Overview and Executive Summary

Our operations can be broadly classified into two principal segments: Forward Air and FASI.

Through our Forward Air segment, we are a leading provider of time-definite surface transportation and related logistics services to the North American deferred air 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 82 cities in the United States and Canada, including a central sorting facility in Columbus, Ohio and 11 regional hubs serving key markets. We also offer our customers an array of logistics and other services including: expedited truckload brokerage (TLX); 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 product 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 19 cities.

Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our continued growth 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, which will allow us to maintain revenue growth in challenging shipping environments.

Trends and Developments

Acquisitions

On September 8, 2008, we acquired certain assets and liabilities of Service Express, Inc. ("Service Express"). Service Express was a privately-held provider of pool distribution services primarily in the Mid-Atlantic and Southeastern continental United States. Service Express generated approximately $39.0 million in revenue during the year ended December 31, 2007. The acquisition of Service Express' pool distribution services added to the geographic footprint of the FASI segment in the Mid-Atlantic and Southeastern United States.

On March 17, 2008, we acquired certain assets and liabilities of Pinch Holdings, Inc. and its related company AFTCO Enterprises, Inc. and certain of their respective wholly owned subsidiaries ("Pinch"). Pinch was a privately-held provider of pool distribution, airport-to-airport, truckload, customs, and cartage services primarily to the Southwestern continental United States. Pinch generated approximately $35.0 million in revenue during the year ended December 31, 2007. The acquisition of Pinch's pool distribution services expanded the geographic footprint of the FASI segment in the Southwestern United States. In addition, it provided additional tonnage density to the Forward Air airport-to-airport network, and the acquisition of Pinch's cartage and truckload business provided an opportunity for Forward Air to expand its service options in the Southwestern United States.

Results from Operations

During the three months ended March 31, 2009, compared to the same period in 2008, we experienced a decrease in our consolidated revenues and results from operations. The first quarter 2009 results were driven by the decrease in airport-to-airport revenue during the first quarter of 2009 versus the same period in 2008 and lower than expected FASI revenue and results of operations. The significant decline in airport-to-airport revenue was driven by an over 20.0% decrease in the tonnage shipped through our network during the first quarter of 2009 compared to the same period in 2008. The decline in airport-to-airport tonnage was primarily related to the current economic recession. The economic recession was also largely responsible for lower than expected revenue and higher losses than anticipated from our FASI segment during the first quarter of 2009.

Increases in revenues from our logistics services, mainly TLX, and FASI partially offset the decline in airport-to-airport revenue; however, these services are not as profitable and do not generate comparable operating results with our airport-to-airport business. We expect these year-over-year decreases in revenue and results from operations to continue throughout 2009 as the economic recession continues. Also, during the first quarter of 2009 we began to experience slower revenue growth from our TLX service largely driven by increased price competition and the resulting loss of certain business. Additionally, despite significant new business wins, FASI revenue growth will slow throughout 2009 as we reach the anniversary dates of our Pinch and Service Express acquisitions.

Declining fuel prices may adversely affect our revenues and results of operations in 2009. 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. The decline in tonnage levels combined with the continuing decline in diesel fuel prices could result in a significant reduction in our net fuel surcharge revenue and results from operations during 2009. Total net fuel surcharge revenue decreased 56.7% during the first quarter of 2009 as compared to the first quarter of 2008.

Goodwill

During the three months ended March 31, 2009, we determined there were indicators of potential impairment of the goodwill assigned to the FASI segment. This determination was based on the continuing economic recession, declines in current market valuations and FASI operating losses in excess of expectations. As a result, we performed an interim impairment test in accordance with SFAS 142 as of March 31, 2009. We calculated the fair value of the FASI segment, using a combination of discounted cash flows and current market valuations for comparable companies. Based on the results of the interim impairment test, we concluded that an impairment loss was probable and could be reasonably estimated. Consequently, we recorded an estimated non-cash goodwill impairment charge of $6,953 related to the FASI segment during the three months ended March 31, 2009. We are still in the process of finalizing certain valuations related to the goodwill impairment analysis. Adjustments, if any, to our estimates as a result of completing our valuation analysis will be recorded during the three months ended June 30, 2009.

Segments

Our operations can be broadly classified into two principal segments: Forward Air and FASI.

