UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2014

Commission File No. 000-22490

FORWARD AIR CORPORATION

(Exact name of registrant as specified in its charter)

Tennessee	62-1120025
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)
430 Airport Road Greeneville, Tennessee	37745
(Address of principal executive offices)	(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No ¨

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

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of October 20, 2014 was 30,450,053.

Table of Contents
Forward Air Corporation
		Page
		Number
Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – September 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Comprehensive Income - Three and nine months ended September 30, 2014 and 2013	4
	Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2014 and 2013	5
	Notes to Condensed Consolidated Financial Statements – September 30, 2014	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
Part II.	Other Information
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
Signatures		48

2

Part I.	Financial Information
Item 1.	Financial Statements (Unaudited).

Forward Air Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
(Unaudited)
	September 30, 2014		December 31, 2013
Assets
Current assets:
Cash	$	24,573	$	127,367
Accounts receivable, less allowance of $2,294 in 2014 and $1,919 in 2013	100,016		76,500
Other current assets	14,057		16,493
Total current assets	138,646		220,360
Property and equipment	303,755		271,050
Less accumulated depreciation and amortization	127,259		116,287
Total property and equipment, net	176,496		154,763
Goodwill and other acquired intangibles:
Goodwill	140,678		88,496
Other acquired intangibles, net of accumulated amortization of $38,100 in 2014 and $31,790 in 2013	71,778		40,110
Total net goodwill and other acquired intangibles	212,456		128,606
Other assets	2,347		2,540
Total assets	$	529,945	$	506,269
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	21,395	$	16,267
Accrued expenses	23,356		18,275
Current portion of debt and capital lease obligations	280		69
Total current liabilities	45,031		34,611
Long-term debt and capital lease obligations, less current portion	1,346		3
Other long-term liabilities	8,148		8,940
Deferred income taxes	28,838		26,850
Shareholders’ equity:
Preferred stock	—		—
Common stock, $0.01 par value: Authorized shares - 50,000,000, Issued and outstanding shares - 30,245,216 in 2014 and 30,522,079 in 2013	302		305
Additional paid-in capital	126,516		107,726
Retained earnings	319,764		327,834
Total shareholders’ equity	446,582		435,865
Total liabilities and shareholders’ equity	$	529,945	$	506,269
The accompanying notes are an integral part of the financial statements.

3

Forward Air Corporation
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited)
	Three months ended						Nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Operating revenue	$	201,477		$	170,033		$	566,897		$	471,396
Operating expenses:
Purchased transportation	85,874			75,211			242,259			206,462
Salaries, wages and employee benefits	45,651			39,165			131,464			109,149
Operating leases	8,503			6,991			25,019			20,923
Depreciation and amortization	8,115			6,220			22,879			17,377
Insurance and claims	3,747			3,290			10,978			9,164
Fuel expense	5,012			3,871			14,990			10,535
Other operating expenses	17,669			12,428			48,537			36,634
Total operating expenses	174,571			147,176			496,126			410,244
Income from operations	26,906			22,857			70,771			61,152
Other income (expense):
Interest expense	(172		)	(145		)	(355		)	(401		)
Other, net	(55		)	27			144			72
Total other income (expense)	(227		)	(118		)	(211		)	(329		)
Income before income taxes	26,679			22,739			70,560			60,823
Income taxes	9,935			8,542			26,437			21,941
Net income and comprehensive income	$	16,744		$	14,197		$	44,123		$	38,882
Net income per share:
Basic	$	0.55		$	0.47		$	1.44		$	1.30
Diluted	$	0.54		$	0.46		$	1.41		$	1.27
Weighted average shares outstanding:
Basic	30,415			30,374			30,710			30,017
Diluted	30,932			30,986			31,234			30,677
Dividends per share:	$	0.12		$	0.10		$	0.36		$	0.30

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

4

Forward Air Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
	Nine months ended
	September 30, 2014			September 30, 2013
Operating activities:
Net income	$	44,123		$	38,882
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	22,879			17,377
Share-based compensation	5,005			4,619
Gain on disposal of property and equipment	(441		)	(468		)
Provision for (recovery) loss on receivables	(39		)	234
Provision for revenue adjustments	1,896			1,705
Deferred income tax	1,729			4,658
Excess tax benefit for stock options exercised	(554		)	(3,207		)
Changes in operating assets and liabilities
Accounts receivable	(15,875		)	(4,262		)
Prepaid expenses and other current assets	(1,397		)	(1,575		)
Accounts payable and accrued expenses	7,767			2,524
Net cash provided by operating activities	65,093			60,487
Investing activities:
Proceeds from disposal of property and equipment	1,582			1,665
Purchases of property and equipment	(37,101		)	(33,266		)
Acquisition of business, net of cash acquired	(84,348		)	(45,328		)
Other	53			(111		)
Net cash used in investing activities	(119,814		)	(77,040		)
Financing activities:
Payments of debt and capital lease obligations	(9,662		)	(20,351		)
Proceeds from exercise of stock options	13,083			29,866
Payments of cash dividends	(11,141		)	(9,071		)
Repurchase of common stock (repurchase program)	(39,972		)	—
Common stock issued under employee stock purchase plan	148			137
Cash settlement of share-based awards for minimum tax withholdings	(1,083		)	(866		)
Excess tax benefit for stock options exercised	554			3,207
Net cash (used in) provided by financing activities	(48,073		)	2,922
Net decrease in cash	(102,794		)	(13,631		)
Cash at beginning of period	127,367			112,182
Cash at end of period	$	24,573		$	98,551

