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8-K - 8-K - Echo Global Logistics, Inc.a15-9485_28k.htm
EX-99.1 - EX-99.1 - Echo Global Logistics, Inc.a15-9485_2ex99d1.htm
EX-23.1 - EX-23.1 - Echo Global Logistics, Inc.a15-9485_2ex23d1.htm

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

 

The following sets forth certain unaudited pro forma condensed combined financial data of Echo Global Logistics, Inc. (“we,” “us,” “our,” the “Company” or “Echo”), after giving effect to our completion of the acquisition of all of the outstanding membership units of Command Transportation, LLC (“Command”) (the “Command Acquisition”), including the sale and issuance of an assumed $150 million aggregate principal amount of convertible senior notes and the sale and issuance of 5,000,000 shares of our common stock at an assumed public offering price of $33.82 per share, the last reported sale price of our common stock on The NASDAQ Global Select Market on April 23, 2015, in separate public offerings, and borrowings of $100 million under a $200 million senior secured asset-based revolving credit facility (the “New ABL Facility”) and a $300 million senior secured term loan facility (the “New Term Loan Facility” and, together with the New ABL Facility, the “Credit Facilities”), the aggregate net proceeds of which will be used to finance the Command Acquisition.

 

The unaudited pro forma condensed combined financial data set forth below has been presented for informational purposes only. The unaudited pro forma condensed combined financial data set forth below is not necessarily indicative of what our financial position or results of operations actually would have been had the Command Acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial data does not purport to project the future financial position or operating results of the combined company. There were no transactions between us and Command during the periods presented in the unaudited pro forma condensed combined financial statements that would need to be eliminated.

 

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 assumes that the Command Acquisition took place on January 1, 2014.  Our condensed consolidated statement of operations, derived from our audited financial statements for the year ended December 31, 2014, has been combined with Command’s audited consolidated statement of operations for the same period.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2014 assumes that the Command Acquisition took place on December 31, 2014 and combines our December 31, 2014 audited consolidated balance sheet with Command’s December 31, 2014 audited consolidated balance sheet.

 

Our historical consolidated financial data has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Command Acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined company. The unaudited pro forma condensed combined financial data should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined information set forth below. In addition, the unaudited pro forma combined financial data was based on and should be read in conjunction with our historical consolidated financial statements and accompanying notes and the historical consolidated financial statements of Command included in this Current Report on Form 8-K.

 

The unaudited pro forma condensed combined financial data has been prepared using the acquisition method of accounting under GAAP, which is subject to change and interpretation. We have been treated as the acquiror in the Command Acquisition for accounting purposes. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial data. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position.

 

The unaudited pro forma condensed combined financial data does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Command Acquisition, the costs to combine our operations with those of Command or the costs necessary to achieve any of the foregoing cost savings, operating synergies and revenue enhancements. The unaudited pro forma condensed combined financial data also reflects the convertible senior notes and common stock contemplated to be issued and sold and borrowings under the Credit Facilities to finance the Command Acquisition.

 



 

Echo Global Logistics, Inc. and Command Transportation, LLC

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2014

 

 

 

Historical

 

Pro Forma

 

 

 

Pro Forma

 

 

 

 

Echo

 

Command

 

Adjustments

 

 

 

Combined

 

 

Revenue

 

$

1,173,382,760

 

$

561,059,709

 

$

 

 

 

$

1,734,442,469

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Transportation costs

 

965,165,330

 

459,270,886

 

 

 

 

1,424,436,216

 

 

Selling, general, and administrative expenses

 

166,812,670

 

78,277,409

 

10,000,000

 

1

 

255,090,079

 

 

Depreciation and amortization

 

13,876,079

 

1,524,704

 

14,480,000

 

2

 

29,880,783

 

 

Income from operations

 

27,528,681

 

21,986,710

 

(24,480,000

)

 

 

25,035,391

 

 

Interest expense

 

(105,404

)

(403,330

)

(11,193,870

)

3,4

 

(11,702,604

)

 

Other expense

 

(144,128

)

 

 

 

 

(144,128

)

 

Other expense, net

 

(249,532

)

(403,330

)

(11,193,870

)

 

 

(11,846,732

)

 

Income before provision for income taxes

 

27,279,149

 

21,583,380

 

(35,673,870

)

 

 

13,188,659

 

 

Income tax expense

 

(10,491,591

)

 

5,354,386

 

5

 

(5,137,205

)

 

Net income

 

16,787,558

 

