Exhibit 99.5
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INOFRMATION
On November 11, 2013, Heartland Express, Inc. of Iowa (“the Company”) acquired Gordon Trucking Inc., a Washington corporation (“GTI”) for $285 million of total consideration payable in cash, restricted shares of the Company's common stock, and the assumption of certain indebtedness of GTI, net of approximately $20 million of cash acquired. The purchase price is subject to further adjustments, including a post-closing working capital true-up and a potential earn-out of up to an additional $20 million is payable in an earn-out for performance through 2017. The Stock Purchase Agreement included an election under the Internal Revenue code Section 338(h)(10). In addition, the Company purchased the personal goodwill of Mr. Larry Gordon for $15 million pursuant to an Asset Purchase Agreement. This amount is included in the total goodwill acquired in this transaction.
The unaudited pro forma consolidated financial information is based on the assumptions set forth in the notes to such information. The unaudited pro forma adjustments made in the compilation of the unaudited pro forma financial information are based upon available information and assumptions that the Company considers to be reasonable, and have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission (“SEC”).
The pro forma adjustments have been made solely for informational purposes. The actual results reported by the consolidated company in periods following the acquisition may differ significantly from that reflected in these unaudited pro forma consolidated financial statements for a number of reasons, including but not limited to cost savings from operating efficiencies, synergies and the impact of the incremental costs incurred in integrating the two companies. As a result, the unaudited pro forma consolidated information is not intended to represent and does not purport to be indicative of what the combined company’s financial condition or results of operations would have been had the acquisition been completed on the applicable dates of this unaudited pro forma consolidated financial information. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial condition and results of operations of the consolidated company.
The unaudited pro forma consolidated financial statements are based on various assumptions, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from GTI based on preliminary estimates of fair value. The pro forma assumptions and adjustments are described in the accompanying notes presented on the following pages. Pro forma adjustments are those that are directly attributable to the transaction, are factually supportable and, with respect to the unaudited pro forma condensed consolidated statement of income, are expected to have a continuing impact on the consolidated results. The final purchase price and the allocation thereof may differ from that reflected in the pro forma condensed consolidated financial statements after final working capital adjustments are performed.
The unaudited pro forma consolidated statements of income included herein do not reflect any potential cost savings or other operating efficiencies that should result from the integration of the companies.
These unaudited pro forma condensed consolidated financial information and the accompanying notes should be read together with (1) the Company’s audited consolidated financial statements and accompanying notes, as of and for the fiscal year ended December 31, 2012, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the SEC on March 1, 2013 and (2) the Company’s unaudited consolidated financial statements and accompanying notes as of and for the nine months ended September 30, 2013 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013, which was filed with the SEC on November 8, 2013, (3) GTI’s audited financial statements for the years ended December 31, 2012, 2011 and 2010, included as exhibit 99.3 to this Form 8-K/A, and (4) GTI’s unaudited financial statements for the nine months ended September 30, 2013 and 2012, included as exhibit 99.4 to this Form 8-K/A.
The actual operating results for GTI will be consolidated with the Company’s operating results for all periods subsequent to the acquisition date of November 11, 2013.
The unaudited pro forma consolidated statement of comprehensive income of the Company and GTI for the year ended December 31, 2012 gives effect to the acquisition of GTI by the Company as if it had occurred effective January 1, 2012, the beginning of the Company’s 2012 fiscal year.
The unaudited pro forma consolidated statement of comprehensive income of the Company and GTI for the nine months ended September 30, 2013 gives effect to the acquisition of GTI by the Company as if it had occurred effective January 1, 2012, the beginning of the Company’s 2012 fiscal year.
The unaudited pro forma consolidated balance sheet of the Company and GTI as of September 30, 2013 gives effect to the acquisition of GTI by the Company as if it had occurred effective September 30, 2013.
