Heartland Express Inc 8-K/A, filed Nov 15, 2022
Heartland Express Inc (HTLD)
8-K/A
2022-11-15
For: 2022-08-31
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Added on
April 07, 2026
About this 8-K/A
Heartland Express Inc filed this 8-K/A on November 15, 2022, reporting on events of August 31, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
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(Exact name of registrant as specified in its charter)
| (State of other Jurisdiction | (Commission | (IRS Employer | ||||||
| of Incorporation) | File Number) | Identification No.) | ||||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||
( | ||
| Registrant's Telephone Number (including area code): | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORY NOTE
On August 31, 2022, Heartland Express, Inc. (the "Company"), through Heartland Express, Inc. of Iowa, a wholly owned subsidiary, completed the acquisition of all the issued and outstanding common stock of Transportation Resources, Inc. ("TRI"). TRI operates as Contract Freighters, Inc. ("CFI"). This Amendment No. 1 to the Current Report on Form 8-K is being filed to amend the Current Report on Form 8-K filed August 31, 2022 (the "Original Form 8-K") with the Securities and Exchange Commission. This Amendment No. 1 amends Item 9.01 of the Original Form 8-K to present certain financial statements of TRI and to present certain unaudited pro forma financial statements of the Company in connection with the Company's acquisition of TRI. All of the other information in the Original Form 8-K remains unchanged.
Item 9.01. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The audited combined carve out financial statements of TRI as of December 31, 2021 and 2020, and for the years then ended, the notes related thereto, and the report of KPMG LLP are filed as Exhibit 99.2 and are incorporated in their entirety herein by reference.
The unaudited combined carve out financial statements of TRI as of June 30, 2022 and for the six months ended June 30, 2022 and 2021, and the notes related thereto, are filed as Exhibit 99.3 and are incorporated in their entirety herein by reference.
(b) Pro Forma Financial Information
The unaudited pro forma consolidated financial statements of the Company as of and for the six months ended June 30, 2022 and for the year ended December 31, 2021, giving effect to the acquisition of TRI, are filed as Exhibit 99.4 and are incorporated in their entirety herein by reference. Such unaudited pro forma consolidated financial statements are not necessarily indicative of the operating results and financial position that actually would have been achieved if the acquisition had been in effect on the dates indicated or that may be achieved for future periods, and should be read in conjunction with the financial statements of the Company and TRI.
(c) Exhibits
| EXHIBIT | |||||
| NUMBER | EXHIBIT DESCRIPTION | ||||
| Consent of Independent Auditor | |||||
| Transportation Resources, Inc. Audited Combined Carve Out Financial Statements as of | |||||
| December 31, 2021 and 2020, and for each of the years then ended, the Related Notes Thereto, | |||||
| and the Report of KPMG LLP. | |||||
| Transportation Resources, Inc. Unaudited Combined Carve Out Financial Statements | |||||
| as of June 30, 2022 and for the six months ended June 30, 2022 and 2021, | |||||
| and the Related Notes Thereto. | |||||
| Unaudited Pro Forma Consolidated Financial Statements of Heartland Express, Inc. as of | |||||
| and for the six months ended June 30, 2022 and the year ended December 31, 2021 | |||||
| and the notes thereto. | |||||
| 104 | Cover Page Interactive Data File | ||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized.
| HEARTLAND EXPRESS, INC. | ||||||||||||||
| Date: | November 14, 2022 | By:/s/Christopher A. Strain | ||||||||||||
| Christopher A. Strain | ||||||||||||||
| Vice President-Finance, | ||||||||||||||
| Treasurer and Chief Financial Officer | ||||||||||||||
KPMG LLP Telephone (514) 840-2100
600 de Maisonneuve Blvd. West Fax (514) 840-2187
Suite 1500, Tour KPMG Internet www.kpmg.ca
Montréal (Québec) H3A 0A3
Canada
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statement on Form S-3 (File No. 333-239983) of Heartland Express, Inc. of our report dated November 14, 2022, with respect to the combined carve-out financial statements which comprise the combined carve-out balance sheets as at December 31, 2021 and 2020, and the related combined carve-out statements of net income, comprehensive income, changes in net parent investment and cash flows for the years then ended, and the related notes to the combined carve-out financial statement of Transportation Resources Inc., which report appears in the Form 8-K/A of Heartland Express, Inc. dated November 14, 2022.
/s/ KPMG LLP
Montréal, Canada
November 14, 2022
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG
Canada provides services to KPMG LLP.
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG
Canada provides services to KPMG LLP.
TRANSPORTATION RESOURCES INC.
COMBINED CARVE-OUT FINANCIAL STATEMENTS
For the years ended
December 31, 2021 and 2020
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KPMG LLP Telephone (514) 840-2100
600 de Maisonneuve Blvd. West Fax (514) 840-2187
Suite 1500, Tour KPMG Internet www.kpmg.ca
Montréal (Québec) H3A 0A3
Canada
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors of Transportation Resources Inc.
Opinion
We have audited the combined carve-out financial statements of Transportation Resources Inc. (the ʺCompanyʺ), which comprise the combined carve-out balance sheets as of December 31, 2021 and 2020, and the related combined carve-out statements of net income, comprehensive income, changes in net parent investment, and cash flows for the years then ended, and the related notes to combined carve-out financial statements.
In our opinion, the accompanying combined carve-out financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (ʺGAASʺ). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Combined Carve-out Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Combined Carve-out Financial Statements
Management is responsible for the preparation and fair presentation of the combined carve-out financial statements in accordance with U.S. generally accepted accounting principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined carve-out financial statements that are free from material misstatement, whether due to fraud or error.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG
Canada provides services to KPMG LLP.
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG
Canada provides services to KPMG LLP.
│2
In preparing the combined carve-out financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the combined carve-out financial statements are available to be issued.
Auditors’ Responsibilities for the Audit of the Combined Carve-out Financial Statements
Our objectives are to obtain reasonable assurance about whether the combined carve-out financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined carve-out financial statements.
In performing an audit in accordance with GAAS, we:
•Exercise professional judgment and maintain professional skepticism throughout the audit.
•Identify and assess the risks of material misstatement of the combined carve-out financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined carve-out financial statements.
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.
•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined carve-out financial statements.
•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
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We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
/s/ KPMG LLP
Montréal, Canada
November 14, 2022
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| Transportation Resources Inc. | COMBINED CARVE-OUT BALANCE SHEET | ||||
| (in thousands of U.S. dollars) | As at | As at | ||||||||||||||||||||||||||||||
| Note | December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 6,056 | 5,729 | ||||||||||||||||||||||||||||||
| Trade and other receivables | 5 | 58,908 | 53,364 | |||||||||||||||||||||||||||||
| Inventoried supplies | 2,180 | 1,368 | ||||||||||||||||||||||||||||||
| Due from parent | - | 9,364 | ||||||||||||||||||||||||||||||
| Prepaid expenses | 12,632 | 5,033 | ||||||||||||||||||||||||||||||
| Current assets | 79,776 | 74,858 | ||||||||||||||||||||||||||||||
| Property and equipment | 6 | 322,103 | 301,755 | |||||||||||||||||||||||||||||
| Operating lease right-of-use assets | 9,252 | 9,781 | ||||||||||||||||||||||||||||||
| Goodwill | 7 | 198,327 | 197,728 | |||||||||||||||||||||||||||||
| Intangible assets, net | 7 | 44,328 | 45,991 | |||||||||||||||||||||||||||||
| Other assets | 142 | 471 | ||||||||||||||||||||||||||||||
| Non-current assets | 574,152 | 555,726 | ||||||||||||||||||||||||||||||
| Total assets | 653,928 | 630,584 | ||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Trade and other payables | 4,394 | 13,452 | ||||||||||||||||||||||||||||||
| Accrued liabilities | 8 | 26,900 | 17,592 | |||||||||||||||||||||||||||||
| Due to parent | 53,038 | - | ||||||||||||||||||||||||||||||
| Income taxes payable | 8,980 | 16,427 | ||||||||||||||||||||||||||||||
| Current portion of provisions | 10 | 7,522 | 6,863 | |||||||||||||||||||||||||||||
| Current portion of operating lease liabilities | 9 | 4,523 | 2,873 | |||||||||||||||||||||||||||||
| Current liabilities | 105,357 | 57,207 | ||||||||||||||||||||||||||||||
| Operating lease liabilities | 9 | 4,697 | 6,891 | |||||||||||||||||||||||||||||
| Other postretirement benefits | 1,157 | 1,111 | ||||||||||||||||||||||||||||||
| Provisions | 10 | 12,629 | 11,672 | |||||||||||||||||||||||||||||
| Other financial liabilities | - | 2,587 | ||||||||||||||||||||||||||||||
| Deferred tax liabilities | 76,922 | 71,870 | ||||||||||||||||||||||||||||||
| Non-current liabilities | 95,405 | 94,131 | ||||||||||||||||||||||||||||||
| Total liabilities | 200,762 | 151,338 | ||||||||||||||||||||||||||||||
| Net Parent Investment | ||||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss | (2,177 | ) | (1,713 | ) | ||||||||||||||||||||||||||||
| Parent Investment | 455,343 | 480,959 | ||||||||||||||||||||||||||||||
| Total liabilities and net parent investment | 653,928 | 630,584 | ||||||||||||||||||||||||||||||
The notes are an integral part of these combined carve-out financial statements.
│5
| Transportation Resources Inc. | COMBINED CARVE-OUT STATEMENTS OF NET INCOME | ||||
| (In thousands of U.S. dollars, except per share amounts) | Note | 2021 | 2020 | ||||||||||||||||||||||||||
| Revenue | 472,733 | 437,820 | |||||||||||||||||||||||||||
| Fuel surcharge | 72,395 | 49,995 | |||||||||||||||||||||||||||
| Total revenue | 545,128 | 487,815 | |||||||||||||||||||||||||||
| Materials and services expenses | 13 | 243,814 | 201,055 | ||||||||||||||||||||||||||
| Personnel expenses | 186,587 | 176,745 | |||||||||||||||||||||||||||
| Other operating expenses | 17,882 | 16,959 | |||||||||||||||||||||||||||
| Depreciation of property and equipment | 6 | 52,265 | 51,817 | ||||||||||||||||||||||||||
| Amortization of intangible assets | 7 | 2,707 | 2,584 | ||||||||||||||||||||||||||
| Gain on sale of rolling stock and equipment | (8,011 | ) | (1,926 | ) | |||||||||||||||||||||||||
| Other | (16 | ) | (27 | ) | |||||||||||||||||||||||||
| Total operating expenses | 495,228 | 447,207 | |||||||||||||||||||||||||||
| Operating income | 49,900 | 40,608 | |||||||||||||||||||||||||||
| Interest income | (44 | ) | - | ||||||||||||||||||||||||||
| Interest expense | 603 | 398 | |||||||||||||||||||||||||||
| Income before income tax | 49,341 | 40,210 | |||||||||||||||||||||||||||
| Income tax expense | 14 | 17,505 | 10,702 | ||||||||||||||||||||||||||
| Net income | 31,836 | 29,508 | |||||||||||||||||||||||||||
The notes are an integral part of these combined carve-out financial statements.
│6
| TRANSPORTATION RESOURCES INC. | COMBINED CARVE-OUT STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands of U.S. dollars) | 2021 | 2020 | ||||||||||||||||||||||||
| Net income | 31,836 | 29,508 | ||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | (464 | ) | (1,034 | ) | ||||||||||||||||||||||
| Other comprehensive loss | (464 | ) | (1,034 | ) | ||||||||||||||||||||||
| Total comprehensive income | 31,372 | 28,474 | ||||||||||||||||||||||||
The notes are an integral part of these combined carve-out financial statements.
