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

3 Months Ended

Mar. 31, 2020

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. All forfeitures were recognized as they occurred. The Company used the Black-Scholes option-pricing model to estimate the grant-date fair value of options granted. There were no options granted during the three months ended March 31, 2019. The weighted-average fair value of options granted and assumptions used to estimate their fair value during the three months ended March 31, 2020 were as follows:



	Three months ended
	March 31, 2020
Expected dividend yield	1.1		%
Expected stock price volatility	24.1		%
Weighted average risk-free interest rate	1.5		%
Expected life of options (years)	5.9
Weighted average grant date fair value	$	14.79

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



	Three months ended March 31, 2020
							Weighted-
			Weighted-				Average
			Average		Aggregate		Remaining
			Exercise		Intrinsic		Contractual
	Options		Price		Value		Term
Outstanding at December 31, 2019	431		$	53
Granted	36		66
Exercised	—		—
Forfeited	(2	)	60
Outstanding at March 31, 2020	465		$	54	$	3,017	4.1
Exercisable at March 31, 2020	330		$	51	$	3,364	3.5



	Three months ended
	March 31, 2020		March 31, 2019
Share-based compensation for options	$	327	$	439
Tax benefit for option compensation	$	75	$	105
Unrecognized compensation cost for options	$	1,671	$	2,768
Weighted average period over which unrecognized compensation will be recognized (years)	1.7

Employee Activity - Non-vested Shares

The fair value of non-vested shares issued was estimated using the closing market prices for the business day of the grant. The share-based compensation for the nonvested shares is recognized ratably over the requisite service period or vesting period, which is a three-year period. All forfeitures were recognized as they occurred.

The following tables summarize the Company’s employee non-vested share activity and related information:



	Three months ended March 31, 2020
			Weighted-
			Average		Aggregate
	Non-vested		Grant Date		Grant Date
	Shares		Fair Value		Fair Value
Outstanding and non-vested at December 31, 2019	277		$	58
Granted	117		66
Vested	(104	)	67
Forfeited	(6	)	62
Outstanding and non-vested at March 31, 2020	284		$	63	$	17,758



	Three months ended
	March 31, 2020		March 31, 2019
Share-based compensation for non-vested shares	$	1,938	$	2,042
Tax benefit for non-vested share compensation	$	442	$	486
Unrecognized compensation cost for non-vested shares	$	13,963	$	15,251
Weighted average period over which unrecognized compensation will be recognized (years)	2.2

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 may issue to these employees a calculated number of common stock shares if certain performance targets are met. For shares granted during the three months ended March 31, 2020 and 2019, 50% of the performance share issuances will be based on meeting three-year 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 forfeitures were recognized as they occurred.

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 following table contains the weighted-average assumptions used to estimate the fair value of performance shares granted using the Monte Carlo simulation. These assumptions are subjective and changes in these assumptions can materially affect the fair value estimate.



	Three months ended
	March 31, 2020		March 31, 2019
Expected stock price volatility	23.5	%	23.4	%
Weighted average risk-free interest rate	1.4	%	2.5	%

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



	Three months ended March 31, 2020
			Weighted-
			Average		Aggregate
	Performance		Grant Date		Grant Date
	Shares		Fair Value		Fair Value
Outstanding and non-vested at December 31, 2019	62		$	62
Granted	40		69
Additional shares awarded based on performance	13		51
Vested	(35	)	51
Forfeited	(4	)	66
Outstanding and non-vested at March 31, 2020	76		$	67	$	5,135



	Three months ended
	March 31, 2020		March 31, 2019
Share-based compensation for performance shares	$	740	$	348
Tax benefit for performance share compensation	$	169	$	83
Unrecognized compensation cost for performance shares	$	3,695	$	2,806
Weighted average period over which unrecognized compensation will be recognized (years)	2.5

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 350 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. There were no shares issued during the three months ended March 31, 2020.

Non-employee Director Activity - Non-vested Shares

In May 2006, the Company’s shareholders approved the Company’s 2006 Non-Employee Director Stock Plan (the “2006 Plan”). The Company’s shareholders then approved the Company’s Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”) on May 22, 2007. The Amended Plan was then further amended and restated on December 17, 2008. Under the Amended Plan, on the first business day after each Annual Meeting of Shareholders, each non-employee director will automatically be granted an award (the “Annual Grant”), in such form and size as the Board determines from year to year. Unless otherwise determined by the Board, Annual Grants will become vested and nonforfeitable on the earlier of (a) the day immediately prior to the first Annual Meeting that occurs after the Grant Date or (b) the first anniversary of the Grant Date so long as the non-employee director’s service with the Company does not earlier terminate. Each director may elect to defer receipt of the shares under a non-vested share award until the director terminates service on the Board of Directors. If a director elects to defer receipt, the Company will issue deferred stock units to the director, which do not represent actual ownership in shares and the director will not have voting rights or other incidents of ownership until the shares are issued. However, the Company will credit the director with dividend equivalent payments in the form of additional deferred stock units for each cash dividend payment made by the Company. All forfeitures were recognized as they occurred.

In May 2016, with the approval of shareholders, the Company further amended the Amended Plan to reserve for issuance an additional 160 common shares, increasing the total number of reserved common shares under the Amended Plan to 360. As of March 31, 2020, there were approximately 116 shares remaining available for grant.

The following tables summarize the Company’s non-employee non-vested share activity and related information:



	Three months ended March 31, 2020
		Weighted-
		Average		Aggregate
	Non-vested	Grant Date		Grant Date
	Shares	Fair Value		Fair Value
Outstanding and non-vested at December 31, 2019	16	$	62
Granted	—	—
Vested	—	—
Forfeited	—	—
Outstanding and non-vested at March 31, 2020	16	$	62	$	990



	Three months ended
	March 31, 2020		March 31, 2019
Share-based compensation for non-vested shares	$	261	$	218
Tax benefit for non-vested share compensation	$	60	$	52
Unrecognized compensation cost for non-vested shares	$	106	$	142
Weighted average period over which unrecognized compensation will be recognized (years)	0.1