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Acquisitions, Goodwill and Other Long-Lived Assets (Notes) | 12 Months Ended
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Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract] |
Acquisitions, Goodwill and Other Long-Lived Assets | Acquisitions, Goodwill and Other Long-Lived Assets Expedited Freight Acquisitions As part of the Company's strategy to expand final mile pickup and delivery operations, 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. This acquisition provides an opportunity for the Expedited Freight segment to expand its final mile service offering into additional geographic markets, form relationships with new customers, add volumes to existing locations and generate synergies with LTL operations. This transaction was funded using cash flows from operations. The assets, liabilities, and operating results of this acquisition 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 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 is included in other current and other long-term liabilities in the opening condensed 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 2-year performance of FSA's acquired customer revenue and was estimated using a Monte Carlo simulation. The initial and current weighted average assumptions used in the Monte Carlo simulation are summarized in the following table:
| FSA Earn-out
| April 21, 2019 | December 31, 2019
Risk-free rate | 2.9% | 2.2%
Revenue discount rate | 4.4% | 4.4%
Revenue volatility | 3.0% | 5.0%
Since acquisition, the earn-out fair value decreased $33 from $11,803 to $11,770, $5,320 of which is classified as a current liability. The change in fair value flows through the other operating expenses line item as is based on changes in expected future cash flows. As of December 31, 2019, the expected total earn-out to be paid is $12,170. The current portion of the earn-out is expected to be paid in the second quarter of 2020. Intermodal Acquisitions As part of the Company's strategy to expand its Intermodal operations, in May 2017, the Company acquired certain assets of Atlantic Trucking Company, Inc., Heavy Duty Equipment Leasing, LLC, Atlantic Logistics, LLC and Transportation Holdings, Inc. (collectively, “Atlantic”) for $22,500 and an earnout of $135 paid in the fourth quarter of 2018. The acquisition was funded by a combination of cash on hand and funds from the revolving credit facility. Atlantic was a privately held provider of intermodal, drayage and related services headquartered in Charleston, South Carolina. It also has terminal operations in Atlanta, Charlotte, Houston, Jacksonville, Memphis, Nashville, Norfolk and Savannah. These locations allow Intermodal to significantly expand its footprint in the southeastern region. In October 2017, the Company acquired certain assets of Kansas City Logistics, LLC ("KCL") for $640 and an earnout of $100 paid in the second quarter of 2018. KCL provides CST with an expanded footprint in the Kansas and Missouri markets. In July 2018, the Company acquired certain assets of Multi-Modal Transport Inc. ("MMT") for $3,737 and in October 2018, the Company acquired certain assets of Southwest Freight Distributors, Inc. (“Southwest”) for $16,250. Southwest is a Dallas, Texas based premium drayage provider. The MMT acquisition provides Intermodal with an expanded footprint in the Minnesota, North Dakota, South Dakota, Iowa and Wisconsin markets, and the Southwest acquisition provides an expanded footprint in Texas. Both MMT and Southwest also provide access to several strategic customer relationships. In July 2019, the Company acquired certain assets and liabilities of O.S.T. Logistics, Inc. and O.S.T. Trucking Co., Inc. (collectively, “O.S.T.”) for $12,000. O.S.T. is a drayage company and provides the Intermodal segment with an expanded footprint on the East Coast, with locations in the Pennsylvania, Maryland, Virginia, South Carolina and Georgia markets. These transactions were funded using cash flows from operations. The assets, liabilities, and operating results of these collective acquisitions have been included in the Company's consolidated financial statements from their dates of acquisition and have been included in the Intermodal reportable segment. Allocations of Purchase Prices The following table presents the allocations of the previously discussed purchase prices to the assets acquired and liabilities assumed based on their estimated fair values and resulting residual goodwill (in thousands):
| Atlantic | KCL | MMT | Southwest | FSA | O.S.T.
