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Acquisitions
9 Months Ended
Sep. 30, 2011
Acquisitions [Abstract] 
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. Closing adjustments for working capital were agreed upon, resulting in a cash refund of $7.9 million, bringing the final purchase price to $82.2 million. The results of operations for Mode are included in our Unaudited Consolidated Statements of Income for the period April 1, 2011 to September 30, 2011.

Mode has approximately 300 Independent Business Owners ("IBOs") 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. Integration costs, including severance, incurred during the three months ended September 30, 2011 were approximately $0.8 million. Acquisition costs, which include due diligence and integration costs, were $2.8 million for the nine months ended September 30, 2011. Severance costs are included in Salaries & benefits and due diligence and integration costs are included in General and administrative in the Unaudited Consolidated Statements of Income for both the three and nine month periods ended September 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 (in thousands), pending finalization of valuation efforts:

 

         
     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

      29,389   

Other assets

      678   
    

 

 

  

Total assets acquired

    $ 160,546   
   

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

    $ 82,187   
   

Purchase price

    $ 82,187   
    

 

 

  

 

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
September 30,
2011		      Life  

Agency/customer relationships

    $ 15,362       $ 427       $ 14,935         18 years   

The above intangible asset will be amortized using the straight-line method. Amortization expense related to this acquisition for both the three and nine month periods ended September 30, 2011 was $0.2 million and $0.4 million, respectively. Amortization expense related to Mode for the next five years is as follows (in thousands):

 

         

Remainder 2011

    $ 213   

2012

      853   

2013

      853   

2014

      853   

2015

      853   

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		  
     September 30,
2010		  

Revenue

    $ 664,651   

Net income

    $ 13,653   

Earnings per share

         

Basic

    $ 0.37   

Diluted

    $ 0.37   

 

                 
    

Nine Months

Ended

     

Nine Months

Ended

  
     September 30,
2011		      September 30,
2010		  

Revenue

    $ 2,183,745       $ 1,876,006   

Net income

    $ 41,976       $ 32,458   

Earnings per share

                  

Basic

    $ 1.14       $ 0.87   

Diluted

    $ 1.13       $ 0.87   

 

The unaudited pro forma consolidated results for the three and nine 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.  At the time of the acquisition, Domestic Transport had 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 starting September 3, 2011. 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.