│7
| TRANSPORTATION RESOURCES INC. | COMBINED CARVE-OUT STATEMENTS OF CHANGES IN NET PARENT INVESTMENT | ||||
DECEMBER 31, 2021 AND 2020 | |||||
| (In thousands of U.S. dollars) | ||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| other | Total | |||||||||||||||||||||||||||||||||||||||||||
| Parent | comprehensive | net parent | ||||||||||||||||||||||||||||||||||||||||||
| Note | Investment | income (loss) | investment | |||||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2020 | 480,959 | (1,713 | ) | 479,246 | ||||||||||||||||||||||||||||||||||||||||
| Net income | 31,836 | - | 31,836 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | (464 | ) | (464 | ) | |||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | 31,836 | (464 | ) | 31,372 | ||||||||||||||||||||||||||||||||||||||||
| Net distribution to parent | (57,452 | ) | - | (57,452 | ) | |||||||||||||||||||||||||||||||||||||||
| Total transactions with parent, recorded directly in equity | (57,452 | ) | - | (57,452 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2021 | 455,343 | (2,177 | ) | 453,166 | ||||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2019 | 511,451 | (679 | ) | 510,772 | ||||||||||||||||||||||||||||||||||||||||
| Net income | 29,508 | - | 29,508 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | (1,034 | ) | (1,034 | ) | |||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | 29,508 | (1,034 | ) | 28,474 | ||||||||||||||||||||||||||||||||||||||||
| Net distribution to parent | (60,000 | ) | - | (60,000 | ) | |||||||||||||||||||||||||||||||||||||||
| Total transactions with parent, recorded directly in equity | (60,000 | ) | - | (60,000 | ) | |||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2020 | 480,959 | (1,713 | ) | 479,246 | ||||||||||||||||||||||||||||||||||||||||
The notes are an integral part of these combined carve-out financial statements.
│8
| Transportation Resources Inc. | COMBINED CARVE-OUT STATEMENTS OF CASH FLOWS | ||||
| (In thousands of U.S. dollars) | Note | 2021 | 2020 | |||||||||||||||||||||||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||||||||||||||||||||
| Net income for the year | 31,836 | 29,508 | ||||||||||||||||||||||||||||||||||||
| Adjustments for: | ||||||||||||||||||||||||||||||||||||||
| Depreciation of property and equipment | 6 | 52,265 | 51,817 | |||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 7 | 2,707 | 2,584 | |||||||||||||||||||||||||||||||||||
| Deferred Income tax expense | 14 | 2,572 | (8,596 | ) | ||||||||||||||||||||||||||||||||||
| Gain on sale of rolling stock and equipment | (8,011 | ) | (1,926 | ) | ||||||||||||||||||||||||||||||||||
| Other post retirement benefits and provisions | 1,826 | 1,256 | ||||||||||||||||||||||||||||||||||||
| Other | (500 | ) | (45 | ) | ||||||||||||||||||||||||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||||||||||||||||||||||||||
| Trade and other receivables, net | (1,724 | ) | (2,814 | ) | ||||||||||||||||||||||||||||||||||
| Inventoried supplies, net | (812 | ) | 313 | |||||||||||||||||||||||||||||||||||
| Prepaid expenses, net | (6,621 | ) | 474 | |||||||||||||||||||||||||||||||||||
| Other assets | 329 | (138 | ) | |||||||||||||||||||||||||||||||||||
| Trade and other payables, net | (9,335 | ) | 4,736 | |||||||||||||||||||||||||||||||||||
| Accrued liabilities, net | 8,431 | 4,179 | ||||||||||||||||||||||||||||||||||||
| Income taxes payable | (7,447 | ) | 11,171 | |||||||||||||||||||||||||||||||||||
Other financial liabilities | (2,587 | ) | 2,587 | |||||||||||||||||||||||||||||||||||
| Net cash from operating activities | 62,929 | 95,106 | ||||||||||||||||||||||||||||||||||||
| Cash flows used in investing activities | ||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment | 6 | (103,751 | ) | (40,296 | ) | |||||||||||||||||||||||||||||||||
| Proceeds from sale of property and equipment | 50,416 | 14,136 | ||||||||||||||||||||||||||||||||||||
| Proceeds from sale of assets held for sale | - | 1,800 | ||||||||||||||||||||||||||||||||||||
| Purchases of intangible assets | 7 | (173 | ) | - | ||||||||||||||||||||||||||||||||||
| Proceeds from sale of intangible assets | 7 | - | 710 | |||||||||||||||||||||||||||||||||||
| Business combinations, net of cash acquired | 4 | (14,481 | ) | (9,614 | ) | |||||||||||||||||||||||||||||||||
| Other | 481 | (138 | ) | |||||||||||||||||||||||||||||||||||
| Net cash used in investing activities | (67,508 | ) | (33,402 | ) | ||||||||||||||||||||||||||||||||||
| Cash flows (used in) from financing activities | ||||||||||||||||||||||||||||||||||||||
| Due to parent, net | 62,402 | 1,538 | ||||||||||||||||||||||||||||||||||||
| Net distributions to parent | (57,452 | ) | (60,000 | ) | ||||||||||||||||||||||||||||||||||
| Other | (44 | ) | 84 | |||||||||||||||||||||||||||||||||||
| Net cash (used in) from financing activities | 4,906 | (58,378 | ) | |||||||||||||||||||||||||||||||||||
| Net change in cash and cash equivalents | 327 | 3,326 | ||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents, beginning of year | 5,729 | 2,403 | ||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents, end of year | 6,056 | 5,729 | ||||||||||||||||||||||||||||||||||||
The notes are an integral part of these combined carve-out financial statements.
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| Transportation Resource Inc. | NOTES TO THE COMBINED CARVE OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
1. Reporting entity and the business
Transportation Resources Inc. (“TRI”), through its combined entities, is a full truckload motor carrier that utilizes a fleet of tractors and trailers to provide short- and long-haul, asset- based transportation services throughout North America. TRI provides dry-van transportation services to manufacturing, industrial and retail customers while using single drivers as well as two-person driver teams over long-haul routes, with each trailer containing only one customer's goods.
TRI also offers "through-trailer" service into and out of Mexico through major gateways in Texas, Arizona and California. This service eliminates the need for shipment transfer and/or storage fees at the border and typically involves equipment- interchange operations with various Mexican motor carriers. For a shipment with an origin or destination in Mexico, TRI provides transportation for the domestic portion of the freight move, and a Mexican carrier provides the pick-up, linehaul and delivery services within Mexico.
On August 31, 2022, TRI was sold to Heartland Express, Inc. (“Heartland”) (NASDAQ: HTLD) for $525 million, subject to certain agreed upon adjustments. The agreement excluded certain tangible assets with a carrying amount of approximately $9.1 million and TFI International, Inc. (“TFI”) retains pre-closing worker’s compensation and auto liability claims included in provisions for which Heartland paid TFI an additional $24.0 million for which such assets and provisions are included in the combined carve-out financial statements.
2. Basis of preparation
The combined carve-out financial statements are prepared in connection with the Stock Purchase Agreement dated August 31, 2022 between Heartland and TFI (Note 16). These combined carve-out financial statements include the following legal entities: Transportation Resources, Inc., Contract Freighters, Inc., CFI Truckload de Mexico, S.A. de C.V., CFI Logistica, S.A. de C.V., Solucionnes Internationales de Transporte, S.A. de C.C., and CFI Mex, S. de R.L. de C.V. and exclude the assets and liabilities and operating results of the legal entity of CFI Logistics, a subsidiary of TRI during the reporting period. The combined entities are referred to herein as TRI. TRI’s investment in CFI logistics was sold to TFI prior to the purchase of TRI by Heartland. Throughout the periods covered by the combined carve-out financial statements, TRI operated as part of TFI. Consequently, stand-alone financial statements have not historically been prepared for TRI.
The accompanying combined carve-out financial statements have been prepared on a combined basis as they represent the TRI business excluding CFI Logistics that was sold by TRI to TFI prior to the transaction with Heartland. These combined carve-out financial statements have also been prepared on a “carve-out” basis and are derived from the consolidated financial statements and accounting records of TFI using the historical results of operations and historical cost basis of the assets and liabilities of TFI that comprise TRI. The combined carve-out financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). These combined carve-out financial statements may not be indicative of the future performance of TRI and do not necessarily reflect what the combined results of the operations, financial position and cash flows would have been if TRI had been operated as an independent company during the periods presented.
The combined carve-out statements of operations include all associated revenues from the assets being included in the combined carve-out financial statements, and the corporate functional related expenses to generate those revenues (direct, indirect, and allocated overhead). These corporate functional related costs have been allocated to TRI based on direct usage or benefit, where identifiable, with the remainder allocated based on proportionate labor costs and usage that management believes are consistent and reasonable. However, the combined carve-out financial statements may not reflect the actual costs that would have been incurred had TRI been an independent company during the period presented. See note 12, Net investment and related party transactions. The allocated costs
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| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
have been recorded as a due to or due from the parent account in the period in which the expense was recorded in the combined carve-out statement of income. Current and deferred income taxes and related tax expenses have been determined on the carve-out results of TRI by applying Accounting Standards Codification (ASC) No. 740, Income Taxes, to TRI’s operations in each country as if it were a separate taxpayer.
Transactions between TRI and TFI included in these combined carve-out financial statements are generally settled through a due to or due from parent account and occasionally through the issuance of dividends. Transactions that impacted the due to or due from parent account are reported as financing activities in the combined carve-out statements of cash flows. The net effect of these transactions is included in the combined carve-out balance sheet’s due to or due from parent account. The net investment represents the parent’s interest in the recorded net assets of TRI and represents the cumulative net investment by the parent in TRI through the dates presented and includes cumulative operating results. Distribution to the parent company are also reported as financing activities in the combined carve-out statements of cash flows.
Certain related party transactions between TRI and TFI and its subsidiaries that occur as arm’s length transactions, are recorded through revenues and expenses, with corresponding amounts being recorded in trade receivables and trade payables. See note 12, Net investment and related party transactions. These transactions are not eliminated in the combined carve-out financial statements.
a) Functional and reporting currency
The Company’s combined carve-out financial statements are presented in U.S. dollars (“U.S. dollars” or “USD”), the same as the functional currency of the Company.
All financial information presented in U.S. dollars has been rounded to the nearest thousand.
b) Use of estimates and judgments
Management makes estimates and assumptions when preparing the combined carve-out financial statements in conformity with accounting principles generally accepted in the US. These estimates and assumptions affect the amounts reported in the accompanying combined carve-out financial statements and notes. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Such estimates relate to revenue-related adjustments, impairment of goodwill and long-lived assets, amortization and depreciation, income taxes, self-insurance accruals, contingencies, and assets and liabilities recognized in connection with acquisitions, and allocation of related party related costs.
TRI evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Estimates and assumptions are adjusted when facts and circumstances dictate. Volatility in financial markets and changing levels of economic activity increase the uncertainty inherent in such estimates and assumptions. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the combined carve-out financial statements in future periods, and assumptions resulting from changes in the economic environment will be reflected in the combined carve-out financial statements of future periods.
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these combined carve-out financial statements. The accounting policies have been applied consistently by TRI.
│11
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
a)Basis of combination
i)Business combinations
TRI applies the acquisition method to account for business combinations. TRI measures goodwill as the fair value of the consideration transferred including the fair value of liabilities resulting from contingent consideration arrangements, less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at fair value as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in income or loss.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, TRI records provisional amounts for the items for which the accounting is incomplete. During the measurement period (a period not to exceed twelve months from the acquisition date), those provisional amounts are adjusted in the reporting period in which the amounts are determined, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
Transaction costs, other than those associated with the issue of debt or equity securities, that TRI incurs in connection with a business combination, are expensed as incurred.
ii)Transactions eliminated on combination
Intra-group balances and transactions, any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the combined carve-out financial statements.
b)Foreign currency translation
i)Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of TRI at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate in effect at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated at the rate in effect on the transaction date. Income and expense items denominated in foreign currency are translated at the date of the transactions. Gains and losses are included in income or loss.
ii)Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on business combinations, are translated to US dollars at exchange rates in effect at the reporting date. The income and expenses of foreign operations are translated to US Dollars at the average exchange rate in effect during the period.
Foreign currency differences are recognized in other comprehensive income (“OCI”).
When a foreign operation is disposed of, the relevant amount in the cumulative amount of foreign currency translation differences is transferred to income or loss as part of the income or loss on disposal.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in foreign operations, are recognized in other comprehensive income.