| May 7, 2017 | October 22, 2017 | July 25, 2018 | October 28, 2018 | April 21, 2019 | July 14, 2019
Tangible assets: |  |  |  |  |  |
Cash | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 202 |  | $ | — |
Other receivables | — |  | — |  | — |  | — |  | 1,491 |  | — |
Property and equipment | 1,821 |  | 223 |  | 81 |  | 933 |  | 40 |  | 10,371 |
Other lease right-of-use assets | — |  | — |  | — |  | — |  | 3,209 |  | 1,672 |
Total tangible assets | 1,821 |  | 223 |  | 81 |  | 933 |  | 4,942 |  | 12,043 |
Intangible assets: |  |  |  |  |  |
Non-compete agreements | 1,150 |  | 6 |  | 43 |  | 650 |  | 900 |  | 850 |
Customer relationships | 13,400 |  | 234 |  | 1,659 |  | 9,200 |  | 17,900 |  | 5,700 |
Goodwill | 6,719 |  | 277 |  | 1,954 |  | 5,467 |  | 19,963 |  | 2,050 |
Total intangible assets | 21,269 |  | 517 |  | 3,656 |  | 15,317 |  | 38,763 |  | 8,600 |
Total assets acquired | 23,090 |  | 740 |  | 3,737 |  | 16,250 |  | 43,705 |  | 20,643 |
Liabilities assumed: |  |  |  |  |  |
Current liabilities | 590 |  | 100 |  | — |  | — |  | 8,466 |  | — |
Other liabilities | — |  | — |  | — |  | — |  | 5,030 |  | — |
Operating lease obligations | — |  | — |  | — |  | — |  | 3,209 |  | 1,672 |
Finance lease obligations | — |  | — |  | — |  | — |  | — |  | 6,971 |
Total liabilities assumed | 590 |  | 100 |  | — |  | — |  | 16,705 |  | 8,643 |
Net assets acquired | $ | 22,500 |  | $ | 640 |  | $ | 3,737 |  | $ | 16,250 |  | $ | 27,000 |  | $ | 12,000 |
The above purchase price allocations for FSA and O.S.T. 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 FSA and O.S.T. 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:
| Atlantic |  | KCL |  | MMT |  | Southwest |  | FSA |  | O.S.T.
Customer relationships | 15 years |  | 15 years |  | 15 years |  | 10 years |  | 15 years |  | 10 years
Non-compete agreements | 5 years |  | 2 years |  | 4 years |  | 3 years |  | 5 years |  | 3 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 The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2019. The first step of the goodwill impairment test is the Company's assessment of 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 estimates the fair value of the applicable reporting units based on a combination of a market approach, which considers comparable companies, and the income approach, using a discounted cash flow model, as of the valuation date. Under the market approach, valuation multiples are derived based on a selection of comparable companies and applied to projected operating data for each reporting unit to arrive at an indication of fair value. Under the income approach, the discounted cash flow model determines fair value based on the present value of management prepared projected cash flows over a specific projection period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate which reflects the Company's best estimate of the weighted average cost of capital of a market participant, and is adjusted for appropriate risk factors. The Company believes the most sensitive estimate used in the income approach is the management prepared projected cash flows. Consequently, as necessary the Company performs sensitivity tests on select reporting units to ensure reductions of the present value of the projected cash flows by at least 10% would not adversely impact the results of the goodwill impairment tests. Historically, the Company has equally weighted the income and market approaches as it believed the quality and quantity of the collected information were approximately equal. The inputs used in the fair value estimates 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 the estimation of fair value indicates the impairment potentially exists, the Company will then measure the amount of the impairment, if any. Changes in strategy or market conditions could significantly impact these fair value estimates and require adjustments to recorded asset balances. Goodwill is allocated to reporting units that are expected to benefit from the business combinations generating the goodwill. As of June 30, 2019, the Company had five reporting units - Expedited LTL, Truckload, Final Mile, Intermodal and Pool. The Company conducted its annual impairment assessments and tests of goodwill for each reporting unit as of June 30, 2019 and no impairment charges were required. See discussion over segments in Note 10, Segment Reporting. The following is a summary of the changes in goodwill by reporting unit for the year ended December 31, 2019. Approximately $141,961 of goodwill is deductible for tax purposes.