Our Forward Air segment includes our airport-to-airport, Forward Air Complete, and TLX services as well as our other accessorial related services such as warehousing; customs brokerage; and value-added handling services.

Our FASI segment includes our pool distribution business.

Results of Operations

The following table sets forth our consolidated historical financial data for the three months ended March 31, 2009 and 2008 (in millions):

                                                    Three months ended
                                  March 31,       March 31,                    Percent
                                    2009            2008          Change       Change
    Operating revenue            $      96.6     $     107.9     $   (11.3 )     (10.5 ) %
    Operating expenses:
      Purchased transportation          40.1            43.5          (3.4 )      (7.8 )
      Salaries, wages, and
    employee benefits                   29.1            26.4           2.7        10.2
      Operating leases                   7.0             4.8           2.2        45.8
      Depreciation and
    amortization                         4.8             3.7           1.1        29.7
      Insurance and claims               2.7             2.3           0.4        17.4
      Fuel expense                       1.7             2.1          (0.4 )     (19.0 )
      Other operating expenses           9.0             8.4           0.6         7.1
      Impairment of goodwill and
    other intangible assets              7.2              --           7.2       100.0
    Total operating expenses           101.6            91.2          10.4        11.4
    (Loss) income from
    operations                          (5.0 )          16.7         (21.7 )    (129.9 )
    Other income (expense):
      Interest expense                  (0.2 )          (0.3 )        (0.1 )     (33.3 )
      Other, net                          --             0.1          (0.1 )    (100.0 )
       Total other expense              (0.2 )          (0.2 )          --          --
    (Loss) income before income
    taxes                               (5.2 )          16.5         (21.7 )    (131.5 )
    Income tax (benefit) expense        (2.1 )           6.5          (8.6 )    (132.3 )
    Net (loss) income            $      (3.1 )   $      10.0     $   (13.1 )    (131.0 ) %

The following table sets forth our historical financial data by segment for the three months ended March 31, 2009 and 2008 (in millions):

                                                     Three months ended
                   March 31,      Percent of        March 31,      Percent of                  Percent
                     2009          Revenue            2008          Revenue        Change      Change
Operating revenue
   Forward Air    $      82.1           85.0   %   $     100.3           93.0 %   $  (18.2 )     (18.1 ) %
   FASI                  14.8           15.3               7.8            7.2          7.0        89.7
   Intercompany
Eliminations             (0.3 )         (0.3 )            (0.2 )         (0.2 )       (0.1 )      50.0
      Total              96.6          100.0             107.9          100.0        (11.3 )     (10.5 )

Purchased
transportation
   Forward Air           37.6           45.8              42.3           42.2         (4.7 )     (11.1 )
   FASI                   2.8           19.0               1.4           17.9          1.4       100.0
   Intercompany
Eliminations             (0.3 )        100.0              (0.2 )         (0.2 )       (0.1 )      50.0
      Total              40.1           41.5              43.5           40.3         (3.4 )      (7.8 )

Salaries, wages
and employee
benefits
   Forward Air           21.5           26.2              22.6           22.5         (1.1 )      (4.9 )
   FASI                   7.6           51.3               3.8           48.7          3.8       100.0
      Total              29.1           30.1              26.4           24.5          2.7        10.2

Operating leases
   Forward Air            4.8            5.8               4.3            4.3          0.5        11.6
   FASI                   2.2           14.8               0.5            6.4          1.7       340.0
      Total               7.0            7.2               4.8            4.5          2.2        45.8

Depreciation and
amortization
   Forward Air            3.9            4.8               3.4            3.4          0.5        14.7
   FASI                   0.9            6.1               0.3            3.8          0.6       200.0
      Total               4.8            5.0               3.7            3.4          1.1        29.7

Insurance and
claims
   Forward Air            2.2            2.7               1.8            1.8          0.4        22.2
   FASI                   0.5            3.4               0.5            6.4           --          --
      Total               2.7            2.8               2.3            2.1          0.4        17.4

Fuel expense
   Forward Air            0.7            0.9               1.3            1.3         (0.6 )     (46.2 )
   FASI                   1.0            6.8               0.8           10.3          0.2        25.0
      Total               1.7            1.8               2.1            1.9         (0.4 )     (19.0 )