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

5

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

1.    Basis of Presentation

Forward Air Corporation's (“the Company”) services can be classified into three principal reporting segments:  Forward Air, Inc. (“Forward Air”), Forward Air Solutions, Inc. (“FASI”) and Total Quality, Inc. ("TQI").  

Through the Forward Air segment, the Company is a leading provider of time-definite transportation and related logistics services to the North American deferred air freight market and its activities can be classified into three categories of service: airport-to-airport, logistics, and other.  Forward Air’s airport-to-airport service operates a comprehensive national network for the time-definite surface transportation of expedited ground freight.  The airport-to-airport service offers customers local pick-up and delivery and scheduled surface transportation of cargo as a cost effective, reliable alternative to air transportation.  Forward Air’s logistics services provide expedited full truckload ("TLX"), intermodal drayage and dedicated fleet services.  Forward Air’s other services include shipment consolidation and deconsolidation, warehousing, customs brokerage, and other handling.  The Forward Air segment primarily provides its transportation services through a network of terminals located at or near airports in the United States and Canada.  

FASI provides pool distribution services throughout the Mid-Atlantic, Southeast, Midwest and Southwest continental United States.  Pool distribution involves managing high-frequency handling and distribution of time-sensitive product to numerous destinations in specific geographic regions.  FASI’s primary customers for this service are regional and nationwide distributors and retailers, such as mall, strip mall and outlet based retail chains.  

TQI is a provider of high security and temperature-controlled logistics services, primarily truckload services, to the pharmaceutical and life science industries. In addition to core pharmaceutical services, TQI provides truckload and less-than-truckload brokerage transportation services.

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 when measured on a quarterly basis; therefore operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. 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, 2013.

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

2.    Recent Accounting Pronouncements

In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual periods beginning on or after December 15, 2016 (early adoption is not permitted). The guidance permits the use of either a retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is currently evaluating the impact of the amended guidance on our consolidated financial position, results of operations and related disclosures.

6

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

3.    Acquisitions and Goodwill

Acquisition of CST

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

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

As part of the Company's strategy to scale CST's operations, on September 5, 2014, CST acquired certain assets of Recob Great Lakes Express, Inc. ("RGL") for $1,350. The acquisition of RGL's assets provided an opportunity for CST to expand into an additional midwest market.

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

The assets, liabilities, and operating results of CST and RGL have been included in the Company's consolidated financial statements from the dates of acquisition and have been assigned to the Forward Air reportable segment. The results of CST and RGL operations are reflected in the Company's consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 from the dates of acquisition are as follows (in thousands, except per share data):

	Three months ended September 30, 2014		Dates of acquisition to September 30, 2014
Operating revenue	$	21,100	$	49,975
Income from operations	2,517		4,804
Net income	1,553		2,934
Net income per share
Basic	$	0.05	$	0.10
Diluted	$	0.05	$	0.09

Acquisition of TQI

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

Pursuant to the terms of the Agreement, the Company could pay the former shareholders of TQI additional cash consideration from $0 to $5,000 if certain earnings before interest, taxes, depreciation and amortization ("EBITDA") goals are exceeded. The ultimate payout is based on the level by which TQI operating results exceed specified thresholds as defined by the Agreement in

7

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

both 2013 and 2014. At the time of acquisition the Company recognized an estimated earn-out liability of $615. The fair value of the earn-out liability (level 3) was estimated using an income approach based on the present value of probability-weighted amounts payable under a range of performance scenarios for 2013 and a discount rate of 10.9%. However, based on the most probable outcomes the estimated earn-out liability was reduced to $0 and recognized as a gain in our results from operations during the fourth quarter of 2013. If TQI's 2014 EBITDA performance does exceed the goals established by the Agreement, the final value of the liability could be significantly higher than the liability the Company has currently recorded.

The Company incurred total transaction costs related to the acquisition of approximately $943, which was expensed during the nine months ended September 30, 2013, in accordance with U.S. GAAP. These transaction costs were primarily included in "Other operating expenses" in the consolidated statements of comprehensive income.