│12
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
c) Financial instruments
The fair values of cash and cash equivalents, trade receivables, accounts payable and accrued liabilities, which are recorded at cost, approximate fair value based on the short-term nature and high credit quality of these financial instruments.
d) Property and equipment
Property, plant and equipment are reported at historical cost and are depreciated on a straight-line basis over their estimated useful lives, 5 to 40 years for buildings and leasehold improvements, 4 to 10 years for rolling stock equipment and 3 to 10 years for most other equipment.
Expenditures for equipment maintenance and repairs are charged to operating expenses as incurred, and betterments are capitalized. Gains or losses on sales of equipment and property are recorded in other operating expenses.
e) Intangible assets and goodwill
i) Goodwill
Goodwill that arises upon business combinations is included in the intangible assets.
Goodwill is not amortized and is measured at cost less accumulated impairment losses.
iii)Other intangible assets
Intangible assets consist of customer relationships, trademarks, non-compete agreements and information technology.
TRI determines the fair value of the customer relationship intangible assets using the excess earnings model and internally developed significant assumptions including:
│13
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
1.Forecasted revenue attributable to existing customer contracts and relationships;
2.Estimated annual attrition rate;
3.Forecasted operating margins; and
4.Discount rates.
The internally developed assumptions are based on limited observable market information which cause measurement uncertainty, and the fair value of the customer related intangible assets are sensitive to changes to these assumptions.
Intangible assets that are acquired by TRI and have finite lives are measured at cost less accumulated amortization and accumulated impairment losses.
Intangible assets with finite lives are amortized on a straight-line basis over 5 to 20 years for customer relationships and trademarks, 3 to 10 years for non-compete agreements, and 5 to 7 years from information technology. Certain trademarks have indefinite useful lives and are not amortized, but are tested for impairment at least annually, unless events occur or circumstances change between annual tests that would more likely than not reduce the fair value. Trademarks with indefinite useful life are tested for impairment annually using a relief-from-royalty method.
Useful lives are reviewed at each financial year-end and are adjusted prospectively, if appropriate.
f) Leases
At the inception of a contract, TRI assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases with a term of twelve months or less are not recorded by TRI on the combined carve-out balance sheet.
Finance and operating leases right-of-use assets and liabilities are recognized based on the present value of future lease payments over the lease term at the commencement date. The leases are discounted using the interest rate implicit in the lease or, if that cannot be readily determined, TRI’s incremental borrowing rate. The incremental borrowing rate is a function of TFI’s incremental borrowing rate, the nature of the underlying asset, and the length of the lease. Generally, TRI uses its incremental borrowing rate as the discount rate. Operating lease expense is recognized on a straight-line basis over the lease term. Leases which have been identified as operating in nature are expensed in materials and service expenses (for vehicle and operating equipment) and through other operating expenses (for rent and other administrative equipment).
TRI’s lease contracts may contain termination, renewal and/or purchase options, residual value guarantees, or a combination thereof, all of which are evaluated by TRI. TRI accounts for renewal options when it is reasonably certain that it will exercise one of these options.
Lease contracts may contain lease and non-lease components that TRI generally accounts for separately.
TRI does not have material finance leases.
g) Long-Lived assets
Long-lived assets, such as property and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the
│14
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
extent that the carrying amount exceeds its fair value. Fair values are determined using quoted market values, discounted cash flows or external appraisals, as applicable.
Goodwill is not amortized but tested for impairment on an annual basis, or more frequently If circumstances warrant. The impairment of the TRI reporting unit is tested for impairment as at year end. The Company may first assess certain qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, or proceed directly to a quantitative goodwill impairment test. If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test must be performed. The quantitative impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, including goodwill, and an impairment loss is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, up to the value of goodwill. The Company defines the fair value of a reporting unit as the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants as of the impairment date. To determine the fair value of a reporting unit, the Company uses the value in use approach. The value in use methodology is based on discounted future cash flows. Management believes that the discounted future cash flows method is appropriate as it allows more precise valuation of specific future cash flows and reflects current market assessments of the time value of money and the risks specific to the reporting unit.
h) Provisions
Self-insurance provisions represent the uninsured portion of outstanding claims at year-end. The provision represents an accrual for estimated future disbursements associated with the self-insured portion for claims filed at year-end and incurred but not reported, related to cargo loss, bodily injury, worker’s compensation and property damages. The estimates are based on the TRI’s historical experience including settlement patterns and payment trends. The most significant assumptions in the estimation process include the consideration of historical claim experience, severity factors affecting the amounts ultimately paid, and current and expected levels of cost per claims. Changes in assumptions and experience could cause these estimates to change significantly in the near term.
For all other legal claims, TRI maintains, and regularly updates on a case-by-case basis, provisions for such items when the expected loss is both probable and can be reasonably estimated based on currently available information.
i) Revenue recognition
Revenue is recognized as services are rendered, when the control of the promised services are transferred to customers in an amount that reflect the consideration of TRI expects to be entitled to receive in exchange for those services measured based on the consideration specified in a contract with the customers. TRI recognizes revenue and related direct costs over time in the statement of net income. The stage of completion of the service is determined using the proportion of days completed to date compared to the estimated total days of the service. Revenue is presented on a net of trade discounts and volume rebates. TRI considers the contract with customers to include the general transportation service agreement and the individual bill of ladings with customers.
j) Income Taxes
TRI has been included in the consolidated federal income tax return and consolidated/combined unitary state income tax returns of TFI. Furthermore, TRI files various stand-alone state income/franchise tax returns. TRI’s provision for income taxes and deferred tax balances as presented in the combined carve-out financial statements are calculated on a separate tax return basis. Under the separate return method, income taxes for each of the combined entities are calculated as if the entity was a separate taxpayer. Income taxes reflected in the accompanying combined carve-out financial statements of income represent a proportionate share of
│15
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
TFI’s consolidated income tax provision or benefit and approximate the amounts that would have been recorded had TRI filed separate tax returns. Federal and state income taxes payable and receivable in the US are settled in the current period through the intercompany payable account with TFI while income taxes payable to foreign jurisdictions are reported in the combined carve-out balance sheets. Current and long-term deferred taxes presented in the accompanying combined carve-out balance sheets represent TRI’s proportionate share of TFI’s consolidated deferred income tax accounts and approximate those that would have been recorded had TRI filed separate tax returns.
TRI follows the asset and liability method of accounting for income taxes. Under the asset and liability method, the change in the net deferred income tax asset or liability is included in the computation of net income (loss) or other comprehensive income (loss). Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial statement reporting purposes and the bases for income tax purposes, and (b) operating losses and tax credit carry forwards. Deferred income tax assets are evaluated and, if realization is not considered to be more-likely-than-not, a valuation allowance is provided.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs
k) Cash and cash equivalents
Cash equivalents consist of short-term interest-bearing instruments with maturities of three months or less at the date of purchase. The US denominated bank accounts of TRI are part of the TFI’s cash pooling mechanism, resetting the bank balance on a daily basis. The bank accounts denominated in Pesos are excluded from the cash pooling.
l) Owner’s Net Investment and Funding Structure
Amounts for cash and debt (amounts due to parent) are reflected in the Combined Carve-out Financial Statements only for the activities of TRI that operated or existed in separate dedicated TRI entities, during the period of the Combined Carve-out Financial Statements. The funding structure is therefore not necessarily representative of the financing that would have been reported if TRI operated on its own or as an entity independent from TFI during the periods presented, nor is it indicative of the financing that may arise in the future.
m) New standards and interpretations not yet adopted
The following standards are not yet effective for the year ended December 31, 2021, and have not been applied in preparing these combined carve-out financial statements:
ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
On November 17, 2021, the FASB issued ASU 2021-10, which requires new annual disclosures for entities receiving government assistance.
This ASU is effective for annual periods in fiscal years beginning after December 15, 2021. The ASU may be applied prospectively from the date of initial application or retrospectively.
Early application is permitted.
The adoption of the standard is not expected to have a material impact.
│16
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
On October 28, 2021, the FASB issued ASU 2021-08, which provides an exception to fair value measurement for revenue contracts acquired in business combinations. This ASU is effective for:
• public business entities for annual and interim periods in fiscal years beginning after December 15, 2022 and is applied prospectively.
Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance).
The adoption of the standard will only impact future business combinations.
4. Business combinations
a) Business combinations
On November 26, 2021, TRI acquired D&D Sexton (“D&D”). Based in Carthage, Missouri, D&D Specializes in refrigerated transportation providing both long-haul over-the-road services as well as local and shuttle operations.
During the twelve months ended December 31, 2021, this business contributed revenue and net income of $2.7 million and $0.1 million, respectively, since the acquisition. Had TRI acquired this business on January 1, 2021, as per management’s best estimates, the revenue and net income for these entities would have been $29.0 million and nil, respectively. In determining these estimated amounts, management assumed that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisitions occurred on January 1, 2021 and adjusted for interest, based on the purchase price and average borrowing rate of TRI, and income tax expense based on the effective tax rate.
During the twelve months ended December 31, 2021, nil transaction costs have been expensed in other operating expenses in the combined carve-out financial statements of net income in relation to the above-mentioned business acquisition.
As of the reporting date, TRI has recorded the purchase price allocation over the identifiable net assets and goodwill of the acquisition based on the estimated purchase price. The purchase price allocation is not finalized as the purchase price is still subject to working capital adjustments based on the sale purchase agreement and TRI is awaiting approval from the seller to finalize.
The table below presents the preliminary purchase price allocation based on the best information available to TRI to date:
│17
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
| Identifiable assets acquired and liabilities assumed | Note | November 26, 2021 | ||||||||||||||||||||||||
| Trade and other receivables | 3,820 | |||||||||||||||||||||||||
| Prepaid expenses | 978 | |||||||||||||||||||||||||
| Property and equipment | 6 | 11,151 | ||||||||||||||||||||||||
| Operating lease right-of-use assets | 9 | 2,656 | ||||||||||||||||||||||||
| Intangible assets | 7 | 1,000 | ||||||||||||||||||||||||
| Trade and other payables | (77) | |||||||||||||||||||||||||
| Accrued Liabilities | (877) | |||||||||||||||||||||||||
| Operating lease liabilities | 9 | (2,656) | ||||||||||||||||||||||||
| Deferred tax liabilities | (2,440) | |||||||||||||||||||||||||
| Total identifiable net assets | 13,555 | |||||||||||||||||||||||||
| Total consideration transferred | 14,481 | |||||||||||||||||||||||||
| Goodwill | 7 | 926 | ||||||||||||||||||||||||
| Total cash consideration transferred | 14,481 | |||||||||||||||||||||||||
The trade receivables comprise gross amounts due of $3.1 million, of which nil was expected to be uncollectible at the acquisition date.
No goodwill and intangible assets acquired through this business combinations are deductible for tax purposes.
b) Prior year business combinations
On June 26, 2020, TRI completed the acquisition of MCT Transportation, LLC (“MCT”). Based in South Dakota, MCT provides transportation for major companies in the packaged food, agriculture, medical and automotive industries, primarily throughout Southeast and Mid-West regions of the United States.
During the twelve months ended December 31, 2021, this business contributed revenue and net income of $24.3 million and $1.0 million, respectively, since the acquisition. Had TRI acquired this business on January 1, 2020, as per management’s best estimates, the revenue and net income for these entities would have been $44.9 million and $0.9 million, respectively. In determining these estimated amounts, management assumed that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisitions occurred on January 1, 2020 and adjusted for interest, based on the purchase price and average borrowing rate of TRI, and income tax expense based on the effective tax rate.
During the twelve months ended December 31, 2021, $0.1 million of transaction costs have been expensed in other operating expenses in the combined carve-out statements of net income in relation to the above-mentioned business acquisition.
