Forward Air Corporation ("the Company", "We", "Our") is a leading asset-light freight and logistics company. Forward Air Corporation's ("the Company", "We", "Our") services can be classified into four reportable segments: Expedited LTL, Intermodal, Truckload Premium Services ("TLS"), Intermodal and Pool Distribution ("Pool") (See Note 11)13).

 

Through the Expedited LTL segment, we operate a comprehensive national network to provide expedited regional, inter-regional and national less-than-truckload ("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.

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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company’s operating results are subject to seasonal trends (as described in our 20172018 Form 10-K) when measured on a quarterly basis; therefore operating results for the ninesix months ended SeptemberJune 30, 20182019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019. For further information, refer to the consolidated financial statements and notes thereto included in the Forward Air Corporation Annual Report on Form 10-K for the year ended December 31, 2017.2018.

The accompanying unaudited condensed consolidated financial statements of the Company include Forward Air Corporation and its subsidiaries. All intercompanyIntercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior period financial information to conform to the current year presentation.

In January 2017,June 2016, the FASB issued ASU No. 2017-04, Intangibles2016-13, Financial Instruments - GoodwillCredit Losses (Topic 326), which replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and Other (Topic 350): "Simplifyingrequires the Accounting for Goodwill Impairment."use of a forward-looking expected loss model. Under the new standard,current accounting guidance, credit losses are recognized when it is probable a goodwill impairment loss has been incurred. The updated guidance will require financial assets to be measured at amortized costs less a reserve, equal to the net amount by which a reporting unit's carrying amount exceeds its fair value, notexpected to exceed the carrying amount of goodwill, thus no longer requiring the two-step method. The guidance requires prospective adoption andbe collected. This standard will be effective for annual or interim goodwill impairment tests in fiscal yearsperiods beginning after December 15, 2019. Early2019, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effects that the adoption of this guidance is permitted for interim or annual goodwill impairment tests performedwill have on testing dates after January 1, 2017. We have adopted this guidance as of January 1, 2018 and do not expect any impact to theits consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which will requirerequires lessees to recognize a right-of-use asset with a corresponding lease liability on their balance sheet for most leases classified as operating leases under previous guidance. Lessors will beare required to recognize a net lease investment for most leases. Additional qualitative and quantitative disclosures willare also be required. The guidance will be effective for annual reporting periods beginning after December 15, 2018Company applied the transition requirements as of January 1, 2019, which resulted in recording right-of-use lease assets and interim periods within those fiscal years with early adoption permitted. We plan to recognize a cumulative-effect adjustmentcorresponding lease liabilities of $149,544 and $150,122, respectively, as of June 30, 2019. There was no impact to the opening balanceCompany's Statements of retained earnings in the periodComprehensive Income or Statements of adoptionCash Flows. In addition, comparative financial statements have not been

presented as allowed per the guidance. Changes to processes and internal controls to meet the standard’s reporting and disclosure requirements have also been identifiedimplemented. See Note 9, Leases, for additional discussion over this new standard, including the impact on the Company's financial statements.

The Company's revenue is generated from providing transportation and are being implemented. We continue to evaluate the expected impact of this guidance, but do not anticipate any material changes to operating results or liquidity as a result of the right-of-use assets and corresponding lease liabilities that will be recorded.

Our revenue from contracts with customers is disclosed within our four reportable segments: Expedited LTL, Intermodal, TLS Intermodal and Pool. This is consistent with our disclosures in earnings releases and annual reports and with the information regularly reviewed by the chief operating decision maker for evaluating financial performance. See additional discussion in Note 13, Segment Reporting.