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

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

The assets, liabilities, and operating results of TQI have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the TQI reportable segment. The results of TQI reflected in the Company's consolidated statements of comprehensive income for the three and nine months ended September 30, 2013 from the date of acquisition (March 4, 2013) are as follows (in thousands, except per share data):

	Three months ended September 30, 2013		March 4, 2013 to September 30, 2013
Operating revenue	$	12,431	$	28,545
Income from operations	934		1,936
Net income	547		1,180
Net income per share
Basic	$	0.02	$	0.04
Diluted	$	0.02	$	0.04

Allocations of Purchase Prices

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

8

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

	CST		RGL		TQI
	February 2, 2014		September 5, 2014		March 4, 2013
Tangible assets:
Accounts receivable	$	9,498	$	—	$	5,639
Prepaid expenses and other current assets	101		—		1,093
Property and equipment	2,132		209		5,103
Other assets	35		—		728
Deferred income taxes	—		—		947
Total tangible assets	11,766		209		13,510
Intangible assets:
Non-compete agreements	930		14		470
Trade name	500		—		1,000
Customer relationships	36,000		535		22,300
Goodwill	51,590		592		45,164
Total intangible assets	89,020		1,141		68,934
Total assets acquired	100,786		1,350		82,444
Liabilities assumed:
Current liabilities	6,573		—		4,725
Other liabilities	—		—		1,735
Debt and capital lease obligations	11,215		—		20,113
Deferred income taxes	—		—		10,543
Total liabilities assumed	17,788		—		37,116
Net assets acquired	$	82,998	$1,350		$	45,328

The above purchase price allocations for CST and RGL are 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 CST and RGL are based on the information that was available as of the acquisition dates through the date of this filing. The acquired definite-live intangible assets have the following useful lives:

	Useful Lives
	CST	RGL	TQI
Customer relationships	15 years	15 years	15 years
Non-competes	5 years	5 years	5 years
Trade names	2 years	-	5 years

The fair value of the non-compete agreements, trade name and customer relationship assets were estimated using an income approach (level 3). Under this method, an intangible asset's fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To calculate 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. The fair value of the acquired trade names were estimated using an income approach, specifically known as the relief from royalty method. The relief from royalty method is based on a hypothetical royalty stream that would be paid if the Company did not own the applicable names and had to license the trade names. The Company derived the hypothetical royalty income from the projected revenues of CST and TQI. Cash flows were assumed to extend through the remaining economic useful life of each class of intangible asset.

9

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

Pro forma

The following unaudited pro forma information presents a summary of the Company's consolidated results of operations as if the acquisitions occurred as of January 1, 2013 (in thousands, except per share data).

	Three months ended				Nine months ended
	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Operating revenue	$	201,477	$	187,924	$	571,986	$	529,022
Income from operations	26,906		25,470		70,983		68,012
Net income	16,744		15,814		44,254		43,128
Net income per share
Basic	$	0.55	$	0.52	$	1.44	$	1.44
Diluted	$	0.54	$	0.51	$	1.42	$	1.41

Goodwill

The following is a summary of the changes in goodwill for the nine months ended September 30, 2014. All goodwill, except the goodwill assigned to TQI, is deductible for tax purposes.

	Forward Air				FASI					TQI				Total
			Accumulated				Accumulated					Accumulated
	Goodwill		Impairment		Goodwill		Impairment			Goodwill		Impairment		Net
Beginning balance, December 31, 2013	$	37,926	$	—	$	12,359	$	(6,953	)	$	45,164	$	—	$	88,496
CST and RGL acquisitions	52,182		—		—		—			—		—		52,182
Ending balance, September 30, 2014	$	90,108	$	—	$	12,359	$	(6,953	)	$	45,164	$	—	$	140,678

The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2014 and no impairment charges were required.  The first step of the goodwill impairment test is the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, including goodwill. When performing the qualitative assessment, the Company considers the impact of factors including, but not limited to, macroeconomic and industry conditions, overall financial performance of each reporting unit, litigation and new legislation. If based on the qualitative assessments, the Company believes it more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, or periodically as deemed appropriate by management, the Company will prepare an estimation of the respective reporting unit's fair value utilizing a quantitative approach.  If a quantitative fair value estimation is required, the Company calculates the fair value of the applicable reportable units, using a combination of discounted projected cash flows and market valuations for comparable companies as of the valuation date.  The Company's inputs into the fair value calculations for goodwill are classified within level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the FASB Codification”). 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 calculated 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.

4.    Share-Based Payments

The Company’s general practice has been to make a single annual grant of share-based compensation to key employees and to 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”), and performance

10

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

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, net of estimated forfeitures, ratably over the requisite service period, or vesting period. The Company estimates forfeitures based upon historical experience.  All share-based compensation expense is recognized in salaries, wages and employee benefits.

