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Executives

Bruce A. Campbell - President, Chief Executive Officer and Chairman of the Board

Rodney L. Bell - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Todd Fowler - KeyBanc Capital Markets

Timothy Denoyer - Wolfe Research

Ken Hoexter - Merrill Lynch

Arthur Hatfield - Morgan Keegan

David Ross - Stifel Nicolaus

David Campbell - Thompson Davis

Jon Langenfeld - Robert W. Baird & Co.

Forward Air Corporation (FWRD) Q4 2008 Earnings Call February 10, 2009 9:00 AM ET

Operator

Thank you for joining Forward Air Corporation's Fourth Quarter 2008 Earnings Release Conference Call. Before we begin, I'd like to point out that both the press release and this call are accessible on the Investor Relations section of Forward Air's website at www.forwardair.com.

With us this morning are Chairman, President and CEO, Bruce Campbell; and CFO and Senior Vice President Rodney Bell.

By now, you should have received the press release announcing fourth quarter 2008 results, which were furnished to the SEC on Form 8-K and on the Wire yesterday after market closed.

Please be aware this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding the company's expected future financial performance.

For this purpose, any statements made during this call are not the statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing words, such as believe, anticipate, plan, expect, and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors among others, set forth in our filings with the Securities and Exchange Commission, and in the press release issued yesterday. And consequently actual operations and results may differ materially from the results discussed in the forward-looking statements.

The company undertakes no obligation to update publicly any forward-looking statements whether as a new result... result of new information, future events or otherwise.

And now, I will turn the call over to, Bruce Campbell, Chairman, President and Chief Executive Officer.

Bruce A. Campbell

Good morning. Thank you operator and thanks to each of you for joining us this morning.

Stating the obvious, the fourth quarter was the toughest quarter in the history of the company marked by the largest and quickest decline in volume that I have ever witnessed in over 30 years of experience. To use the word we now hear often in this economic environment, it was unprecedented.

However, the environment is what it is, and with no likely near term improvements, our mission has been and will continue to be to adjust to it as quickly as possible without harming the long-term core stream of our company. To do just that, we have implemented back in December a three prong strategy, which consists of the following key initiatives.

First, and this obvious initiative was to pack costs even greater than before. We literally went line by line challenging either the need of the expense at all or how much could we reduce it. Secondly, we readdressed productivity again to make sure we are the most efficient company possible in all the key productivity areas. And finally, we're aggressively pursuing every revenue opportunity to make sure we are doing everything within our power to bring it on board.

While we have unfortunately had to make across the board personnel cuts, we have made few changes to our sales group to allow us the resources necessary to bring on new revenues. Even with the implementation of the key initiatives just listed, I'm not here to sugarcoat what's going to be a difficult period, not only in the history of Forward Air, but in the history of the industry in general.

While none of us like what we are facing, we do have three key positives factors that will help us get through this difficult period of time stronger than ever, and they are: a strong and experienced team of professionals that will see us through with skill and savvy. Secondly, led by these professionals, we continue to provide unprecedented levels of value to our customers achieving record levels of service and quality while providing our customers a wider array of product offerings.

And finally, we continue to generate cash, we will weather the storm finding ways to become better and more efficient everyday; and when the environment finally improves and it will, we will be stronger and more profitable company than ever before imagined.

And with that, Rodney Bell our CFO.

Rodney L. Bell

Thank you Bruce and thank you all for joining us this morning. After my comments, we will open up the line for your questions.

Revenue for the fourth quarter 2008 increased nearly 8% to $123.4 million from $114.5 million, in Q4 '07. That 8% increase breakdown is as follows. Pool distribution revenues from our Forward Air Solutions segment more than doubled to $22.5 million, driven by the late Q3 acquisition of Service Express and our March acquisition of Pinch Transportation.

Within or Forward Air, Inc. segment, our logistics group had another impressive quarter increasing revenue 38.6% or $4.6 million to $16.6 million, our other revenue grew 20.7% to $6.7 million.

Driven by the severe like-quarter drop off in the economy, our core airport-to-airport business declined $8.3 million or 9.7% to $77.7 million. Sequential volumes declined 6%, 4%, and 25% for October, November, and December respectively, ending the quarter down 11% in the aggregate. As mentioned in our earnings release, levels of tonnage decline experienced in the December have persisted into 2009.