21,583,380

 

(30,319,484

)

 

 

8,051,454

 

 

Net income applicable to common shareholders

 

$

16,787,558

 

$

21,583,380

 

$

(30,319,484

)

 

 

$

8,051,454

 

 

Basic earnings per share

 

$

0.73

 

$

 

$

 

 

 

$

0.28

 

6

Diluted earnings per share

 

$

0.71

 

$

 

$

 

 

 

$

0.27

 

7

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

 



 

Echo Global Logistics, Inc. and Command Transportation, LLC

Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2014

 

 

 

Historical

 

Pro Forma

 

 

 

Pro Forma

 

 

 

Echo

 

Command

 

Adjustments

 

 

 

Combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,542,119

 

$

14,994,545

 

$

(14,300,362

)

8,9,10

 

$

33,236,302

 

Accounts receivable, net of allowance

 

145,198,419

 

70,393,213

 

 

 

 

215,591,632

 

Income taxes receivable

 

1,968,511

 

 

 

 

 

1,968,511

 

Prepaid expenses

 

2,849,011

 

825,890

 

 

 

 

3,674,901

 

Deferred income taxes

 

995,171

 

 

 

 

 

995,171

 

Other current assets

 

2,114,356

 

 

1,600,000

 

9

 

3,714,356

 

Total current assets

 

$

185,667,587

 

$

86,213,648

 

$

(12,700,362

)

 

 

$

259,180,873

 

Property and equipment, net

 

21,276,709

 

3,929,874

 

 

 

 

 

25,206,583

 

Intangibles and other assets:

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

77,909,537

 

 

210,028,386

 

11

 

287,937,923

 

Intangible assets, net of accumulated amortization

 

30,871,423

 

 

146,000,000

 

12

 

176,871,423

 

Other assets

 

318,938

 

 

6,400,000

 

9

 

6,718,938

 

Total long-term assets

 

$

130,376,607

 

$

3,929,874

 

$

362,428,386

 

 

 

$

496,734,867

 

Total assets

 

$

316,044,194

 

$

90,143,522

 

$

349,728,024

 

 

 

$

755,915,740

 

Liabilities and stockholders’/members’ equity

 

 

 

 

 

 

 

 

 

 

 

Accounts payable—trade

 

$

85,999,784

 

$

10,415,575

 

$

 

 

 

$

96,415,359

 

Due to seller—short term

 

4,243,088

 

 

 

 

 

4,243,088

 

Accrued expenses

 

19,496,000

 

8,890,971

 

 

 

 

28,386,971

 

Current portion of deferred compensation liabilities

 

 

5,909,185

 

(5,909,185

)

8

 

 

Notes Payable

 

17,507,500

 

 

 

 

 

17,507,500

 

Total current liabilities

 

$

127,246,372

 

$

25,215,731

 

$

(5,909,185

)

 

 

$

146,552,918

 

Bond payable

 

 

 

134,040,000

 

13,14

 

134,040,000

 

Additional Lending Facility

 

 

 

100,000,000

 

15

 

100,000,000

 

Due to seller—long term

 

1,087,990

 

 

 

 

 

1,087,990

 

Long-term portion of deferred compensation liabilities

 

 

10,508,620

 

(10,508,620

)

8

 

 

Other noncurrent liabilities

 

1,502,019

 

 

 

 

 

1,502,019

 

Deferred income taxes

 

4,333,635

 

 

6,064,800

 

14

 

10,398,435

 

Total long-term liabilities

 

$

6,923,644

 

$

10,508,620

 

$

229,596,180

 

 

 

$

247,028,444

 

Total liabilities

 

$

134,170,016

 

$

35,724,351

 

$

223,686,995

 

 

 

$

393,581,362

 

Stockholders’/members’ equity:

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.0001 per share

 

2,322

 

 

544

 

13

 

2,866

 

Additional paid-in capital

 

112,688,360

 

 

183,869,656

 

13,14

 

296,558,016

 

Retained earnings/members’ equity

 

69,183,496

 

54,419,171

 

(57,829,171

)

16,17

 

65,773,496

 

Total stockholders’/members’ equity

 

$

181,874,178

 

$

54,419,171

 

$

126,041,029

 

 

 

$

362,334,378

 

Total liabilities and stockholders’/members’ equity

 

$

316,044,194

 

$

90,143,522

 

$

349,728,024

 

 

 

$

755,915,740

 

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

 



 

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

(1)                                 As part of the Command Acquisition, Command management entered into new employment agreements with Echo Global Logistics which provide for stock compensation. Based on the contractual nature of the agreements, the adjustments reflect the change in stock compensation under each agreement. Stock compensation under the new agreements would have been $10,000,000 for the year ended December 31, 2014. The stock compensation expense recognized in the pro forma financial statements for the new arrangements includes only the time-based awards granted.

