Forward Air Corporation Business Information, Profile, and History

Company Perspectives:

Forward Air Corporation is a leading provider of time-definite surfac e transportation and related logistics services to the North American deferred air freight market. We provide scheduled surface transporta tion of cargo as a cost effective, reliable alternative to air transp ortation.

History of Forward Air Corporation

Forward Air Corporation is a Greeneville, Tennessee-based company tha t specializes in the surface transportation of deferred air freight, a less expensive alternative to air freight. Unlike time-sensitive ai r freight, deferred air freight is time definite, a less specific cat egory. Forward Air receives cargo transported by air and sorts it at nearby facilities, where the shipments are consolidated and then sent to the terminal closest to the final destination. All told, Forward Air operates some 80 terminals in the United States and Canada, locat ed on or near airports, a central sorting facility in Columbus, Ohio, and eight regional hubs located in key markets. The company focuses on shipments of 200 pounds and greater. Hence, it does not compete wi th overnight or small package delivery services, and it primarily mar kets its services to passenger and cargo airlines, integrated air car go carriers, and air freight forwarders. Forward Air does not own its own fleet of trucks, preferring to operate as a non-asset based prov ider. Instead, the company contracts with truck owner-operators and t ruckload carriers. Because at its core Forward Air is a coordinator, the company offers to others some of the services it provides to itse lf, including truck brokerage, warehousing, customs brokerage, and sh ipment consolidation and handling. Forward Air is a public company li sted on the NASDAQ.

Parent Company's Founding in the 1980s

Forward Air was originally part of Landair Transport before a split i n 1998. Landair was cofounded by Forward Air's chairman and longtime chief executive officer, Scott M. Niswonger. Born in Ohio, Niswonger graduated from Purdue University in 1968 with a degree in aviation te chnology. An avid flyer, he went to work as a pilot for the president of the Magnavox Company (which maintained a factory in Greeneville, Tennessee, and led to Niswonger's connection to the community) and la ter graduated from United Airlines Training Academy and the Fairfield Aircraft Factory School. (In the 1980s he returned to college as a c hief executive officer, earning a degree in business administration f rom Tusculum College.) He became a certified airline transport pilot, able to fly small airplanes as well as jumbo jets. Having gained an understanding of the transportation industry, Niswonger decided to st rike out on his own in 1974, founding General Aviation, Inc., an all- cargo airline that he headed as president and chief executive officer for the next seven years. In 1980 the trucking industry was deregula ted, leading to many air-freight operators seeking to create a reliab le ground transport system. Sensing an opportunity, Niswonger in 1981 invested $2,000 along with partner Ed Saylor who invested a simi lar amount and cofounded Landair Transport as a truckload carrier and contractor to the air cargo industry on a time-definite basis. Saylo r would soon die of bone cancer, leaving Niswonger as the sole owner of the business.

Although air freight operators were Landair's first major customers, the company received an increasing amount of business from manufactur ers who were employing just-in-time inventory systems. Under Niswonge r's leadership, Landair spent heavily to make sure it could deliver g oods exactly as they were required, allowing customers to organize th eir operations as efficiently as possible. In order to meet this goal , Landair assigned two drivers instead of one on longer trips and rep laced its tractors every three years, much faster than the norm in th e trucking industry. Niswonger also began investing in satellite trac king equipment in the late 1980s, allowing Landair to track the statu s of its trucks and provide an even greater level of precision to its customers.

Company Growing Out of 1988 Contract

Forward Air established its roots in 1988 when Landair contracted wit h North American Van Lines to provide less-than-truckload scheduled a ir cargo service. It was through this venture that Columbus, Ohio hou sed a central sorting facility and served as the heart of a hub-and-s poke network. Two years later the business transcended the North Amer ican Van Lines contract, and the Forward Air unit came under Landair' s direction and control.

Landair generated about $30 million in revenues by the end of the 1980s. That amount would grow to $95.3 million in 1993 to go alo ng with net income of nearly $2 million. It was in 1993 that Land air Transport became Landair Services and was taken public. The busin ess was divided between two units: Forward Air and Truckload, a high- service operation providing short- to medium-haul deliveries on an "o n demand" basis. By now Forward Air was the larger of the two subsidi aries.