Yield inclusive of the benefit of fuel surcharge was down 1.7% without the inclusion of net fuel revenues or the impact of Forward Air Complete, yield was down 3.5%. The decline in year-over-year pure yield is abating as we have begin to grandfather lower yielding short haul business that increased with our Black Hawk acquisition as well as additional lower yielding airline business.

Within the quarter, we began to realize the reduction in the year-over-year benefit and net fuel surcharge revenues as the price of diesel and our corresponding surcharge decreased dramatically. If fuel remains at its current levels, the unfavorable year-over-year comparable makes for substantial headwind going into 2009.

Next, I will comment on the expenses in the quarter as well as hopefully provide some visibility in the first quarter as it relates to those expenses. Purchased transportation decreased 50 basis points to 39.5% of revenue. We are very pleased with how we have been able to manage our network PT at our current business levels.

Our team remains focused on sustaining good load factors and we have been able to reduce more costly third party miles with our owner operator miles. There was some planned decline in gross margins and Logistics PT in order to provide a balance to the network. At current business levels, we feel confident that we can maintain purchased transportation as a percentage of revenue into Q1.

Salaries, wages, and benefits were up 180 basis points to 26% of revenue, driven primarily from not being able to right size our airport-to-airport labor pool as quickly as volumes decline. This was offset by $1.5 million benefit as a reversal of our accrued executive incentives in the fourth quarter.

To a lesser extent, we were negatively impacted by increased share-based compensation consistent with the last two quarters as well as higher healthcare costs. Share based comp will remain relatively consistent in dollars to 2008, and we have tweaked our health plan in order to hold expenses constant.

In the month of January, we were able to adjust our bearable wages to current business levels. Additionally within the month, we completed our second round of management cuts in our ongoing challenge to right size headcount.

Operating leases were up 200 basis points to 6.1% of revenue. Lease holds as well as leased equipments have increased as a result of our last three acquisitions. In response, we have been successful in turning in higher costs leased equipment, and in some instances been able to renegotiate facility leases. In both cases, this is an ongoing process, and we expect limited impact in the first quarter.

Depreciation and amortization was up 120 basis points to 3.8% of revenue resulting primarily from the D&A on equipment and intangibles that resulted from our last three acquisitions. With minimal CapEx for 2009, this expense should remain constant at Q4 levels throughout the year.

Insurance and claims were essentially flat for the quarter in whole dollars as well as a percentage of revenue. We anticipate no material change in our insurance expense for 2009.

Fuel was up 130 basis points to 2.4% due to additional owned and leased equipment revenue equipment resulting from our last three acquisitions, such the rise and fall of diesel prices, this expense should remain relatively constant for the year.

Other expenses were up 60 basis points to 8.8% of revenue resulting from higher maintenance costs on an acquisition related equipment and increased bad debt resulting primarily from the bankruptcy of one major customer.

Our operating ratio slipped 620 basis points to 88.7 from 82.5 in the fourth quarter last year. 200 basis points can be directly attributed to the disappointing performance of our Forward Air Solutions pool distribution segment. Majority of the remaining 420 basis points decline resulted from the severe economic downturn in the quarter, which added to the shift of revenue mix in our Forward Air, Inc. business segment.

Net income from diluted share for the fourth quarter was $0.29 per share, which was 14% decline from the $0.43 posted last year. EPS for the full quarter was down $0.03 to $1.47 from $1.50 a year ago.

Other key metrics and operating data are as follows. Total assets increased to $307.5 million from $241.9 million at the end of 2007.

Cash flow from operations was $21.1 million in the fourth quarter compared to $18.6 million in the fourth quarter of last year, and $59 million for 2008 versus $62.4 million in 2007. Our cash position for the year increased $17.2 million to $22.1 million. At year-end and currently we have $42 million available on our $100 million line of credit.

Our days sales outstanding was 43 days at year-end compared to 56 days at the end of the third quarter and 48 days at the end of 2007. As you will recall, we struggled in this area, mid year, which prompted us to bring in additional resources. So now in times when cash flow and management credit risk is so important, we are back in good shape.

Cash collections as well as cash flow remains strong thus far in 2009, a special thanks to Terry and Leslie, and the entire collections teams for their efforts there. CapEx for the quarter was $14 million, and $26.7 million for the year. CapEx for 2009 will be $19.6 million, which includes the remaining $14 million to complete our Dallas terminal with the balance of $5.6 million budgeted primarily for technology enhancements.

