EX-99.5 4 proformafinancialstatement.htm EXHIBIT 99.5 Exhibit
Exhibit 99.5

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

On July 6, 2017, Heartland Express, Inc. of Iowa, a wholly owned subsidiary of Heartland Express, Inc. a Nevada corporation (the "Company”) acquired Interstate Distributor Co., a Washington corporation (“IDC”) for $113 million of total consideration payable in cash, and the assumption of certain indebtedness of IDC, net of approximately $4 million of cash acquired. The purchase price is subject to further adjustments, including a post-closing invested capital true-up. In accordance with Internal Revenue Code Section 1361(b)(3)(C)(ii)(I) and (II), the transaction will be treated for tax purposes as a sale of the assets of IDC by the seller to the Company, immediately followed by the Company's contribution of such assets to IDC under Internal Revenue Code Section 351. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.

The unaudited pro forma consolidated financial information is based on the assumptions set forth in the notes to such information. These adjustments are provisional and subject to further adjustment as additional information becomes available, additional analyses are performed, and as warranted by changes in current conditions and future expectations. 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 IDC 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 statements of income, are expected to have a continuing impact on the consolidated results. The final purchase price and the allocation thereof and other purchase accounting items may differ materially from that reflected in the pro forma condensed consolidated financial statements after final purchase accounting adjustments including invested 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 may result from the integration of the companies.

These unaudited pro forma 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, 2016, 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, 2016, which was filed with the SEC on February 28, 2017 and (2) the Company’s unaudited consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2017 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 June 30, 2017, which was filed with the SEC on August 9, 2017, (3) IDC’s audited financial statements for the year ended December 31, 2016, included as exhibit 99.3 to this Form 8-K/A, and (4) IDC’s unaudited financial statements for the six months ended June 30, 2017 and 2016, included as exhibit 99.4 to this Form 8-K/A.

The actual operating results for IDC will be consolidated with the Company’s operating results for all periods subsequent to the acquisition date of July 6, 2017.
    
The unaudited pro forma consolidated statement of comprehensive income of the Company and IDC for the year ended December 31, 2016 gives effect to the acquisition of IDC by the Company as if it had occurred effective January 1, 2016, the beginning of the Company’s 2016 fiscal year.

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The unaudited pro forma consolidated statement of comprehensive income of the Company and IDC for the six months ended June 30, 2017 gives effect to the acquisition of IDC by the Company as if it had occurred effective January 1, 2017, the beginning of the Company’s 2017 fiscal year.

The unaudited pro forma consolidated balance sheet of the Company and IDC as of June 30, 2017 gives effect to the acquisition of IDC by the Company as if it had occurred effective June 30, 2017.


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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)
 
 
June 30, 2017
ASSETS
 
Heartland
Express
 
Interstate Distributor
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
Consolidated
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
171,292

 
$
5,586

 
$
(111,607
)
 
(A)(L)
 
$
65,271

Trade receivables, net
 
43,844

 
33,560

 
—

 
 
 
77,404

Prepaid tires
 
9,586

 
—

 
1,061

 
(B)
 
10,647

Other current assets
 
24,736

 
6,037

 
6,889

 
(B)(L)
 
37,662

Income tax receivable
 
2,983

 
—

 
—

 
 
 
2,983

Total current assets
 
252,441

 
45,183

 
(103,657
)
 
 
 
193,967

PROPERTY AND EQUIPMENT, NET
 
373,805

 
$
105,467

 
$
(33,473
)
 
(C)
 
445,799

GOODWILL
 
100,212

 
—

 
30,655

 
(D)
 
130,867

OTHER INTANGIBLES, NET
 
11,128

 
—

 
4,300

 
(E)
 
15,428

DEFERRED INCOME TAXES, NET
 
1,355

 
—

 
—

 
 
 
1,355

OTHER ASSETS
 
12,199

 
5,271

 
7,262

 
(B)(L)(M)
 
24,732

 
 
$
751,140

 
$
155,921

 
$
(94,913
)
 