For the next five years Landair continued to house two separate trans portation businesses and sales grew steadily, reaching $148 milli on in 1995 and $190.4 million in 1997. Net income also kept pace, totaling $8.6 million in 1997. To remain competitive, Forward Ai r made significant investments in high technology during this period. In 1995 the company began work on a new comprehensive real-time syst em to log freight orders, track them, and bill customers. The first p hase was ready to be rolled out in mid-1997, and the installation was complete in early 1998. As a result, all of Forward Air's terminals were linked together and every shipment could be traced from the mome nt it was received to the time it was delivered. In addition, the sys tem provided management with a detailed financial picture of the orga nization on a daily basis, allowing information to be assembled about a specific terminal, customer, or even a particular shipment.

Forward Air's growth was internal, the result of significant growth i n the deferred domestic air freight market, until 1997 when it acquir ed the air cargo assets of Adams Air Cargo, Inc., an Arbuckle, Califo rnia-based surface transportation contractor to the air cargo industr y. It was an important acquisition, given that the West Coast was bec oming the most important part of Forward Air's business. The company was well positioned to enjoy further growth through acquisitions, as consolidation in the deferred domestic air freight market was on the horizon, with hundreds of regional less-than-truckload carriers ready to sell their air cargo operations. But first Niswonger restructured Landair Services.

In July 1998 Landair announced that it would split into two separate, publicly traded companies. As had been rumored in the industry for s ome time, the Truckload and Forward Air operations would go their sep arate ways. Although older, the Truckload unit was now smaller, gener ating revenues of about $96 million a year while Forward Air was doing $112 million in business. The Truckload unit was spun off a nd named Landair Corporation. Landair Services would then take the na me of its remaining subsidiary, becoming Forward Air Corporation. Acc ording to a Traffic World article, "The decision to split the two companies [was] meant to bring a higher profile to the fast-growi ng Forward Air division. Industry analyst Alex Brand was quoted as sa ying that the two divisions were 'more or less run as separate compan ies now. It's a hard sell as a combined company. The Forward Air busi ness is a cleaner story. It's neat and easy, like an airline that mov es over land.'" Niswonger explained his strategy in a press release, stating, "We believe investors, analysts and lenders will be better a ble to assess the different operating characteristics, capital requir ement and growth expectations of each business." He added, "The strat egic separation will enable both businesses to motivate their key emp loyees and attract new employees by offering economic incentives such as stock options whose value will be directly related to the perform ance of the truckload business of the Forward Air business." Niswonge r became chairman of both companies, but it was clearly Forward Air t hat emerged from the split as the stronger of the two entities. Withi n a year, Landair was struggling; its president resigned and Niswonge r had to step in to run the company until a replacement was hired.

Forward Air, in the meantime, continued to grow at a steady clip, pur suing a consolidation strategy. In October 1999 it acquired the air c argo operations of Quick Delivery Services, a Mobile, Alabama-based c arrier that focused on the Southeast. Forward Air expanded its reach and could not provide greater coverage to its existing customers whil e adding new customers. Later in the month, Forward Air added the air cargo operating assets of Tennessee-based LTD Express, again adding reach and revenues. After 1999 came to a close, Forward Air reported revenues of $170.8 million for the year, a 30 percent increase ov er 1998, and a 62 percent improvement over 1997.

Market Downturn at the Close of the 1990s

In December 1999 freight levels dropped sharply, a foreshadowing of a downturn in the economy that would soon visit the country, but it di d little to blunt Forward Air's momentum. Once again the company prod uced record results, with sales increasing more than 25 percent to 36;214.9 million and net income increasing 46.2 percent to $23.4 million. Forward Air also completed another acquisition during 2000, purchasing the assets of Dedicated Transportation Services, Inc., a s ubsidiary of Professional Transportation Group, at a cost of $10. 7 million. A Chattanooga-based freight hauler and Dedicated's line ha uler, U.S. Xpress Enterprises Inc. also had tried to acquire the asse ts, and after failing began using the "Dedicated" name on another bus iness. Forward Air sued U.S. Xpress for antitrust violations in feder al court in 2001, and a year later the two parties reached a settleme nt, with U.S. Xpress agreeing, without admitting guilt, to pay Forwar d Air $1.3 million and dropping the Dedicated name on its air tra nsport business.

