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Note 12 - Acquisition of AAT Carriers, Inc. | 9 Months Ended
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Sep. 30, 2022
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
Note 12. | Acquisition of AAT Carriers, Inc.
On February 9, 2022, we acquired 100% of the outstanding stock of AAT headquartered in Chattanooga, TN. AAT specializes in highly regulated, time-sensitive loads for the U.S. government. The acquisition date fair value of the consideration transferred was $54.8 million. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions. The Stock Purchase Agreement includes an earnout component of up to an aggregate of $20.0 million based on AAT's adjusted earnings before interest, taxes, depreciation, and amortization reported for the first and second years following closing. The total purchase price, including any earnout achieved, is expected to range from $38.5 million to $57.0 million depending on the results achieved by AAT. AAT’s results have been included in the condensed consolidated financial statements since the date of acquisition and are reported within our Expedited reportable operating segment. The acquisition date fair value of the consideration transferred consisted of the following:
|  | February 9, 2022 |
(in thousands) |  |  |  |
Cash paid pursuant to Stock Purchase Agreement |  | $ | 40,347 |
Cash acquired included in historical book value of AAT's assets and liabilities |  |  | (1,846 | )
Contingent consideration |  |  | 16,210 |
Net purchase price |  | $ | 54,711 |
The contingent consideration arrangement requires us to pay up to $20.0 million of additional consideration to AAT's former shareholders based on AAT's results during the first two post-acquisition years. We estimated the fair value of the contingent consideration using a probability-weighted model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The allocation of the preliminary purchase price is subject to change based on finalization of the valuation of long-lived and intangible assets and contingent consideration, as well as our ongoing evaluation of AAT’s accounting principles for consistency with ours. Because of our 338(h)10 election, all goodwill related to the acquisition is deductible for tax purposes, and there are no deferred income taxes arising from the acquisition. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.
|  | February 9, 2022 |
Accounts receivable |  | $ | 842 |
Prepaid expenses |  |  | 33 |
Other short-term assets |  |  | 19 |
Net property and equipment |  |  | 7,994 |
Credentialing intangible asset |  |  | 32,000 |
Total identifiable assets acquired |  |  | 40,888 |
Accounts payable |  |  | (19 | )
Accrued expenses |  |  | (1,396 | )
Finance lease obligations |  |  | (458 | )
Other long-term liabilities |  |  | (3 | )
Total liabilities assumed |  |  | (1,876 | )
Net identifiable assets acquired |  |  | 39,012 |
Goodwill |  |  | 15,699 |
Net assets acquired |  | $ | 54,711 |
During the quarter ended June 30, 2022, we recognized measurement period adjustments which reduced goodwill recognized for AAT by $13.8 million from $29.5 million as of March 31, 2022 to $15.7 million as of June 30, 2022. There were no such changes during the quarter ended September 30, 2022. These adjustments primarily relate to the preliminary valuation of the AAT credentialing intangible asset partially offset by the preliminary estimated fair value of the contingent consideration. Goodwill and other intangible assets may change upon the finalization of the valuation of the contingent consideration liability and intangible asset as part of the purchase accounting for the AAT acquisition. The goodwill recognized is attributable primarily to expected cost synergies in the areas of fuel, purchases of revenue equipment, and may change as a result of our ongoing evaluation of AAT’s accounting principles for consistency with ours. Refer to Note 13, "Goodwill and Other Assets" for a summary of changes to goodwill during the period as well as information related to the identifiable intangible asset acquired. The amounts of revenue and earnings of AAT included in the Company’s consolidated results of operations from the acquisition date to the period ended September 30, 2022 are as follows:
(in thousands) |  | Three months ended |  |  | Nine months ended |
|  | September 30, 2022 |  |  | September 30, 2022 |
Total revenue |  | $ | 10,354 |  |  | $ | 22,941 |
Net income |  | $ | 4,297 |  |  | $ | 9,151 |

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