 
$
812,148

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
10,040

 
$
6,274

 
$
374

 
(B)
 
$
16,688

Compensation and benefits
 
22,346

 
—

 
—

 
 
 
22,346

Insurance accruals
 
17,890

 
—

 
7,144

 
(L)
 
25,034

Other accruals
 
12,038

 
18,225

 
(7,144
)
 
(L)
 
23,119

Due to Parent
 
—

 
10,038

 
(10,038
)
 
(A)
 
—

Due to Related Party
 
—

 
1,282

 
—

 
 
 
1,282

Current portion of long-term debt
 
—

 
6,035

 
—

 
 
 
6,035

Total current liabilities
 
62,314

 
41,854

 
(9,664
)
 

 
94,504

LONG-TERM LIABILITIES
 
 
 
 
 
 
 
 
 
 
Income taxes payable
 
7,725

 
—

 
—

 
 
 
7,725

Long term debt
 
—

 
17,404

 
—

 
 
 
17,404

Deferred income taxes, net
 
93,416

 
—

 
—

 
 
 
93,416

Insurance accruals
 
56,377

 
—

 
10,818

 
(L)
 
67,195

Other long-term liabilities
 
—

 
$
11,414

 
(10,818
)
 
(L)
 
596

Total long-term liabilities
 
157,518

 
28,818

 
—

 

 
186,336

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Capital stock, common, $.01 par value; authorized 395,000 shares; issued 90,689 shares; outstanding 83,297 shares.
 
907

 
2

 
(2
)
 
(F)
 
907

Additional paid-in capital
 
3,452

 
42,524

 
(42,524
)
 
(F)
 
3,452

Retained earnings
 
650,987

 
42,723

 
(42,723
)
 
(F)
 
650,987

Treasury stock, at cost
 
(124,038
)
 
—

 
—

 
 
 
(124,038
)
 
 
531,308

 
85,249

 
(85,249
)
 

 
531,308

 
 
$
751,140

 
$
155,921

 
$
(94,913
)
 

 
$
812,148

See accompanying notes to unaudited pro forma consolidated financial statements.

3



HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
 
 
Six Months Ended June 30, 2017
 
 
Heartland
Express
 
Interstate
Distributor
 
Pro Forma
Adjustments
Notes
Pro Forma
Consolidated
 
 
 
 
 
 
 
 
 
OPERATING REVENUE
 
$
259,518

 
$
149,162

 
$
—

 
$
408,680

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Salaries, wages and benefits
 
$
97,621

 
58,117

 
—

 
155,738

Rent and purchased transportation
 
4,682

 
35,837

 
1,378

(G)
41,897

Fuel
 
43,991

 
20,428

 
—

 
64,419

Operations and maintenance
 
12,830

 
19,042

 
(721
)
(H)(I)
31,151

Operating taxes and licenses
 
6,435

 
6,258

 
—

 
12,693

Insurance and claims
 
7,361

 
6,482

 
—

 
13,843

Communications and utilities
 
2,136

 
—

 
—

 
2,136

Depreciation and amortization
 
45,534

 
10,294

 
(4,857
)
(J)
50,971

Other operating expenses
 
10,627

 
—

 
—

 
10,627

Gain on disposal of property and equipment
 
(12,375
)
 
—

 
—

 
(12,375
)
 
 
218,842

 
156,458

 
(4,200
)
 
371,100

 
 
 
 
 
 
 
 
 
Operating income (loss)
 
40,676

 
(7,296
)
 
4,200

 
37,580

 
 
 
 
 
 
 
 
 
Interest income
 
713

 
—

 
—

 
713

 
 
 
 
 
 
 
 
 
Interest Expense
 
—

 
(693
)
 
—

 
(693
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
41,389

 
(7,989
)
 
4,200

 
37,600

 
 
 
 
 
 
 
 
 
Federal and state income taxes
 
12,736

 
—

 
(1,459
)
(K)
11,277

 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
28,653

 
$
(7,989
)
 
5,659

 
$
26,323

Other comprehensive (loss), net of tax
 
—

 
$
(91
)
 
—

 
(91
)
Comprehensive income (loss)
 
$
28,653

 
$
(8,080
)
 
$
5,659

 
$
26,232

 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
Basic
 
$
0.34

 
 
 
 
 
$
0.32

Diluted
 
$
0.34

 
 
 
 
 
$
0.32

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
Basic
 
83,293

 
 
 
—

 
83,293

Diluted
 
83,337

 
 
 
—


83,337


See accompanying notes to unaudited pro forma consolidated financial statements.