Average weekly [clients] was down 9.9% for the quarter, average shipment size was down 4.1% or £736. Shipment count for the quarter was down 7.5%.

Terminal count was 82 cities for Forward Air, Inc. and 19 cities for our Forward Air Solutions segment. Assuming the current economic conditions persist, we anticipate first quarter year-over-year revenue from Forward Air, Inc. to decline between 10% and 15% while Forward Air Solutions revenues should approximately double on the strength of the last two acquisitions. We expect earnings per share to be between $0.10 and $0.15 per share.

That concludes our comments. Now back to the operator for your questions.

Question-and-Answer Session

Operator: Thank you. (Operator Instructions). Thus your first question is from the line of Todd Fowler with KeyBanc Capital Markets. Please proceed.

Todd Fowler - KeyBanc Capital Markets

Hey, good morning Bruce. Good morning, Rodney.

Bruce Campbell

Good morning.

Rodney Bell

Hey, Todd.

Todd Fowler - KeyBanc Capital Markets

Bruce or Rodney, could you go back over on the yield trends during the quarter and just talk a little bit about where yield ended up at the end of the quarter and then the impact of the fuel comparisons going into the first quarter of this year?

Bruce Campbell

The yield basically was negative throughout the year, primarily driven by our entry into shorter haul business. And so it was anticipated from that standpoint. The quick and dirty of current yield is that we have seen it stabilize. We are happy to see it stabilized. Part of that was again driven by, we are now into a normal comp since we began the short haul operation a year ago. So to this point, our yield is holding, we are happy with that; and hopefully it will continue through the quarter.

And Rodney, you want to...

Rodney Bell

Yeah. Last week, for instance, Todd, the yield was down... peer yield was down 0.3%, so we think it's flattened out with the lapsing of that short haul business we talked about. Now the impact of fuel going into as you recall, we started fuel, the cost of diesel started ramping up in the first quarter last year. I am not sure exactly when it hit peak in Q2 or early Q3 and then started back down. So we'll have that headwind to negotiate. But really guessing what field is going to do is we don't know.

Todd Fowler - KeyBanc Capital Markets

Okay, no, that's very helpful, that's perfect. And then I guess, talking little bit about the logistics revenue here in the quarter, I guess, I was surprised to see it up nearly 40%. It sounds like during the prepared comments, there was some integral effort to do some network balancing.

Can you talk a little bit about specifically what you are doing there? And then also what's the driver for the net revenue margin for logistics segment, revenue was up by where they are. Net revenue margin was a little bit lower than what we would have expected. So maybe a little bit about the dynamics that are going on with that mix.

Bruce Campbell

Basically... let me start with this. That group continues to do an outstanding job of attracting more and more business, and particularly as you noted in helping us reduce empty lanes in the Forward Air airport-to-airport network. Now they really deal with two kinds of truckload business. The first is normal truckload business, where we give a price and then we haul it. We are able in those cases to protect that margin and have the margin exactly where we wanted to be.

However, when we look at balancing the big network, we will accept lower margins because of the additional benefits that are provided to us in the airport-to-airport portion of our business. The classic example is if we can get more and more power to the West Coast Forward Air Power with the lower rated truck loads, we're able to move back truckloads from the West Coast to the East Cost at a much cheaper price, and if we had to broker those loads. So you will see us give up margin if it benefits the Forward Air airport-to-airport, otherwise we don't give up margin.

So, not trying to make it sound confusing, but we were okay with their margin erosion. It wasn't that much, number one; and then number two with their growth, we are more than happy with what they have done with it.

Todd Fowler - KeyBanc Capital Markets

No, that makes sense, Bruce. And then just to be clear, so historically the main focus that business has been taking on more expedite or specialized type truckload shipments, but in a softer environment you're going to take on more planes on a lower margin shipment just to get the balance for the network.

Bruce Campbell

Maybe for the network, yes. So, again when we look at truckload at our TLX Group, remember we are really looking at two different business propositions. And we will take that vanilla traffic as you described it so, if it provides us benefits on the other side. Conversely we tend to shy away from that traffic if it does not provide us benefits on the other side of the business.

Todd Fowler - KeyBanc Capital Markets

Okay, got you. And then looking at Solutions, can you talk a little bit about expectations here during the quarter. It seems like, I mean this would have been really the second peak that you've had that business. And then probably the first peak you had that business more built out with two recent acquisitions this year. Can you talk about obviously how things went, and my guess is they were weaker than what you would have expected given the retail environments. But maybe some of the pluses or minus within that business and then what your expectations would be if the retail environment remains at these levels and this challenging... what you need to do to get Solutions to have either greater contribution or to grow that business?