The impactacquisition agreement provides the sellers an earnout opportunity of implementing this guidance using the full retrospective approachup to $15,000 based on the priorachievement of certain revenue milestones over a two year period, statementsbeginning May 1, 2019. As of operations are shownJune 30, 2019, the fair value of the earn-out liability was $10,321 and is included in other current and long-term liabilities in the "As Adjusted" columnscondensed consolidated balance sheet. The earn-out liability was classified as Level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the FASB Codification”) and the value was determined based on estimated revenues and the probability of achieving them. The fair value was based on the two-year performance of FSA's acquired customer revenue and was estimated using a Monte Carlo simulation. The weighted average assumptions used in the Monte Carlo simulation are summarized in the following tables:

The following table presents the allocation of the Atlantic, KCL, and MMTFSA purchase pricesprice to the assets acquired and liabilities assumed based on their estimated fair values and resulting residual goodwill (in thousands):

The above purchase price allocation for FSA is preliminary, as the Company is still in the process of finalizing the valuation of the acquired assets and liabilities assumed. The above estimated fair values of assets acquired and liabilities assumed for FSA are based on the information that was available as of the acquisition date through the date of this filing. The acquired definite-lived intangible assets have the following useful lives:

The fair value of the non-compete agreements and customer relationships assets were estimated using an income approach. The Company's inputs into fair value estimates are classified within level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the FASB Codification”).hierarchy. Under this method, an intangible asset's fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To estimate fair value, the Company used cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions. Cash flows were assumed to extend through the remaining economic useful life of each class of intangible asset.

The Company conducted its annual impairment assessments and test of goodwill for each reporting unit as of June 30, 20182019 and

If a quantitative fair value estimation is required, the Company estimates the fair value of the applicable reporting units, using a combination of discounted projected cash flows and market valuations for comparable companies as of the valuation date (level 3). If this estimation of fair value indicates that impairment potentially exists, the Company will then measure the amount of the impairment, if any. Goodwill impairment exists when the estimated implied fair value of goodwill is less than its carrying value. Changes in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances. During the threesix months ended SeptemberJune 30, 20182019, no indicators of impairment were identified.

The Company’s general practice has been to make a single annual grant of share-based compensation in the first quarter to key employees and to make other employee grants only in connection with new employment or promotions.  Forms of share-based compensation granted to employees by the Company include stock options, non-vested shares of common stock (“non-vested share”shares”), and performance shares.  The Company also typically makes a single annual grant of non-vested shares to non-employee directors in conjunction with the annual election of non-employee directors to the Board of Directors. Share-based compensation is based on the grant date fair value of the instrument and is recognized ratably over the requisite service period, or vesting period.  All share-based compensation expense is recognized in salaries, wages and employee benefits.

Under the 2005 Employee Stock Purchase Plan (the “ESPP”), which has been approved by shareholders, the Company is authorized to issue up to a remaining 367,309357 shares of common stock to employees of the Company. These shares may be issued at a price equal to 90% of the lesser of the market value on the first day or the last day of each six-month purchase period. Common stock purchases are paid for through periodic payroll deductions and/or up to two large lump sum contributions. ForThe following table summarizes the nine months ended SeptemberCompany’s employee stock purchase activity and related information:

On September 29, 2017, the Company entered into a five-year senior unsecured revolving credit facility (the “Facility”) with a maximum aggregate principal amount of $150,000, with a sublimit of $30,000 for letters of credit and a sublimit of $30,000 for swing line loans. The Facility may be increased by up to $100,000 to a maximum aggregate principal amount of $250,000 pursuant to the terms of the credit agreement, subject to the lenders’ agreement to increase their commitments or the addition of new lenders extending such commitments. Such increases to the Facility may be in the form of additional revolving credit loans, term loans or a combination thereof, and are contingent upon there being no events of default under the Facility and satisfaction of other conditions precedent and are subject to the other limitations set forth in the credit agreement.

The Facility contains customary events of default including, among other things, payment defaults, breach of covenants, cross acceleration to material indebtedness, bankruptcy-related defaults, material judgment defaults, and the occurrence of certain change of control events. The occurrence of an event of default may result in, among other things, the termination of the Facilities, acceleration of repayment obligations and the exercise of remedies by the lenders with respect to the Company and its subsidiaries that are party to the Facility. The Facility also contains financial covenants and other covenants that, among other things, restrict the ability of the Company and its subsidiaries, without the approval of the required lenders, to engage in certain mergers, consolidations, asset sales, dividends and stock repurchases, investments, and other transactions or to incur liens or indebtedness in excess of agreed thresholds, as set forth in the credit agreement. As of SeptemberJune 30, 2018,2019, the Company was in compliance with the aforementioned covenants.