Employee Activity - Stock Options

Stock option grants to employees generally expire seven years from the grant date and typically vest ratably over a three-year period.  The Company used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted.  The weighted-average fair value of options granted and assumptions used to calculate their fair value during the three and nine months ended September 30, 2014 and 2013 were as follows:

	Three months ended
	September 30, 2014			September 30, 2013
Expected dividend yield	—		%	1.2		%
Expected stock price volatility	—		%	43.4		%
Weighted average risk-free interest rate	—		%	1.5		%
Expected life of options (years)	0.0			4.5
Weighted average grant date fair value	$	—		$	13

	Nine months ended
	September 30, 2014			September 30, 2013
Expected dividend yield	1.2		%	1.2		%
Expected stock price volatility	38.8		%	43.7		%
Weighted average risk-free interest rate	1.6		%	0.9		%
Expected life of options (years)	5.3			5.3
Weighted average grant date fair value	$	14		$	13

The following tables summarize the Company’s employee stock option activity and related information:

	Three months ended September 30, 2014
							Weighted-
			Weighted-		Aggregate		Average
			Average		Intrinsic		Remaining
	Options		Exercise		Value		Contractual
	(000)		Price		(000)		Term
Outstanding at June 30, 2014	1,431		$	28
Granted	—		—
Exercised	(51	)	29
Forfeited	—		—
Outstanding at September 30, 2014	1,380		$	28	$	25,745	2.4
Exercisable at September 30, 2014	1,174		$	26	$	24,377	1.8

11

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

	Three months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for options	$	343	$	329
Tax benefit for option compensation	$	131	$	124
Unrecognized compensation cost for options, net of estimated forfeitures	$	1,971	$	1,899

	Nine months ended September 30, 2014
							Weighted-
			Weighted-		Aggregate		Average
			Average		Intrinsic		Remaining
	Options		Exercise		Value		Contractual
	(000)		Price		(000)		Term
Outstanding at December 31, 2013	1,732		$	27
Granted	101		43
Exercised	(445	)	28
Forfeited	(8	)	38
Outstanding at September 30, 2014	1,380		$	28	$	25,745	2.4
Exercisable at September 30, 2014	1,174		$	26	$	24,377	1.8

	Nine months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for options	$	989	$	1,076
Tax benefit for option compensation	$	377	$	381
Unrecognized compensation cost for options, net of estimated forfeitures	$	1,971	$	1,899

Employee Activity - Non-vested Shares

Non-vested share grants to employees vest ratably over a three-year period.  The non-vested shares’ fair values were estimated using closing market prices on the day of grant. The following tables summarize the Company’s employee non-vested share activity and related information:

	Three months ended September 30, 2014
		Weighted-		Aggregate
	Non-vested	Average		Grant Date
	Shares	Grant Date		Fair Value
	(000)	Fair Value		(000)
Outstanding and non-vested at June 30, 2014	189	$	40
Granted	2	47
Vested	—	—
Forfeited	—	—
Outstanding and non-vested at September 30, 2014	191	$	40	$	7,606

12

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

	Three months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for non-vested shares	$	906	$	781
Tax benefit for non-vested share compensation	$	345	$	297
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	5,241	$	4,508

	Nine months ended September 30, 2014
			Weighted-		Aggregate
	Non-vested		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2013	186		$	35
Granted	99		43
Vested	(94	)	43
Forfeited	—		—
Outstanding and non-vested at September 30, 2014	191		$	40	$	7,606

	Nine months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for non-vested shares	$	2,726	$	2,289
Tax benefit for non-vested share compensation	$	1,039	$	872
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	5,241	$	4,508

Employee Activity - Performance Shares

The Company annually grants performance shares to key employees.  Under the terms of the performance share agreements, on the third anniversary of the grant date, the Company will issue to the employees a calculated number of common stock shares based on the three year performance of the Company’s common stock share price as compared to the share price performance of a selected peer group.  No shares may be issued if the Company share price performance outperforms 30% or less of the peer group, but the number of shares issued may be doubled if the Company share price performs better than 90% of the peer group.  The fair value of the performance shares was estimated using a Monte Carlo simulation. The weighted average assumptions used in the Monte Carlo calculation were as follows:

	Nine months ended
	September 30, 2014		September 30, 2013
Expected stock price volatility	32.5	%	34.5	%
Weighted average risk-free interest rate	0.7	%	0.4	%

13

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

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

	Three months ended September 30, 2014
		Weighted-		Aggregate
	Performance	Average		Grant Date
	Shares	Grant Date		Fair Value
	(000)	Fair Value		(000)
Outstanding and non-vested at June 30, 2014	74	$	44
Granted	—	—
Additional shares awarded based on performance	—	—
Vested	—	—
Outstanding and non-vested at September 30, 2014	74	$	44	$	3,279