Bruce Campbell

Let me start by saying, we probably could not have timed going into this business any worse. But having said that, we continue to believe it's the structure of the business that we like and that when times return to normal, we will be very, very happy we've made these investments. So there is a little bit of short-term pain here that we are going to feel for a little while, but it's going to work eventually.

We should have experienced our second peak as you noted, because we did have USA carriers a year ago in the '07 fourth quarter. But in the '08 fourth quarter, there was no peak; I mean, they ramped up a little bit, but it was nothing that was to get excited about. And as a result, they had a tougher quarter than we would have liked.

As we go forward, we are going to do our best to get this business position. They continue to have wins as we call it. They have a strong pipeline. They've already brought on three new customers in the one month that we've experienced in 2009. So from that standpoint, they are doing well.

But we have a lot of work to do; and in particular, we have a lot of work to do in certain geographic locations. If we get that turned, this is going to be a really nice contributor for us. But, that's still the word if, and all we can tell you today is that we're working very hard to make that happen.

Todd Fowler - KeyBanc Capital Markets

And with those geographic locations, are those acquisitions that you need to make, is that something you got internally or are those already year-end and you need to just fine tune and improve the operations?

Bruce Campbell

That's really... we have... unless there is just an unbelievable acquisition opportunity, we're not real keen on that now. We are into the right approach of this is what needs to be fixed, and that's where we're headed. Now interestingly enough, a number of these terminals are doing extremely well. So, as we get the bad ones behind us, and again we think we can do that with our own resources as opposed to borrowing, this is going to be a really nice business.

Todd Fowler - KeyBanc Capital Markets

Okay. Last one and then I'll let somebody else have it. On the expense side, it sounds like you guys in the first quarter have managed the variable cost aspect. Can you quantify a little bit on the management decisions, maybe quantify headcounts or impact of salary reductions that we can expect, either in the first quarter or throughout 2009?

Bruce Campbell

Yeah, being the Doubting Thomas' that we are, what we'd like, Todd is a few more weeks, where we can give validated numbers on the quantifications. We do go so far as to have our human resources group validate… the impact of cuts took place, as painful as they are, and as much as we don't like making them. So, I am not trying to avoid your question, I would like to have a little bit more quantifiable information before I tell you that. Now we can't tell you that on the personal side, the salary wages and benefits during January, we were okay with where it came in. So, we know it's working.

Todd Fowler - KeyBanc Capital Markets

Okay. And then we say okay, I mean just as a percent of revenue basically is...

Bruce Campbell

Yeah.

Todd Fowler - KeyBanc Capital Markets

...by the best benchmark, okay. All right guys, thanks a lot for the time.

Bruce Campbell

Thank you

Operator

Your next question is from the line of Timothy Denoyer with Wolfe Research. Please proceed.

Timothy Denoyer - Wolfe Research

Hi, Rodney, Bruce, how are you?

Bruce Campbell

Hi Tim.

Rodney Bell

Good morning, Tim.

Timothy Denoyer - Wolfe Research

Just a quick question on the pricing deal; more into that, with the pure yield as you said were only down 1.7%, and then down 3.5% ex-fuel. Does that imply that the fuel was still a bit of a benefit in the fourth quarter and if we look out in the first quarter and assume that that swings to a drag and the number of ex-fuels stabilizes around 3.5%, would that mean the overall revenue per pound would be down more like at mid single digits, like 5%?

Rodney Bell

Tim, it could be. The way the quarter transpired with fuel, if we were getting the benefit over in the quarter by these same rates, it came around to about a push. But in the meantime, our pure yield, because of the grandfathering that we mentioned came into line two. So you've got some offsetting factors there though. So, I am guessing, I would say the drag on fuel on yield could be somewhere 3% to 5%.

Timothy Denoyer - Wolfe Research

Okay. And what's the general, roughly on average, the lag of your fuel surcharge adjustments?

Bruce Campbell

It's weekly.

Timothy Denoyer - Wolfe Research

Weekly? Okay.

Bruce Campbell

We are one week behind all the time.

Timothy Denoyer - Wolfe Research

Got you. Thank you very much.

Bruce Campbell

Thank you.

Operator

Your next question is from the line of Ken Hoexter with Merrill Lynch. Please proceed.