│18
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
The table below presents the final purchase price allocation:
| Identifiable assets acquired and liabilities assumed | Note | June 26, 2020 | ||||||||||||||||||||||||
| Trade and other receivables | 4,953 | |||||||||||||||||||||||||
| Inventoried supplies and prepaid expenses | 56 | |||||||||||||||||||||||||
| Property and equipment | 6 | 813 | ||||||||||||||||||||||||
| Operating lease right-of-use assets | 9 | 11,949 | ||||||||||||||||||||||||
| Intangible assets | 7 | 3,375 | ||||||||||||||||||||||||
| Trade and other payables | (130) | |||||||||||||||||||||||||
| Operating lease liabilities | 9 | (11,949) | ||||||||||||||||||||||||
| Total identifiable net assets | 9,067 | |||||||||||||||||||||||||
| Total consideration transferred | 9,614 | |||||||||||||||||||||||||
| Goodwill | 7 | 547 | ||||||||||||||||||||||||
| Total cash consideration transferred | 9,614 | |||||||||||||||||||||||||
5.Trade and other receivables
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Trade receivables | 55,103 | 51,481 | ||||||||||||||||||||||||
| Allowance for doubtful accounts | (1,768) | (1,946) | ||||||||||||||||||||||||
| Unbilled revenue | 2,256 | 1,650 | ||||||||||||||||||||||||
| Sales taxes receivable | 1,031 | 1,264 | ||||||||||||||||||||||||
| Other | 2,286 | 915 | ||||||||||||||||||||||||
| 58,908 | 53,364 | |||||||||||||||||||||||||
│19
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
6. Property and equipment
| Land and | Rolling | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note | buildings | stock | Equipment | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 34,062 | 388,466 | 5,147 | 427,675 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions through business combinations | 4 | - | 813 | - | 813 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other additions | 1,100 | 36,761 | 24 | 37,885 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | - | (29,512 | ) | - | (29,512 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification to assets held for sale | (1,800 | ) | - | - | (1,800 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | (49 | ) | (9 | ) | (11 | ) | (69 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 33,313 | 396,519 | 5,160 | 434,992 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions through business combinations | 4 | 248 | 10,494 | 409 | 11,151 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other additions | 5,378 | 97,604 | 969 | 103,951 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | - | (82,735 | ) | (1,230 | ) | (83,965 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | (27 | ) | (57 | ) | (6 | ) | (90 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 38,912 | 421,825 | 5,302 | 466,039 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 4,157 | 92,416 | 2,156 | 98,729 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation | 1,210 | 49,640 | 967 | 51,817 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | - | (17,301 | ) | - | (17,301 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | 2 | (10 | ) | - | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 5,369 | 124,745 | 3,123 | 133,237 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation | 1,252 | 50,135 | 878 | 52,265 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | - | (40,447 | ) | (1,113 | ) | (41,560 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | (2 | ) | (1 | ) | (3 | ) | (6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 6,619 | 134,432 | 2,885 | 143,936 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net carrying amounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2020 | 27,944 | 271,774 | 2,037 | 301,755 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2021 | 32,293 | 287,393 | 2,417 | 322,103 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As at December 31, 2021, $0.3 million is included in trade and other payables for the purchases of property and equipment (December 31, 2020 – $0.1 million). As at December 31, 2021, the carrying amount of property and equipment for the Mexican operations was $0.9 million (December 31, 2020 - $1.1 million).
│20
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
7. Intangible assets and goodwill
| Intangible assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer | compete | Information | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note | Goodwill | relationships | Trademarks | agreements | technology | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 262,120 | 30,690 | 28,199 | - | 713 | 321,722 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions through business combinations | 547 | 3,375 | - | - | - | 3,922 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of intangibles | - | (710 | ) | - | - | - | (710 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | (678 | ) | (415 | ) | (27 | ) | - | - | (1,120 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 261,989 | 32,940 | 28,172 | - | 713 | 323,814 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions through business combinations | 926 | 430 | 420 | 150 | - | 1,926 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other additions | - | - | - | - | 173 | 173 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | (327 | ) | (219 | ) | (15 | ) | - | - | (561 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 262,588 | 33,151 | 28,577 | 150 | 886 | 325,352 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization and impairment losses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 64,261 | 9,679 | 2,964 | - | 693 | 77,597 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization | - | 2,564 | - | - | 20 | 2,584 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | - | (83 | ) | (3 | ) | - | - | (86 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 64,261 | 12,160 | 2,961 | - | 713 | 80,095 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization | - | 2,696 | 6 | 5 | - | 2,707 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | - | (103 | ) | (2 | ) | - | - | (105 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 64,261 | 14,753 | 2,965 | 5 | 713 | 82,697 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net carrying amounts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2020 | 197,728 | 20,780 | 25,211 | - | - | 243,719 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2021 | 198,327 | 18,398 | 25,612 | 145 | 173 | 242,655 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
We have performed our annual impairment test for goodwill and the indefinite life intangible assets and no impairment charge was taken in fiscal 2021 and 2020. As at December 31, 2021 the indefinite life trademarks had a carrying value of $25.2 million (December 31, 2020 - $25.2 million.
8. Accrued liabilities
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Accruals | 14,339 | 8,132 | ||||||||||||||||||||||||
| Accrued compensation and benefits | 9,064 | 6,430 | ||||||||||||||||||||||||
| Accrued payroll deductions | 3,497 | 3,030 | ||||||||||||||||||||||||
| 26,900 | 17,592 | |||||||||||||||||||||||||
│21
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
9. Operating leases
The following table provides TRI’s lease expense for the years ending December 31:
| 2021 | 2020 | |||||||||||||||||||||||||||||||
| Operating lease expense | 4,059 | 1,711 | ||||||||||||||||||||||||||||||
| Short-term lease expense | 918 | 1,810 | ||||||||||||||||||||||||||||||
| Variable lease expense | 1,173 | 1,241 | ||||||||||||||||||||||||||||||
| Total Lease Expense | 6,150 | 4,762 | ||||||||||||||||||||||||||||||
The lease expenses are included in operating activities on the combined carve-out statements of cash flows. Right-of use assets obtained in exchange for operating lease liabilities were $2.2 million for the year ended December 31, 2021 (December 31, 2020 of $1.2 million).
The following table provides TRI’s operating lease right-of-use assets and lease liabilities:
| As at | As at | |||||||||||||||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Operating lease right-of-use assets | 9,252 | 9,781 | ||||||||||||||||||||||||
| Current portion of operating lease liabilities | 4,523 | 2,873 | ||||||||||||||||||||||||
| Long-term portion of operating lease liabilities | 4,697 | 6,891 | ||||||||||||||||||||||||
| Total operating lease liabilities | 9,220 | 9,764 | ||||||||||||||||||||||||
TRI does not have a significant exposure to termination options and penalties.
The following table provides the remaining lease terms and discount rates for TRI’s operating leases for the year ended December 31:
| 2021 | 2020 | |||||||||||||||||||||||||||||||
| Weight average remaining lease term (years) | 2.22 | 3.55 | ||||||||||||||||||||||||||||||
| Weighted-average discount rate (%) | 3.32 | % | 1.91% | |||||||||||||||||||||||||||||
Contractual cash flows
The total contractual cash flow maturities of the TRI’s lease liabilities are as follows:
| As at | ||||||||||||||
| December 31, 2021 | ||||||||||||||
| Less than 1 year | 4,799 | |||||||||||||
| Between 1 and 2 years | 3,421 | |||||||||||||
| Between 2 and 3 years | 910 | |||||||||||||
| Between 3 and 4 years | 218 | |||||||||||||
| Between 4 and 5 years | 91 | |||||||||||||
| More than 5 years | - | |||||||||||||
| Total lease payments | 9,439 | |||||||||||||
| Less: Imputed interest | 219 | |||||||||||||
| 9,220 | ||||||||||||||
│22
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
10. Provisions
| Self insurance | ||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||
| Current provisions | 7,522 | |||||||||||||||||||
| Non-current provisions | 12,629 | |||||||||||||||||||
| 20,151 | ||||||||||||||||||||
| As at December 31, 2020 | ||||||||||||||||||||
| Current provisions | 6,863 | |||||||||||||||||||
| Non-current provisions | 11,672 | |||||||||||||||||||
| 18,535 | ||||||||||||||||||||
| Self insurance | ||||||||||||||||||||
| Balance at December 31, 2019 | 17,455 | |||||||||||||||||||
| Provisions made during the year | 29,150 | |||||||||||||||||||
| Provisions used during the year | (25,177 | ) | ||||||||||||||||||
| Provisions reversed during the year | (2,893 | ) | ||||||||||||||||||
| Balance at December 31, 2020 | 18,535 | |||||||||||||||||||
| Provisions made during the year | 24,695 | |||||||||||||||||||
| Provisions used during the year | (19,468 | ) | ||||||||||||||||||
| Provisions reversed during the year | (3,611 | ) | ||||||||||||||||||
| Balance at December 31, 2021 | 20,151 | |||||||||||||||||||
Self-insurance provisions represent the uninsured portion of outstanding claims at period-end and is included in materials and services expenses on the combined carve-out statement of net income.
11. Net investment and related party transactions
Movements in the net investment between TRI and its parent occur periodically as determined by the parent company. For the year ended December 31, 2021 TRI distributed $57.5 million to the parent company (December 31, 2020 - $60.0 million).
Historically, TRI has been managed and operated in the normal course of business with other affiliates of the parent. Accordingly, certain shared costs have been allocated to TRI and reflected as expenses in the combined carve-out financial statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the historical parent expenses attributable to TRI for the purposes of the combined carve-out financial statement. The expenses reflected in the combined carve-out financial statements may not be indicative of expenses that will be incurred by TRI in the future. The following expense have been allocated to the combined carve-out financial statements:
Insurance
TFI manages the insurance portfolio on a consolidated basis, and allocates the expenses proportionately to the operations.
General Corporate Overhead:
TFI incurs significant corporate costs for support services to TRI as well as its other subsidiaries. These costs include expenses for accounting, claims management, other financial services such as treasury and audit functions, human resources, legal, facilities, marketing and business support. These allocated costs have been recorded in materials and services expense for $3.4 million (2020 -
│23
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
$2.9 million), personnel expenses for $2.0 million (2020 - $1.7 million), and in other operating expenses for $0.4 million (2020 - $0.3 million).
Allocation of revenues:
TRI occasionally chooses to engage a related party logistics divisions to obtain brokers to perform transportation services for their customers. Historically, some of the revenues and expenses generated from these activities were recorded entirely in the related party logistics divisions, as the operations were under common management of TFI. These combined carve-out financial statements allocate the necessary revenues and expenses from these activities to TRI at the gross margin determined from the related party logistics operations. For the year ended December 31, 2021, TRI recorded revenues of $19.1 million of revenues allocated to TRI that were performed by the logistic related party (December 31, 2020 - $11.9 million) and purchases of $17.8 million for the services performed (December 31, 2020 - $11.1 million), which are included in materials and services expenses. These transactions were recorded as part of the due to or due from parent accounts.
Other related party transactions between TRI and TFI subsidiaries occurred as arm’s length transactions, and were recorded through revenues and expenses of TRI historically, with corresponding amounts being recorded in trade receivables and payables. For the year ended December 31, 2021, TRI generated revenues of $6.9 million from sales with related parties (December 31, 2020 - $2.6 million) and incurred purchases of $2.0 million of services from related parties (December 31, 2020 - $0.9 million) included in materials and services expenses. Trade receivables and trade payables as at December 31, 2021 are $0.8 million and $0.2 million, respectively (December 31, 2020 - $0.3 million and $0.1 million, respectively).
Certain of the combined entities of TRI are considered material credit parties for TFI’s revolving credit facilities. These parties change as necessary to cover specific amounts of TFI’s consolidated earnings and assets, and provide guarantees to TFI’s lenders. No liability and expense have been recorded by TRI with respect to these guarantees.
12. Stock-Based compensation
TFI grants stock-based awards, including stock options, restricted stock awards, and performance stock awards to certain employees, including some of TRI. Stock-based compensation expense is measured at the grant based on the fair value of the award and recognized over the vesting or service period, as applicable, of the stock-based award.
Forfeitures are accounted for as they occur.
Share-based compensation expense recognized was $1,4 million for the year ended December 31, 2021 (December 31, 2020 - $0.7 million) and included in personnel expenses.