Other operating
expenses
   Forward Air            7.4            9.0               7.4            7.4           --          --
   FASI                   1.6           10.8               1.0           12.8          0.6        60.0
      Total               9.0            9.3               8.4            7.8          0.6         7.1

Impairment of
goodwill and
other intangible
assets
   Forward Air            0.2            0.2                --             --          0.2       100.0
   FASI                   7.0           47.3                --             --          7.0       100.0
      Total               7.2            7.5                --             --          7.2       100.0

(Loss) income
from operations
   Forward Air            3.8            4.6              17.2           17.1        (13.4 )     (77.9 )
   FASI                  (8.8 )        (59.5 )            (0.5 )         (6.3 )       (8.3 )   1,660.0
      Total       $      (5.0 )         (5.2 ) %   $      16.7           15.5 %   $  (21.7 )    (129.9 ) %

The following table presents the components of the Forward Air segment's operating revenue and purchased transportation for the three months ended March 31, 2009 and 2008 (in millions):

                                                    For three months ended
                        March 31,    Percent of      March 31,    Percent of                    Percent
                          2009        Revenue          2008        Revenue         Change       Change
Forward Air revenue
   Airport-to-airport  $      63.2         77.0 %   $      82.0         81.7 %   $    (18.8 )     (22.9 ) %
   Logistics                  13.1         15.9            12.5         12.5            0.6         4.8
   Other                       5.8          7.1             5.8          5.8             --          --
      Total            $      82.1        100.0 %   $     100.3        100.0 %   $    (18.2 )     (18.1 ) %

Forward Air purchased
transportation
   Airport-to-airport  $      26.2         41.5 %   $      31.5         38.4 %   $     (5.3 )     (16.8 ) %
   Logistics                  10.3         78.6             9.2         73.6            1.1        12.0
   Other                       1.1         19.0             1.6         27.6           (0.5 )     (31.3 )
      Total            $      37.6         45.8 %   $      42.3         42.2 %   $     (4.7 )     (11.1 ) %

Three Months Ended March 31, 2009 compared to Three Months Ended March 31, 2008

Revenues

Operating revenue decreased by $11.3 million, or 10.5%, to $96.6 million for the three months ended March 31, 2009 from $107.9 million in the same period of 2008.

Forward Air

Forward Air operating revenue decreased $18.2 million, or 18.1%, to $82.1 million from $100.3 million, accounting for 85.0% of consolidated operating revenue for the three months ended March 31, 2009. Airport-to-airport revenue, which is the largest component of our consolidated operating revenue, decreased $18.8 million, or 22.9%, to $63.2 million from $82.0 million, accounting for 77.0% of the segment's operating revenue during the three months ended March 31, 2009 compared to 81.7% for the three months ended March 31, 2008. A significant decrease in tonnage and a decrease in our base revenue per pound, excluding net fuel surcharge revenue and Forward Air Complete revenue, accounted for $16.8 million of the decline in airport-to-airport revenue. Our airport-to-airport business is priced on a per pound basis and the average revenue per pound, excluding the impact of fuel surcharges and Forward Air Complete, decreased 0.8% for the three months ended March 31, 2009 versus the three months ended March 31, 2008. Tonnage that transited our network decreased by 22.2% in the three months ended March 31, 2009 compared with the three months ended March 31, 2008. The decrease in tonnage was primarily driven by the impact of the continuing economic recession and the resulting reduction in shipping activity. Average base revenue per pound decreased due to the continued shift in revenue mix to shorter distance lower price per pound routes as well as increased pricing competition brought on by the current economic environment. The remaining decrease in airport-to-airport revenue is the result of reduced net fuel charge revenue offset by increased revenue from our Forward Air Complete pick-up and delivery service. Net fuel surcharge revenue decreased $3.5 million during the three months ended March 31, 2009 as compared to three months ended March 31, 2008 as a result of decreasing fuel prices as well as decreased overall business volumes. Partially offsetting these decreases was a $1.4 million increase in Forward Air Complete ("Complete") revenue during the three months ended March 31, 2009 compared to the same period of 2008. The increase in Complete revenue is attributable to an increased attachment rate of the Complete service to our standard airport-to-airport service.