Ken Hoexter - Merrill Lynch

Hi, good morning.

Bruce Campbell

Good morning, Ken.

Ken Hoexter - Merrill Lynch

Rodney, can you kind of delve into the Logistics PT really jumped up significantly, I know you said that you expect PT costs in the first quarter to kind of stay at these levels. But you didn't delve into why PT on the logistics side ran so high. Can you just kind of review that quickly?

Rodney Bell

Yeah, Ken, it was primarily just providing balance to the system as we try to hold the network cost down. And Bruce has mentioned earlier that essentially when we do have opportunity to provide balance to the network, we are willing to take a lower yielding load to do that.

Ken Hoexter - Merrill Lynch

Okay. So it's more about balancing the core airport-to-airport infrastructure?

Rodney Bell

That's correct.

Ken Hoexter - Merrill Lynch

And then on the Solutions side, I just want to delve into kind of what levels of demand fall off you've seen? I know, you were talking about down 20%. But that was for the core mine-haul operations that you were seeing run steady state in January, February. What about Solutions, what kind of demand levels are you seeing on the Solutions side?

Bruce Campbell

You have to remember, Ken that the acquisitions make this a bit cloudy. If you go back and look at when we made the acquisitions, it was August of '07, and then we added on pension March of '08, and then turned around and added service in September of '08. So for us to give you an absolute number, it's going to be difficult.

We obviously will be able to do that post-September of this year. But in general, what we saw in the standalone companies that we could impact better thing to say would be store-to-store, that we had in a year-over-year comp. Their businesses were down 10% to 15%. And we didn't go back and look at it in the quarter. What we looked at was in December over December, and that was the big change.

Ken Hoexter - Merrill Lynch

Okay, thanks Bruce. And then just to wrap up on the volume side, you talked about stabilized it down 20%, I just want to delve into that. Are you seeing consistent down 20% from December, January and into early February. Are you seeing any kind of sequential either deterioration, acceleration of things really just stalled at this down 20% level?

Bruce Campbell

I think that's where it's going to settle in. I used to think it was going to settle in at 5% too, so we're certainly not going to rest on that being the right conclusion as we continue to look at methods to make us more productive, but right now that's where it's at.

Ken Hoexter - Merrill Lynch

So Bruce, then how do you balance out looking at your owner operators giving them enough freight versus kind of not having them signed up and kind of releasing them from the system. How do you look at that for long-term? And do you balance out the business down to be down 20%?

Bruce Campbell

Yeah, if you recall, Ken, part of our miles that we would run in a normal environment are run by outside brokers. And they give us that cushion that we need to get through those busier times. And during these times, we eliminate those almost 100%, it's been amazing how much we've been able to lower that number.

So we go from a high of say, 10% or 11% using outside carriers to a low of 2% to 3%, meaning our owner operators are pulling more and more of our freight. And we watch the utilization of our owner operators very closely. So that we are making sure that they can make a living, and that we're using them as efficiently as possible. And then the other area that we stick them into is our TLX Group. So if we don't have an airport-to airport load for one of our owner operators, hopefully we will have a brokered load for them to haul. And the cost that they provide us that carriage is typically much cheaper than we can buy on the outside. So that part has been a benefit.

Ken Hoexter - Merrill Lynch

Great. Appreciate the time Bruce, Rodney. Thank you.

Bruce Campbell

Okay.

Operator

Your next question is from the line of Arthur Hatfield from Morgan Keegan. Please proceed.

Arthur Hatfield - Morgan Keegan

Hi, thank you. Good morning guys. Bruce, when you look at that down 20% in the line haul network, are you seeing that just your customers business falling off that much or are you having to deal with some incremental competition that you wouldn't be seeing if the economy was in a better situation.

Bruce Campbell

First, I have to clean up after puking, but then we poll our customers all the time, and obviously we are in front of our customers all the time. And we don't think we are losing market share. Actually we think we may be improving it. We think it's just a very, very difficult market. Now, could we be lied to? Yeah. But I don't think so. Again we have a core group of over 40 sales people in front of their customers.

And basically with the few exceptions, most of the ones that we talked to, their business levels are down. And I can give you an example without naming a name of a very large company, where their business on a year-over-year basis is down 39%, which is a staggering number. And again it's just a matter of the economy as opposed to are there any other influences in there.

