Exhibit 99.3
Unaudited Pro Forma Financial Statements
On September 14, 2006, Covenant Transport, Inc., a Nevada corporation (the "Company"), executed and closed a Stock Purchase Agreement whereby the Company acquired 100% of the outstanding capital stock of Star Transportation, Inc., a Tennessee corporation ("Star") from Beth D. Franklin, David D. Dortch, Rose D. Shipp, David W. Dortch, and James F. Brower, Jr.
The aggregate purchase price for the Star stock was approximately $39 million in cash. The Company funded the purchase price for the stock from available borrowing under its revolving line of credit. In addition, Star had an estimated $42 million in existing debt that became part of the Company's consolidated obligations as a result of the transaction.
The unaudited pro forma balance sheet combines the historical balance sheets of the Company and Star as if the transaction had taken place on June 30, 2006. The unaudited pro forma statements of operations for the year ended December 31, 2005 and for the six month period ended June 30, 2006 combine the historical statements of operations of the Company and Star as if the transaction had taken place on January 1, 2005. The historical financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the transaction and (ii) factually supportable. In addition, with respect to the statements of operations, the pro forma events must be expected to have a continuing impact on the combined results.
This information should be read in conjunction with (i) the accompanying notes to the unaudited pro forma financial statements, (ii) the Company’s separate historical audited financial statements as of and for the year ended December 31, 2005, included in its Annual Report on Form 10-K previously filed with the U.S. Securities and Exchange Commission ("SEC"), and (iii) the Company’s separate historical financial information as of and for the six month period ended June 30, 2006, included in its Quarterly Report on Form 10-Q previously filed with the SEC.
The unaudited pro forma financial information is presented for informational purposes only. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had the transaction been completed as of the date indicated. In addition, the unaudited pro forma financial information does not purport to project the future financial position or operating results of the Company after the transaction.
The pro forma adjustments are based on preliminary estimates, available information, and certain assumptions, all as more fully described in the notes to the unaudited pro forma financial statements, and may be revised as additional information becomes available.
COVENANT TRANSPORT, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET As of June 30, 2006 (In thousands) | ||||||||||||||||||||||
Pro Forma Adjustments | ||||||||||||||||||||||
Covenant Transport | Star Transportation | Debit | Credit | Pro Forma Combined | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 2,583 | $ | 11,246 | $ | 12,477 | (f | ) | $ | 1,352 | ||||||||||||
Accounts receivable, net | 69,678 | 9,806 | 35 | (d | ) | 79,449 | ||||||||||||||||
Driver advances and other receivables | 6,693 | 107 | 6,800 | |||||||||||||||||||
Inventory and supplies | 4,656 | 39 | 4,695 | |||||||||||||||||||
Prepaid expenses | 12,585 | 1,334 | 13,919 | |||||||||||||||||||
Assets held for sale | 9,820 | - | 9,820 | |||||||||||||||||||
Deferred income taxes | 16,763 | 106 | 16,869 | |||||||||||||||||||
Income taxes receivable | 6,008 | - | 6,008 | |||||||||||||||||||
Total current assets | 128,786 | 22,638 | 138,912 | |||||||||||||||||||
Net property and equipment | 203,079 | 51,889 | 9,952 | (b | ) | 264,920 | ||||||||||||||||
Other assets, net | 23,825 | 705 | 23,234 | (c | ) | 47,764 | ||||||||||||||||
Total assets | $ | 355,690 | $ | 75,232 | $ | 451,596 | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||
Current maturities of long-term debt | $ | - | $ | 5,881 | $ | 5,881 | ||||||||||||||||