	Three months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for performance shares	$	275	$	275
Tax benefit for performance share compensation	$	105	$	105
Unrecognized compensation cost for performance shares, net of estimated forfeitures	$	1,500	$	1,465

	Nine months ended September 30, 2014
			Weighted-		Aggregate
	Performance		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2013	88		$	37
Granted	23		48
Additional shares awarded based on performance	19		30
Vested	(56	)	30
Outstanding and non-vested at September 30, 2014	74		$	44	$	3,279

	Nine months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for performance shares	$	822	$	780
Tax benefit for performance share compensation	$	313	$	297
Unrecognized compensation cost for performance shares, net of estimated forfeitures	$	1,500	$	1,465

Employee Activity - Employee Stock Purchase Plan

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 408,508 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. For the nine months

14

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

ended September 30, 2014, participants under the plan purchased 3,814 shares at an average price of $38.88 per share. For the nine months ended September 30, 2013, participants under the plan purchased 4,241 shares at an average price of $32.34 per share. The weighted-average fair value of each purchase right under the ESPP granted for the nine months ended September 30, 2014, which is equal to the discount from the market value of the common stock at the end of each six month purchase period, was $8.97 per share. The weighted-average fair value of each purchase right under the ESPP granted for the nine months ended September 30, 2013, which is equal to the discount from the market value of the common stock at the end of each six month purchase period, was $5.94 per share. Share-based compensation expense of $35 and $26 was recognized during the nine months ended September 30, 2014 and 2013, respectively.

Non-employee Director Activity - Non-vested Shares

Grants of non-vested shares to non-employee directors vest ratably over the elected term to the Board of Directors, or approximately one year.  The following tables summarize the Company’s non-employee non-vested share activity and related information:

	Three months ended September 30, 2014
		Weighted-		Aggregate
	Non-vested	Average		Grant Date
	Shares	Grant Date		Fair Value
	(000)	Fair Value		(000)
Outstanding and non-vested at June 30, 2014	14	$	43
Granted	—	—
Vested	—	—
Outstanding and non-vested at September 30, 2014	14	$	43	$	602

	Three months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for non-vested shares	$	152	$	141
Tax benefit for non-vested share compensation	$	58	$	54
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	363	$	335

	Nine months ended September 30, 2014
			Weighted-		Aggregate
	Non-vested		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2013	15		$	38
Granted	14		43
Vested	(15	)	38
Outstanding and non-vested at September 30, 2014	14		$	43	$	602

15

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

	Nine months ended
	September 30, 2014		September 30, 2013
Shared-based compensation for non-vested shares	$	433	$	448
Tax benefit for non-vested share compensation	$	165	$	171
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	363	$	335

Non-employee Director Activity - Stock Options

In addition to the above activity, each May from 1995 to 2005 options were granted to the non-employee directors of the Company.  The options have terms of ten years and are fully exercisable.  At September 30, 2014, 7,500 options were outstanding and will expire May 2015.  At September 30, 2014, the weighted average exercise price per share and remaining contractual term for the outstanding options of non-employee directors were $26 and 0.6 years, respectively.

5.    Senior Credit Facility

In February 2012, the Company entered into a $150,000 credit facility. This facility has a term of five years and matures in February 2017. The Company entered into this larger credit facility in order to fund potential acquisitions, the repurchase of its common stock and the financing of other general business purposes. Interest rates for advances under the facility are LIBOR plus 1.1% based upon covenants related to total indebtedness to earnings (1.3% at September 30, 2014). The agreement contains certain covenants and restrictions, none of which are expected to significantly affect the Company's operations or ability to pay dividends. No assets are pledged as collateral against the credit facility. As of September 30, 2014, the Company had no borrowings outstanding under the senior credit facility. At September 30, 2014, the Company had utilized $9,749 of availability for outstanding letters of credit and had $140,251 of available borrowing capacity outstanding under the senior credit facility.  

6.    Net Income Per Share

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

	Three months ended				Nine months ended
	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Numerator:
Numerator for basic and diluted income per share - net income	$	16,744	$	14,197	$	44,123	$	38,882
Denominator (in thousands):
Denominator for basic income per share - weighted-average shares	30,415		30,374		30,710		30,017
Effect of dilutive stock options (in thousands)	418		447		431		512
Effect of dilutive performance shares (in thousands)	37		13		41		9
Effect of dilutive non-vested shares and deferred stock units (in thousands)	62		152		52		139
Denominator for diluted income per share - adjusted weighted-average shares	30,932		30,986		31,234		30,677
Basic net income per share	$	0.55	$	0.47	$	1.44	$	1.30
Diluted net income per share	$	0.54	$	0.46	$	1.41	$	1.27

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

16

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

	September 30, 2014	September 30, 2013
Anti-dilutive stock options (in thousands)	108	186
Anti-dilutive performance shares (in thousands)	—	—
Total anti-dilutive shares (in thousands)	108	186

7.    Income Taxes

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various states and Canada. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian examinations by tax authorities for years before 2009.