13. Materials and services expenses
TRI’s materials and services expenses are primarily costs related to independent contractors and vehicle operation expenses. Vehicle operation expenses consists primarily of fuel costs, repairs and maintenance, insurance, permits and operating supplies.
| 2021 | 2020 | |||||||||||||||||||||||||
| Independent contractors | 93,054 | 79,482 | ||||||||||||||||||||||||
| Vehicle operation expenses | 150,760 | 121,573 | ||||||||||||||||||||||||
| 243,814 | 201,055 | |||||||||||||||||||||||||
│24
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
14. Income tax expense
The following table presents TRI’s income tax expense:
| 2021 | 2020 | |||||||||||||||||||||||||
| Current tax expense | ||||||||||||||||||||||||||
| Federal | 10,715 | 14,534 | ||||||||||||||||||||||||
| State | 3,645 | 4,152 | ||||||||||||||||||||||||
| Foreign | 573 | 612 | ||||||||||||||||||||||||
| 14,933 | 19,298 | |||||||||||||||||||||||||
| Deferred tax expense (recovery) | ||||||||||||||||||||||||||
| Federal | 2,150 | (6,845 | ) | |||||||||||||||||||||||
| State | 573 | (1,563 | ) | |||||||||||||||||||||||
| Foreign | (151 | ) | (188 | ) | ||||||||||||||||||||||
| 2,572 | (8,596 | ) | ||||||||||||||||||||||||
| Income tax expense | 17,505 | 10,702 | ||||||||||||||||||||||||
Reconciliation of effective tax rate:
| 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||
| Income before income tax | 49,341 | 40,264 | ||||||||||||||||||||||||||||||||||||||||||
| Income tax using the Company’s statutory tax rate | 25.2 | % | 12,489 | 24.4 | % | 9,823 | ||||||||||||||||||||||||||||||||||||||
| Increase (decrease) resulting from: | ||||||||||||||||||||||||||||||||||||||||||||
| Rate differential between jurisdictions | 0.1 | % | 49 | 0.4 | % | 141 | ||||||||||||||||||||||||||||||||||||||
| Variation in tax rate | 0.5 | % | 253 | 1.7 | % | 678 | ||||||||||||||||||||||||||||||||||||||
| Non deductible expenses | 2.3 | % | 1,140 | 3.2 | % | 1,276 | ||||||||||||||||||||||||||||||||||||||
| Tax deductions and tax exempt income | -0.5 | % | (242 | ) | -0.3 | % | (114 | ) | ||||||||||||||||||||||||||||||||||||
| Adjustment for prior periods | 7.6 | % | 3,759 | -2.8 | % | (1,110 | ) | |||||||||||||||||||||||||||||||||||||
| Multi-jurisdiction tax | 0.1 | % | 57 | 0.0 | % | 8 | ||||||||||||||||||||||||||||||||||||||
| 35.4 | % | 17,505 | 26.6 | % | 10,702 | |||||||||||||||||||||||||||||||||||||||
The components of the net deferred tax asset (liability) included in “Deferred tax liabilities” in the combined carve-out balance sheet were:
| 2021 | 2020 | |||||||||||||||||||||||||
| Deferred tax assets: | ||||||||||||||||||||||||||
| Trade and other receivables | 466 | 209 | ||||||||||||||||||||||||
| Trade and other payables | 768 | 823 | ||||||||||||||||||||||||
| Accrued liabilities | 1,440 | 1,936 | ||||||||||||||||||||||||
| Provisions | 5,421 | 4,528 | ||||||||||||||||||||||||
| Postretirement benefits | 444 | 430 | ||||||||||||||||||||||||
| Other | 57 | 89 | ||||||||||||||||||||||||
| Total deferred tax assets | 8,596 | 8,015 | ||||||||||||||||||||||||
| Deferred tax liabilities: | ||||||||||||||||||||||||||
| Property and equipment | (73,073 | ) | (67,203 | ) | ||||||||||||||||||||||
| Intangible assets | (11,021 | ) | (11,323 | ) | ||||||||||||||||||||||
| Prepaid expenses | (1,236 | ) | (1,187 | ) | ||||||||||||||||||||||
| Other | (188 | ) | (171 | ) | ||||||||||||||||||||||
| Total deferred tax liabilities | (85,518 | ) | (79,885 | ) | ||||||||||||||||||||||
| Deferred income taxes | (76,922 | ) | (71,870 | )) | ||||||||||||||||||||||
│25
| TRANSPORTATION RESOURCES INC. | NOTES TO THE COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) | YEARS ENDED DECEMBER 31, 2021 AND 2020 | ||||
Income taxes paid for the year ended December 31, 2021 was $22.1 million (December 31, 2020 - $8.0 million).
15. Contingencies, letters of credit and other commitments
a) Contingencies
There are pending operational and personnel related claims against the TRI. In the opinion of management, these claims are adequately provided for in Provisions (note 10) on the combined carve-out balance sheet and settlement is not expected to have a material adverse effect on the TRI’s financial position or results of operations.
b) Letters of credit
As at December 31, 2021, TRI had $1.5 million of outstanding letters of credit (December 31, 2020 - $1.1 million).
c) Other commitments
As at December 31, 2021, TRI had $2.0 million of purchase commitments (December 31, 2020 – $39.8 million). December 31, 2020
16. Subsequent events
Subsequent events have been evaluated to November 14, 2022 which is the date the combined carve-out financial statements were available to be issued.
On August 31, 2022, TRI was sold to Heartland Express, Inc. (NASDAQ: HTLD) for consideration of $525 million, subject to certain agreed upon adjustments.
│26
TRANSPORTATION RESOURCES INC.
INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS
For the interim periods ended
June 30, 2022 and 2021
│1
| Transportation Resources Inc. | INTERIM COMBINED CARVE-OUT BALANCE SHEET | ||||
| (in thousands of U.S. dollars) (unaudited) | As at | As at | ||||||||||||||||||||||||||||||
| Note | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 10,957 | 6,056 | ||||||||||||||||||||||||||||||
| Trade and other receivables | 5 | 72,300 | 58,908 | |||||||||||||||||||||||||||||
| Income taxes receivable | 713 | - | ||||||||||||||||||||||||||||||
| Inventoried supplies | 2,630 | 2,180 | ||||||||||||||||||||||||||||||
| Prepaid expenses | 8,927 | 12,632 | ||||||||||||||||||||||||||||||
| Assets held for sale | 1,871 | - | ||||||||||||||||||||||||||||||
| Current assets | 97,398 | 79,776 | ||||||||||||||||||||||||||||||
| Property and equipment | 6 | 330,506 | 322,103 | |||||||||||||||||||||||||||||
| Operating lease right-of-use assets | 9 | 3,575 | 9,252 | |||||||||||||||||||||||||||||
| Goodwill | 7 | 198,634 | 198,327 | |||||||||||||||||||||||||||||
| Intangible assets, net | 7 | 43,129 | 44,328 | |||||||||||||||||||||||||||||
| Other assets | 326 | 142 | ||||||||||||||||||||||||||||||
| Non-current assets | 576,170 | 574,152 | ||||||||||||||||||||||||||||||
| Total assets | 673,568 | 653,928 | ||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Trade and other payables | 12,576 | 4,394 | ||||||||||||||||||||||||||||||
| Accrued liabilities | 8 | 33,367 | 26,900 | |||||||||||||||||||||||||||||
| Due to parent | 38,076 | 53,038 | ||||||||||||||||||||||||||||||
| Income taxes payable | - | 8,980 | ||||||||||||||||||||||||||||||
| Current portion of provisions | 10 | 9,618 | 7,522 | |||||||||||||||||||||||||||||
| Current portion of operating lease liabilities | 9 | 2,350 | 4,523 | |||||||||||||||||||||||||||||
| Current liabilities | 95,987 | 105,357 | ||||||||||||||||||||||||||||||
| Operating lease liabilities | 9 | 1,149 | 4,697 | |||||||||||||||||||||||||||||
| Other postretirement benefits | 1,303 | 1,157 | ||||||||||||||||||||||||||||||
| Provisions | 10 | 16,257 | 12,629 | |||||||||||||||||||||||||||||
| Deferred tax liabilities | 73,747 | 76,922 | ||||||||||||||||||||||||||||||
| Non-current liabilities | 92,456 | 95,405 | ||||||||||||||||||||||||||||||
| Total liabilities | 188,443 | 200,762 | ||||||||||||||||||||||||||||||
| Net Parent Investment | ||||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss | (1,662 | ) | (2,177 | ) | ||||||||||||||||||||||||||||
| Parent Investment | 486,787 | 455,343 | ||||||||||||||||||||||||||||||
| Total liabilities and net parent investment | 673,568 | 653,928 | ||||||||||||||||||||||||||||||
The notes are an integral part of these interim combined carve-out financial statements.
│2
| Transportation Resources Inc. | INTERIM COMBINED CARVE-OUT STATEMENTS OF NET INCOME | ||||
| (In thousands of U.S. dollars, except per share amounts) (unaudited) | Note | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||
| Revenue | 260,591 | 233,762 | |||||||||||||||||||||||||||
| Fuel surcharge | 59,748 | 33,584 | |||||||||||||||||||||||||||
| Total revenue | 320,339 | 267,346 | |||||||||||||||||||||||||||
| Materials and services expenses | 13 | 156,575 | 120,968 | ||||||||||||||||||||||||||
| Personnel expenses | 108,854 | 91,286 | |||||||||||||||||||||||||||
| Other operating expenses | 10,777 | 8,647 | |||||||||||||||||||||||||||
| Depreciation of property and equipment | 6 | 29,666 | 26,118 | ||||||||||||||||||||||||||
| Amortization of intangible assets | 7 | 1,456 | 1,345 | ||||||||||||||||||||||||||
| Gain on sale of rolling stock and equipment | (27,871 | ) | (2,350 | ) | |||||||||||||||||||||||||
| Other | (44 | ) | - | ||||||||||||||||||||||||||
| Total operating expenses | 279,413 | 246,014 | |||||||||||||||||||||||||||
| Operating income | 40,926 | 21,332 | |||||||||||||||||||||||||||
| Interest expense | 960 | 268 | |||||||||||||||||||||||||||
| Income before income tax | 39,966 | 21,064 | |||||||||||||||||||||||||||
| Income tax expense | 14 | 8,522 | 5,788 | ||||||||||||||||||||||||||
| Net income | 31,444 | 15,276 | |||||||||||||||||||||||||||
The notes are an integral part of these interim combined carve-out financial statements.
│3
| TRANSPORTATION RESOURCES INC. | INTERIM COMBINED CARVE-OUT STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands of U.S. dollars) (Unaudited) | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||||
| Net income | 31,444 | 15,276 | ||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | 515 | 134 | ||||||||||||||||||||||||
| Other comprehensive income | 515 | 134 | ||||||||||||||||||||||||
| Total comprehensive income | 31,959 | 15,410 | ||||||||||||||||||||||||
The notes are an integral part of these interim combined carve-out financial statements.
│4
| TRANSPORTATION RESOURCES INC. | INTERIM COMBINED CARVE-OUT STATEMENTS OF CHANGES IN NET PARENT INVESTMENT | ||||
| (In thousands of U.S. dollars) (unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
| other | Total | |||||||||||||||||||||||||||||||||||||||||||
| Parent | comprehensive | net parent | ||||||||||||||||||||||||||||||||||||||||||
| Note | Investment | Income (loss) | investment | |||||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2021 | 455,343 | (2,177 | ) | 453,166 | ||||||||||||||||||||||||||||||||||||||||
| Net income | 31,444 | - | 31,444 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | 515 | 515 | |||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 31,444 | 515 | 31,959 | |||||||||||||||||||||||||||||||||||||||||
| Balance as at June 30, 2022 | 486,787 | (1,662 | ) | 485,125 | ||||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2020 | 480,959 | (1,713 | ) | 479,246 | ||||||||||||||||||||||||||||||||||||||||
| Net income | 15,276 | - | 15,276 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | 134 | 134 | |||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 15,276 | 134 | 15,410 | |||||||||||||||||||||||||||||||||||||||||
| Balance as at June 30, 2021 | 496,235 | (1,579 | ) | 494,656 | ||||||||||||||||||||||||||||||||||||||||
The notes are an integral part of these interim combined carve-out financial statements.
