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Acquisitions | 9 Months Ended
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Sep. 30, 2022
Business Combinations [Abstract] |
Business Combination Disclosure | Acquisitions On May 31, 2022, Heartland Express, Inc. of Iowa (the “Buyer”) and Heartland Express, Inc., as guarantor, entered into a Stock Purchase Agreement with Smith Transport. Smith Transport is a truckload carrier headquartered in Roaring Spring, Pennsylvania, providing asset-based dry van truckload transportation services, including local, regional, and dedicated services. Pursuant to the Smith Stock Purchase Agreement, the Buyer acquired all of Smith Transport’s outstanding equity (the “Smith Transaction”) under an Internal Revenue Code Section 338(h)(10) election. The Buyer's purchase price of $169.4 million includes total cash consideration and assumed indebtedness of Smith Transport subject to purchase accounting adjustments including final valuation of intangibles. Gross cash paid in the Smith Transaction was $140.6 million. Net cash paid was $122.0 million after consideration of $18.6 million of Smith Transport cash on the date of acquisition. Gross cash paid was funded out of the Company’s available cash. The Smith Transaction included the assumption of $46.8 million of Smith Transport's indebtedness, including finance leases, of which $42.6 million was outstanding at September 30, 2022. The Smith Stock Purchase Agreement contains customary representations, warranties, covenants, escrow, and indemnification provisions. The results of the Smith Transport acquired business have been included in the consolidated financial statements since the date of acquisition and represented 12.5% of consolidated total assets as of September 30, 2022, and represented 20.7% and 12.4% of operating revenue for the three and nine months ended September 30, 2022, respectively. The following unaudited pro forma consolidated results of operations for the year ended December 31, 2021 and nine months ended September 30, 2022 assume that the acquisition of Smith Transport occurred as of January 1, 2021. Pro forma adjustments reflected in the financial information below relate to the elimination of expenses and valuation adjustments associated with the seller's ESOP as well as the recognition of tax expense representative of organization as a C corporation. The net effect of these pro forma adjustments increased net income by $17.2 million and $7.1 million for the year ended December 31, 2021 and nine months ended September 30, 2022, respectively.
|  | Year ended |  | Nine months ended
|  | December 31, 2021 |  | September 30, 2022
|  | (in thousands) |  | (in thousands)
Operating Revenue |  | $810,459 |  | $705,795
Net Income |  | $96,466 |  | $125,159
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 Smith Transport purchase price is detailed in the table below. The final purchase price allocation remains subject to other purchase accounting adjustments which may be identified, such as the final valuation of intangible assets, and therefore may differ materially from that reflected below. The goodwill recognized represents expected synergies from combining the operations of the Company with Smith Transport, as well as other intangible assets that did not meet the criteria for separate recognition. Goodwill and intangible assets recognized in the transaction are deductible for tax purposes. During the three months ended September 30, 2022, the Smith Transport goodwill asset increased by $1.6 million as a result of further valuation analysis, primarily associated with adjusted insurance reserves and associated assets acquired. The assets and liabilities associated with Smith Transport were recorded at their fair values as of the acquisition date and the amounts are as follows:
| (in thousands)
Trade and other accounts receivable | $ | 32,300 |
Other current assets | 6,238 |
Property and equipment | 68,196 |
Operating lease right of use assets | 26,661 |
Other non-current assets | 4,079 |
Intangible assets | 28,070 |
Goodwill | 42,129 |
Total assets | 207,673 |
Accounts payable and accrued expenses | (7,917) |
Insurance accruals | (4,263) |
Long-term debt | (11,424) |
Finance lease liabilities | (35,359) |
Operating lease liabilities | (26,661) |
Net cash paid | $ | 122,049 |
On August 31, 2022, Buyer and Heartland Express, Inc., as guarantor, entered into a Stock Purchase Agreement to acquire Contract Freighters (CFI), and related entities, from a subsidiary of TFI International, Inc (TFI). CFI is a truckload carrier headquartered in Joplin, Missouri, providing asset-based dry van and temperature-controlled truckload transportation services, and asset-light logistics services in Mexico. Pursuant to the CFI Stock Purchase Agreement, the Buyer acquired outstanding equity of CFI and related entities (the “CFI Transaction”). The Buyer's purchase price of $560.6 million includes total cash consideration and bank financing obtained for the purchase of CFI and to facilitate negotiated terms of the CFI Stock Purchase Agreement. These terms included the funding to eliminate risk associated with pre-acquisition accident and workers compensation claims ($24.0 million), cash on hand at closing, and net working capital, subject to purchase accounting adjustments including final valuation of intangibles. Gross cash paid in transaction was $560.6 million. Net cash paid was $553.8 million after consideration of $6.8 million of CFI cash on the date of acquisition. Gross cash paid was funded out of the Company’s available cash and bank financing obtained to facilitate the transaction. The CFI Stock Purchase Agreement contains customary representations, warranties, covenants, escrow, and indemnification provisions. The results of the CFI acquired business have been included in the consolidated financial statements since the date of acquisition and represented 42.9% of consolidated total assets as of September 30, 2022, and represented 20.5% and 9.2% of operating revenue for the three and nine months ended September 30, 2022, respectively. The following unaudited pro forma consolidated results of operations for the year ended December 31, 2021 and nine months ended September 30, 2022 assume that the acquisition of CFI occurred as of January 1, 2021. Pro forma adjustments reflected in the financial information below relate to accounting policy changes, predominantly revenue recognition on brokered loads within the consolidated group of the seller. The net effect of these pro forma adjustments increased net income by $30.9 million and $41.1 million for the year ended December 31, 2021 and nine months ended September 30, 2022, respectively.
|  | Year ended |  | Nine months ended
|  | December 31, 2021 |  | September 30, 2022
|  | (in thousands) |  | (in thousands)
Operating Revenue |  | $1,152,413 |  | $1,039,629
Net Income |  | $110,157 |  | $159,196
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. The final purchase price allocation remains subject to other purchase accounting adjustments which may be identified, such as the final valuation of intangible assets, working capital adjustments, and income taxes, and therefore may differ materially from that reflected below. The goodwill recognized represents expected synergies from combining the operations of the Company with CFI, as well as other intangible assets that did not meet the criteria for separate recognition. Goodwill and intangible assets recognized in the transaction are deductible for tax purposes. The assets and liabilities associated with CFI were recorded at their fair values as of the acquisition date and the amounts are as follows:
| (in thousands)
Trade and other accounts receivable | $ | 74,740 |
Other current assets | 13,106 |
Property and equipment | 461,147 |
Other non-current assets | 972 |
Deferred income taxes | 2,018 |
Intangible assets | 55,097 |
Goodwill | 106,375 |
Total assets | 713,455 |
Accounts payable and accrued expenses | (52,195) |
Insurance accruals | (262) |
Income taxes payable | (585) |
Deferred income taxes | (106,610) |
Net cash paid | $ | 553,803 |
Acquisition related expenses of $1.1 million and $2.3 million related to both the Smith Transport and CFI acquisitions are included in the consolidated statement of comprehensive income for the three and nine months ended September 30, 2022, respectively.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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