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Acquisitions and Goodwill | 9 Months Ended
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Sep. 30, 2014
Goodwill and Intangible Assets Disclosure [Abstract] |
Acquisitions and Goodwill | Acquisitions and Goodwill Acquisition of CST On February 2, 2014, the Company acquired all of the outstanding capital stock of Central States Trucking Co. and Central States Logistics, Inc. (collectively referred to as “CST”). Pursuant to the terms of the Agreement and concurrently with the execution of the Agreement, the Company acquired all of the outstanding capital stock of CST in exchange for $82,998 in net cash and $11,215 in assumed debt. With the exception of capital leases, the assumed debt was immediately paid in full after funding of the acquisition. The acquisition and settlement of the assumed debt were funded using the Company's cash on hand. Under the purchase agreement, $10,000 of the purchase price was paid into an escrow account to protect the Company against potential unknown liabilities. The amount held in escrow will be remitted to the sellers on February 2, 2015. CST provides industry leading container and intermodal drayage services primarily within the Midwest region of the United States. CST also provides dedicated contract and Container Freight Station (“CFS”) warehouse and handling services. The acquisition of CST provides the Company with a scalable platform for which to enter the intermodal drayage space and thereby continuing to expand and diversify the Company's service offerings. As part of the Company's strategy to scale CST's operations, on September 5, 2014, CST acquired certain assets of Recob Great Lakes Express, Inc. ("RGL") for $1,350. The acquisition of RGL's assets provided an opportunity for CST to expand into an additional midwest market. The Company incurred total transaction costs related to the acquisitions of approximately $900, which were expensed during the nine months ended September 30, 2014, in accordance with U.S. GAAP. These transaction costs were primarily included in "Other operating expenses" in the consolidated statements of comprehensive income. The assets, liabilities, and operating results of CST and RGL have been included in the Company's consolidated financial statements from the dates of acquisition and have been assigned to the Forward Air reportable segment. The results of CST and RGL operations are reflected in the Company's consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 from the dates of acquisition are as follows (in thousands, except per share data):
| Three months ended September 30, 2014 |  | Dates of acquisition to September 30, 2014
Operating revenue | $ | 21,100 |  |  | $ | 49,975 |
Income from operations | 2,517 |  |  | 4,804 |
Net income | 1,553 |  |  | 2,934 |
Net income per share |  |  |
Basic | $ | 0.05 |  |  | $ | 0.10 |
Diluted | $ | 0.05 |  |  | $ | 0.09 |
Acquisition of TQI On March 4, 2013, the Company entered into a Stock Purchase Agreement ("Agreement") with all of the shareholders of TQI to acquire all of the outstanding stock. Pursuant to the terms of the Agreement and concurrently with the execution of the Agreement, the Company acquired all of the outstanding capital stock of TQI in exchange for $45,328 in net cash, $20,113 in assumed debt and an available earn-out of up to $5,000. The assumed debt was immediately paid in full after funding of the acquisition. The acquisition and settlement of the assumed debt were funded using the Company's cash on hand. Under the purchase agreement, $4,500 of the purchase price was paid into an escrow account to protect the Company against potential unknown liabilities. The amount held in escrow was remitted to the sellers in September 2014. Pursuant to the terms of the Agreement, the Company could pay the former shareholders of TQI additional cash consideration from $0 to $5,000 if certain earnings before interest, taxes, depreciation and amortization ("EBITDA") goals are exceeded. The ultimate payout is based on the level by which TQI operating results exceed specified thresholds as defined by the Agreement in both 2013 and 2014. At the time of acquisition the Company recognized an estimated earn-out liability of $615. The fair value of the earn-out liability (level 3) was estimated using an income approach based on the present value of probability-weighted amounts payable under a range of performance scenarios for 2013 and a discount rate of 10.9%. However, based on the most probable outcomes the estimated earn-out liability was reduced to $0 and recognized as a gain in our results from operations during the fourth quarter of 2013. If TQI's 2014 EBITDA performance does exceed the goals established by the Agreement, the final value of the liability could be significantly higher than the liability the Company has currently recorded. The Company incurred total transaction costs related to the acquisition of approximately $943, which was expensed during the nine months ended September 30, 2013, in accordance with U.S. GAAP. These transaction costs were primarily included in "Other operating expenses" in the consolidated statements of comprehensive income. The acquisition of TQI allows the Company to expand and diversify its complimentary truckload operations while maintaining its goal of offering high-value added services. Included in the assumed liabilities of TQI is a liability for unrecognized tax benefits for $1,120. The liability is attributable to TQI not filing income tax returns in all jurisdictions in which it operated. The $1,120 consists of unrecognized tax benefits of $853 and related penalties and interest of $174 and $93, respectively. In accordance with the Agreement, the former shareholders of TQI have indemnified the Company against this tax exposure. As a result, the Company also recognized an offsetting receivable net of the estimated federal tax benefit for $728. The assets, liabilities, and operating results of TQI have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the TQI reportable segment. The results of TQI reflected in the Company's consolidated statements of comprehensive income for the three and nine months ended September 30, 2013 from the date of acquisition (March 4, 2013) are as follows (in thousands, except per share data):
| Three months ended September 30, 2013 |  | March 4, 2013 to September 30, 2013
Operating revenue | $ | 12,431 |  |  | $ | 28,545 |
