Acquisition of Interstate Distributor Co. (Notes)

12 Months Ended

Dec. 31, 2018

Business Combination Disclosure [Text Block]

Acquisition of Interstate Distributor Co.

On July 6, 2017, Heartland Express Inc., of Iowa, (the "Buyer"), a wholly owned subsidiary of the "Company”, acquired IDC, a Washington corporation, for $93.0 million payable in cash, net of approximately $6.3 million of cash acquired. We believe the acquisition of IDC allowed us to grow our base of drivers and enhance our supporting staff of employees, expand and diversify our customer base, and improve our operating network of terminal facilities. In accordance with Internal Revenue Code Section 1361(b)(3)(C)(ii)(I) and (II), the transaction was treated for tax purposes as a sale of the assets of IDC by the seller to the Buyer, immediately followed by the Buyer’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 was subsequently merged into the Buyer effective October 1, 2017.

Acquisition related expenses of $0.9 million are included in the consolidated statement of comprehensive income for the year ended December 31, 2017.

The following unaudited pro forma financial information for the years ended December 31, 2016 and December 31, 2017, assume that the acquisition of IDC occurred as of January 1, 2016. Pro forma adjustments reflected in the financial information below relate to accounting policy changes such as changes in depreciation expense of revenue equipment, amortization of intangible assets, and accounting for certain operations and maintenance costs, along with other adjustments for terminal rent expense to align IDC results with those of the Company and income tax effects for the periods presented. The net effect of these pro forma adjustments increased net income by $3.9 million and $5.7 million for the periods ended December 31, 2016 and December 31, 2017, respectively.


	Year ended		Year ended
	December 31, 2016		December 31, 2017
	(in thousands)
Operating revenue	$	938,007	$	756,498
Net income	$	54,222	$	72,752

These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred at the beginning of the periods presented or that may be obtained in the future.

The allocation of the purchase price is detailed in the table below, only general representations and warranty items as defined in the stock purchase agreement are subject to further negotiations. The goodwill recognized represents expected synergies from combining the operations of the Company with IDC, as well as other intangible assets that did not meet the criteria for separate recognition. All goodwill recognized in the transaction is deductible for tax purposes over 15 years.

The assets and liabilities associated with IDC were recorded at their fair values as of the acquisition date and the amounts are as follows:


	(in thousands)
Cash and cash equivalents	$	6,316
Trade and other accounts receivable	35,131
Other current assets	2,426
Property and equipment	71,964
Other non-current assets	1,244
Intangible assets	7,800
Goodwill	32,198
Total assets	157,079
Accounts payable, accrued expenses, and current portion of long-term debt	(35,209)
Insurance accruals	(10,826)
Long-term debt	(17,404)
Other accruals	(596)
Total consideration transferred	$	93,044


TOTAL PURCHASE PRICE CONSIDERATION	(in thousands)
Cash paid pursuant to Stock Purchase Agreement	$	93,044
Cash acquired included in historical book value of IDC assets and liabilities	(6,316)
Net cash paid	$	86,728