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Note 3 - Fair Value of Financial Instruments
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

3.

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

 

The fair value of the commodity contracts, including our former fuel hedges, is determined based on quotes from the counterparty which were verified by comparing them to the exchange on which the related futures are traded, adjusted for counterparty credit risk. There were no fuel hedge derivatives outstanding as of December 31, 2024 or 2023.

 

The fair value of our interest rate swap agreements is determined using the market-standard methodology of netting the discounted future fixed-cash payments and the discounted expected variable-cash receipts. The variable-cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These analyses reflect the contractual terms of the swap, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities. The fair value calculation also includes an amount for risk of non-performance of our counterparties using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default, which we have determined to be insignificant to the overall fair value of our interest rate swap agreements.

 

The fair value of the life insurance policies was determined by the underwriting insurance company’s valuation models and represents the guaranteed value we would receive upon surrender of these policies as of the reporting date.

 

A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

 

●

Level 1. Observable inputs such as quoted prices in active markets;

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Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

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Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Financial Instruments Measured at Fair Value on a Recurring Basis

 

(in thousands)

        
 

December 31, 2024

 December 31, 2023 Input Level

Interest rate swaps

$1,397 $1,101  2

Contingent consideration

$(27,794)$(21,802) 3
Cash surrender value life insurance policies$3,370 $2,424  2

 

Contingent consideration arrangements require 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, up to $30.0 million of additional consideration to Lew Thompson & Son Trucking, LLC's ("LTST's") former shareholders based on LTST's results during the first three calendar years following closing, and up to $12.0 million of additional consideration to Sims Transport Services LLC's ("Sims") former shareholders based on Sims' results during the first four calendar years following closing. Refer to Note 8, "Acquisition of AAT Carriers, Inc.", for additional information regarding the AAT acquisition, Note 7, "Acquisition of Lew Thompson & Son Trucking, LLC", for additional information regarding the LTST acquisition and Note 6, "Acquisition of Sims Transport Services LLC", for additional information regarding the Sims acquisition.

 

The fair value of the contingent consideration is adjusted at each reporting period based on changes to the expected cash flows and related assumptions. There were contingent consideration payments made during the years ended December 31, 2024 and 2023 of $10.0 million and $10.0 million, respectively, based on AAT's results for the first and second post-acquisition years. Of the $10.0 million paid for the contingent consideration liability during 2024, $7.0 million was classified as financing cash flows and $3.0 million was classified as operating cash flows within the condensed consolidated statements of cash flows. Of the $10.0 million paid for the contingent consideration liability during 2023, $9.2 million was classified as financing cash flows and $0.8 million was classified as operating cash flows within the condensed consolidated statements of cash flows. During the year ended  December 31, 2024, the fair value of the contingent consideration increased to $27.8 million from $21.8 million at December 31, 2023. Of the $6.0 million increase $16.0 million is the result of the subsequent adjustment to fair market value partially offset by the aforementioned $10.0 million payment. During the year ended  December 31, 2023, the fair value of the contingent consideration increased to $21.8 million from $17.0 million at December 31, 2022. Of the $4.8 million increase, $10.0 million and $1.8 million relates to the initial valuation of the contingent consideration arrangements for LTST and Sims, respectively, and $3.0 million is the result of the subsequent adjustment to fair market value partially offset by the aforementioned $10.0 million payment. The adjustment to the fair value of the contingent consideration liability was recorded as a component of general supplies and expenses within the consolidated statements of operations. The contingent consideration liability is included in accounts payable and other long-term liabilities in our consolidated balance sheets. 

 

The following table provides a summary (in thousands) of the activity for the contingent consideration liability for 2024, 2023, and 2022:

 

(in thousands)

                    
  

Beginning balance January 1,

  

Additions

  

Adjustments to fair market value

  Payments  

Ending balance December 31,

 

2024

 $(21,802) $-  $(15,992) $10,000  $(27,794)
2023 $(17,023) $(11,802) $(2,977) $10,000  $(21,802)
2022 $-  $(16,210) $(813) $-  $(17,023)