Arthur Hatfield - Morgan Keegan

I want to kind of get your thought process on where you are at within the... where the world is today. Given what you are seeing right now, what do you think your best case and your worst case scenario as to when you can start to see growth and earnings again?

Bruce Campbell

I think that's going to depend initially, so let's go through a couple of phases on that. Initially it will depend on what happens within the sector. I'm not wishing anybody ill luck, but if it happens, so be it and that will change the environment not only for us, but for everybody.

And it doesn't necessarily have to be a huge carrier, it could be a number of smaller ones. And you just have to imagine that some of the smaller carriers and other carriers in this business, who do not have the financial resources that we and others have, you can imagine how they survive.

So, if we see a change in supply, and that's really what I am talking about, it could recover a little bit quicker than just waiting for the economy. If we don't see that and we have to tuck this out until the economy gets better, we certainly are not planning for anything to get better until perhaps, with an emphasis on the word perhaps, the fourth quarter and then we're are not jumping up and down saying, hey businesses is going to be great. So it's going to be a long tough road unless there are changes in the supply.

Arthur Hatfield - Morgan Keegan

Great. That's very helpful, Bruce. As always, thanks.

Bruce Campbell

Welcome.

Operator

Your next question is from the line of David Ross from Stifel Nicolaus. Please proceed.

David Ross - Stifel Nicolaus

Good morning gentlemen.

Bruce Campbell

Good morning.

Rodney Bell

Hi, David.

David Ross - Stifel Nicolaus

Can you talk a little bit, I guess about how this downturn is similar to the last downturn? I know it's certainly much worse on a tonnage loss perspective. But in terms of your cost initiatives, are there new opportunities now that you're looking at that you didn't back in '01, '02, are there fewer cost opportunities maybe now because you took a lot of costs out by back then and it might not have returned. Can you talk a little bit about, I guess the difference between the two times?

Bruce Campbell

When you ended the last, which I think you are referring to '01; is that correct, David?

David Ross - Stifel Nicolaus

Correct.

Bruce Campbell

We really didn't feel a very severe drop, I mean it was off without question, but it was nowhere close to this. This downturn at least for Forward Air was, as we said earlier, very quick and dramatically large; we were... I was shocked by it. You expect a 5%, maybe even a 10%, but not a 20%. So all that having been said, we were put in a position, where we immediately had to go after every cost within the company and really with no relevance to your point of going back to '01, it just didn't apply this time. I mean it's much more changing than it was in '01.

The star of our ability to adjust the network or adjust our cost structure was obviously our PT, our ability to ring that in. Our team did a really, really good job. The ability to ring in variable costs, primarily dock labors, the large variable costs, we did a pretty good job there on a year-over-year, monthly sequentially basis. Where we struggle in terms of getting costs out, where anything, which is longer-term, you hate to cut salaried heads, because you are thinking if it comes back in two months, I need these people. Maybe we can take a little bit of a hit and hang on to; when you hit that 20%, you can't do that anymore. And so we had to cut into the infrastructure of Forward Air, which none of us enjoy. We've never had to do that before.

So that's somewhat disheartening, but it's the reality of the world, and we move on. A lot of the other expense items, and believe me we looked at every single one. You're obligated in some cases, where you can't make improvements, you can't lower those costs. But so we move on, we don't waste time on it, and we go to those areas, where we can in fact have an impact.

And I think our people have done a really, really good job. And we will continue to do that. We also now benefit from the product line through product offerings of those complete in TLX, so we can look at all the negative sides. The positive sides are, we are growing those businesses, and thank God, we have them now; and thank God, we invested in them over the last year and a half.

David Ross - Stifel Nicolaus

Okay, that's helpful. And then also on the airport-to-airport side, can you talk a little bit about where the most loss volume is? Is it on domestic Forward Air business, international Forward Air business, any specific industry segments?

Bruce Campbell

David, it is absolutely across the board. It's not geographically favored, there is no business that haven't been hit that we can see.

David Ross - Stifel Nicolaus

Okay. And then, I take it on the Forward Air Solutions side as well, I mean back on your call in October, you said that the retailers anyway weren't seeing a slowdown yet; I assume this has changed, and...

Bruce Campbell

Yeah, that came to a screeching halt end of November basically.

David Ross - Stifel Nicolaus

Okay. And there are three months forecast you get from them now or basically giving you the sign as not improving anytime soon?

Bruce Campbell

Right.

David Ross - Stifel Nicolaus

Thank you very much.

