Quarterly report pursuant to Section 13 or 15(d)

Acquisitions and Long-Lived Assets

v3.20.2
Acquisitions and Long-Lived Assets
 9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Acquisitions and Long-Lived Assets Acquisitions and Long-Lived Assets
Expedited Freight Acquisitions

As part of the Company's strategy to expand final mile pickup and delivery operations, in January 2020, the Company acquired certain assets and liabilities of Linn Star Holdings, Inc., Linn Star Transfer, Inc. and Linn Star Logistics, LLC (collectively, “Linn Star”) for $57,239. This acquisition increased the Company's Final Mile capabilities with an additional 20 locations. In addition, in April 2019, the Company acquired certain assets and liabilities of FSA Network, Inc., doing business as FSA Logistix (“FSA”), for $27,000 and a potential earnout of up to $15,000. Both transactions were funded using cash flows from operations. The assets, liabilities, and operating results of these acquisitions have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Expedited Freight reportable segment.

The FSA acquisition agreement provides the sellers an earnout opportunity of up to $15,000 based on the achievement of certain revenue milestones over two one-year periods, beginning May 1, 2019. Upon acquisition, the fair value of the earn-out liability was $11,803 and was included in other current and long-term liabilities in the opening consolidated balance sheet. The earn-out liability was classified as level 3 of the fair value hierarchy as defined in the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“the FASB Codification”) and the value was determined based on estimated revenues and the probability of achieving them. The fair value was based on the two-year performance of FSA's acquired customer revenue and was estimated using a Monte Carlo simulation.
The initial weighted average assumptions used in the Monte Carlo simulation are summarized in the following table:
FSA Earn-out
April 21, 2019 December 31, 2019 September 30, 2020
Risk-free rate 2.9% 2.2% 2.0%
Revenue discount rate 4.4% 4.4% 3.2%
Revenue volatility 3.0% 5.0% 7.0%

In June 2020, the Company paid the first period earn-out payment of $5,284; the second and final payment is expected to be paid in the second quarter of 2021. During the three months ended September 30, 2020, the earn-out fair value increased $493 to $4,277, which is classified as a current liability. The change in fair value is included in other operating expenses and is based on changes in expected cash flows and expected new business wins.

Intermodal Acquisitions

As part of the Company's strategy to expand its Intermodal operations, in July 2019, the Company acquired certain assets and liabilities of O.S.T. Logistics, Inc. and O.S.T. Trucking Co., Inc. (together referred to as “OST”) for $12,000. OST is a drayage company and expanded the Company's intermodal footprint on the East Coast, primarily in Baltimore, Maryland, with additional locations in Pennsylvania, Virginia, South Carolina and Georgia. This transaction was funded using cash flows from operations. The assets, liabilities, and operating results of the acquisition have been included in the Company's consolidated financial statements from the date of acquisition and have been included in the Intermodal reportable segment.
Allocations of Purchase Price

The following table presents the allocations of the previously discussed acquisition purchase prices to the assets acquired and liabilities assumed based on their estimated fair values and resulting residual goodwill (in thousands):
FSA OST Linn Star
April 21, 2019 July 14, 2019 January 12, 2020
Tangible assets:
Cash $ 202  $ —  $ 1,308 
Other receivables 1,491  —  — 
Prepaid expenses and other current assets —  —  1,182 
Property and equipment 40  10,371  605 
Operating lease right-of-use assets 3,209  1,672  10,011 
Total tangible assets 4,942  12,043  13,106 
Intangible assets:
Non-compete agreements 900  850  450 
Customer relationships 17,900  5,700  29,800 
Goodwill 19,963  2,050  25,234 
Total intangible assets 38,763  8,600  55,484 
Total assets acquired 43,705  20,643  68,590 
Liabilities assumed:
Current liabilities 8,466  —  1,340 
Other liabilities 5,030  —  — 
Debt and finance lease obligations —  6,971  — 
Operating lease obligations 3,209  1,672  10,011 
Total liabilities assumed 16,705  8,643  11,351 
Net assets acquired $ 27,000  $ 12,000  $ 57,239 

The above purchase price allocation for Linn Star is preliminary as the Company is still in the process of finalizing the valuation of the acquired assets and liabilities assumed. The above estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition date through the date of this filing. The acquired definite-lived intangible assets have the following useful lives:
Useful Lives
FSA OST Linn Star
Non-compete agreements 5 years 3 years 1 year
Customer relationships 15 years 10 years 15 years

The fair value of the non-compete agreements and customer relationships were estimated using an income approach (level 3). Under this method, an intangible asset's fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To estimate fair value, the Company used cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believed the level and timing of cash flows appropriately reflected market participant assumptions. Cash flows were assumed to extend through the remaining economic useful life of each class of intangible asset.
Goodwill

Goodwill is allocated to reporting units that are expected to benefit from the business combinations generating the goodwill. Excluding Pool, the Company has four reporting units - Expedited LTL, Truckload, Final Mile and Intermodal. As discussed in Note 4, Discontinued Operations and Held for Sale, the carrying amounts of Pool's assets and liabilities, including goodwill, are classified as held for sale in the accompanying Consolidated Balance Sheets and its operating results are not part of the continuing operations of the Company.

In evaluating whether events or changes in circumstances indicate that an interim impairment assessment is required, management considers if there were any indicators that exist that may impair the carrying value of the Company’s goodwill. During the three months ended September 30, 2020, no indicators of goodwill impairment were identified and an interim impairment test was not required as the Company does not believe it is more likely than not that the carrying value of any of its reporting units exceeds its fair value.

The following is a summary of the Company's goodwill as of September 30, 2020. Approximately $161,789 of goodwill is deductible for tax purposes.
Beginning balance, December 31, 2019 Linn Star Acquisition Ending balance, September 30, 2020
Expedited LTL
Goodwill $ 97,593  $ —  $ 97,593 
Accumulated Impairment —  —  — 
Truckload
Goodwill 45,164  —  45,164 
Accumulated Impairment (25,686) —  (25,686)
Final Mile
Goodwill 19,963  25,234  45,197 
Accumulated Impairment —  —  — 
Intermodal
Goodwill 78,665  —  78,665 
Accumulated Impairment —  —  — 
Total
Goodwill 241,385  25,234  266,619 
Accumulated Impairment (25,686) —  (25,686)
$ 215,699  $ 25,234  $ 240,933 
Other Long-Lived Assets
The Company tests its long-lived assets (asset groups) for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Management evaluates long-lived assets for impairment at the lowest level for which cashflows are identifiable. In general, these assets are reviewed at the reporting unit level, discussed above, by significant asset category. Examples of significant asset categories include land, buildings, tractors, trailers, other equipment, leasehold improvements, right-of-use lease assets, customer relationships, non-compete agreements, software and inventory.
During the three months ended September 30, 2020, the Company determined no indicators of an impairment existed and all of its assets were recoverable. As such, no impairments to the Company's long-lived assets were identified.