 

(2)                                 To record pro forma amortization expense of $14,480,000 for the 12 months ended December 31, 2014. Pro forma amortization is calculated as follows:

 

Asset

 

Fair Value

 

Useful Life

 

Estimated
Amortization

 

Trademarks/Trade Name

 

$

7,000,000

 

7 Years

 

1,000,000

 

Technology

 

$

3,000,000

 

3 Years

 

1,000,000

 

Customer Relationships

 

$

132,000,000

 

15 Years

 

11,680,000

 

Non-Competition Agreements

 

$

4,000,000

 

5 Years

 

800,000

 

Total Fair Value

 

$

146,000,000

 

 

 

 

 

 

Amortization expense has been calculated using the accelerated method for customer relationships over the estimated useful life. Amortization expense has been calculated using the straight-line method over the estimated useful life for other intangible assets.

 

(3)                                 Represents the removal of interest related expense of Command of $403,330 for the 12 months ended December 31, 2014. Command had borrowings outstanding from its majority member under a note payable agreement at certain points in 2014. From time to time, Command actively increased borrowings from the majority member and also made payments to the majority member in order to repay borrowings. Interest on the outstanding borrowings was applied at 6.00% per annum in order to repay borrowings. There were no amounts outstanding as of December 31, 2014. The note payable agreement was dissolved as part of the Command Acquisition. This amount is removed from interest expense.

 

(4)                                 Represents the interest expense incurred on the $150,000,000 convertible note offering and the expected interest expense related to borrowings on the New ABL Facility. See Notes 14 and 15 for the expected terms of the respective arrangements. Interest expense includes the amortization of loan commitment fees. As the fees are fixed and determinable, the fees are recognized as an adjustment of yield over the related loan’s life.

 

(5)                                 Reflects the income tax effects of the historical results of Command and the pro forma adjustments for the 12 month period ended December 31, 2014 using the statutory rate of 38.0%.

 

(6)                                 Reflects adjustments to the denominator of basic earnings per share giving effect to the 5,000,000 shares issued in the anticipated equity offering and an assumed 443,525 shares issued as consideration for the business as if they occurred January 1, 2014, the beginning of the period presented.

 

(7)                                 Reflects adjustments to the pro forma diluted earnings per share by giving effect to the dilutive impact of the number of shares issued in relation to the $10,000,000 of restricted stock granted to several key Command employees as part of the Unit Purchase Agreement. The restricted stock will be issued at the closing and vests after one year. There is no dilutive impact of the shares that may be issued in relation to the issuance of convertible notes as the conversion price exceeds the current market price.

 


 


 

(8)                                 Represents an adjustment for the payment of the deferred compensation liabilities of Command of $16,417,805 that will not be assumed by Echo. A preliminary purchase price allocation is below:

 

Purchase Price To Be Paid

 

Amount

 

Cash Paid to Seller

 

396,572,557

 

Value of Shares Issued to Sellers

 

13,875,000

 

Total

 

410,447,557

 

 

 

 

 

Purchase Price Allocation

 

 

 

Purchase Price

 

410,447,557

 

Less: Fair value of net assets acquired

 

(54,419,171

)

Less: Fair value of trademarks/trade names

 

(7,000,000

)

Less: Technology acquired

 

(3,000,000

)

Less: Fair value of non-compete agreements

 

(4,000,000

)

Less: Fair value of customer relationships

 

(132,000,000

)

Fair value of goodwill

 

210,028,386

 

 

(9)                                 Cash amount is reduced for $11,410,000 of fees that will be paid out of available cash. $8,000,000 of the $11,410,000 fees relate to commitment fees related to the convertible notes (Note 14) and the New ABL Facility (Note 15). These are divided between short-term and long-term portions of the fees. The remaining $3,410,000, which are advisory, legal and other directly related transaction costs will be paid in cash and are transaction related costs. The $3,410,000 is presented after affecting the items for income tax. As these transaction expenses are not expected to have an ongoing impact, they are not reflected in the unaudited pro forma condensed combined statement of operations.