Logistics revenue, which is primarily truckload brokerage (TLX), increased $0.6 million, or 4.8%, to $13.1 million in the first quarter of 2009 from $12.5 million in the same period of 2008. The increase in logistics revenue was primarily driven by $0.6 million in new revenue from service lines obtained from Pinch as a result of our March 2008 acquisition. TLX revenue experienced a minor year over year decrease as the increase in the number of miles driven was offset by the decreased revenue per mile. Miles driven to support our TLX revenue increased by approximately 10.0% during the three months ended March 31, 2009 compared to the same period in 2008. However, average revenue per mile decreased approximately 9.0%. The decrease in average revenue per mile is mainly attributable to decreased fuel surcharges as a result of decreased fuel prices, reduced yields as a result of increased truckload price competition, and increased use of TLX truckloads to strategically place owner operators in our airport-to-airport network.

Other revenue, which includes warehousing services and terminal handling, accounts for the final component of Forward Air operating revenue. Other revenue remained consistent year over year at approximately $5.8 million during the three months ended March 31, 2009 and 2008.

FASI

FASI operating revenue increased $7.0 million and 89.7% to $14.8 million for the three months ended March 31, 2009 from $7.8 million for the same period in 2008. The increase in revenue is the result of additional activity from the Pinch acquisition on March 17, 2008 and the Service Express acquisition on September 8, 2008. These increases were slightly offset by reduced fuel surcharge revenues as a result of declining fuel prices and reduced shipping volumes resulting from the current economic recession.

Intercompany Eliminations

Intercompany eliminations increased $0.1 million, or 50.0% to $0.3 million in the first quarter of 2009 from $0.2 million in the same period of 2008. The intercompany eliminations are the result of truckload and airport-to-airport services Forward Air provided to FASI during the three months ended March 31, 2009. FASI also provided cartage services to Forward Air.

Purchased Transportation

Purchased transportation decreased by $3.4 million, or 7.8%, to $40.1 million in the first quarter of 2009 from $43.5 million in the same period of 2008. As a percentage of total operating revenue, purchased transportation was 41.5% during the three months ended March 31, 2009 compared to 40.3% for the same period in 2008.

Forward Air

Forward Air's purchased transportation decreased by $4.7 million, or 11.1%, to $37.6 million for the three months ended March 31, 2009 from $42.3 million for the three months ended March 31, 2008. The decrease in purchased transportation is primarily attributable to a 15.6% decrease in miles driven offset by a 5.1% increase in the total cost per mile for the first quarter of 2009 versus the same period in 2008. As a percentage of segment operating revenue, Forward Air purchased transportation was 45.8% during the three months ended March 31, 2009 compared to 42.2% for the same period in 2008.

Purchased transportation costs for our airport-to-airport network decreased $5.3 million, or 16.8%, to $26.2 million for the three months ended March 31, 2009 from $31.5 million for the three months ended March 31, 2008. For the three months ended March 31, 2009, purchased transportation for our airport-to-airport network increased to 41.5% of airport-to-airport revenue from 38.4% for the same period in 2008. The $5.3 million decrease is attributable to a 22.5% decrease in miles driven by our network of owner-operators or third party transportation providers and a 0.2% decrease in the cost per mile paid to our network of owner-operators or third party transportation providers. The reduction in miles decreased purchased transportation by $6.6 million while the change in cost per mile decreased purchased transportation by less than $0.1 million. Miles driven by our network of owner-operators or third party transportation providers decreased in conjunction with the tonnage decline discussed above. Offsetting these decreases in airport-to-airport purchased transportation was a $1.3 million increase in expenses for third party transportation costs associated with the increased customer utilization of Complete.

Purchased transportation costs for our logistics revenue increased $1.1 million, or 12.0%, to $10.3 million for the three months ended March 31, 2009 from $9.2 million for the three months ended March 31, 2008. For the three months ended March 31, 2009, logistics' purchased transportation costs represented 78.6% of logistics revenue versus 73.6% for the three months ended March 31, 2008. The increase in logistics purchased transportation is partially attributable to $0.5 million of new purchased transportation costs related to the new revenue streams obtained with the Pinch acquisition in March 2008. The remaining $0.6 million increase was attributable to increased TLX purchased transportation. We increased the number of miles driven to support our TLX revenue by approximately 10.0% during the three months ended March 31, 2009 compared to the same period in 2008, but were able to reduce the cost per mile by approximately 3.7%. The reduction in cost per mile was mostly the result of decreasing fuel prices, increased utilization of our less costly network of owner operators and improved purchasing power with third party transportation providers as the result of the excess truckload capacity in the market attributable to the current economic conditions.

