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, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company’s general practice has been to make a single annual grant of share-based compensation 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, net of estimated forfeitures, ratably over the requisite service period, or vesting period. The Company estimates forfeitures based upon historical experience. 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 calculate their fair value during the three months ended March 31, 2014 and 2013 were as follows:



	Three months ended
	March 31, 2014			March 31, 2013
Expected dividend yield	1.2		%	1.2		%
Expected stock price volatility	40.6		%	43.7		%
Weighted average risk-free interest rate	1.6		%	0.9		%
Expected life of options (years)	5.4			5.3
Weighted average grant date fair value	$	15		$	13

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



	Three months ended March 31, 2014
							Weighted-
			Weighted-		Aggregate		Average
			Average		Intrinsic		Remaining
	Options		Exercise		Value		Contractual
	(000)		Price		(000)		Term
Outstanding at December 31, 2013	1,732		$	27
Granted	91		43
Exercised	(341	)	28
Forfeited	(8	)	38
Outstanding at March 31, 2014	1,474		$	28	$	23,812	2.8
Exercisable at March 31, 2014	1,277		$	26	$	22,948	2.2



	Three months ended
	March 31, 2014		March 31, 2013
Shared-based compensation for options	$	314	$	424
Tax benefit for option compensation	120		136
Unrecognized compensation cost for options, net of estimated forfeitures	2,561		2,488

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:



	Three months ended March 31, 2014
			Weighted-		Aggregate
	Non-vested		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2013	186		$	35
Granted	97		42
Vested	(93	)	43
Forfeited	—		—
Outstanding and non-vested at March 31, 2014	190		$	40	$	7,559



	Three months ended
	March 31, 2014		March 31, 2013
Shared-based compensation for non-vested shares	$	925	$	743
Tax benefit for non-vested share compensation	352		284
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	6,982		6,398

Employee Activity - Performance Shares

The Company annually grants performance shares to key employees. Under the terms of the performance share agreements, on the third anniversary of the grant date, the Company will issue to the employees a calculated number of common stock shares based on the three year performance of the Company’s common stock share price as compared to the share price performance of a selected peer group. No shares may be issued if the Company share price performance outperforms 30% or less of the peer group, but the number of shares issued may be doubled if the Company share price 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 calculation were as follows:



	Three months ended
	March 31, 2014		March 31, 2013
Expected stock price volatility	32.5	%	34.5	%
Weighted average risk-free interest rate	0.7	%	0.4	%

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



	Three months ended March 31, 2014
			Weighted-		Aggregate
	Performance		Average		Grant Date
	Shares		Grant Date		Fair Value
	(000)		Fair Value		(000)
Outstanding and non-vested at December 31, 2013	88		$	37
Granted	23		48
Additional shares awarded based on performance	19		30
Vested	(56	)	30
Outstanding and non-vested at March 31, 2014	74		$	44	$	3,279



	Three months ended
	March 31, 2014		March 31, 2013
Shared-based compensation for performance shares	$	275	$	233
Tax benefit for performance share compensation	105		89
Unrecognized compensation cost for performance shares, net of estimated forfeitures	2,048		2,012

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



	Three months ended March 31, 2014
		Weighted-		Aggregate
	Non-vested	Average		Grant Date
	Shares	Grant Date		Fair Value
	(000)	Fair Value		(000)
Outstanding and non-vested at December 31, 2013	15	$	38
Granted	—	—
Vested	—	—
Outstanding and non-vested at March 31, 2014	15	$	38	$	560



	Three months ended
	March 31, 2014		March 31, 2013
Shared-based compensation for non-vested shares	$	138	$	157
Tax benefit for non-vested share compensation	53		60
Unrecognized compensation cost for non-vested shares, net of estimated forfeitures	57		67

Non-employee Director Activity - Stock Options

In addition to the above activity, each May from 1995 to 2005 options were granted to the non-employee directors of the Company. The options have terms of ten years and are fully exercisable. At March 31, 2014, 15,000 options were outstanding and will expire May 2015. At March 31, 2014, the weighted average exercise price per share and remaining contractual term for the outstanding options of non-employee directors were $26 and 1.2 years, respectively.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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