Another acquisition followed early in 2001 when Forward Air acquired assets of Expedited Delivery Services, Inc., a Dallas-based deferred air freight contractor. Overall the year proved to be problematic, de spite the company again producing record sales, improving to $227 .5 million. The company's technology subsidiary, LogTech, experienced problems, which led its operations to be folded into Forward Air's e xisting sales operations. On the positive side, Forward Air made stri des in expanding its national sales presence and landed significant n ational accounts with Northwest Airlines and British Airways. In addi tion, the carrier expanded its service from St. Louis to the Southwes t in 2001 and launched a three-day service from San Francisco to ten cities. Investors grew somewhat concerned and the price of Forward Ai r dropped 9.1 percent. Given that the NASDAQ composite was down 20.7 percent, it was not an entirely dismal performance, however.

Challenges continued in 2002, as Forward Air had to contend with the effects of a sputtering economy that resulted in a soft air freight m arket. The company was able to make the best of a poor situation, as it experienced a 1 percent decline in revenues to $226 million bu t still managed to post net income of $21.6 million, the company' s second most profitable year in its history. Wall Street, on the oth er hand, was not impressed, as shares of Forward Air lost 43 percent of their value in 2002.

Forward Air experienced a changing of the guard in October 2003. Nisw onger announced that he would step down as CEO at the end of the year , opting to devote more of his time to his many philanthropic endeavo rs. Replacing him was Bruce Campbell, who had served as chief operati ng officer since 1990. Niswonger stayed on as the non-executive chair man of the board. He left the company in excellent shape, due in no s mall measure to a significant rebound in the expedited domestic freig ht shipping market. Sales increased to $241.5 million and net inc ome improved to $25.8 million. Moreover, the company had $87 million of cash on hand and less than $1 million in debt at the e nd of the year. Investors took note and bid up the price of Forward A ir stock by 37 percent in 2003.

Demand for shipping continued in 2004, prompting Forward Air to recru it more truck owner-operators. In addition, for the first time in 13 years, the company increased the pay of its owner-operators, adding t hree cents a mile to their compensation. For the year 2004, sales inc reased to $282.2 million and net income jumped to $34.4 milli on. The company was the clear leader in its category and reaping the benefits. In 2005 it bought the customer list used by Xpress Global S ystems, which had tried to copy the Forward Air business model and fa iled. Another rival, Maryland-based Air Cargo, also had exited the fi eld, providing Forward Air with even greater opportunities. The compa ny opened its 81st service facility, located in Harrisburg, Pennsylva nia, in June 2005 and also began expanding its Columbus hub facility. There was every indication that Forward Air would continue to enjoy strong growth for some time to come.

Principal Subsidiaries: FAF, Inc.; Forward Air, Inc.; Forward Air International Airlines, Inc.; Forward Air Royalty Company; Forwar d Air Systems Technology, Inc.; Forward Air Licensing Company; Transp ortation Properties, Inc.

Principal Competitors: BAS Global Inc.; International Cargo Ma rketing Consultants; New Penn Motor Express, Inc.; Old Dominion Freig ht Line, Inc.

Chronology

• Key Dates:
• 1981: Scott M. Niswonger and Ed Saylor found Landair Transport , Inc.
• 1988: The roots of Forward Air are planted with a North Americ an Van Lines contract.
• 1990: Forward Air becomes a Landair business unit.
• 1993: Landair goes public as Landair Services, Inc.
• 1998: Landair Services spins off its Truckload business unit a nd changes its name to Forward Air Corporation.
• 2003: Niswonger steps down as CEO.