Forward Air Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock Incentive Plan

Stock Incentive Plan

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

The Company recorded share-based compensation expense as follows for the years ended December 31, 2022, 2021 and 2020:


	Year Ended
	December 31, 2022		December 31, 2021		December 31, 2020
Salaries, wages and employee benefits - continuing operations	$	9,902	$	9,108	$	9,715
Salaries, wages and employee benefits - discontinued operation	—		16		85
Total share-based compensation expense	$	9,902	$	9,124	$	9,800

In May 2016, the Company adopted the 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) for the issuance of up to 2,000 common shares. As of December 31, 2022, approximately 696 shares remain available for grant under the Omnibus Plan.

Stock Options

Certain executives are eligible to receive grants of stock options. Employees may exercise the stock options at anytime after the grant is vested but no later than seven years after the date of grant. Stock options vest over a three-year period from the date of grant. For stock option awards, under the Plan, the exercise price is equal to the price of the Company’s common stock on the date of grant. Share-based compensation expense associated with these awards is amortized ratably over the vesting period. The Company estimated the fair value of the grants using the Black-Scholes option-pricing model.

The weighted average grant-date fair value of the stock option awards granted under the Plan and the weighted average assumptions under the Black-Scholes option-pricing model were as follows for the years ended December 31, 2022, 2021 and 2020.


	December 31, 2022			December 31, 2021			December 31, 2020
Weighted average grant-date fair value	$	28.91		$	18.36		$	14.79
Weighted average assumptions under Black-Scholes option model:
Expected dividend yield	0.9		%	1.1		%	1.1		%
Expected stock price volatility	28.7		%	28.9		%	24.1		%
Risk-free interest rate	1.9		%	0.6		%	1.5		%
Expected life of awards (years)	5.6			5.8			5.9

Stock option transactions during the year ended December 31, 2022 on a continuing operations basis were as follows:


	Number of Shares	Weighted Average Exercise Price
Outstanding as of January 1	342	$	58.44
Granted	64	106.13
Exercised	(3)	60.42
Forfeited or Canceled	(27)	63.46
Outstanding as of December 31	376	$	66.13

As of December 31, 2022, the weighted average remaining contractual life of stock options outstanding was approximately three years and exercisable was approximately two years. The total fair value of stock options vested during 2022, 2021, 2020 was $855, $922, and $1,377, respectively. As of December 31, 2022, the total share-based compensation expense related to unvested stock options not yet recognized was $1,444, and the weighted average period over which it is expected to be recognized is approximately two years.

The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives by groups of similar price on a continuing operations basis as of December 31, 2022:


					Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices					Number of Shares	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Exercisable as of December 31, 2022	Weighted Average Exercise Price
$	43.67	-	$	65.96	279	1.9	$	56.67	267	$	56.25
$	75.05	-	$	106.29	97	5.7	93.51		13	75.05


					376		$	66.13	280	$	57.13

As of December 31, 2022, the total intrinsic value of outstanding and exercisable stock options was $14,642 and $13,390, respectively. The total intrinsic value of stock options exercised during 2022, 2021 and 2020 was $142, $2,137 and $1,568, respectively.

Restricted Shares

The Company’s primary long-term incentive plan is a restricted share award plan that entitles employees to receive a share of the Company’s common stock subject to vesting requirements based on continued employment. Shares granted under the restricted share award plan are restricted from sale or transfer until vesting, and the restrictions lapse in three equal installments beginning one year after the date of grant. Dividends are paid in cash on a current basis throughout the vesting period. Share-based compensation expense associated with these awards is amortized ratably over the requisite service period. All forfeitures are recognized as incurred.

Restricted share transactions on a continuing operations basis for the year ended December 31, 2022 were as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of January 1	191	$	69.84
Granted	82	105.64
Vested	(92)	67.41
Forfeited	(30)	84.70
Outstanding as of December 31	151	$	87.82

The weighted average grant-date fair value of the restricted shares granted under the Plan during the years ended December 31, 2022, 2021 and 2020 were $105.64, $75.35 and $65.88, respectively. The total fair value of restricted shares that vested during 2022, 2021 and 2020 was $9,804, $8,487, and $9,180, respectively. As of December 31, 2022, the total share-based compensation expense related to restricted shares not yet recognized was $7,729, and the weighted average period over which it is expected to be recognized is approximately two years.