│5
| Transportation Resources Inc. | INTERIM COMBINED CARVE-OUT STATEMENTS OF CASH FLOWS | ||||
| (In thousands of U.S. dollars) (unaudited) | Note | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash flows from operating activities | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income for the period | 31,444 | 15,276 | |||||||||||||||||||||||||||||||||||||||||||||
| Adjustments for: | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation of property and equipment | 6 | 29,666 | 26,118 | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 7 | 1,456 | 1,345 | ||||||||||||||||||||||||||||||||||||||||||||
| Deferred Income taxes | 14 | (3,158 | ) | (2,527 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Gain on sale of rolling stock and equipment | (27,871 | ) | (2,350 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Other post-retirement benefits and provisions | 5,833 | 3,103 | |||||||||||||||||||||||||||||||||||||||||||||
| Other | (89 | ) | (61 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Changes in operating assets and liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Trade and other receivables, net | (13,215 | ) | (4,105 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Inventoried supplies, net | (450 | ) | (164 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Prepaid expenses, net | 3,716 | 1,967 | |||||||||||||||||||||||||||||||||||||||||||||
| Other assets | (184 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||
| Trade and other payables, net | 8,182 | 1,958 | |||||||||||||||||||||||||||||||||||||||||||||
| Accrued liabilities, net | 6,611 | 4,630 | |||||||||||||||||||||||||||||||||||||||||||||
| Income taxes payable | (9,697 | ) | (630 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net cash from operating activities | 32,244 | 44,560 | |||||||||||||||||||||||||||||||||||||||||||||
| Cash flows used in investing activities | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment | 6 | (73,206 | ) | (42,018 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sale of property and equipment | 61,164 | 22,186 | |||||||||||||||||||||||||||||||||||||||||||||
| Purchases of intangible assets | 7 | (150 | ) | - | |||||||||||||||||||||||||||||||||||||||||||
| Others | (185 | ) | 324 | ||||||||||||||||||||||||||||||||||||||||||||
| Net cash used in investing activities | (12,377 | ) | (19,508 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Cash flows from financing activities | |||||||||||||||||||||||||||||||||||||||||||||||
| Due to parent, net | (14,966 | ) | (24,179 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Decrease in other financial liabilities | - | 7 | |||||||||||||||||||||||||||||||||||||||||||||
| Net cash from financing activities | (14,966 | ) | (24,172 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net change in cash and cash equivalents | 4,901 | 880 | |||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents, beginning of period | 6,056 | 5,729 | |||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents, end of period | 10,957 | 6,609 | |||||||||||||||||||||||||||||||||||||||||||||
The notes are an integral part of these interim combined carve-out financial statements.
│6
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
1. Reporting entity and the business
Transportation Resources Inc. (“TRI”), through its combined entities, is a full truckload motor carrier that utilizes a fleet of tractors and trailers to provide short- and long-haul, asset- based transportation services throughout North America. TRI provides dry-van transportation services to manufacturing, industrial and retail customers while using single drivers as well as two-person driver teams over long-haul routes, with each trailer containing only one customer's goods.
TRI also offers "through-trailer" service into and out of Mexico through major gateways in Texas, Arizona and California. This service eliminates the need for shipment transfer and/or storage fees at the border and typically involves equipment- interchange operations with various Mexican motor carriers. For a shipment with an origin or destination in Mexico, TRI provides transportation for the domestic portion of the freight move, and a Mexican carrier provides the pick-up, linehaul and delivery services within Mexico.
On August 31, 2022, TRI was sold to Heartland Express, Inc. (“Heartland”) (NASDAQ: HTLD) for $525 million, subject to certain agreed upon adjustments. The agreement excluded certain tangible assets with a carrying amount of approximately $9.1 million and TFI International, Inc. (“TFI”) retains pre-closing worker’s compensation and auto liability claims included in provisions for which Heartland paid TFI an additional $24.0 million for which such assets and provisions are included in the interim combined carve-out financial statements.
These unaudited interim combined carve-out financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial statements. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In management's opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim operating results are not necessarily indicative of the results that may be expected for the full year. These unaudited interim combined carve-out interim financial statements have been prepared using accounting policies consistent with those used in preparing the annual combined carve-out financial statements.
2. Basis of preparation
The interim combined carve-out financial statements of are prepared in connection with the Stock Purchase Agreement dated August 31, 2022 between Heartland and TFI (Note 16). These interim combined carve-out financial statements include the following legal entities: Transportation Resources, Inc., Contract Freighters, Inc., CFI Truckload de Mexico, S.A. de C.V., CFI Logistica, S.A. de C.V., Solucionnes Internationales de Transporte, S.A. de C.C., and CFI Mex, S. de R.L. de C.V. and exclude the assets and liabilities and operating results of the legal entity of CFI Logistics, a subsidiary of TRI during the reporting period. The combined entities are referred to herein as TRI. TRI’s investment in CFI logistics was sold to TFI prior to the purchase of TRI by Heartland. Throughout the periods covered by the interim combined carve-out financial statements, TRI operated as part of TFI. Consequently, stand-alone financial statements have not historically been prepared for TRI.
The accompanying interim combined carve-out financial statements have been prepared on a combined basis as they represent the TRI business excluding CFI Logistics that was sold by TRI to TFI prior to the transaction with Heartland. These interim combined carve-out financial statements have also been prepared on a “carve-out” basis and are derived from the consolidated financial statements and accounting records of TFI using the historical results of operations and historical cost basis of the assets and liabilities of TFI that comprise TRI. The interim combined carve-out financial statements have been prepared in accordance with accounting principles. These interim combined carve-out financial statements may not be indicative of the future performance of TRI and do not necessarily
│7
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
reflect what the combined results of the operations, financial position and cash flows would have been if TRI had been operated as an independent company during the periods presented.
The interim combined carve-out statements of operations include all associated revenues from the assets being included in the interim combined carve-out financial statements, and the corporate functional related expenses to generate those revenues (direct, indirect, and allocated overhead). These corporate functional related costs have been allocated to TRI based on direct usage or benefit, where identifiable, with the remainder allocated based on proportionate labor costs and usage that management believes are consistent and reasonable. However, the interim combined carve-out financial statements may not reflect the actual costs that would have been incurred had TRI been an independent company during the period presented. See note 12, Net investment and related party transactions. The allocated costs have been recorded as a due to or due from the parent account in the period in which the expense was recorded in the interim combined carve-out statement of income. Current and deferred income taxes and related tax expenses have been determined on the carve-out results of TRI by applying Accounting Standards Codification (ASC) No. 740, Income Taxes, to TRI’s operations in each country as if it were a separate taxpayer.
Transactions between TRI and TFI included in these interim combined carve-out financial statements are generally settled through a due to or due from parent account and occasionally through the issuance of dividends. Transactions that impacted the due to or due from parent account are reported as financing activities in the interim combined carve-out statements of cash flows. The net effect of these transactions is included in the interim combined carve-out balance sheet’s due to or due from parent account. The net investment represents the parent’s interest in the recorded net assets of TRI and represents the cumulative net investment by the parent in TRI through the dates presented and includes cumulative operating results. Distribution to the parent company are also reported as financing activities in the interim combined carve-out statements of cash flows.
Certain related party transactions between TRI and TFI and its subsidiaries that occur as arm’s length transactions, are recorded through revenues and expenses, with corresponding amounts being recorded in trade receivables and trade payables. See note 12, Net investment and related party transactions. These transactions are not eliminated in the combined carve-out financial statements.
a) Functional and reporting currency
The Company’s interim combined carve-out financial statements are presented in U.S. dollars (“U.S. dollars” or “USD”), the same as the functional currency of the Company.
All financial information presented in U.S. dollars has been rounded to the nearest thousand.
b) Use of estimates and judgments
Management makes estimates and assumptions when preparing the interim combined carve-out financial statements in conformity with accounting principles generally accepted in the US. These estimates and assumptions affect the amounts reported in the accompanying interim combined carve-out financial statements and notes. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Such estimates relate to revenue-related adjustments, impairment of goodwill and long-lived assets, amortization and depreciation, income taxes, self-insurance accruals, contingencies, and assets and liabilities recognized in connection with acquisitions, and allocation of related party related costs.
TRI evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Estimates and assumptions are adjusted when facts and circumstances dictate. Volatility in financial markets and changing levels of economic activity increase the uncertainty inherent in such estimates and assumptions.
│8
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the interim combined carve-out financial statements in future periods, and assumptions resulting from changes in the economic environment will be reflected in the interim combined carve-out financial statements of future periods.
3. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these interim combined carve-out financial statements. The accounting policies have been applied consistently by TRI.
a)Basis of combination
i)Business combinations
TRI applies the acquisition method to account for business combinations. TRI measures goodwill as the fair value of the consideration transferred including the fair value of liabilities resulting from contingent consideration arrangements, less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at fair value as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in income or loss.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, TRI records provisional amounts for the items for which the accounting is incomplete. During the measurement period (a period not to exceed twelve months from the acquisition date), those provisional amounts are adjusted in the reporting period in which the amounts are determined, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
Transaction costs, other than those associated with the issue of debt or equity securities, that TRI incurs in connection with a business combination, are expensed as incurred.
ii)Transactions eliminated on combinations
Intra-group balances and transactions, any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the interim combined carve-out financial statements.
b)Foreign currency translation
i)Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of TRI at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate in effect at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated at the rate in effect on the transaction date. Income and expense items denominated in foreign currency are translated at the date of the transactions. Gains and losses are included in income or loss.
ii)Foreign operations
│9
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on business combinations, are translated to US dollars at exchange rates in effect at the reporting date. The income and expenses of foreign operations are translated to US Dollars at the average exchange rate in effect during the period.
Foreign currency differences are recognized in other comprehensive income (“OCI”).
When a foreign operation is disposed of, the relevant amount in the cumulative amount of foreign currency translation differences is transferred to income or loss as part of the income or loss on disposal.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in foreign operations, are recognized in other comprehensive income.
c) Financial instruments
The fair values of cash and cash equivalents, trade receivables, accounts payable and accrued liabilities, which are recorded at cost, approximate fair value based on the short-term nature and high credit quality of these financial instruments.
d) Property and equipment
Property, plant and equipment are reported at historical cost and are depreciated on a straight-line basis over their estimated useful lives, 5 to 40 years for buildings and leasehold improvements, 4 to 10 years for rolling stock equipment and 3 to 10 years for most other equipment.
Expenditures for equipment maintenance and repairs are charged to operating expenses as incurred, and betterments are capitalized. Gains or losses on sales of equipment and property are recorded in other operating expenses.
e) Intangible assets and goodwill
i) Goodwill
Goodwill that arises upon business combinations is included in the intangible assets.
Goodwill is not amortized and is measured at cost less accumulated impairment losses.
iii)Other intangible assets
Intangible assets consist of customer relationships, trademarks, non-compete agreements and information technology.
TRI determines the fair value of the customer relationship intangible assets using the excess earnings model and internally developed significant assumptions including:
1.Forecasted revenue attributable to existing customer contracts and relationships;
2.Estimated annual attrition rate;
3.Forecasted operating margins; and
4.Discount rates.
The internally developed assumptions are based on limited observable market information which cause measurement uncertainty, and the fair value of the customer related intangible assets are sensitive to changes to these assumptions.
│10
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
Intangible assets that are acquired by TRI and have finite lives are measured at cost less accumulated amortization and accumulated impairment losses.
Intangible assets with finite lives are amortized on a straight-line basis over 5 to 20 years for customer relationships and trademarks, 3 to 10 years for non-compete agreements, and 5 to 7 years from information technology. Certain trademarks have indefinite useful lives and are not amortized, but are tested for impairment at least annually, unless events occur or circumstances change between annual tests that would more likely than not reduce the fair value. Trademarks with indefinite useful life are tested for impairment annually using a relief-from-royalty method.
Useful lives are reviewed at each financial year-end and are adjusted prospectively, if appropriate.
f) Leases
At the inception of a contract, TRI assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases with a term of twelve months or less are not recorded by TRI on the interim combined carve-out balance sheet.