For the three and nine months ended September 30, 2014 and 2013, the effective income tax rates varied from the statutory federal income tax rate of 35.0%, primarily as a result of the effect of state income taxes, net of the federal benefit, and permanent differences between book and tax net income. The combined federal and state effective tax rate for the nine months ended September 30, 2014 was 37.5% compared to a rate of 36.1%for the same period in 2013.  The increase in the effective tax rate was primarily due to 2013 benefiting from a retroactive reinstatement of alternative fuel tax credits for 2012 and higher benefits obtained from disqualified dispositions by employees of previously non-deductible incentive stock options.

8.    Financial Instruments

Fair Value of Financial Instruments

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

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

The Company’s senior credit facility bears interest at LIBOR plus 1.1% based upon covenants related to total indebtedness to earnings.  Using interest rate quotes and discounted cash flows, the Company estimated the fair value of its outstanding capital lease obligations as follows:

	September 30, 2014
	Carrying Value		Fair Value
Capital leases	$	1,626	$	1,662

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

9.    Shareholders' Equity

During each quarter of 2013, the Company's Board of Directors declared a cash dividend of $0.10 per share of common stock. During each quarter of 2014 , the Company's Board of Directors declared a cash dividend of $0.12 per share of common stock. 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.

On February 7, 2014, our Board of Directors approved a new stock repurchase authorization for up to two million shares of our common stock. During the three months ended September 30, 2014, the Company repurchased 434,993 for $19,987, or $45.95 per share. During the nine months ended September 30, 2014, the Company repurchased 881,979 for $39,972, or $45.32 per share. As of September 30, 2014, 1,118,021 shares remain that may be repurchased.

17

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

10.    Commitments and Contingencies

From time to time, the Company is party to ordinary, routine litigation incidental to and arising in the normal course of business.  The Company does not believe that any of these pending actions, individually or in the aggregate, will have a material adverse effect on its business, financial condition or results of operations.

The primary claims in the Company’s business relate to workers’ compensation, property damage, vehicle liability and medical benefits. Most of the Company’s insurance coverage provides for self-insurance levels with primary and excess coverage which management believes is sufficient to adequately protect the Company from catastrophic claims. In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured limits, including provision for estimated claims incurred but not reported.

The Company estimates its self-insurance loss exposure by evaluating the merits and circumstances surrounding individual known claims and by performing hindsight and actuarial analysis to determine an estimate of probable losses on claims incurred but not reported.  Such losses could be realized immediately as the events underlying the claims have already occurred as of the balance sheet dates. 

Because of the uncertainty of the ultimate resolution of outstanding claims, as well as uncertainty regarding claims incurred but not reported, it is possible that management’s provision for these losses could change materially in the near term. However, no estimate can currently be made of the range of additional loss that is at least reasonably possible.

11.    Segment Reporting

The Company operates in three reportable segments based on information available to and used by the chief operating decision maker.  Forward Air provides time-definite transportation and logistics services to the deferred air freight market.  FASI provides pool distribution services primarily to regional and national distributors and retailers. TQI is a provider of high security and temperature-controlled logistics services, primarily truckload services, to the pharmaceutical and life science industries. The assets, liabilities, and operating results of our most recent acquisition, CST, have been assigned to the Forward Air reportable segment.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies disclosed in Note 1 to the Consolidated Financial Statements included in the Company’s 2013 Annual Report on Form 10-K. Segment data includes intersegment revenues.  Assets and costs of the corporate headquarters are allocated to the segments based on usage.  The Company evaluates the performance of its segments based on net income.  The Company’s business is conducted in the U.S. and Canada.

The following tables summarize segment information about net income and assets used by the chief operating decision maker of the Company in making decisions regarding allocation of assets and resources as of and for the three and nine months ended September 30, 2014 and 2013.

18

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

	Three months ended September 30, 2014
	Forward Air		FASI		TQI		Eliminations			Consolidated
External revenues	$	159,025	$	30,462	$	11,990	$	—		$	201,477
Intersegment revenues	1,060		153		39		(1,252		)	—
Depreciation and amortization	5,669		1,502		944		—			8,115
Share-based compensation expense	1,608		47		21		—			1,676
Interest expense	167		—		5		—			172
Interest income	1		—		—		—			1
Income tax expense	8,970		686		279		—			9,935
Net income	15,010		1,097		637		—			16,744
Total assets	595,447		43,771		88,462		(197,735		)	529,945
Capital expenditures	2,064		1,610		7		—			3,681
	Three months ended September 30, 2013
	Forward Air		FASI		TQI		Eliminations			Consolidated
External revenues	$	127,953	$	29,649	$	12,431	$	—		$	170,033
Intersegment revenues	838		179		—		(1,017		)	—
Depreciation and amortization	4,238		1,254		728		—			6,220
Share-based compensation expense	1,471		28		26		—			1,525
Interest expense	144		1		—		—			145
Interest income	6		—		—		—			6
Income tax expense	7,604		551		387		—			8,542
Net income	12,768		882		547		—			14,197
Total assets	464,538		42,043		84,343		(100,122		)	490,802
Capital expenditures	1,679		1,797		1,796		—			5,272