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| | | | | | | | | | | | | | | | | | | | | | |
HEARTLAND EXPRESS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (in thousands) |
| | | September 30, 2013 |
| ASSETS | | Heartland Express | | Gordon Trucking | | Eliminations | | Pro Forma Adjustments | | Notes | | Pro Forma Consolidated |
| CURRENT ASSETS | | | | | | (Note 4) | | | | | | |
| Cash and cash equivalents | | $ | 164,215 |
| | $ | 23,642 |
| | $ | (2,180 | ) | | $ | (130,900 | ) | | (A) | | $ | 54,777 |
|
| Short term investments | | 6,850 |
| | — |
| | — |
| | — |
| | | | 6,850 |
|
| Trade receivables, net | | 48,112 |
| | 43,718 |
| | — |
| | — |
| | | | 91,830 |
|
| Prepaid tires | | 4,806 |
| | 753 |
| | — |
| | 2,384 |
| | (B) | | 7,943 |
|
| Other current assets | | 5,689 |
| | 5,927 |
| | 579 |
| | (910 | ) | | (C) | | 11,285 |
|
| Income tax receivable | | 4,119 |
| | — |
| | — |
| | — |
| | | | 4,119 |
|
| Deferred income taxes, net | | 12,509 |
| | — |
| | — |
| | — |
| | | | 12,509 |
|
| Total current assets | | $ | 246,300 |
| | $ | 74,040 |
| | $ | (1,601 | ) | | $ | (129,426 | ) | | | | $ | 189,313 |
|
| PROPERTY AND EQUIPMENT, NET | | 272,688 |
| | 232,977 |
| | (25,432 | ) | | (18,591 | ) | | (D) | | 461,642 |
|
| LONG-TERM INVESTMENTS | | 4,345 |
| | — |
| | — |
| | — |
| | | | 4,345 |
|
| GOODWILL | | 4,815 |
| | — |
| | — |
| | 89,220 |
| | (E) | | 94,035 |
|
| OTHER ASSETS | | 9,304 |
| | 5,952 |
| | 4,529 |
| | 21,018 |
| | (F)(B) | | 40,803 |
|
| | | $ | 537,452 |
| | $ | 312,969 |
| | $ | (22,504 | ) | | $ | (37,779 | ) | |
| | $ | 790,138 |
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 28,825 |
| | $ | 8,301 |
| | $ | (35 | ) | | $ | 174 |
| | (B) | | $ | 37,265 |
|
| Compensation and benefits | | 18,235 |
| | 7,593 |
| | — |
| | — |
| | | | 25,828 |
|
| Insurance accruals | | 11,934 |
| | 18,755 |
| | — |
| | — |
| | | | 30,689 |
|
| Current portion of long-term debt | | — |
| | 37,812 |
| | (1,357 | ) | | — |
| | | | 36,455 |
|
| Other accruals | | 7,535 |
| | 1,408 |
| | — |
| | — |
| | | | 8,943 |
|
| Total current liabilities | | $ | 66,529 |
| | $ | 73,869 |
| | $ | (1,392 | ) | | $ | 174 |
| |
| | $ | 139,180 |
|
| LONG-TERM LIABILITIES | | | | | | | | | | | | |
| Income taxes payable | | $ | 19,708 |
| | $ | — |
| | $ | — |
| | $ | — |
| | | | $ | 19,708 |
|
| Long term debt | | — |
| | 125,527 |
| | (14,484 | ) | | — |
| | | | 111,043 |
|
| Deferred income taxes, net | | 55,345 |
| | — |
| | — |
| | — |
| | | | 55,345 |
|
| Insurance accruals less current portion | | 54,008 |
| | 8,986 |
| | — |
| | 3,300 |
| | (B) | | 66,294 |
|
| Other long-term liabilities | | — |
| | 1,988 |
| | — |
| | 13,618 |
| | (G) | | 15,606 |
|
| Total long-term liabilities | | $ | 129,061 |
| | $ | 136,501 |
| | $ | (14,484 | ) | | $ | 16,918 |
| |
| | $ | 267,996 |
|
| COMMITMENTS AND CONTINGENCIES | | | | | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | | | | | |
| Capital stock, common, $.01 par value; 90,689 shares outstanding | | 907 |
| | — |
| | — |
| | — |
| | | | 907 |
|
| Noncontrolling interests in Minorities | | — |
| | 5,805 |
| | (5,805 | ) | | | | | | — |
|
| Additional paid-in capital | | 3,774 |
| | — |
| | — |
| | 1,745 |
| | (A) | | 5,519 |
|
| Retained earnings | | 417,951 |
| | 96,794 |
| | (823 | ) | | (95,971 | ) | | (H) | | 417,951 |
|
| Treasury stock, at cost | | (80,540 | ) | | — |
| | — |
| | 39,355 |
| | (A) | | (41,185 | ) |
| Accumulated other comprehensive loss | | (230 | ) | | — |
| | — |
| | — |
| | | | (230 | ) |
| | | $ | 341,862 |
| | $ | 102,599 |
| | $ | (6,628 | ) | | $ | (54,871 | ) | |
| | $ | 382,962 |
|
| | | $ | 537,452 |
| | $ | 312,969 |
| | $ | (22,504 | ) | | $ | (37,779 | ) | |
| | $ | 790,138 |
|
See accompanying notes to unaudited pro forma consolidated financial statements.
