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Acquisitions
 6 Months Ended
Jun. 30, 2011
Acquisition  
Acquisitions

NOTE 8. Acquisitions

On April 1, 2011 (the "Acquisition Date") we entered into a definitive agreement pursuant to which we acquired all of the capital stock of Exel Transportation Services, Inc. ("ETS"). ETS is now our wholly-owned subsidiary, operating independently and renamed Mode Transportation, LLC ("Mode"). The purchase price for the ETS stock was $83.4 million before post closing adjustments for working capital. Based on estimated working capital, the actual amount paid at closing was $90.1 million, net of cash acquired of $8.0 million, which we paid with cash on hand. We are in the process of finalizing the working capital adjustments which we estimate will decrease the purchase price by $8.4 million to $81.7 million. The $8.4 million working capital adjustment expected to be refunded is included in Accounts receivable other in our Consolidated Balance Sheet at June 30, 2011. The results of operations for Mode are included in our Unaudited Consolidated Statements of Income for the period April 1, 2011 to June 30, 2011.

Mode has approximately 300 Independent Business Owners (IBO's) who sell and operate the business throughout North America. Mode also has a company managed operation in Dallas, a temperature protected services division, Temstar, located in Lombard, IL and corporate offices in Dallas and Memphis. We believe this acquisition brings us highly complementary service offerings, more scale and a talented sales channel that allows us to better reach small and midsize customers.

We incurred certain due diligence costs of $1.7 million and integration costs of $0.3 million associated with the transaction. Costs incurred during the three and six months ended June 30, 2011 were approximately $0.3 million and approximately $2.0 million, respectively. These acquisition costs are included in General and administrative costs in the Unaudited Consolidated Statements of Income for both the three and six month periods ended June 30, 2011.

The Mode acquisition was accounted for as a purchase business combination in accordance with ASC 805 "Business Combinations". Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of April 1, 2011 with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to the agency/customer relationships identifiable intangible was determined using an income approach based on management's estimates and assumptions. The fair value assigned to the property and equipment was determined based on a market approach.

 

The following table summarizes the preliminary allocation of the total purchase price to the assets acquired and liabilities assumed as of the date of the acquisition, pending finalization of valuation efforts and the aforementioned working capital adjustment (in thousands):

 

     April 1, 2011  

Accounts receivable trade

    $ 100,114   

Accounts receivable other

      1,429   

Prepaid expenses and other current assets

      764   

Restricted investments

      2,178   

Property and equipment

      10,632   

Other intangibles

      15,362   

Goodwill

      28,918   

Other assets

      678   
  

 

 

  

Total assets acquired

    $ 160,075   

Accounts payable trade

    $ 67,656   

Accounts payable other

      90   

Accrued payroll

      998   

Accrued other

      6,543   

Non current liabilities

      3,072   
  

 

 

  

Total liabilities assumed

    $ 78,359   

Net assets acquired

    $ 81,716   

Purchase price

    $ 81,716   
  

 

 

  

The total amount of tax deductible goodwill is preliminarily estimated at $25.6 million and will be amortized over 15 years. There is approximately $5.0 million of assumed liabilities which will provide additional tax deductible goodwill when paid.

The component of the "Other intangibles" listed in the above table as of the acquisition date are preliminarily estimated as follows (in thousands):

 

     Amount      Accumulated
Amortization		     Balance at
June 30, 2011		     

Life

Agency/customer relationships

    $ 15,362       $ (192 )    $ 15,170       20 years

The above intangible asset will be amortized using the straight-line method. Amortization expense related to this acquisition for both the three and six month periods ended June 30, 2011 was $0.2 million. Amortization expense related to Mode for the next five years is as follows (in thousands):

 

Remainder 2011

    $ 384   

2012

      768   

2013

      768   

2014

      768   

2015

      768   

 

The following unaudited pro forma consolidated results of operations for 2011 and 2010 assume that the acquisition of Mode was completed as of January 1, 2010 (in thousands, except for per share amounts):

 

     Three Months
Ended
June 30, 2010		  

Revenue

    $ 640,697   

Net income

    $ 10,335   

Earnings per share

   

Basic

    $ 0.28   

Diluted

    $ 0.28   

 

     Six Months
Ended
June  30, 2011		      Six Months
Ended
June 30, 2010		  

Revenue

    $ 1,423,367       $ 1,211,355   

Net income

    $ 25,714       $ 18,832   

Earnings per share

      

Basic

    $ 0.70       $ 0.50   

Diluted

    $ 0.69       $ 0.50   

 

The unaudited pro forma consolidated results for the three and six month periods were prepared using the acquisition method of accounting and are based on the historical financial information of Hub and Mode. The historical financial information has been adjusted to give effect to the pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2010.

On June 3, 2011, we purchased certain assets of Domestic Transport, Inc. ("Domestic Transport"). Domestic Transport was founded in 2005 with one truck hauling containers out of the Ports of Seattle and Tacoma. Domestic Transport has grown to a 22-driver operation that handles container deliveries in the state of Washington and throughout the Pacific Northwest.

The total purchase price was $0.7 million payable in installments of $0.6 million at closing and four equal installments of $0.025 million, paid quarterly over the next four quarters. The purchase price was allocated as follows: $0.1 million for the driver and customer relationships, $0.2 million for tractors and the remaining $0.4 million for goodwill.