Finance and operating leases right-of-use assets and liabilities are recognized based on the present value of future lease payments over the lease term at the commencement date. The leases are discounted using the interest rate implicit in the lease or, if that cannot be readily determined, TRI’s incremental borrowing rate. The incremental borrowing rate is a function of TFI’s incremental borrowing rate, the nature of the underlying asset, and the length of the lease. Generally, TRI uses its incremental borrowing rate as the discount rate. Operating lease expense is recognized on a straight-line basis over the lease term. Leases which have been identified as operating in nature are expensed in materials and service expenses (for vehicle and operating equipment) and through other operating expenses (for rent and other administrative equipment).
TRI’s lease contracts may contain termination, renewal and/or purchase options, residual value guarantees, or a combination thereof, all of which are evaluated by TRI. TRI accounts for renewal options when it is reasonably certain that it will exercise one of these options.
Lease contracts may contain lease and non-lease components that TRI generally accounts for separately.
TRI does not have material finance leases.
g) Long-Lived assets
Long-lived assets, such as property and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair values are determined using quoted market values, discounted cash flows or external appraisals, as applicable.
Goodwill is not amortized but tested for impairment on an annual basis, or more frequently If circumstances warrant. The impairment of the TRI reporting unit is tested for impairment as at year end. The Company may first assess certain qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, or proceed directly to a quantitative goodwill impairment test. If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test must be performed. The quantitative impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, including
│11
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
goodwill, and an impairment loss is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, up to the value of goodwill. The Company defines the fair value of a reporting unit as the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants as of the impairment date. To determine the fair value of a reporting unit, the Company uses the value in use approach. The value in use methodology is based on discounted future cash flows. Management believes that the discounted future cash flows method is appropriate as it allows more precise valuation of specific future cash flows and reflects current market assessments of the time value of money and the risks specific to the reporting unit.
h) Provisions
Self-insurance provisions represent the uninsured portion of outstanding claims at year-end. The provision represents an accrual for estimated future disbursements associated with the self-insured portion for claims filed at year-end and incurred but not reported, related to cargo loss, bodily injury, worker’s compensation and property damages. The estimates are based on the TRI’s historical experience including settlement patterns and payment trends. The most significant assumptions in the estimation process include the consideration of historical claim experience, severity factors affecting the amounts ultimately paid, and current and expected levels of cost per claims. Changes in assumptions and experience could cause these estimates to change significantly in the near term.
For all other legal claims, TRI maintains, and regularly updates on a case-by-case basis, provisions for such items when the expected loss is both probable and can be reasonably estimated based on currently available information.
i) Revenue recognition
Revenue is recognized as services are rendered, when the control of the promised services is transferred to customers in an amount that reflect the consideration of TRI expects to be entitled to receive in exchange for those services measured based on the consideration specified in a contract with the customers. TRI recognizes revenue and related direct costs over time in the statement of net income. The stage of completion of the service is determined using the proportion of days completed to date compared to the estimated total days of the service. Revenue is presented on a net of trade discounts and volume rebates. TRI considers the contract with customers to include the general transportation service agreement and the individual bill of ladings with customers.
j) Income Taxes
TRI has been included in the consolidated federal income tax return and consolidated/combined unitary state income tax returns of TFI. Furthermore, TRI files various stand-alone state income/franchise tax returns. TRI’s provision for income taxes and deferred tax balances as presented in the interim combined carve-out financial statements are calculated on a separate tax return basis. Under the separate return method, income taxes for each of the combined entities are calculated as if the entity was a separate taxpayer. Income taxes reflected in the accompanying interim combined carve-out financial statements of income represent a proportionate share of TFI’s consolidated income tax provision or benefit and approximate the amounts that would have been recorded had TRI filed separate tax returns. Federal and state income taxes payable and receivable in the US are settled in the current period through the intercompany payable account with TFI while income taxes payable to foreign jurisdictions are reported in the interim combined carve-out balance sheets. Current and long-term deferred taxes presented in the accompanying interim combined carve-out balance sheets represent TRI’s proportionate share of TFI’s consolidated deferred income tax accounts and approximate those that would have been recorded had TRI filed separate tax returns.
│12
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
TRI follows the asset and liability method of accounting for income taxes. Under the asset and liability method, the change in the net deferred income tax asset or liability is included in the computation of net income (loss) or other comprehensive income (loss). Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial statement reporting purposes and the bases for income tax purposes, and (b) operating losses and tax credit carry forwards. Deferred income tax assets are evaluated and, if realization is not considered to be more-likely-than-not, a valuation allowance is provided.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs
k) Cash and cash equivalents
Cash equivalents consist of short-term interest-bearing instruments with maturities of three months or less at the date of purchase. The US denominated bank accounts of TRI are part of the TFI’s cash pooling mechanism, resetting the bank balance on a daily basis. The bank accounts denominated in Pesos are excluded from the cash pooling.
l) Owner’s Net Investment and Funding Structure
Amounts for cash and debt (amounts due to parent) are reflected in the interim combined carve-out financial statements only for the activities of TRI that operated or existed in separate dedicated TRI entities, during the period of the interim combined carve-out financial statements. The funding structure is therefore not necessarily representative of the financing that would have been reported if TRI operated on its own or as an entity independent from TFI during the periods presented, nor is it indicative of the financing that may arise in the future.
m) New standards and interpretations not yet adopted
The following standards are not yet effective for the year ended December 31, 2021, and have not been applied in preparing these interim combined carve-out financial statements:
ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
On November 17, 2021, the FASB issued ASU 2021-10, which requires new annual disclosures for entities receiving government assistance.
This ASU is effective for annual periods in fiscal years beginning after December 15, 2021. The ASU may be applied prospectively from the date of initial application or retrospectively.
Early application is permitted.
The adoption of the standard is not expected to have a material impact.
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
On October 28, 2021, the FASB issued ASU 2021-08, which provides an exception to fair value measurement for revenue contracts acquired in business combinations. This ASU is effective for:
• public business entities for annual and interim periods in fiscal years beginning after December 15, 2022 and is applied prospectively.
│13
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance).
The adoption of the standard will only impact future business combinations.
4. Business combinations
On November 26, 2021, TRI acquired D&D Sexton (“D&D”). Based in Carthage, Missouri, D&D Specializes in refrigerated transportation providing both long-haul over-the-road services as well as local and shuttle operations. The purchase price allocation is not finalized as the purchase price is still subject to working capital adjustments based on the sale purchase agreement and TRI is awaiting approval from the seller to finalize.
5.Trade and other receivables
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Trade receivables | 67,359 | 55,103 | ||||||||||||||||||||||||
| Allowance for doubtful accounts | (1,882 | ) | (1,768 | ) | ||||||||||||||||||||||
| Unbilled revenue | 2,492 | 2,256 | ||||||||||||||||||||||||
| Sales taxes receivable | 473 | 1,031 | ||||||||||||||||||||||||
| Other | 3,858 | 2,286 | ||||||||||||||||||||||||
| 72,300 | 58,908 | |||||||||||||||||||||||||
6. Property and equipment
| Land and | Rolling | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| buildings | stock | Equipment | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 38,912 | 421,825 | 5,302 | 466,039 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions through business combinations | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other additions | 400 | 72,639 | 167 | 73,206 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassified to assets held for sale | (3,039 | ) | - | - | (3,039 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | (74 | ) | (58,574 | ) | (1,814 | ) | (60,462 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | 25 | 5 | 6 | 36 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 36,224 | 435,895 | 3,661 | 475,780 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 6,619 | 134,432 | 2,885 | 143,936 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation | 618 | 28,745 | 303 | 29,666 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassified to assets held for sale | (1,168 | ) | - | - | (1,168 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | - | (25,492 | ) | (1,677 | ) | (27,169 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | 2 | 3 | 4 | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 6,071 | 137,688 | 1,515 | 145,274 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net carrying amounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2021 | 32,293 | 287,393 | 2,417 | 322,103 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At June 30, 2022 | 30,153 | 298,207 | 2,146 | 330,506 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As at June 30, 2022, $0.3 million is included in trade and other payables for the purchases of property and equipment (December 31, 2021 – $0.3 million). As at June 30, 2022, the carrying amount of property and equipment for the Mexican operations was $0.9 million (December 31, 2021 - $0.9 million).
│14
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
7. Intangible assets and goodwill
| Intangible assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer | compete | Information | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note | Goodwill | relationships | Trademarks | agreements | technology | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 262,588 | 33,151 | 28,577 | 150 | 886 | 325,352 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other additions | - | - | - | - | 150 | 150 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishments | - | - | - | - | (37 | ) | (37 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | 307 | 205 | 14 | - | - | 526 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 262,895 | 33,356 | 28,591 | 150 | 999 | 325,991 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization and impairment losses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 64,261 | 14,753 | 2,965 | 5 | 713 | 82,697 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization | - | 1,359 | 21 | 15 | 61 | 1,456 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Extinguishments | - | - | - | - | (37 | ) | (37 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of movements in exchange rates | - | 111 | 1 | - | - | 112 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 64,261 | 16,223 | 2,987 | 20 | 737 | 84,228 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net carrying amounts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2021 | 198,327 | 18,398 | 25,612 | 145 | 173 | 242,655 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At June 30, 2022 | 198,634 | 17,133 | 25,604 | 130 | 262 | 241,763 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As at June 30, 2022, the indefinite useful life intangible trademarks had a carrying value of $25.2 million (December 31, 2021 - $25.2 million).
8. Accrued liabilities
As at June 30, 2022 | As at December 31, 2021 | |||||||||||||||||||||||||
| Accruals | 23,159 | 14,339 | ||||||||||||||||||||||||
| Accrued compensation and benefits | 7,410 | 9,064 | ||||||||||||||||||||||||
| Accrued payroll deductions | 2,798 | 3,497 | ||||||||||||||||||||||||
| 33,367 | 26,900 | |||||||||||||||||||||||||
9. Operating leases
The following table provides TRI’s lease expense for the six months ending June 30:
| 2022 | 2021 | |||||||||||||||||||
| Operating lease expense | 1,385 | 1,935 | ||||||||||||||||||
| Short-term lease expense | 936 | 459 | ||||||||||||||||||
| Variable lease expense | 666 | 770 | ||||||||||||||||||
| Total Lease Expense | 2,987 | 3,164 | ||||||||||||||||||
│15
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
The lease expenses are included in operating activities on the interim combined carve-out cash flows. Right-of use assets obtained in exchange for operating lease liabilities were nil for the period ended June 30, 2022 (June 30, 2021 of $2.0 million).
The following table provides TRI’s operating lease right-of-use assets and lease liabilities:
| As at | As at | |||||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Operating lease right-of-use-assets | 3,575 | 9,252 | ||||||||||||||||||||||||
| Current portion of operating lease liabilities | 2,350 | 4,523 | ||||||||||||||||||||||||
| Long-term portion of operating lease liabilities | 1,149 | 4,697 | ||||||||||||||||||||||||
| Total operating lease liabilities | 3,499 | 9,220 | ||||||||||||||||||||||||
TRI does not have a significant exposure to termination options and penalties.
The following table provides the remaining lease terms and discount rates for TRI’s operating leases for the six months ended June 30:
| 2022 | 2021 | |||||||||||||||||||
| Weight average remaining lease term (years) | 1.85 | 2.93 | ||||||||||||||||||
| Weighted-average discount rate (%) | 2.32% | 3.82% | ||||||||||||||||||
Contractual cash flows
The total contractual cash flow maturities of the TRI’s lease liabilities are as follows:
| As at | ||||||||||||||
| June 30, 2022 | ||||||||||||||
| Less than 1 year | 2,529 | |||||||||||||
| Between 1 and 2 years | 581 | |||||||||||||
| Between 2 and 3 years | 259 | |||||||||||||
| Between 3 and 4 years | 199 | |||||||||||||
| More than 4 years | - | |||||||||||||
| Total lease payments | 3,569 | |||||||||||||
| Less: Imputed interest | 70 | |||||||||||||
| Present value of lease payments | 3,499 | |||||||||||||
10. Provisions
| Self insurance | ||||||||||||||||||||
| As at June 30, 2022 | ||||||||||||||||||||
| Current provisions | 9,618 | |||||||||||||||||||
| Non-current provisions | 16,257 | |||||||||||||||||||
| 25,875 | ||||||||||||||||||||
| As at December 31, 2021 | ||||||||||||||||||||
| Current provisions | 7,522 | |||||||||||||||||||
| Non-current provisions | 13,183 | |||||||||||||||||||
| 20,705 | ||||||||||||||||||||
Self-insurance provisions represent the uninsured portion of outstanding claims at period-end and is included in the materials and services expenses on the interim combined carve-out statement of net income.
