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Acquisition | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Acquisition |
NOTE 4. | Acquisition
Hub Group Trucking (HGT), a wholly owned subsidiary of Hub Group, Inc., acquired all of the outstanding equity interests of Estenson Logistics, LLC (“Estenson”) on July 1, 2017 (the “Estenson Acquisition”). Estenson is now our wholly owned subsidiary, operating under the name Hub Group Dedicated (“HGD”). As a result of the Estenson Acquisition, HGT acquired substantially all of the assets of Estenson, which include tractors and trailers, as well as assumed certain liabilities, including equipment debt. HGD is included in the Hub segment. HGD has an operating fleet of approximately 1,100 tractors and 4,700 trailers. Dedicated services have been requested by our customers and we believe HGD is an excellent service offering that we can provide to our customers. The base purchase price for Estenson was approximately $284.7 million, including contingent consideration related to an earn-out provision included in the Purchase Agreement, which will not exceed $6.0 million and is based on Estenson’s EBITDA results through June 30, 2019. In accordance with the agreement, the base purchase price was adjusted by the assumed debt to arrive at the final consideration of $172.0 million. To facilitate the acquisition, we assumed $112.7 million of Estenson debt and paid $165.9 million in cash, including $55.0 million of cash, which was borrowed under our new credit agreement (See Note 10). The following table summarizes the total purchase price allocated to the net assets acquired (in thousands):
Cash paid | $ | 165,945 |
Consideration payable |  | 1,366 |
Contingent consideration, fair value |  | 4,703 |
Total consideration |  | 172,014 |
Equipment debt assumed |  | 112,677 |
Total base purchase price | $ | 284,691 |
Pending finalization of the fair market value of assets acquired and liabilities assumed, the measurement period remains open. The following table summarizes the preliminary allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the acquisition (in thousands):
| July 1, 2017 |
Cash and cash equivalents | $ | 12 |
Accounts receivable trade |  | 26,830 |
Accounts receivable other |  | 165 |
Prepaid expenses and other current assets |  | 1,500 |
Property and equipment |  | 128,477 |
Other intangibles |  | 66,400 |
Goodwill |  | 86,504 |
Other assets |  | 64 |
Total assets acquired | $ | 309,952 |
Accounts payable trade | $ | 4,542 |
Accrued payroll |  | 5,661 |
Accrued other |  | 15,058 |
Equipment debt |  | 112,677 |
Total liabilities assumed | $ | 137,938 |
Total consideration | $ | 172,014 |
The Estenson 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 July 1, 2017 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the Estenson acquisition was primarily attributable to potential expansion and future development of the acquired business. The fair value assigned to the 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. A probability weighted expected return model was used to estimate the value of the contingent consideration. Equipment debt was valued using a discounted cash flow analysis whereby future contractual principal repayments and interest payments for each instrument were discounted to the purchase date at a risk-adjusted discount rate. We incurred approximately $1.6 million of acquisition costs associated with this transaction prior to the closing date that are reflected in general and administrative expense in the accompanying Consolidated Statements of Income for the twelve months ended December 31, 2017. The total amount of tax deductible goodwill as of December 31, 2017 is $80.6 million, which will be amortized over 15 years. As of December 31, 2017, there are $5.9 million of assumed liabilities which, as they are paid, will result in additional tax deductible goodwill which can be amortized over the remainder of the 15 year period which started in July 2017. The components of “Other intangibles” listed in the above table as of the acquisition date are preliminarily estimated as follows (in thousands):
|  |  |  |  |  | Accumulated |  |  | Balance at |  |  | Estimated Useful
|  | Amount |  |  | Amortization |  |  | December 31, 2017 |  |  | Life
Customer relationships |  | $ | 66,000 |  |  | $ | 2,200 |  |  | $ | 63,800 |  |  | 15 years
Trade name |  | $ | 400 |  |  | $ | 400 |  |  | $ | 0 |  |  | 3 months
The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the twelve month period ended December 31, 2017 was $2.6 million. The intangible assets have a weighted average useful life of approximately 15 years. Amortization expense related to HGD for the next five years is as follows (in thousands):
2018 |  |  | $4,400 |
2019 |  |  | 4,400 |
2020 |  |  | 4,400 |
2021 |  |  | 4,400 |
2022 |  |  | 4,400 |
The following unaudited pro forma consolidated results of operations for 2017 and 2016 assume that the acquisition of Estenson was completed as of January 1, 2016 (in thousands, except for per share amounts):
| Twelve Months |  |  | Twelve Months |
| Ended |  |  | Ended |
| December 31, 2017 |  |  | December 31, 2016 |
Revenue | $ | 4,148,918 |  |  | $ | 3,784,604 |
Net income | $ | 139,300 |  |  | $ | 81,984 |
Earnings per share |  |  |  |  |  |  |
Basic | $ | 4.19 |  |  | $ | 2.42 |
Diluted | $ | 4.18 |  |  | $ | 2.41 |
The unaudited pro forma consolidated results for the twelve month period was prepared using the acquisition method of accounting and are based on the historical financial information of Hub Group and HGD. 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, 2016.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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