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, 2019

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 shares”), 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 historically used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted. The Company did not make any stock option grants in the nine months ended September 30, 2019.

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




	Nine months ended September 30, 2019
							Weighted-
			Weighted-				Average
			Average		Aggregate		Remaining
			Exercise		Intrinsic		Contractual
	Options		Price		Value		Term
Outstanding at December 31, 2018	538		$	51
Exercised	(45	)	47
Forfeited	(8	)	54
Outstanding at September 30, 2019	485		$	52	$	4,638	4.0
Exercisable at September 30, 2019	319		$	48	$	4,163	3.3




	Nine months ended
	September 30, 2019		September 30, 2018
Share-based compensation for options	$	1,209	$	1,085
Tax benefit for option compensation	$	312	$	271
Unrecognized compensation cost for options, net of estimated forfeitures	$	1,878	$	3,621
Weighted average period over which unrecognized compensation will be recognized (years)	1.6

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, 2019
			Weighted-
			Average		Aggregate
	Non-vested		Grant Date		Grant Date
	Shares		Fair Value		Fair Value
Outstanding and non-vested at December 31, 2018	315		$	55
Granted	114		59
Vested	(131	)	61
Forfeited	(15	)	56
Outstanding and non-vested at September 30, 2019	283		$	58	$	16,441



	Nine months ended
	September 30, 2019		September 30, 2018
Share-based compensation for non-vested shares	$	6,210	$	4,902
Tax benefit for non-vested share compensation	$	1,581	$	1,225
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	10,705	$	13,146
Weighted average period over which unrecognized compensation will be recognized (years)	1.8

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 these employees a calculated number of common stock shares based on meeting certain performance targets. For shares granted during the nine months ended September 30, 2019, 50% of the performance share issuances will be based on meeting earnings before interest, taxes, depreciation and amortization ("EBITDA") per share targets and the remaining 50% of the performance share issuances will be based on the three-year performance of the Company’s total shareholder return ("TSR") as compared to the TSR of a selected peer group. All performance shares granted during the nine months ended September 30, 2018 were based on achieving total shareholder return targets.

Depending upon the EBITDA per share targets met, 0% to 200% of the granted shares may ultimately be issued. For shares granted based on total shareholder return, 0% of the shares will be issued if the Company's total shareholder return outperforms 25% or less of the peer group, but 200% of the shares will be issued if the Company's total shareholder return performs better than 90% of the peer group.

The fair value of the performance shares granted based on meeting EBITDA per share targets were estimated using the closing market prices on the day of grant and the probability of meeting these targets as of the measurement date.

The fair value of the performance shares granted based on the three year performance of the Company’s total shareholder return 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, 2019		September 30, 2018
Expected stock price volatility	23.4	%	24.3	%
Weighted average risk-free interest rate	2.5	%	2.2	%

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



	Nine months ended September 30, 2019
			Weighted-
			Average		Aggregate
	Performance		Grant Date		Grant Date
	Shares		Fair Value		Fair Value
Outstanding and non-vested at December 31, 2018	65		$	58
Granted	30		61
Vested	(23	)	64
Forfeited	(10	)	63
Outstanding and non-vested at September 30, 2019	62		$	62	$	3,870



	Nine months ended
	September 30, 2019		September 30, 2018
Share-based compensation for performance shares	$	821	$	953
Tax benefit for performance share compensation	$	212	$	238
Unrecognized compensation cost for performance shares, net of estimated forfeitures	$	1,884	$	1,725
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 357 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. The following table summarizes the Company’s employee stock purchase activity and related information:



	Nine months ended
	September 30, 2019		September 30, 2018
Shares purchased by participants under plan	5		5
Average purchase price	$	49	$	52
Weighted-average fair value of each purchase right under the ESPP granted ¹	$	10	$	7
Share-based compensation for ESPP shares	$	52	$	32

¹ Equal to the discount from the market value of the common stock at the end of each six month purchase period

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, 2019
			Weighted-
			Average		Aggregate
	Non-vested		Grant Date		Grant Date
	Shares		Fair Value		Fair Value
Outstanding and non-vested at December 31, 2018	15		$	59
Granted	15		62
Vested	(15	)	59
Outstanding and non-vested at September 30, 2019	15		$	62	$	920



	Nine months ended
	September 30, 2019		September 30, 2018
Share-based compensation for non-vested shares	$	714	$	553
Tax benefit for non-vested share compensation	$	184	$	138
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	$	554	$	501
Weighted average period over which unrecognized compensation will be recognized (years)	0.6