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| HEARTLAND EXPRESS, INC |
| AND SUBSIDIARIES |
| UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (in thousands, except per share amounts) |
| | | Nine Months Ended September 30, 2013 |
| | | Heartland Express | | Gordon Trucking | | Eliminations | | Pro Forma Adjustments | Notes | Pro Forma Consolidated |
| | | | | | | (Note 4) | | | | |
| OPERATING REVENUE | | $ | 398,909 |
| | $ | 322,235 |
| | $ | — |
| | $ | — |
| | $ | 721,144 |
|
| | | | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | | | |
| Salaries, wages and benefits | | $ | 121,093 |
| | $ | 108,949 |
| | $ | — |
| | (188 | ) | (I) | 229,854 |
|
| Rent and purchased transportation | | 3,735 |
| | 21,993 |
| | 2,662 |
| | (102 | ) | (J) | 28,288 |
|
| Fuel | | 120,876 |
| | 83,186 |
| | — |
| | — |
| | 204,062 |
|
| Operations and maintenance | | 14,256 |
| | 38,220 |
| | — |
| | (820 | ) | (K)(L) | 51,656 |
|
| Operating taxes and licenses | | 6,856 |
| | 9,925 |
| | (1 | ) | | — |
| | 16,780 |
|
| Insurance and claims | | 9,620 |
| | 6,073 |
| | — |
| | — |
| | 15,693 |
|
| Communications and utilities | | 2,239 |
| | 2,340 |
| | — |
| | — |
| | 4,579 |
|
| Depreciation and amortization | | 47,112 |
| | 29,363 |
| | (581 | ) | | (6,570 | ) | (M) | 69,324 |
|
| Other operating expenses | | 11,839 |
| | 8,062 |
| | (13 | ) | | (399 | ) | (N)(I) | 19,489 |
|
| Gain on disposal of property and equipment | | (24,299 | ) | | (4,031 | ) | | 21 |
| | — |
| | (28,309 | ) |
| | | 313,327 |
| | 304,080 |
| | 2,088 |
| | (8,079 | ) | | 611,416 |
|
| | | | | | | | | | | |
| Operating income | | 85,582 |
| | 18,155 |
| | (2,088 | ) | | 8,079 |
| | 109,728 |
|
| | | | | | | | | | | |
| Interest income | | 378 |
| | 606 |
| | 35 |
| | — |
| | 1,019 |
|
| | | | | | | | | | | |
| Interest Expense | | — |
| | (3,081 | ) | | 205 |
| | — |
| | (2,876 | ) |
| | | | | | | | | | | |
| Income before income taxes | | 85,960 |
| | 15,680 |
| | (1,848 | ) | | 8,079 |
| | 107,871 |
|
| | | | | | | | | | | |
| Federal and state income taxes | | 31,220 |
| | — |
| | — |
| | 8,326 |
| (O) | 39,546 |
|
| | | | | | | | | | | |
| Net income | | $ | 54,740 |
| | $ | 15,680 |
| | $ | (1,848 | ) | | (247 | ) | | $ | 68,325 |
|
| Less Net Income Attributable to Noncontrolling Interest in Minorities | | — |
| | (1,848 | ) | | $ | 1,848 |
| | — |
| | — |
|
| Net Income | | 54,740 |
| | 13,832 |
| | — |
| | (247 | ) | | 68,325 |
|
| Other comprehensive income, net of tax | | 1,054 |
| | — |
| | — |
| | — |
| | 1,054 |
|
| Comprehensive income | | $ | 55,794 |
| | $ | 13,832 |
| | $ | — |
| | (247 | ) | | 69,379 |
|
| | | | | | | | | | | |
| Net income per share | | | | | | | | | | |
| Basic | | $ | 0.65 |
| | | | | | | | $ | 0.78 |
|
| Diluted | | $ | 0.64 |
| | | | | | | | $ | 0.78 |
|
| | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | |
| Basic | | 84,799 |
| | | | | | 2,860 |
| | 87,659 |
|
| Diluted | | 85,041 |
| | | | | | 2,860 |
|
| 87,901 |
|
See accompanying notes to unaudited pro forma consolidated financial statements.
