $0.8 million in self-insurance reserves resulting from analysis of our workers' compensation claims. The loss was also attributable to $1.2 million in costs related to the CEO transition, comprised of recruiting fees and retention share awards.

The $1.8 million operating loss for the year ending December 31, 2017 included a $1.2 million reserve for vehicle and workers' compensation claims, $0.9 million of executive severance costs and $0.4 million of turn in costs from old Towne equipment. These costs were partly offset by $0.7 million of indemnification funds received related to the Towne acquisition. These costs and benefits were kept at the corporate level and not passed through to our operating segments.

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Results of Operations

The following table sets forth our historical financial data for the years ended December 31, 2017 and 2016 (in millions):



	Year ended December 31,
	2017			2016			Change			Percent Change
	(As Adjusted)			(As Adjusted)
Operating revenue:
Expedited LTL	$	655.8		$	596.5		$	59.3		9.9	%
Truckload Premium Services	201.8			181.0			20.8			11.5
Intermodal	154.7			105.7			49.0			46.4
Pool Distribution	168.5			151.9			16.6			10.9
Eliminations and other operations	(11.4		)	(4.9		)	(6.5		)	132.7
Operating revenue	1,169.4			1,030.2			139.2			13.5
Operating expenses:
Purchased transportation	545.1			460.8			84.3			18.3
Salaries, wages, and employee benefits	265.8			242.3			23.5			9.7
Operating leases	63.8			60.5			3.3			5.5
Depreciation and amortization	41.1			38.2			2.9			7.6
Insurance and claims	29.6			25.4			4.2			16.5
Fuel expense	16.5			13.2			3.3			25.0
Other operating expenses	98.7			87.7			11.0			12.5
Impairment of goodwill, intangibles and other assets	—			42.4			(42.4		)	(100.0	)
Total operating expenses	1,060.6			970.5			90.1			9.3
Income (loss) from operations:
Expedited LTL	88.0			83.1			4.9			5.9
Truckload Premium Services	3.2			(35.4		)	38.6			NM
Intermodal	13.0			11.1			1.9			17.1
Pool Distribution	6.4			3.6			2.8			77.8
Other operations	(1.8		)	(2.7		)	0.9			(33.3	)
Income from operations	108.8			59.7			49.1			82.2
Other expense:
Interest expense	(1.2		)	(1.6		)	0.4			(25.0	)
Total other expense	(1.2		)	(1.6		)	0.4			(25.0	)
Income before income taxes	107.6			58.1			49.5			85.2
Income taxes	20.3			30.6			(10.3		)	(33.7	)
Net income and comprehensive income	$	87.3		$	27.5		$	59.8		217.5	%

Note: Prior period balances have been adjusted to confirm with revenue guidance issued in 2014 (ASU 2014-09, Revenue from Contracts with Customers). See additional discussion in Note 1, Accounting Policies to our Consolidated Financial Statements.

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Revenues

During the year ended December 31, 2017, revenue increased 13.5% compared to the year ended December 31, 2016. The revenue increase was primarily driven by increased revenue from our LTL Expedited segment of $59.3 million driven by increased network revenue, fuel surcharge revenue and other terminal based revenue over the prior year. Revenue also increased $49.0 million in our Intermodal segment primarily attributable to the acquisition of Atlantic, Triumph and Ace and the impact of increased fuel surcharges.

Our 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 volume transiting our network. During the year ended December 31, 2017, total fuel surcharge revenue increased 41.9% as compared to the same period in 2016, mostly due to increased fuel prices and increased volumes in the Expedited LTL, Intermodal and Pool Distribution segments.

Operating Expenses

Operating expenses increased $90.1 million primarily driven by purchased transportation increases of $84.3 million and salaries, wages and employee benefits increases of $23.5 million, offset by a $42.4 million impairment discussed further in the TLS segment section below. Purchased transportation increased primarily due to increased volumes and increased utilization of third-party transportation providers, which are typically more costly than owner-operators. Salaries, wages and employee benefits increased primarily due to increased personnel needs to support the additional volumes.

Operating Income and Segment Operations

As a result of the above, operating income increased $49.1 million, or 82.2%, from 2016 to $108.8 million for the year ended December 31, 2017. The results for our four reportable segments are discussed in detail in the following sections.

Interest Expense

Interest expense was $1.2 million for the year ended December 31, 2017 compared to $1.6 million for the same period in 2016. The decrease in interest expense was attributable to principal payments made on the term loan partly offset by borrowings on our revolving credit facility.

Income Taxes

The combined federal and state effective tax rate for the year ended December 31, 2017 was 18.9% compared to a rate of 52.7% for the same period in 2016. The lower effective tax rate for 2017 is the result of the enactment of the Tax Cuts and Jobs Act, which lowered the value of our net deferred tax liabilities. Also, the 2016 effective tax rate reflected the impairment of goodwill in the second quarter of 2016 that is non-deductible for tax purposes.

Net Income

As a result of the foregoing factors, net income increased by $59.8 million, or 217.5%, to $87.3 million for the year ended December 31, 2017 compared to $27.5 million for the same period in 2016.

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Expedited LTL - Year Ended December 31, 2017 compared to Year Ended December 31, 2016

The following table sets forth our historical financial data of the Expedited LTL segment for the years ended December 31, 2017 and 2016 (in millions):



Expedited LTL Segment Information
(In millions)
(Unaudited)

	Year ended
	December 31,		Percent of		December 31,		Percent of				Percent
	2017		Revenue		2016		Revenue		Change		Change
	(As Adjusted)				(As Adjusted)
Operating revenue	$	655.8	100.0	%	$	596.5	100.0	%	$	59.3	9.9	%

Operating expenses:
Purchased transportation	290.0		44.2		250.7		42.0		39.3		15.7
Salaries, wages and employee benefits	146.6		22.4		139.2		23.3		7.4		5.3
Operating leases	36.7		5.6		34.5		5.8		2.2		6.4
Depreciation and amortization	22.1		3.4		21.9		3.7		0.2		0.9
Insurance and claims	15.4		2.3		13.2		2.2		2.2		16.7
Fuel expense	3.8		0.6		3.3		0.6		0.5		15.2
Other operating expenses	53.2		8.1		50.6		8.5		2.6		5.1
Total operating expenses	567.8		86.6		513.4