Performance Shares

Certain executives and key employees are eligible to receive grants of performance awards. The performance share agreement provides for awards based on achieving certain financial targets, such as targets for earnings before interest, taxes, depreciation and amortization, and the Company’s total shareholder return as compared to the total shareholder return of a selected peer group, as determined by the Company’s Board of Directors. Performance targets are set at the beginning of each three-year measurement period. The share awards are earned over the vesting period, and the number of shares earned is determined based on the cumulative results for the measurement period. The performance agreement provides for employees to earn —% to 200% of the target awards depending on the actual performance achieved, with no shares earned if performance is below the established minimum target. Performance shares do not receive dividends until the shares are vested. Awards earned are paid in shares of common stock of the Company at the end of the vesting period. Share-based compensation expense associated with these awards is amortized ratably over the vesting period. Depending on the financial target, share-based compensation expense is determined based on the projected assessment of the level of performance that will be achieved. All forfeitures are recognized as incurred.

The grant-date fair value of performance shares granted with a financial target based on the Company’s total shareholder return was estimated using a Monte Carlo simulation model. The weighted average grant-date fair value of performance awards granted under the Plan and the weighted average assumptions under the Monte Carlo simulation model were as follows for the years ended December 31, 2022, 2021 and 2020:


	Year Ended
	December 31, 2022			December 31, 2021			December 31, 2020
Weighted average grant-date fair value	$	127.29		$	87.33		$	69.15
Weighted average assumptions under the Monte Carlo simulation model:
Expected stock price volatility	35.5		%	34.5		%	23.5		%
Weighted average risk-free interest rate	1.6		%	0.2		%	1.4		%

Performance award transactions for the year ended December 31, 2022 on a continuing operations basis were as follows assuming target levels of performance:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of January 1	79	$	75.61
Granted	14	127.29
Earned	(7)	63.40
Forfeited or unearned	(16)	74.79
Outstanding as of December 31	70	$	87.74

As of December 31, 2022, the total share-based compensation expense related to unearned performance awards not yet recognized, assuming the Company’s current projected assessment of the level of performance will be achieved, was $2,826, and the weighted average period over which it is expected to be recognized is approximately two years.

The excess tax benefit realized for tax deductions in the United States related to the exercise of stock options, vesting of restricted stock and vesting of performance awards under the Plan was $1,012, $911, and $2,340 for the years ended December 31, 2022, 2021 and 2020, respectively, on a continuing operations basis.

Employee Stock Purchase Plan

Under the 2005 Employee Stock Purchase Plan (the “ESPP”), the Company is authorized to issue up to a remaining 314 shares of common stock to employees. 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 lump sum contributions.

Employee stock purchase plan activity and related information was as follows on a continuing operations basis:


	Year Ended
	December 31, 2022		December 31, 2021		December 31, 2020
Shares purchased by participants under the ESPP	9		12		14
Average purchase price	$	82.48	$	75.71	$	44.24
Weighted average fair value of each purchase under the ESPP granted1	$	9.17	$	30.68	$	20.99
Share-based compensation expense for ESPP	$	87	$	369	$	292

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

Employee stock purchase plan activity and related information was as follows on a discontinued operation basis:


	Year Ended
	December 31, 2022		December 31, 2021		December 31, 2020
Shares purchased by participants under the ESPP	—		—		1
Average purchase price	$	—	$	—	$	44.35
Weighted average fair value of each purchase under the ESPP granted1	$	—	$	—	$	18.11
Share-based compensation expense for ESPP	$	—	$	—	$	20

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

Director Restricted Shares

Under the Amended and Restated Non-Employee Director Stock Plan (the “Amended Plan”), approved in May 2007 and further amended in February 2013 and January 2016, up to 360 common shares may be issued. As of December 31, 2022, approximately 60 shares remain available for grant under the Amended Plan.

Under the Amended Plan, each non-employee director receives an annual grant of restricted shares of the Company’s common stock. The restricted shares vest on the earlier of (a) the day immediately prior to the first annual shareholder meeting that occurs after the grant date or (b) one year after the grant date. Each director may elect to defer receipt of the common shares until the director departs from the Company’s Board of Directors. If a director elects to defer receipt, the Company will issue deferred stock units in which the director does not have voting rights or other incidents of ownership until the shares are issued. Each deferred stock unit is eligible for a dividend equivalent in the form of additional restricted stock units for each cash dividend paid by the Company.

Director restricted share transactions for the year ended December 31, 2022 were as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of January 1	15	$	93.46
Granted	15	93.70
Vested	(15)	93.46
Forfeited	—	—
Outstanding as of December 31	15	$	93.70


	Year Ended
	December 31, 2022		December 31, 2021		December 31, 2020
Share-based compensation expense for restricted shares	$	1,387	$	1,436	$	1,026
Excess tax benefit for the vesting of restricted shares	$	12	$	342	$	253

The total fair value of restricted shares that vested during 2022, 2021 and 2020 was $1,436, $2,514, and $771, respectively. As of December 31, 2022, the total share-based compensation expense related to the restricted shares not yet recognized was $494, and the weighted average period over which it is expected to be recognized is less than one year.