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| HEARTLAND EXPRESS, INC |
| AND SUBSIDIARIES |
| UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (in thousands, except per share amounts) |
| | | Year Ended December 31, 2012 |
| | | Heartland Express | | Gordon Trucking | | Eliminations | | Pro Forma Adjustments | Notes | Pro Forma Consolidated |
| | | | | | | (Note 4) | | | | |
| OPERATING REVENUE | | $ | 545,745 |
| | $ | 426,595 |
| | $ | — |
| | $ | — |
| | 972,340 |
|
| | | | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | | | |
| Salaries, wages and benefits | | $ | 167,073 |
| | $ | 146,819 |
| | $ | 54 |
| | (250 | ) | (I) | 313,696 |
|
| Rent and purchased transportation | | 6,273 |
| | 32,496 |
| | 3,254 |
| | (136 | ) | (J) | 41,887 |
|
| Fuel | | 168,981 |
| | 113,974 |
| | — |
| | — |
| | 282,955 |
|
| Operations and maintenance | | 25,282 |
| | 52,810 |
| | — |
| | (1,094 | ) | (K)(L) | 76,998 |
|
| Operating taxes and licenses | | 8,694 |
| | 12,219 |
| | 1 |
| | — |
| | 20,914 |
|
| Insurance and claims | | 14,906 |
| | 6,357 |
| | — |
| | — |
| | 21,263 |
|
| Communications and utilities | | 2,953 |
| | 3,101 |
| | — |
| | — |
| | 6,054 |
|
| Depreciation and amortization | | 57,158 |
| | 34,359 |
| | (717 | ) | | 9,139 |
| (M) | 99,939 |
|
| Other operating expenses | | 14,633 |
| | 10,651 |
| | (134 | ) | | (411 | ) | (N)(I) | 24,739 |
|
| Gain on disposal of property and equipment | | (15,109 | ) | | (4,206 | ) | | 136 |
| | — |
| | (19,179 | ) |
| | | 450,844 |
| | 408,580 |
| | 2,594 |
| | 7,248 |
| | 869,266 |
|
| | | | | | | | | | | |
| Operating income | | 94,901 |
| | 18,015 |
| | (2,594 | ) | | (7,248 | ) | | 103,074 |
|
| | | | | | | | | | | |
| Interest income | | 674 |
| | 697 |
| | 36 |
| | — |
| | 1,407 |
|
| | | | | | | | | | | |
| Interest Expense | | — |
| | (3,994 | ) | | 295 |
| | — |
| | (3,699 | ) |
| | | | | | | | | | | |
| Income before income taxes | | 95,575 |
| | 14,718 |
| | (2,263 | ) | | (7,248 | ) | | 100,782 |
|
| | | | | | | | | | | |
| Federal and state income taxes | | 34,034 |
| | — |
| | — |
| | 1,979 |
| (O) | 36,013 |
|
| | | | | | | | | | | |
| Net income | | $ | 61,541 |
| | $ | 14,718 |
| | $ | (2,263 | ) | | $ | (9,227 | ) | | 64,769 |
|
| Less Net Income Attributable to Noncontrolling Interests in Minorities | | — |
| | (2,263 | ) | | 2,263 |
| | — |
| | — |
|
| Net Income | | 61,541 |
| | 12,455 |
| | — |
| | (9,227 | ) | | 64,769 |
|
| Other comprehensive income, net of tax | | 1,797 |
| | — |
| | — |
| | — |
| | 1,797 |
|
| Comprehensive income | | $ | 63,338 |
| | $ | 12,455 |
| | $ | — |
| | $ | (9,227 | ) | | 66,566 |
|
| | | | | | | | | | | |
| Net income per share | | | | | | | | | | |
| Basic | | $ | 0.72 |
| | | | | | | | $ | 0.73 |
|
| Diluted | | $ | 0.71 |
| | | | | | | | $ | 0.73 |
|
| | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | |
| Basic | | 85,892 |
| | | | | | 2,860 |
| | 88,752 |
|
| Diluted | | 86,201 |
| | | | | | 2,860 |
| | 89,061 |
|
See accompanying notes to unaudited pro forma consolidated financial statements.