Bruce Campbell

Thank you.

Operator

Your next question is from the line of David Campbell with Thompson Davis & Company. Please proceed.

David Campbell - Thompson Davis

Yeah. Hi Bruce, I appreciate your comments and questions. I just wanted to see on the logistics side of the business. You haven't said a whole lot, I think, about that for 2009. It seems to be a much larger opportunity in logistics for revenue growth, than there is in the core business given it's such a small percentage of the market that you are handling. So what is your outlook on logistics? Is it still too influenced by the economy to get any growth out of it in '09?

Bruce Campbell

I think your point is very well-made, David. It's a wonderful opportunity for us to grow revenue as we go into '09, and in fact they have and they continue to do a really good job. We have been forecasted to grow at 20%. We think they'll accomplish that regardless of the economy, that's a nice thing to say.

They just continue to do really a good job. What has really helped them has been the sales group that we talked about earlier, who are actively engaged in trying to solicit and bring more truckload opportunities to the table. They've really done a good job and our logistics group has really done a good job of handling it. So when you look at a lot of dim and gloom and every once while there is a nice little twinkling star there, certainly logistics is our twinkling star.

David Campbell - Thompson Davis

Right. You didn't see any negative trends there, monthly in the quarter.

Bruce Campbell

The only thing I would tell you that is negative there, is we are facing more and more bid activity, because obviously shippers realize they can beat the carrier down, I am sure the shippers are enjoying me saying that. And so they are taking advantage of the situation. So, there is a little bit of margin pressure, but not extraordinary. So that's the only negative we have in that group.

David Campbell - Thompson Davis

Yeah. Well, of course, they don't all do the same thing and do it as well as you do either, so...

Bruce Campbell

Thank you.

David Campbell - Thompson Davis

There is some help there. Thank you.

Bruce Campbell

Thanks.

Operator

Your next question is from the line of Jon Langenfeld with Robert W. Baird. Please proceed.

Jon Langenfeld - Robert W. Baird & Co.

Bruce, on a pricing basis, what do you think the airport-to-airport, like-for-like business? I mean what sort of pricing pressure you are seeing?

Bruce Campbell

We are focused on stabilizing yield, which I think we have done a good job of doing. We are price competitive. When the kids pick up the dirtballs and throw them up against the wall and say, stick, it's really nasty price out there, we have to respond to that, we do that via spot pricing as opposed to permanent pricing. And we make the decision and we have a very strong sales group, they make a decision as to if they are going to mach that right or not or they can get it perhaps for a little bit more.

So we try to keep that very separate, where we don't want to give a permanent rate on a dirt ball rate, we would rather just do it in the spot market. We have been successful in doing that. And I think that's evidenced by the fact that we have seen a stabilization of our yield. We will work very hard for the balance of the year to stabilize the yield. Now the other side of that is obviously we don't anticipate being able to increase our yield. If the market were to change, that would be a nice thing to have happened, but certainly no plans to do that.

Jon Langenfeld - Robert W. Baird & Co.

But unlike the rest of the trucking world, let's say, who have talked about increasing rate pressures, accelerated rate declines, it sounds like what you are saying is that look, we've taken some actions internally; and despite the competitive market, we feel like things are stabilizing out, which I'm assuming you'd attribute to your internal moves versus the external market.

Bruce Campbell

I think that's a very fair comment, Jon.

Jon Langenfeld - Robert W. Baird & Co.

Okay. Competitors... some of the direct competitors, you touched about them a little bit earlier, but any signs that there is increasing stress on the horizon given some of the pricing actions they have taken?

Bruce Campbell

When you start offering $0.12 from the East Coast to the West Coast, I would call that very stressful.

Jon Langenfeld - Robert W. Baird & Co.

Yeah, that's pretty dramatic. Is that something you're seeing from multiple players out there or just the couple of big ones that?

Bruce Campbell

We see it across the board. Again every time I comment on, I get in trouble. It just appears to [purity]. So, you either go broke... with no freighter, you go broke haul and freight; that makes a lot of sense to me, because the outcome is the same.

Jon Langenfeld - Robert W. Baird & Co.

Yeah.

Bruce Campbell

And perhaps it's too simple.

Jon Langenfeld - Robert W. Baird & Co.

Now the free cash flow side of your business, you kind of said look, acquisitions probably not in your top priority unless it's absolute fit. So do you let the cash build or do you pay down debt?