 

(10)                          Sources and uses of cash:

 

Sources of cash:

 

 

 

Offering of common stock (net of issuance costs)

 

$

160,100,000

 

Offering of convertible notes

 

150,000,000

 

Drawdown from New ABL Facility

 

100,000,000

 

Total sources of cash

 

410,100,000

 

Uses of cash:

 

 

 

Convertible notes issuance and New ABL Facility costs

 

(8,000,000

)

Acquisition costs

 

(3,410,000

)

Cash acquisition purchase price

 

(396,572,557

)

Payment of Command deferred compensation liability

 

(16,417,805

)

Total uses of cash

 

(424,400,362

)

Net cash adjustment

 

$

(14,300,362

)

 

(11)                          Records the preliminary fair value of goodwill resulting from the pro forma allocation of the purchase price as if the Command Acquisition had occurred using a preliminary purchase price estimate of $410,447,557. See Note 8 above for a preliminary purchase price allocation. Goodwill resulting from the Command Acquisition is not amortized, and will be assessed for impairment at least annually in accordance with applicable accounting guidance on goodwill. The goodwill resulting from the Command Acquisition is deductible for income tax purposes.

 



 

(12)                          Represents the preliminary allocation of purchase price to identifiable intangible assets, as follows:

 

Trademarks/Trade Name:

 

$

7,000,000

 

Technology:

 

$

3,000,000

 

Customer Relationships:

 

$

132,000,000

 

Non-Competition Agreements:

 

$

4,000,000

 

 

(13)                          The pro forma financial statements reflect the assumed issuance of 5,000,000 shares of common stock, the issuance of $150,000,000 of convertible notes and the draw of $100,000,000 from the New ABL Facility to fund the purchase price and related fees. Net proceeds from the equity offering after associated fees are expected to be $160,100,000. Not included in the 5,000,000 shares of common stock to be issued is $13,875,000 of new common stock issued to the Sellers as part of the consideration transferred. The equity to be issued to Seller has been adjusted from $15,000,000 for a marketability discount related to the holding period restriction associated with the common stock issued as consideration in the Command Transaction. Using a closing price on April 23, 2015 of $33.82, 443,525 shares would be issued to Sellers in addition to the 5,000,000 issued in relation to the new equity offering. A $1.00 increase in the issue price of Echo Global Logistics, Inc. common stock would decrease the number of shares issued to the Sellers by 12,738. A $1.00 decrease in the issue price of Echo Global Logistics, Inc. common stock would increase the number of shares issued to the Sellers by 13,514. In the event that the Company is unable to secure the contemplated equity and convertible note financing for the Command Acquisition, it has arranged for the New Term Loan Facility with Morgan Stanley, Credit Suisse and PNC to finance the Command Acquisition. The New Term Loan Facility will bear interest at Echo’s option at a rate based on LIBOR or an adjusted base rate, plus the applicable margin. The applicable margin on the base rate will be 3.75% and 4.75% on the LIBOR option. There is a 1% floor on LIBOR. The New Term Loan Facility will mature 7 years from the closing date.

 

(14)                          Represents the liability recorded in association with the debt portion of an anticipated convertible note offering. The total offering size is $150,000,000 with a five year maturity. These instruments will be unsecured senior notes. The anticipated coupon rate is expected to be between 2.75% and 3.25%. The expected conversion premium will be between 27.5% - 32.5% of the market price on the date of issuance. It is anticipated that the debt obligation will be settled in cash with an additional premium settled in shares. The debt portion of the instrument has been recorded at $134,040,000. $15,960,000 of the total $150,000,000 instrument was allocated to the conversion feature. In relation, a deferred tax liability of $6,064,800 was created for the conversion feature using the statutory tax rate of 38%.

 

(15)                          Represents the anticipated borrowings under the New ABL Facility. The New ABL Facility will be secured by the Company’s accounts receivable and subject to borrowing base requirements. The New ABL Facility bears interest at the Echo’s option based upon LIBOR or the base rate plus a margin determined by the excess availability. The New ABL Facility bears interest at Adjusted LIBOR plus a range from 1.50%-2.00% determined on excess availability or at an alternate base rate plus a range from 0.50% - 1.00% determined on excess availability.

 

(16)                          Reflects adjustments to eliminate Command’s historical members’ equity of $54,419,171.

 

(17)                          Reflects adjustments to account for transaction costs of $3,410,000 (net of tax) related to the Command Acquisition. As the transaction expenses will not have a continuing impact, the transaction expenses are not reflected in the unaudited pro forma condensed combined statement of operations.