Securitization facility | 47,781 | - | 47,781 | |||||||||||||||||||
Accounts payable | 7,217 | 2,401 | 9,618 | |||||||||||||||||||
Accrued expenses | 17,613 | 2,695 | 178 | (d | ) | 20,486 | ||||||||||||||||
Current portion of insurance and claims accrual | 16,932 | 2,499 | 118 | (d | ) | 19,549 | ||||||||||||||||
Total current liabilities | 89,543 | 13,476 | 103,315 | |||||||||||||||||||
Long-term debt, less current maturities | 24,000 | 33,469 | 38,973 | (e | ) | 96,442 | ||||||||||||||||
Insurance and claims accrual, net of current portion | 19,941 | - | 19,941 | |||||||||||||||||||
Deferred income taxes | 33,494 | 1,061 | 8,631 | (a | ) | 43,186 | ||||||||||||||||
Total liabilities | 166,978 | 48,006 | 262,884 | |||||||||||||||||||
Stockholders' equity: | ||||||||||||||||||||||
Class A common stock | 135 | 1 | 1 | (g | ) | 135 | ||||||||||||||||
Class B common stock | 24 | - | 24 | |||||||||||||||||||
Additional paid-in-capital | 91,823 | - | 91,823 | |||||||||||||||||||
Treasury stock | (21,582 | ) | - | (21,582 | ) | |||||||||||||||||
Accumulated other comprehensive income (loss) | - | 383 | 383 | - | ||||||||||||||||||
Retained earnings | 118,312 | 26,842 | 26,842 | 118,312 | ||||||||||||||||||
Total stockholders' equity | 188,712 | 27,226 | 188,712 | |||||||||||||||||||
Total liabilities and stockholders' equity | $ | 355,690 | $ | 75,232 | $ | 451,596 |
COVENANT TRANSPORT, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2005 (In thousands, except per share data) | |||||||||||||||||||
Pro Forma Adjustments | |||||||||||||||||||
Covenant Transport | Star Transportation | Debit | Credit | Pro Forma Combined | |||||||||||||||
Revenues | |||||||||||||||||||
Freight revenue | $ | 555,428 | $ | 86,387 | $ | 641,815 | |||||||||||||
Fuel surcharges | 87,626 | 11,083 | 98,709 | ||||||||||||||||
Total revenue | 643,054 | 97,470 | 740,524 | ||||||||||||||||
Operating expenses: | |||||||||||||||||||
Salaries, wages, and related expenses | 242,157 | 38,359 | 280,516 | ||||||||||||||||
Fuel, operations and maintenance | 204,207 | 30,459 | 234,666 | ||||||||||||||||
Revenue equipment rentals and purchased transportation | 61,701 | 5,040 | 66,741 | ||||||||||||||||
Operating taxes and licenses | 13,431 | 1,892 | 15,323 | ||||||||||||||||
Insurance and claims | 41,034 | 4,789 | 45,823 | ||||||||||||||||
Communications and utilities | 6,579 | 858 | 7,437 | ||||||||||||||||
General supplies and expenses | 17,778 | 2,895 | 20,673 | ||||||||||||||||
Depreciation and amortization, including gains (losses) on disposition of equipment | 39,101 | 5,618 | 562 | (h | ) | 45,281 | |||||||||||||
Total operating expenses | 625,988 | 89,910 | 716,460 | ||||||||||||||||
Operating income | 17,066 | 7,560 | 24,064 | ||||||||||||||||
Other (income) expenses: | |||||||||||||||||||
Interest expense | 4,203 | 1,237 | 1,218 | (i | ) | 6,658 | |||||||||||||
Interest income | (273 | ) | (76 | ) | (349 | ) | |||||||||||||
Other | (538 | ) | - | (538 | ) | ||||||||||||||
Other expenses, net | 3,392 | 1,161 | 5,771 | ||||||||||||||||
Income before income taxes | 13,674 | 6,399 | 18,293 | ||||||||||||||||
Income tax expense | 8,003 | 638 | 1,129 | (j | ) | 9,770 | |||||||||||||
Income before cumulative effect of change in accounting principle | 5,671 | 5,761 | 8,523 | ||||||||||||||||
Cumulative effect of change in accounting principle, net of tax | (485 | ) | - | (485 | ) | ||||||||||||||
Net income (loss) | $ | 5,186 | $ | 5,761 | $ | 8,038 | |||||||||||||
Net income (loss) per share: | |||||||||||||||||||
Basic earnings (loss) per share: | $ | 0.37 | $ | 0.57 | |||||||||||||||
Diluted earnings (loss) per share: | $ | 0.37 | $ | 0.56 | |||||||||||||||
Basic weighted average shares outstanding | 14,175 | 14,175 | |||||||||||||||||
Diluted weighted average shares outstanding | 14,270 | 14,270 |
COVENANT TRANSPORT, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS PERIOD ENDED JUNE 30, 2006 (In thousands, except per share data) | |||||||||||||||||||
Pro Forma Adjustments | |||||||||||||||||||