Bruce Campbell

Actually we are in the mode of building our cash we've had. Rodney touched on this in the opening statements. Our collections group have done a wonderful job, and then our group that controls spending, our terminal managers or our VP, they've done a really good job. And as a result of that, we've seen our cash position through the first part of the year build very quickly.

We're going to hold on to that cash, and make a decision later in the year. Hopefully we continue to build that cash position as to when and how much we want to pay down debt. But it's really out of all the negatives that we as a group have gone through the last three or four months, it's a wonderful thing to see cash continue to roll in.

Jon Langenfeld - Robert W. Baird & Co.

Yeah, it provides some comfort too. So I mean... I've got to ask you... I'm going to get a scenario here, things keep getting worse, looks like, let's say... it looks like we end up in a multiyear slowdown. Where do you start cutting in, what are some of the other things you can do versus just looking at line item by line item?

Bruce Campbell

We would go back and review our network structure, which would be the first thing we would do to see if we needed to maintain all the overhead structures that we have spread throughout the U.S. We have had success as you know in building these virtual stations. An example is Sacramento, which was led by [Carol Curtin] on the West Coast, where we have a service offering into Reno that we handle through Sacramento, but we have no facility in Reno. So you can make an argument that we could do that at a number of stations across the U.S., now that would be dire, because we don't like losing that personal touch in cities where there is opportunities and potential to continue to grow. But that's the step we would look at.

Jon Langenfeld - Robert W. Baird & Co.

And I know you own just a handful of your facilities and majority of the rest of them are leased. But what are the general terms on those operating leases? How long do they extend? And do they come up proportionally in terms of renewals?

Bruce Campbell

I think the average, you could say, of the lease is five years.

Jon Langenfeld - Robert W. Baird & Co.

Okay.

Bruce Campbell

There are some at three, we do have some that are month to month that's unusual. What we have charged our group with is that controlled us for us is to on any lease that either close to expiring or expiring is to negotiate very hard to get a better deal on it.

One of the beauties of Forward Air is four days before the end of the month, we send out rent checks and landlords tend to really like us. And during times like this, there is a price to pay for that.

Jon Langenfeld - Robert W. Baird & Co.

Okay. And then one last question just on those lines, if I remember there was consolidation opportunity in LA if I am not mistaken kind of predicated on the new facility. Where does that stand?

Bruce Campbell

Actually, consolidating in terms of Solutions and airport to airport.

Jon Langenfeld - Robert W. Baird & Co.

Yeah, refresh my memory, I thought it was within the... yeah, within the network.

Bruce Campbell

We have five of those online to occur this year. They will be Nashville; Denver is in process, Kansas City is done, just finished I think; Richmond, Virginia; and Jacksonville, Florida. And then on top of that, probably the bigger hit will be, assuming we finish our Dallas construction by June 1, today we currently have, this is unbelievable, but from the acquisitions, five leases in Dallas and when we are able to move into our new facility, you are going to see us lower that cost fairly dramatically.

Jon Langenfeld - Robert W. Baird & Co.

Right, yes, Dallas was what I was thinking about, okay. And that should occur hopefully here in 2009.

Bruce Campbell

They had better occurred in 2009.

Jon Langenfeld - Robert W. Baird & Co.

And then the other facilities you mentioned were essentially legacy Solutions facilities that you'll be rolling into either other Solutions facilities or the line home network facility.

Bruce Campbell

Actually it's where we put Forward Air and Solutions together.

Jon Langenfeld - Robert W. Baird & Co.

But are they, I mean, new facilities or is one moving into...

Bruce Campbell

I apologize, yeah, they are both existing.

Jon Langenfeld - Robert W. Baird & Co.

Yeah.

Bruce Campbell

And as one of their leases expires, we put them into the other assuming of course obviously, that the facility will work for both.

Jon Langenfeld - Robert W. Baird & Co.

So you essentially have five facilities there that you would be able to integrate over a period of time and then you have five facilities in Dallas, you'd be able to integrate to one.

Bruce Campbell

Correct.

Jon Langenfeld - Robert W. Baird & Co.

Okay. All right, very good. Thanks Bruce.

Bruce Campbell

Thank you.

Operator

There are no other questions in queue at this time. Thank you for joining us for today's Forward Air Corporation's fourth quarter 2008 earnings conference call. Please remember the webcast will be available shortly after this call on the IR section of Forward Air website at www.forwardair.com. Thank you and have a great day.

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