4



HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
 
 
Year Ended December 31, 2016
 
 
Heartland
Express
 
Interstate
Distributor
 
Pro Forma
Adjustments
Notes
Pro Forma
Consolidated
 
 
 
 
 
 
 
 
 
OPERATING REVENUE
 
$
612,937

 
$
325,070

 
$
—

 
$
938,007

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Salaries, wages and benefits
 
$
231,980

 
$
120,778

 
$
—

 
352,758

Rent and purchased transportation
 
23,485

 
77,190

 
2,756

(G)
103,431

Fuel
 
91,494

 
40,773

 
—

 
132,267

Operations and maintenance
 
26,159

 
37,303

 
(2,753
)
(H)(I)
60,709

Operating taxes and licenses
 
15,559

 
13,963

 
—

 
29,522

Insurance and claims
 
24,449

 
14,949

 
—

 
39,398

Communications and utilities
 
4,485

 
—

 
—

 
4,485

Depreciation and amortization
 
105,578

 
23,854

 
(2,455
)
(J)
126,977

Other operating expenses
 
13,385

 
—

 
—

 
13,385

Gain on disposal of property and equipment
 
(9,205
)
 
—

 
—

 
(9,205
)
 
 
527,369

 
328,810

 
(2,452
)
 
853,727

 
 
 
 
 
 
 
 
 
Operating income
 
85,568

 
(3,740
)
 
2,452

 
84,280

 
 
 
 
 
 
 
 
 
Interest income
 
481

 
—

 
—

 
481

 
 
 
 
 
 
 
 
 
Interest Expense
 
—

 
(2,425
)
 
—

 
(2,425
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
86,049

 
(6,165
)
 
2,452

 
82,336

 
 
 
 
 
 
 
 
 
Federal and state income taxes
 
29,663

 
—

 
(1,430
)
(K)
28,233

 
 
 
 
 
 
 
 
 
Net income
 
$
56,386

 
$
(6,165
)
 
$
3,882

 
54,103

Other comprehensive income, net of tax
 
—

 
$
119

 
—

 
119

Comprehensive income
 
$
56,386

 
$
(6,046
)
 
$
3,882

 
$
54,222

 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
Basic
 
$
0.68

 
 
 
 
 
$
0.65

Diluted
 
$
0.68

 
 
 
 
 
$
0.65

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
Basic
 
83,297

 
 
 
—

 
83,297

Diluted
 
83,365

 
 
 
—

 
83,365


See accompanying notes to unaudited pro forma consolidated financial statements.

5



HEARTLAND EXPRESS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of transaction

On July 6, 2017, Heartland Express, Inc. of Iowa, a wholly owned subsidiary of Heartland Express, Inc. a Nevada corporation (the "Company”) acquired Interstate Distributor Co., a Washington corporation (“IDC”) for $113 million of total consideration payable in cash, and the assumption of certain indebtedness of IDC, net of approximately $4 million of cash acquired. The purchase price is subject to further adjustments, including a post-closing invested capital true-up. In accordance with Internal Revenue Code Section 1361(b)(3)(C)(ii)(I) and (II), the transaction will be treated for tax purposes as a sale of the assets of IDC by the seller to the Company, immediately followed by the Company’s contribution of such assets to IDC under Internal Revenue Code Section 351. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.

IDC is primarily a short-to medium-haul, asset-based dry van truckload service carrier for major shippers primarily in the United States. In addition to asset-based dry van service offerings, IDC also offers asset-based temperature-controlled truckload services and non-asset-based freight brokerage services.