HEARTLAND EXPRESS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of transaction
On November 11, 2013, Heartland Express, Inc. of Iowa (“the Company”) acquired Gordon Trucking Inc., a Washington corporation (“GTI”) for $285 million of total consideration payable in cash, restricted shares of the Company's common stock, and the assumption of certain indebtedness of GTI, net of approximately $20 million of cash acquired. The purchase price is subject to further adjustments, including a post-closing working capital true-up and a potential earn-out of up to an additional $20 million is payable in an earn-out for performance through 2017. The Stock Purchase Agreement included an election under the Internal Revenue code Section 338(h)(10). In addition, the Company purchased the personal goodwill of Mr. Larry Gordon for $15 million pursuant to an Asset Purchase Agreement. This amount is included in the total goodwill acquired in this transaction.
Gordon Trucking, Inc. is a Washington corporation providing truckload transportation services to customers throughout the United States and Canada.
Note 2 - Estimate of Assets Acquired and Liabilities Assumed
The fair value of the total consideration transferred was $172.0 million, not considering approximately $20 million of cash balances acquired. A summary of the preliminary purchase price allocation with the acquisition of GTI, as if the transaction occurred on September 30, 2013, is as follows:
|
| | | | | | | | |
| | | | | (in thousands) |
| Cash paid | | | | $ | 130,900 |
|
| Common stock issued (par value of $0.01) | | | | 41,100 |
|
| Total fair value of consideration transferred | | | | 172,000 |
|
| Allocated to: | | | | |
| Historical book value of GTI's assets and liabilities | | $ | 95,971 |
| | |
| Adjustments to recognize assets and liabilities at acquisition-date fair value: | | | | |
| Property, plant, and equipment | | (18,591 | ) | | |
| Other assets | | 3,442 |
| | |
| Liabilities | | (17,092 | ) | | |
| Fair value of tangible net assets acquired | | | | 63,730 |
|
| Identifiable intangibles at acquisition-date fair value | | | | 19,050 |
|
| Excess of consideration transferred over the net amount of assets and liabilities recognized, including $13.6 million attributable to the fair value of a potential earn-out obligation (goodwill) | | | | $ | 89,220 |
|
|
| | | |
| | (in thousands) |
| Cash paid pursuant to Stock Purchase Agreement | $ | 115,900 |
|
| Cash paid pursuant to an Asset Purchase Agreement | 15,000 |
|
| Cash acquired included in historical book value of GTI assets and liabilities | (20,000 | ) |
| Net cash paid | $ | 110,900 |
|
| | |
| Common stock issued (par value of $0.01) | $ | 41,100 |
|
| Debt assumption | 148,000 |
|
| Total purchase price | $ | 300,000 |
|
Deferred income taxes arising from the acquisition are immaterial because of the election under the Internal Revenue code Section 338(h)(10).
HEARTLAND EXPRESS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Intangible Assets
Based on the preliminary allocation of the purchase price, the following amounts have been allocated to identifiable intangible assets along with the respective amortization periods:
|
| | | | | | |
| | | (in thousands) | | Life (months) |
| Fair market value of real estate purchase options | | $ | 952 |
| | 25.5 |
| Trade name | | 7,398 |
| | 72.0 |
| Non-compete agreement | | 3,100 |
| | 120.0 |
| Customer relationships | | 7,600 |
| | 240.0 |
| | | $ | 19,050 |
| | |
These preliminary estimates of fair value and useful life could be different from the final acquisition accounting, and the difference could have a material impact on the accompanying pro forma financial statements. The combined effect of any such changes could then also result in a significant increase or decrease to the Company's estimate of associated amortization expense.
Note 4 - Eliminations
GTI historically performed an annual evaluation of all existing relationships to identify situations where GTI had a “variable interest” in a “variable-interest entity” and to determine which of these variable-interest entities must be consolidated with GTI’s financial results. As a part of this annual assessment, management reviewed the nature of the variable interest relationship and whether there had been any significant changes over the past year that result in a change to the original assessment. During the annual assessment, management considered the nature of any lending relationships, as well as the risk profile, including any significant changes of the variable interest.