Income from operations | 934 |  |  | 1,936 |
Net income | 547 |  |  | 1,180 |
Net income per share |  |  |
Basic | $ | 0.02 |  |  | $ | 0.04 |
Diluted | $ | 0.02 |  |  | $ | 0.04 |
Allocations of Purchase Prices The following table presents the allocations of the CST and TQI purchase prices to the assets acquired and liabilities assumed based on their estimated fair values and resulting residual goodwill (in thousands):
| CST |  | RGL |  | TQI
| February 2, 2014 |  | September 5, 2014 |  | March 4, 2013
Tangible assets: |  |  |  |  |  |  |  |
Accounts receivable | $ | 9,498 |  |  | $ | — |  |  | $ | 5,639 |
Prepaid expenses and other current assets | 101 |  |  | — |  |  | 1,093 |
Property and equipment | 2,132 |  |  | 209 |  |  | 5,103 |
Other assets | 35 |  |  | — |  |  | 728 |
Deferred income taxes | — |  |  | — |  |  | 947 |
Total tangible assets | 11,766 |  |  | 209 |  |  | 13,510 |
Intangible assets: |  |  |  |  |  |  |  |
Non-compete agreements | 930 |  |  | 14 |  |  | 470 |
Trade name | 500 |  |  | — |  |  | 1,000 |
Customer relationships | 36,000 |  |  | 535 |  |  | 22,300 |
Goodwill | 51,590 |  |  | 592 |  |  | 45,164 |
Total intangible assets | 89,020 |  |  | 1,141 |  |  | 68,934 |
Total assets acquired | 100,786 |  |  | 1,350 |  |  | 82,444 |
Liabilities assumed: |  |  |  |  |
Current liabilities | 6,573 |  |  | — |  |  | 4,725 |
Other liabilities | — |  |  | — |  |  | 1,735 |
Debt and capital lease obligations | 11,215 |  |  | — |  |  | 20,113 |
Deferred income taxes | — |  |  | — |  |  | 10,543 |
Total liabilities assumed | 17,788 |  |  | — |  |  | 37,116 |
Net assets acquired | $ | 82,998 |  |  | $1,350 |  | $ | 45,328 |
The above purchase price allocations for CST and RGL are 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 for CST and RGL are based on the information that was available as of the acquisition dates through the date of this filing. The acquired definite-live intangible assets have the following useful lives:
| Useful Lives
| CST |  | RGL |  | TQI
Customer relationships | 15 years |  | 15 years |  | 15 years
Non-competes | 5 years |  | 5 years |  | 5 years
Trade names | 2 years |  | - |  | 5 years
The fair value of the non-compete agreements, trade name and customer relationship assets 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 calculate fair value, the Company used cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions. The fair value of the acquired trade names were estimated using an income approach, specifically known as the relief from royalty method. The relief from royalty method is based on a hypothetical royalty stream that would be paid if the Company did not own the applicable names and had to license the trade names. The Company derived the hypothetical royalty income from the projected revenues of CST and TQI. Cash flows were assumed to extend through the remaining economic useful life of each class of intangible asset. Pro forma The following unaudited pro forma information presents a summary of the Company's consolidated results of operations as if the acquisitions occurred as of January 1, 2013 (in thousands, except per share data).
| Three months ended |  | Nine months ended
| September 30, 2014 | September 30, 2013 |  | September 30, 2014 | September 30, 2013
Operating revenue | $ | 201,477 |  | $ | 187,924 |  |  | $ | 571,986 |  | $ | 529,022 |
Income from operations | 26,906 |  | 25,470 |  |  | 70,983 |  | 68,012 |
Net income | 16,744 |  | 15,814 |  |  | 44,254 |  | 43,128 |
Net income per share |  |  |  |  |
Basic | $ | 0.55 |  | $ | 0.52 |  |  | $ | 1.44 |  | $ | 1.44 |
Diluted | $ | 0.54 |  | $ | 0.51 |  |  | $ | 1.42 |  | $ | 1.41 |
Goodwill The following is a summary of the changes in goodwill for the nine months ended September 30, 2014. All goodwill, except the goodwill assigned to TQI, is deductible for tax purposes.
| Forward Air |  | FASI |  | TQI |  | Total
|  | Accumulated |  |  | Accumulated |  |  | Accumulated |  |
| Goodwill | Impairment |  | Goodwill | Impairment |  | Goodwill | Impairment |  | Net
Beginning balance, December 31, 2013 | $ | 37,926 |  | $ | — |  |  | $ | 12,359 |  | $ | (6,953 | ) |  | $ | 45,164 |  | $ | — |  |  | $ | 88,496 |
CST and RGL acquisitions | 52,182 |  | — |  |  | — |  | — |  |  | — |  | — |  |  | 52,182 |
Ending balance, September 30, 2014 | $ | 90,108 |  | $ | — |  |  | $ | 12,359 |  | $ | (6,953 | ) |  | $ | 45,164 |  | $ | — |  |  | $ | 140,678 |
The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2014 and no impairment charges were required. The first step of the goodwill impairment test is the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, including goodwill. When performing the qualitative assessment, the Company considers the impact of factors including, but not limited to, macroeconomic and industry conditions, overall financial performance of each reporting unit, litigation and new legislation. If based on the qualitative assessments, the Company believes it more likely than not that the fair value of a reporting unit is less than the reporting unit's carrying amount, or periodically as deemed appropriate by management, the Company will prepare an estimation of the respective reporting unit's fair value utilizing a quantitative approach. If a quantitative fair value estimation is required, the Company calculates the fair value of the applicable reportable units, using a combination of discounted projected cash flows and market valuations for comparable companies as of the valuation date. The Company's inputs into the fair value calculations for goodwill are classified within 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”). If this estimation of fair value indicates that impairment potentially exists, the Company will then measure the amount of the impairment, if any. Goodwill impairment exists when the calculated implied fair value of goodwill is less than its carrying value. Changes in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances.

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- Definition The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16323-109275 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13816-109267 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16265-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16373-109275 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13854-109267 + Details
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