19

Forward Air Corporation

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

September 30, 2014

	Nine months ended September 30, 2014
	Forward Air		FASI		TQI			Eliminations			Consolidated
External revenues	$	445,874	$	84,482	$	36,541		$	—		$	566,897
Intersegment revenues	2,664		390		230			(3,284		)	—
Depreciation and amortization	15,976		4,229		2,674			—			22,879
Share-based compensation expense	4,829		128		48			—			5,005
Interest expense	377		2		(24		)	—			355
Interest income	8		—		—			—			8
Income tax expense	24,367		1,034		1,036			—			26,437
Net income	40,196		1,693		2,234			—			44,123
Total assets	595,447		43,771		88,462			(197,735		)	529,945
Capital expenditures	24,766		6,165		6,170			—			37,101
	Nine months ended September 30, 2013
	Forward Air		FASI		TQI			Eliminations			Consolidated
External revenues	$	367,011	$	75,841	$	28,544		$	—		$	471,396
Intersegment revenues	1,969		540		—			(2,509		)	—
Depreciation and amortization	12,110		3,621		1,646			—			17,377
Share-based compensation expense	4,453		113		53			—			4,619
Interest expense	395		6		—			—			401
Interest income	29		—		1			—			30
Income tax expense	20,989		196		756			—			21,941
Net income	37,481		221		1,180			—			38,882
Total assets	464,538		42,043		84,343			(100,122		)	490,802
Capital expenditures	23,993		6,302		2,971			—			33,266

20

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview and Executive Summary

Our operations can be broadly classified into three principal segments:  Forward Air, Inc. (“Forward Air”), Forward Air Solutions, Inc. (“FASI”) and Total Quality, Inc. ("TQI").  

Through our Forward Air segment, we are a leading provider of time-definite surface transportation and related logistics services to the North American expedited ground freight market. We offer our customers local pick-up and delivery (Forward Air Complete™) and scheduled surface transportation of cargo as a cost-effective, reliable alternative to air transportation. We transport cargo that must be delivered at a specific time, but is less time-sensitive than traditional air freight. This type of cargo is frequently referred to in the transportation industry as deferred air freight. We operate our Forward Air segment through a network of terminals located on or near airports in 87 cities in the United States and Canada, including a central sorting facility in Columbus, Ohio and 12 regional hubs serving key markets.  We also offer our customers an array of logistics and other services including: expedited truckload brokerage (“TLX”); intermodal drayage; dedicated fleets; warehousing; customs brokerage; and shipment consolidation, deconsolidation and handling.

FASI provides pool distribution services throughout the Mid-Atlantic, Southeast, Midwest and Southwest continental United States.  Pool distribution involves managing high-frequency handling and distribution of time-sensitive product to numerous destinations in specific geographic regions.  Our primary customers for this service are regional and nationwide distributors and retailers, such as mall, strip mall and outlet based retail chains. We service these customers through a network of terminals and service centers located in 24 cities.

TQI is a provider of high security and temperature-controlled logistics services, primarily truckload services, to the pharmaceutical and life science industries. In addition to core pharmaceutical services, TQI provides truckload and less-than-truckload brokerage transportation services.

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

Trends and Developments

Acquisitions of CST and RGL

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

The acquisition of CST provides us with a scalable platform for which to enter the intermodal drayage space and thereby continuing to expand and diversify our service offerings. As part of our strategy to scale CST's operations, on September 5, 2014, CST acquired certain assets of Recob Great Lakes Express, Inc. ("RGL") for $1.4 million. The acquisition of RGL's assets provided an opportunity for CST to expand into an additional midwest market.

Acquisition of TQI

On March 4, 2013, we entered into a Stock Purchase Agreement ("Agreement") with all of the shareholders of TQI to acquire 100% of the outstanding stock. Pursuant to the terms of the Agreement and concurrently with the execution of the Agreement, we acquired all of the outstanding capital stock of TQI in exchange for $45.3 million in net cash, $20.1 million in assumed debt and an available earn-out of up to $5.0 million. The assumed debt was immediately paid in full after funding of the acquisition. The acquisition and settlement of the assumed debt were funded using our cash on hand.

21

Results from Operations

During the three months ended September 30, 2014, we experienced a 18.5% increase in our consolidated revenues compared to the three months ended September 30, 2013 and a 17.5% increase in our operating income.