Purchased transportation costs related to our other revenue decreased $0.5 million, or 31.3%, to $1.1 million for the three months ended March 31, 2009 from $1.6 million for the three months ended March 31, 2008. Other purchased transportation costs as a percentage of other revenue decreased to 19.0% of other revenue for the three months ended March 31, 2009 from 27.6% for the same period in 2008. The improvement in other purchased transportation costs as a percentage of other revenue is attributable to the use of Company-employed drivers to provide the transportation services associated with new business obtained from the Pinch acquisition. Further, due to the economic recession we have ceased providing other ancillary services in circumstances in which the overall yield was insufficient.

FASI

FASI purchased transportation increased to $2.8 million for the three months ended March 31, 2009 from $1.4 million for the same period in 2008. FASI purchased transportation as a percentage of revenue was 19.0% for the three months ended March 31, 2009 compared to 17.9% for the three months ended March 31, 2008. The increase in purchased transportation is mainly due to our continued expansion of the FASI business through the acquisitions of Pinch and Service Express in March 2008 and September 2008, respectively. Purchased transportation has increased as a percentage of FASI revenue due to efforts to increase the use of owner operators as opposed to company-employed drivers.

Intercompany Eliminations

Intercompany eliminations increased $0.1 million, or 50.0% to $0.3 million in the first quarter of 2009 from $0.2 million in the same period of 2008. The intercompany eliminations are the result of truckload and airport-to-airport services Forward Air provided to FASI during the three months ended March 31, 2009. FASI also provided cartage services to Forward Air.

Salaries, Wages, and Benefits

Salaries, wages and employee benefits increased by $2.7 million, or 10.2%, to $29.1 million in the first quarter of 2009 from $26.4 million in the same period of 2008. As a percentage of total operating revenue, salaries, wages and employee benefits was 30.1% during the three months ended March 31, 2009 compared to 24.5% for the same period in 2008.

Forward Air

Salaries, wages and employee benefits of Forward Air decreased by $1.1 million, or 4.9%, to $21.5 million in the first quarter of 2009 from $22.6 million in the same period of 2008. Salaries, wages and employee benefits were 26.2% of Forward Air's operating revenue in the first quarter of 2009 compared to 22.5% for the same period of 2008. The $1.1 million decrease in salaries, wages, and benefits is driven by our efforts to reduce personnel costs in conjunction with the overall decline in Forward Air revenue. Our efforts to date have primarily focused on controlling airport-to-airport variables wages, such as dock personnel. However, we have not been able to reduce the fixed components of our salaries and benefits, such as management pay, share based compensation, and health insurance costs at the same rate at which our revenue tonnage has declined, and as a result salaries, wages, and benefits increased as a percentage of revenue. Management and administrative salaries increased $0.2 million, or 1.5% as a percentage of revenue, as administrative and management personnel were added as a result of our 2008 acquisitions and reductions in these categories of pay have not kept pace with the decline in our revenue. Our health care costs and share based compensation increased $0.3 million, or 0.7% as a percentage of revenue, and $0.2 million, or 0.6% as a percentage of revenue, respectively, for the three months ended March 31, 2009 compared to the same period in 2008. Increases in health care costs and share based compensation are largely attributable to increased headcount associated with our recent acquisitions.

FASI

FASI salaries, wages and employee benefits increased to $7.6 million for the three months ended March 31, 2009 compared to $3.8 million for the three months ended March 31, 2008. As a percentage of FASI operating revenue, salaries, wages and benefits increased to 51.3% for the three months ended March 31, 2009 compared to 48.7% for the same period in 2008. FASI salary, wages and employee benefits are higher as a percentage of operating revenue than our Forward Air segment, as a larger percentage of the transportation services are performed by Company-employed drivers. The increase in salaries, wages and employee benefits as a percentage of revenue is attributable to the acquisition of Service Express in September 2008. The terminals we acquired with the Service Express . . .