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Acquisitions | 12 Months Ended
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Dec. 31, 2018
Business Combinations [Abstract] |
Acquisitions |
NOTE 5. | Acquisitions
Hub Group Trucking, Inc. (“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 (“Dedicated”). 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. Dedicated has an operating fleet of approximately 1,400 tractors and 4,500 trailers. Dedicated services have been requested by our customers and we believe Dedicated 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 Estenson Acquisition 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 Estenson 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 credit agreement. 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 |
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 |
Other receivables |  | 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 excess of purchase price over fair value of net assets acquired 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., see Note 9 for more information. 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. On December 3, 2018, a subsidiary of Hub Group, Inc. closed on the Agreement and Plan of Merger (the “Merger Agreement”) to acquire CaseStack, Inc. (“CaseStack”). Total consideration for the transaction was $252.1 million. To facilitate the acquisition we paid $248.7 million in cash and $3.5 million was a deferred purchase consideration. The deferred purchase consideration is included in Accrued Other and will be paid equally over twenty-four months. The acquisition of CaseStack expanded our logistics service offering to include transportation and warehousing consolidation solutions for consumer packaged goods companies selling into the North American retail channel. The acquisition also added scale to our truck brokerage service offering, particularly in the less-than-truckload segment of the market. The following table summarizes the total purchase price allocated to the net assets acquired (in thousands):
Cash paid | $ | 248,656 |
Deferred purchase consideration |  | 3,469 |
Total consideration | $ | 252,125 |
The initial accounting for the acquisition of CaseStack is incomplete as we, with the support of our valuation specialist, are still in the process of finalizing the fair market value calculations of the acquired net assets. In addition, the Company is in the preparation and final review process of the applicable future cash flows used in determining the purchase accounting. Finally, certain post-closing activities outlined in the merger agreement need to be completed. As a result, the amounts recorded in the consolidated financial statements related to the CaseStack merger are preliminary 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):
| December 3, 2018 |
Accounts receivable trade | $ | 32,057 |
Prepaid expenses and other current assets |  | 694 |
Property and equipment |  | 3,247 |
Deferred tax assets |  | 6,433 |
Goodwill, net |  | 164,976 |
Other intangibles |  | 75,600 |
Other assets |  | 120 |
Total assets acquired | $ | 283,127 |
Accounts payable trade | $ | 24,541 |
Accrued payroll |  | 2,811 |
Accrued other |  | 3,650 |
Total liabilities assumed | $ | 31,002 |
Total consideration | $ | 252,125 |
The CaseStack 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 December 3, 2018 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the CaseStack acquisition was primarily attributable to potential expansion and future development of the acquired business. Tax history and attributes including net operating loss carryovers and other deferred tax assets are inherited in an equity purchase such as this, while goodwill is not tax deductible. We incurred approximately $1.4 million of transaction 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, 2018. 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, 2018 |  |  | Life
Customer relationships - logistics services | $ | 65,600 |  |  | $ | 547 |  |  | $ | 65,053 |  |  | 10 years
Customer relationships - transportation services | $ | 8,700 |  |  | $ | 145 |  |  | $ | 8,555 |  |  | 5 years
Trade name | $ | 1,300 |  |  | $ | 72 |  |  | $ | 1,228 |  |  | 18 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, 2018 was $0.8 million. The intangible assets have a weighted average useful life of approximately 9 years. Amortization expense related to CaseStack for the next five years is as follows (in thousands):
|  | Total |
2019 |  | $ | 9,167 |
2020 |  | $ | 8,661 |
2021 |  | $ | 8,300 |
2022 |  | $ | 8,300 |
2023 |  | $ | 8,155 |
From the date of the acquisition through December 31, 2018, CaseStack’s revenue was $20.8 million and operating income of $0.7 million. The following unaudited pro forma consolidated results of operations presents the effects of CaseStack as though it had been acquired as of January 1, 2017 and Dedicated as though it had been acquired as of January 1, 2016 (in thousands, except for per share amounts):
| Twelve Months Ended |
| December 31, 2018 |  |  | December 31, 2017 |  |  | December 31, 2016 |
Revenue | $ | 3,912,745 |  |  | $ | 3,449,373 |  |  | $ | 2,965,032 |
Income from continuing operations | $ | 133,310 |  |  | $ | 122,532 |  |  | $ | 64,825 |
Earnings per share (1) |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 2.81 |  |  | $ | 3.69 |  |  | $ | 1.91 |
Diluted | $ | 2.79 |  |  | $ | 3.67 |  |  | $ | 1.90 |
| (1) | Earnings per share is from continuing operations.
The unaudited pro forma consolidated results for the annual periods were prepared using the acquisition method of accounting and are based on the historical financial information of Hub, Dedicated and CaseStack. 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, 2017 and January 1, 2016, respectively.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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