Covenant Transport | Star Transportation | Debit | Credit | Pro Forma Combined | |||||||||||||||
Revenues | |||||||||||||||||||
Freight revenue | $ | 268,778 | $ | 46,139 | $ | 314,917 | |||||||||||||
Fuel surcharges | 52,109 | 7,296 | 59,405 | ||||||||||||||||
Total revenue | 320,887 | 53,435 | 374,322 | ||||||||||||||||
Operating expenses: | |||||||||||||||||||
Salaries, wages, and related expenses | 123,063 | 19,812 | 142,875 | ||||||||||||||||
Fuel, operations and maintenance | 109,488 | 18,084 | 127,572 | ||||||||||||||||
Revenue equipment rentals and purchased transportation | 30,136 | 1,613 | 31,749 | ||||||||||||||||
Operating taxes and licenses | 6,767 | 1,003 | 7,770 | ||||||||||||||||
Insurance and claims | 16,414 | 2,361 | 18,775 | ||||||||||||||||
Communications and utilities | 3,117 | 484 | 3,601 | ||||||||||||||||
General supplies and expenses | 10,044 | 1,564 | 11,608 | ||||||||||||||||
Depreciation and amortization, including gains (losses) on disposition of equipment | 18,555 | 3,606 | 281 | (k | ) | 22,442 | |||||||||||||
Total operating expenses | 317,584 | 48,527 | 366,392 | ||||||||||||||||
Operating income | 3,303 | 4,908 | 7,930 | ||||||||||||||||
Other (income) expenses: | |||||||||||||||||||
Interest expense | 2,199 | 843 | 1,049 | (l | ) | 4,091 | |||||||||||||
Interest income | (259 | ) | (154 | ) | (413 | ) | |||||||||||||
Other | (75 | ) | - | (75 | ) | ||||||||||||||
Other expenses, net | 1,865 | 689 | 3,603 | ||||||||||||||||
Income before income taxes | 1,438 | 4,219 | 4,327 | ||||||||||||||||
Income tax expense | 2,721 | 274 | 831 | (j | ) | 3,826 | |||||||||||||
Net income (loss) | $ | (1,283 | ) | $ | 3,945 | $ | 501 | ||||||||||||
Net income (loss) per share: | |||||||||||||||||||
Basic earnings (loss) per share: | $ | (0.09 | ) | $ | 0.04 | ||||||||||||||
Diluted earnings (loss) per share: | $ | (0.09 | ) | $ | 0.04 | ||||||||||||||
Basic weighted average shares outstanding | 13,991 | 13,991 | |||||||||||||||||
Diluted weighted average shares outstanding | 13,991 | 13,991 |
Notes to the Unaudited Pro Forma Financial Statements
The notes to the unaudited pro forma financial statements that follow are intended to provide additional information regarding the effect of the pro forma adjustments on the consolidated financial statements.
(a) | To record federal deferred tax liability upon conversion from an S-corporation to a C-corporation. | ||
(b) | To record real estate and revenue equipment to fair market value. | ||
(c) | To record various items: | ||
Deferred acquisition costs | $ 245 | ||
Write-off previously acquired goodwill | (156) | ||
Goodwill | 19,995 | ||
Tradename | 1,950 | ||
Customer Contracts | 1,200 | ||
$ 23,234 | |||
(d) | To revise certain estimates based on Covenant's review of the balance sheet. | ||
(e) | To record cash paid to selling shareholders and deferred acquisition costs. | ||
(f) | To record cash distributed to shareholders prior to closing of acquisition. | ||
(g) | To record the acquisition of 100% of the outstanding stock of Star for a purchase price of $38,973,000. | ||
(h) | To record twelve months of amortization for the tradename and customer contracts. | ||
(i) | To record interest expense for the twelve months associated with the purchase of the stock. $38,793,000 purchase price for the stock at an average interest rate of 3.14%. | ||
(j) | To adjust Star's tax expense to a blended rate of 38.25%. | ||
(k) | To record six months of amortization for the tradename and customer contracts. | ||
(l) | To record interest expense for the six months associated with the purchase of the stock. $38,793,000 purchase price for the stock at an average interest rate of 5.41%. |
Reclassifications
Certain reclassifications have been made to the Star Transportation, Inc. December 31, 2005 unaudited proforma income statement in order to conform with the Covenant Transport, Inc. presentation. These reclassifications have no effect on net income as previously reported.