Forward Air's revenue increased 24.3% and operating income increased 17.5% for the three months ended September 30, 2014, compared to the same period in 2013. Approximately 67.4% of the Forward Air revenue increase and 69.4% of the Forward Air operating income increase for the three months ended September 30, 2014, compared to the same period in 2013 was attributable to the acquisition of CST. The remaining increase was the result of higher airport-to-airport volumes combined with a general rate increase initiated at the beginning of March 2014.

FASI revenue increased 2.7% and operating results improved $0.4 million for the three months ended September 30, 2014, compared to the same period in 2013.  The FASI revenue and operating income increases were primarily the result of rate increases implemented during the first quarter of 2014 and improvement in operating processes.

TQI's revenue decreased 3.2% and operating income was consistent for the three months ended September 30, 2014, compared to the same period in 2013. However, operating income as a percentage of revenue increased to 7.5% for the three months ended September 30, 2014 from 7.3% for the three months ended September 30, 2013. These increases were largely driven by operating efficiencies gained since the acquisition of TQI.

Fuel Surcharge

Our net fuel surcharge revenue is the result of our fuel surcharge rates, which are set weekly using the national average for diesel price per gallon, and the tonnage transiting our network.  During the three and nine months ended September 30, 2014, total net fuel surcharge revenue increased 11.8% and 16.8%, respectively, as compared to the same periods in 2013. The increase in net fuel surcharge revenue for the three and nine months ended September 30, 2014 compared to the same periods in 2013 was mostly due to the acquisition of CST and increased FAI business volumes.

Goodwill

As of September 30, 2014, the carrying value of goodwill related to the Forward Air, FASI and TQI segments was $90.1 million, $5.4 million and $45.2 million, respectively. In accordance with our accounting policy, we conducted our annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2014 and no impairment charges were required.

22

Results of Operations

The following table sets forth our consolidated historical financial data for the three months ended September 30, 2014 and 2013 (in millions):

	Three months ended
	September 30, 2014			September 30, 2013			Change			Percent Change
Operating revenue	$	201.5		$	170.0		$	31.5		18.5	%
Operating expenses:
Purchased transportation	85.9			75.2			10.7			14.2
Salaries, wages, and employee benefits	45.7			39.1			6.6			16.9
Operating leases	8.5			7.0			1.5			21.4
Depreciation and amortization	8.1			6.2			1.9			30.6
Insurance and claims	3.7			3.3			0.4			12.1
Fuel expense	5.0			3.9			1.1			28.2
Other operating expenses	17.7			12.4			5.3			42.7
Total operating expenses	174.6			147.1			27.5			18.7
Income from operations	26.9			22.9			4.0			17.5
Other expense:
Interest expense	(0.2		)	(0.1		)	(0.1		)	100.0
Total other expense	(0.2		)	(0.1		)	(0.1		)	100.0
Income before income taxes	26.7			22.8			3.9			17.1
Income taxes	9.9			8.6			1.3			15.1
Net income	$	16.8		$	14.2		$	2.6		18.3	%

23

The following table sets forth our historical financial data by segment for the three months ended September 30, 2014 and 2013 (in millions):

	Three months ended
	September 30,			Percent of		September 30,			Percent of					Percent
	2014			Revenue		2013			Revenue		Change			Change
Operating revenue
Forward Air	$	160.1		79.4	%	$	128.8		75.8	%	$	31.3		24.3	%
FASI	30.6			15.2		29.8			17.5		0.8			2.7
TQI	12.0			6.0		12.4			7.3		(0.4		)	(3.2	)
Intercompany eliminations	(1.2		)	(0.6	)	(1.0		)	(0.6	)	(0.2		)	20.0
Total	201.5			100.0		170.0			100.0		31.5			18.5
Purchased transportation
Forward Air	71.9			44.9		59.9			46.5		12.0			20.0
FASI	8.8			28.8		9.1			30.5		(0.3		)	(3.3	)
TQI	6.0			50.0		6.9			55.6		(0.9		)	(13.0	)
Intercompany eliminations	(0.8		)	66.7		(0.7		)	70.0		(0.1		)	14.3
Total	85.9			42.6		75.2			44.2		10.7			14.2
Salaries, wages and employee benefits
Forward Air	33.1			20.7		27.3			21.2		5.8			21.2
FASI	10.4			34.0		10.0			33.6		0.4			4.0
TQI	2.2			18.3		1.8			14.5		0.4			22.2
Total	45.7			22.7		39.1			23.0		6.6			16.9
Operating leases
Forward Air	6.5			4.1		4.9			3.8		1.6			32.7
FASI	2.0			6.5		2.1			7.0		(0.1		)	(4.8	)
TQI	—			—		—			—		—			—
Total	8.5			4.2		7.0			4.1		1.5