Forward Air Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Share-Based Payments

Share-Based Payments

9 Months Ended

Sep. 30, 2018

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

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

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 estimate their fair value during the nine months ended September 30, 2018 and 2017 were as follows:




	Nine months ended
	September 30, 2018			September 30, 2017
Expected dividend yield	1.1		%	1.3		%
Expected stock price volatility	24.4		%	28.7		%
Weighted average risk-free interest rate	2.7		%	2.0		%
Expected life of options (years)	6.1			6.0
Weighted average grant date fair value	$	16		$	13

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




	Nine months ended September 30, 2018
							Weighted-
			Weighted-		Aggregate		Average
			Average		Intrinsic		Remaining
	Options		Exercise		Value		Contractual
	(000)		Price		(000)		Term
Outstanding at December 31, 2017	440		$	45
Granted	193		62
Exercised	(89	)	41
Forfeited	—		—
Outstanding at September 30, 2018	544		$	51	$	6,689	4.9
Exercisable at September 30, 2018	228		$	45	$	4,294	3.4




	Nine months ended
	September 30, 2018		September 30, 2017
Share-based compensation for options	$	1,085	$	993
Tax benefit for option compensation	$	271	$	354
Unrecognized compensation cost for options, net of estimated forfeitures	$	3,621	$	1,909
Weighted average period over which unrecognized compensation will be recognized (years)	2.3

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:




	Nine months ended September 30, 2018
			Weighted-		Aggregate
	Non-vested		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2017	227		$	47
Granted	202		60
Vested	(108	)	56
Forfeited	(3	)	52
Outstanding and non-vested at September 30, 2018	318		$	55	$	17,467




	Nine months ended
	September 30, 2018		September 30, 2017
Share-based compensation for non-vested shares	$	4,902	$	3,762
Tax benefit for non-vested share compensation	$	1,225	$	1,343
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	13,146	$	7,410
Weighted average period over which unrecognized compensation will be recognized (years)	2.0

Employee Activity - Performance Shares

The Company annually grants performance shares to key employees. Under the terms of the performance share agreements, following the end of a three-year performance period, the Company will issue to the employees a calculated number of common stock shares based on the three year performance of the Company’s total shareholder return as compared to the total shareholder return of a selected peer group. No shares may be issued if the Company's total shareholder return outperforms 25% or less of the peer group, but the number of shares issued may be doubled if the Company's total shareholder return 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 estimate were as follows:



	Nine months ended
	September 30, 2018		September 30, 2017
Expected stock price volatility	24.3	%	24.7	%
Weighted average risk-free interest rate	2.2	%	1.4	%

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




	Nine months ended September 30, 2018
			Weighted-		Aggregate
	Performance		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2017	69		$	58
Granted	18		72
Additional shares awarded based on performance	—		—
Vested	—		—
Forfeited	(22	)	67
Outstanding and non-vested at September 30, 2018	65		$	58	$	3,795




	Nine months ended
	September 30, 2018		September 30, 2017
Share-based compensation for performance shares	$	953	$	689
Tax benefit for performance share compensation	$	238	$	246
Unrecognized compensation cost for performance shares, net of estimated forfeitures	$	1,725	$	1,740
Weighted average period over which unrecognized compensation will be recognized (years)	1.9

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 367,309 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 ended September 30, 2018, participants under the plan purchased 4,550 shares at an average price of $51.98 per share. For the nine months ended September 30, 2017, participants under the plan purchased 5,188 shares at an average price of $43.59 per share. The weighted-average fair value of each purchase right under the ESPP granted for the nine months ended September 30, 2018, which is equal to the discount from the market value of the common stock at the end of each six month purchase period, was $7.10 per share. The weighted-average fair value of each purchase right under the ESPP granted for the nine months ended September 30, 2017, which is equal to the discount from the market value of the common stock at the end of each six month purchase period, was $9.69 per share. Share-based compensation expense of $32 and $51 was recognized during the nine months ended September 30, 2018 and 2017, 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:




	Nine months ended September 30, 2018
			Weighted-		Aggregate
	Non-vested		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2017	11		$	52
Granted	15		58
Vested	(12	)	52
Forfeited	—		—
Outstanding and non-vested at September 30, 2018	14		$	58	$	805




	Nine months ended
	September 30, 2018		September 30, 2017
Share-based compensation for non-vested shares	$	553	$	470
Tax benefit for non-vested share compensation	$	138	$	167
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	501	$	430
Weighted average period over which unrecognized compensation will be recognized (years)	0.6