For the periods presented, GTI held a variable interest in six related entities, further detailed below, which lease real estate and equipment to Gordon Trucking, Inc. and have been consolidated under generally accepted accounting principles. The variable interests identified have been due to debt and debt guarantees provided by GTI; therefore, there are no significant judgments or assumptions used during this evaluation. GTI held a variable interest in six related entities: Cal S&S, LLC; S&S Wisconsin, LLC; S&S Illinois, LLC; Gordon Richardson, LLC; S&S Idaho, LLC; and S&S Indy, LLC.
These entities are consolidated into GTI’s results for the year ended December 31, 2012 and as of and for the nine months ended September 30, 2013. These entities generated rental income totaling approximately $3,362 and $2,423 for the year ended December 31, 2012 and the nine months ended September 30, 2013, respectively, all of which was eliminated in the consolidated financial statements of GTI. The consolidation of these entities represented $22,504 of the GTI’s total consolidated assets as of September 30, 2013, and $15,876 of GTI's total liabilities as of September 30, 2013.
Pursuant to the Stock Purchase Agreement, the Company did not acquire the variable interest entities described above and the associated debt guarantees were eliminated. Therefore all the assets and liabilities and operations associated with these variable interest entities have been eliminated from the historical financial statements of GTI.
Note 5 - Pro Forma Adjustments
The pro forma adjustments in the unaudited pro forma condensed consolidated financial information are as follows:
(A) Reflects consideration paid by the Company of $172.0 million in connection with the acquisition of GTI, including $130.9 million of cash (not considering $20.0 million cash acquired) and $41.1 million of common stock.
(B) To reflect the adjustments made to conform GTI to the accounting policies of the Company.
(C) To reflect the write down of various other current assets.
(D) To reflect the write down of property, plant, and equipment values of GTI to acquisition date fair value based on appraisals
performed.
HEARTLAND EXPRESS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Pro Forma Adjustments (continued)
(E) To reflect the excess of the total consideration transferred over the fair value of tangible and intangible net assets acquired (See Note 2).
(F) To reflect the estimated fair values of identifiable intangibles, $19,050, based on preliminary allocation of the purchase price (See Note 3).
(G) To reflect the estimated fair value of potential additional consideration due to sellers if GTI and the Company achieve certain operational and financial performance targets. Up to a maximum of $20 million is payable in an earn-out for performance through 2017. Differences between future cash payments and the estimated fair value of the initial liability will result in income (expense) in future earnings.
(H) To reflect the elimination of the shareholders' equity accounts of GTI and to reflect the fair value of common stock issued as part of the consideration exchanged.
(I) To reflect the decrease in salaries, wages, and benefits for GTI CEO, Mr. Larry Gordon, that resigned as part of the closing of the acquisition. Mr. Gordon became a board member of the Company and will receive board of director fees accordingly of $40,000 annually.
(J) To reflect the change in terminal facilities rental payments as a result of amended and restated terminal leases entered in conjunction with the acquisition.
(K) To reflect the increase in tires expense due to the amortization of prepaid tires to conform with the accounting methods and amortization period for prepaid tires utilized by the Company.
(L) To reflect the increase in operations and maintenance expense to conform with the accounting methods for revenue equipment decal costs utilized by the Company.
(M) To reflect the increase in depreciation and amortization expense due to (1) the amortization of identifiable intangibles with a definitive life using the straight-line method over the assigned life of each intangible as detailed in Note 3 and (2) net increase in depreciation resulting from the depreciation of property, plant, and equipment based on acquisition date fair value using the Company's accelerated depreciation methods and useful lives consistent with those utilized by the Company. The Company utilizes accelerated depreciation for tractors while GTI previously used straight line depreciation. The increase in amortization expense for the year ended December 31, 2012 and for the nine months ended September 30, 2013 was $2.4 million and $1.8 million, respectively.
(N) To reflect the decrease in miscellaneous expenses for costs associated with an airplane owned by Air GTI, LLC. Gordon Trucking, Inc. was the sole member of Air GTI, LLC and the Company did not acquire Air GTI, LLC as part of the Stock Purchase Agreement.
(O) To reflect the income tax effect of each of the pro forma adjustments, effects of eliminations, and depreciation expense associated with GTI at an effective tax rate of 38.0%. The previous stockholders of GTI had elected to file federal income taxes using S corporation status. Under tax regulations for S corporations, GTI elected to have net income or losses reported on the tax returns of the individual stockholders. Accordingly there was no provision for income taxes. After the acquisition, GTI is a C corporation and will be subject to income taxes.