| Beginning Balance, December 31, 2018 | FSA Acquisition | O.S.T. Acquisition | Ending Balance, December 31, 2019
Expedited LTL |  |  |  |
Goodwill | 97,593 |  | — |  | — |  | 97,593 |
Accumulated Impairment | — |  | — |  | — |  | — |
TLS |  |  |  |
Goodwill | 45,164 |  | — |  | — |  | 45,164 |
Accumulated Impairment | (25,686 | ) | — |  | — |  | (25,686 | )
Final Mile |  |  |  |
Goodwill | — |  | 19,963 |  | — |  | 19,963 |
Accumulated Impairment | — |  | — |  | — |  | — |
Intermodal |  |  |  |
Goodwill | 76,615 |  | — |  | 2,050 |  | 78,665 |
Accumulated Impairment | — |  | — |  | — |  | — |
Pool |  |  |  |
Goodwill | 12,359 |  | — |  | — |  | 12,359 |
Accumulated Impairment | (6,953 | ) | — |  | — |  | (6,953 | )
Total |  |  |  |
Goodwill | 231,731 |  | 19,963 |  | 2,050 |  | 253,744 |
Accumulated Impairment | (32,639 | ) | — |  | — |  | (32,639 | )
| 199,092 |  | 19,963 |  | 2,050 |  | 221,105 |
Other Acquired Intangibles Through acquisitions, the Company acquired customer relationships, non-compete agreements and trade names having weighted-average useful lives of 15.4, 4.7 and 4.0 years, respectively. Amortization expense on acquired customer relationships, non-compete agreements and trade names for each of the years ended December 31, 2019, 2018 and 2017 was $11,213, $9,138 and $10,193, respectively. As of December 31, 2019, definite-lived intangible assets are comprised of the following:
| Acquired Intangibles |  | Accumulated Amortization |  | Accumulated Impairment |  | Net Acquired Intangibles
Customer relationships | $ | 227,826 |  |  | $ | 86,027 |  |  | $ | 16,501 |  |  | $ | 125,298 |
Non-compete agreements | 6,852 |  |  | 4,352 |  |  | — |  |  | 2,500 |
Trade name | 1,500 |  |  | 1,500 |  |  | — |  |  | — |
Total | $ | 236,178 |  |  | $ | 91,879 |  |  | $ | 16,501 |  |  | $ | 127,798 |
As of December 31, 2018, definite-lived intangible assets are comprised of the following:
| Acquired Intangibles |  | Accumulated Amortization |  | Accumulated Impairment |  | Net Acquired Intangibles
Customer relationships | $ | 204,226 |  |  | $ | 75,585 |  |  | $ | 16,501 |  |  | $ | 112,140 |
Non-compete agreements | 5,102 |  |  | 3,581 |  |  | — |  |  | 1,521 |
Trade name | 1,500 |  |  | 1,500 |  |  | — |  |  | — |
Total | $ | 210,828 |  |  | $ | 80,666 |  |  | $ | 16,501 |  |  | $ | 113,661 |
The estimated amortization expense for the next five years on definite-lived intangible assets as of December 31, 2019 is as follows:
| 2020 |  | 2021 |  | 2022 |  | 2023 |  | 2024
Customer relationships | $ | 11,113 |  |  | $ | 10,970 |  |  | $ | 10,770 |  |  | $ | 10,422 |  |  | $ | 10,084 |
Non-compete agreements | 949 |  |  | 901 |  |  | 415 |  |  | 180 |  |  | 56 |
Total | $ | 12,062 |  |  | $ | 11,871 |  |  | $ | 11,185 |  |  | $ | 10,602 |  |  | $ | 10,140 |
Additionally, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Impairment is recognized on assets classified as held and used when the sum of undiscounted estimated cash flows expected to result from the use of the asset is less than the carrying value. If such measurement indicates a possible impairment, the estimated fair value of the asset is compared to its net book value to measure the impairment charge, if any. The Company estimates fair value 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 uses cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes the level and timing of cash flows appropriately reflected market participant assumptions. The Company noted no impairment indicators for its definite-lived intangibles during the year ended December 31, 2019. In addition, no impairment charges were recorded for definite-lived intangibles for the years ended December 31, 2019, 2018 and 2017. Other Long-Lived Assets The Company evaluates the reasonableness of the useful lives and salvage values of its assets on an ongoing basis. During the third quarter of 2019, the Company deemed it appropriate to extend the average useful life of its trailers from 7 to 10 years and its tractors from 5 to 10 years. In addition, management reduced the average salvage value of its tractors from 25% to 10%. No changes were made to trailer salvage values. These changes in estimates were made to assets currently owned and originally purchased new since assets purchased used were assigned individual useful lives and salvage values based on their age and condition at purchase. This change in estimate was made on a prospective basis beginning on July 1, 2019. The impact of this study on the year ended December 31, 2019 was a $2,700 reduction in depreciation. Depreciation expense for each of the three years ended December 31, 2019, 2018 and 2017 was $30,896, $33,045 and $30,862 respectively. In addition, management recorded a $1,200 reserve for tractors during the year ended December 31, 2019. This is recorded in other operating expenses in the Company's Consolidated Statements of Comprehensive Income.

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