Note 2 - Estimate of Assets Acquired and Liabilities Assumed    

The fair value of the total consideration transferred was $93.9 million, net of approximately $4 million of cash balances acquired. A summary of the preliminary purchase price allocation with the acquisition of IDC, as if the transaction occurred on June 30, 2017, is as follows:
 
 
 
 
(in thousands)
Cash paid, net of cash acquired
 
 
 
$
93,943

 
 
 
 


Allocated to:
 
 
 
 
Historical book value of IDC's assets and liabilities, net of cash acquired
 
$
85,249

 
 
Adjustments to recognize assets and liabilities at acquisition-date fair value:
 
 
 
 
      Property, plant, and equipment
 
(33,473
)
 
 
      Other assets
 
(2,452
)
 
 
      Liabilities
 
9,664

 
 
      Fair value of tangible net assets acquired
 
 
 
58,988

Identifiable intangibles at acquisition-date fair value
 
 
 
4,300

Excess of consideration transferred over the net amount of assets and liabilities recognized.
 
 
 
$
30,655


 
(in thousands)
Cash paid pursuant to Stock Purchase Agreement
$
93,943

Cash acquired included in historical book value of IDC assets and liabilities
(4,003
)
   Net cash paid
$
89,940

 
 
Debt assumption
23,439

Total purchase price
$
113,379


Deferred income taxes arising from the acquisition are immaterial because of the treatment of the transaction under the Internal Revenue Code Sections 1361(b)(3)(C)(ii)(I) and (II) and 351.







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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)
Trade name
 
400

 
6
Non-compete agreement (Former Employee)
 
200

 
12
Non-compete agreement (Seller)
 
900

 
60
Customer relationships
 
2,800

 
300
 
 
$
4,300

 
 

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 - 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 $113.4 million in connection with the acquisition of IDC, including $93.9 million of cash (not considering $4.0 million cash acquired).

(B) To reflect the adjustments made to conform IDC to the accounting policies of the Company.

(C) To reflect the write down of property, plant, and equipment values of IDC to acquisition date fair value based on appraisals
performed.

(D) To reflect the excess of the total consideration transferred over the fair value of tangible and intangible net assets acquired (See Note 2).

(E) To reflect the estimated fair values of identifiable intangibles, $4.3 million, based on preliminary allocation of the purchase price (See Note 3).

(F)   To reflect the elimination of the shareholders' equity accounts of IDC.

(G) To reflect the change in terminal facilities rental payments as a result of amended and restated terminal leases entered into in conjunction with the acquisition.

(H) To reflect the increase in operations and maintenance expense to conform with the accounting methods for revenue equipment decal costs utilized by the Company.

(I) To reflect the decrease 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.

(J) To reflect the decrease 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 decrease 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 IDC previously used straight line depreciation. The decrease in amortization expense for the year ended December 31, 2016 and for the six months ended June 30, 2017 was $0.3 million and $0.1 million, respectively.

7







HEARTLAND EXPRESS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Pro Forma Adjustments (continued)

(K) To reflect the income tax effect of each of the pro forma adjustments and depreciation expense associated with IDC at an effective tax rate of 38.5%. The previous stockholders of IDC had elected to file federal income taxes using S corporation status. Under tax regulations for S corporations, IDC 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, IDC is a C corporation and will be subject to income taxes.

(L) To reflect $17.6 million to establish an escrow fund for the Company's funding of its obligations with respect to pre-acquisition auto liability, workers' compensation, and certain employee related matters, which are capped at the amount of the escrow fund based on the terms of the Stock Purchase Agreement and related documents. As the funds became designated funds at close, $17.6 million was reclassified from cash and cash equivalents to $7.1 million of other current assets and $10.5 million of other assets. Associated liability amounts were reclassified from other accruals and other long-term liabilities to current and long-term insurance accruals to be consistent with the Company's balance sheet presentation.

(M) To reflect the elimination of net intangible assets recorded by IDC prior to acquisition of IDC by the Company.








    



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