│16
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
11. Net investment and related party transactions
Movements in the net investment between TRI and its parent occur periodically as determined by the parent company.
Historically, TRI has been managed and operated in the normal course of business with other affiliates of the parent. Accordingly, certain shared costs have been allocated to TRI and reflected as expenses in the interim combined carve-out financial statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the historical parent expenses attributable to TRI for the purposes of the interim combined carve-out financial statement. The expenses reflected in the interim combined carve-out financial statements may not be indicative of expenses that will be incurred by TRI in the future. The following revenues and expenses have been allocated to the interim combined carve-out financial statements:
Insurance
TFI manages the insurance portfolio on a consolidated basis, and allocates the expenses proportionately to the operations.
General Corporate Overhead:
TFI incurs significant corporate costs for support services to TRI as well as its other subsidiaries. These costs include expenses for accounting, claims management, other financial services such as treasury and audit functions, human resources, legal, facilities, marketing and business support. Certain of the combined entities of TRI are considered material credit parties for TFI’s revolving credit facilities, and provide guarantees to TFI’s lenders. No liability and expense has been recorded by TRI with respect to these guarantees.
For the six months ended June 30, 2022, these allocated costs have been recorded in materials and services expense for $1.6 million (June 30, 2021 - $1.7 million), personnel expenses for $1.0 million (June 30, 2021 - $1.0 million), and in other operating expenses for $0.2 million (June 30, 2021 - $0.2 million).
Allocation of revenues:
TRI occasionally chooses to engage related party logistics divisions to obtain brokers to perform transportation services for their customers. Historically, some of the revenues and expenses generated from these activities were recorded entirely in the related party logistics divisions, as the operations were under common management of TFI. These interim combined carve-out financial statements allocate the necessary revenues and expenses from these activities to TRI at the gross margin determined from the related party logistics operations. For the period ended June 30, 2022, TRI recorded revenues of $12.5 million of revenues allocated to TRI that were performed by the logistic related party (June 30, 2021 - $8.2 million) and purchases of $11.6 million for the services performed (June 30, 2021 - $7.7 million), which are included in materials and services expenses. These transactions were recorded as part of the due to or due from parent accounts.
Other related party transactions between TRI and TFI subsidiaries occurred as arm’s length transactions and were recorded through revenues and expenses of TRI historically, with corresponding amounts being recorded in trade receivables and payables. For the period ended June 30, 2022, TRI generated revenues of $5.3 million from sales with related parties (June 30, 2021 - $2.0 million) and incurred purchases $0.7 million of services from related parties (June 30, 2021 - $0.5 million), included in materials and services
│17
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
expenses. Trade receivables and trade payables as at June 30, 2022 are $1.3 million and $0.2 million, respectively (June 30, 2021 - $0.5 million and $0.1 million, respectively).
12. Stock-Based compensation
TFI grants stock-based awards, including stock options, restricted stock awards, and performance stock awards to certain employees, including some of TRI. Stock-based compensation expense is measured at the grant based on the fair value of the award and recognized over the vesting or service period, as applicable, of the stock-based award.
Forfeitures are accounted for as they occur.
Share-based compensation expense recognized was $0.8 million for the six months ended June 30, 2022 (June 30, 2021 - $0.7 million) and included in personnel expenses.
13. Materials and services expenses
TRI’s materials and services expenses are primarily costs related to independent contractors and vehicle operation expenses. Vehicle operation expenses consists primarily of fuel costs, repairs and maintenance, insurance, permits and operating supplies.
| Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||||||||||
| Independent contractors | 50,346 | 47,006 | ||||||||||||||||||||||||
| Vehicle operation expenses | 106,229 | 73,962 | ||||||||||||||||||||||||
| 156,575 | 120,968 | |||||||||||||||||||||||||
14. Income tax expense
The following table presents TRI’s income tax expense:
| Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||||||||||
| Current tax expense | ||||||||||||||||||||||||||
| Federal | 8,481 | 6,471 | ||||||||||||||||||||||||
| State | 2,456 | 1,480 | ||||||||||||||||||||||||
| Foreign | 742 | 364 | ||||||||||||||||||||||||
| 11,679 | 8,315 | |||||||||||||||||||||||||
| Deferred tax expense (recovery) | ||||||||||||||||||||||||||
| Federal | (1,789 | ) | (1,806 | ) | ||||||||||||||||||||||
| State | (518 | ) | (414 | ) | ||||||||||||||||||||||
| Foreign | (850 | ) | (307 | ) | ||||||||||||||||||||||
| (3,157 | ) | (2,527 | ) | |||||||||||||||||||||||
| Income tax expense | 8,522 | 5,788 | ||||||||||||||||||||||||
│18
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
Reconciliation of effective tax rate:
Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||
| Income before income tax | 39,966 | 21,064 | ||||||||||||||||||||||||||||||||||||||||||
| Income tax using the Company’s statutory tax rate | 25.6 | % | 10,216 | 24.6 | % | 5,186 | ||||||||||||||||||||||||||||||||||||||
| Increase (decrease) resulting from: | ||||||||||||||||||||||||||||||||||||||||||||
| Rate differential between jurisdictions | 0.1 | % | 37 | 0.2 | % | 43 | ||||||||||||||||||||||||||||||||||||||
| Variation in tax rate | 0.2 | % | 61 | 0.1 | % | 28 | ||||||||||||||||||||||||||||||||||||||
| Non deductible expenses | 0.3 | % | 108 | 3.0 | % | 633 | ||||||||||||||||||||||||||||||||||||||
| Tax deductions and tax exempt income | -0.1 | % | (58 | ) | -0.4 | % | (91 | ) | ||||||||||||||||||||||||||||||||||||
| Adjustment for prior periods | -4.6 | % | (1,842 | ) | -0.0 | % | (7 | ) | ||||||||||||||||||||||||||||||||||||
| Multi-jurisdiction tax | 0.0 | % | - | 0.0 | % | 4 | ||||||||||||||||||||||||||||||||||||||
| 21.4 | % | 8,522 | 27.5 | % | 5,788 | |||||||||||||||||||||||||||||||||||||||
The components of the net deferred tax asset (liability) included in “Deferred tax liabilities” in the combined carve-out balance sheet were:
| As at June 30, 2022 | As at December 31, 2021 | |||||||||||||||||||||||||
| Deferred tax assets: | ||||||||||||||||||||||||||
| Trade and other receivables | 502 | 466 | ||||||||||||||||||||||||
| Trade and other payables | 1,532 | 768 | ||||||||||||||||||||||||
| Accrued liabilities | 1,380 | 1,440 | ||||||||||||||||||||||||
| Provisions | 6,750 | 5,421 | ||||||||||||||||||||||||
| Postretirement benefits | 500 | 444 | ||||||||||||||||||||||||
| Other | - | 57 | ||||||||||||||||||||||||
| Total deferred tax assets | 10,664 | 8,596 | ||||||||||||||||||||||||
| Deferred tax liabilities: | ||||||||||||||||||||||||||
| Property and equipment | (71,954 | ) | (73,073 | ) | ||||||||||||||||||||||
| Intangible assets | (10,804 | ) | (11,021 | ) | ||||||||||||||||||||||
| Prepaid expenses | (1,235 | ) | (1,236 | ) | ||||||||||||||||||||||
| Other | (418 | ) | (188 | ) | ||||||||||||||||||||||
| Total deferred tax liabilities | (84,411 | ) | (85,518 | ) | ||||||||||||||||||||||
| Deferred income taxes | (73,747 | ) | (76,922 | ) | ||||||||||||||||||||||
Income taxes paid for the period ended June 30, 2022 was $21.2 million (June 30, 2022 - $8.8 million).
15. Contingencies, letters of credit and other commitments
a) Contingencies
There are pending operational and personnel related claims against the TRI. In the opinion of management, these claims are adequately provided for in Provisions (note 10) in the interim combined carve-out balance sheet and settlement is not expected to have a material adverse effect on TRI’s financial position or results of operations.
│19
| Transportation Resources Inc. | NOTES TO THE INTERIM COMBINED CARVE-OUT FINANCIAL STATEMENTS | ||||
| (Tabular amounts in thousands of U.S. dollars, unless otherwise noted.) (unaudited) | PERIODS ENDED JUNE 30, 2022 AND 2021 | ||||
b) Letters of credit
As at June 30, 2022, the TRI had $1.5 million of outstanding letters of credit (December 31, 2021 - $1.5 million).
c) Other commitments
As at June 30, 2022, the TRI had $34.4 million of purchase commitments (December 31, 2021 – $2.0 million).
16. Subsequent events
Subsequent events have been evaluated to November 14, 2022 which is the date the interim combined carve-out financial statements were available to be issued.
On August 31, 2022, TRI was sold to Heartland Express, Inc. (NASDAQ: HTLD) for consideration of $525 million, subject to certain agreed upon adjustments.
│20
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On August 31, 2022, Heartland Express, Inc. of Iowa, an Iowa corporation and a wholly owned subsidiary of Heartland Express, Inc., a Nevada corporation (the "Company”), acquired Transportation Resources, Inc., a Missouri corporation (“TRI”), for an enterprise value of approximately $525 million in cash, subject to certain customary adjustments specified in the Stock Purchase Agreement, including for working capital, cash, indebtedness, transaction expenses, and a claims reserve amount. 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 TRI based on preliminary estimates of fair value. The pro forma assumptions and adjustments are described in the accompanying notes presented on the following pages. The following unaudited pro forma consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X. The final purchase price and the allocation thereof may differ from that reflected in the pro forma condensed consolidated financial statements after working capital, cash, indebtedness, transaction expense, and claims reserve 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 or the costs to achieve such efficiencies.
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 years ended December 31, 2021 and 2020, 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, 2021, which was filed with the SEC on February 25, 2022 and (2) the Company’s unaudited consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2022 and 2021 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, 2022, which was filed with the SEC on August 8, 2022, (3) TRI’s audited combined carve-out financial statements as of December 31, 2021 and 2020, and for the years then ended, the notes related thereto, included as Exhibit 99.2 to this Form 8-K/A, and (4) TRI’s unaudited combined carve-out financial statements as of June 30, 2022 and for the six months ended June 30, 2022 and 2021, and the notes related thereto, included as Exhibit 99.3 to this Form 8-K/A.
A pro forma balance sheet is not presented because the acquisition of TRI is already reflected in the Company’s balance sheet as of September 30, 2022 contained in the Company’s Quarterly Report on Form 10-Q, filed on November 9, 2022.
The actual operating results for TRI will be consolidated with the Company’s operating results for all periods subsequent to the acquisition date of August 31, 2022.
The unaudited pro forma consolidated statement of comprehensive income of the Company and TRI for the year ended December 31, 2021 gives effect to the acquisition of TRI by the Company as if it had occurred effective January 1, 2021, the beginning of the Company’s 2021 fiscal year.
The unaudited pro forma consolidated statement of comprehensive income of the Company and TRI for the six months ended June 30, 2022 gives effect to the acquisition of TRI by the Company as if it had occurred effective January 1, 2021, the beginning of the Company’s 2021 fiscal year.
| HEARTLAND EXPRESS, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||
| UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| Heartland Express | Transportation Resources | Pro Forma Adjustments | Notes | Pro Forma Consolidated | ||||||||||||||||||||||||||||
| (H) | ||||||||||||||||||||||||||||||||
| OPERATING REVENUE | $ | 339,097 | $ | 320,339 | $ | — | $ | 659,436 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||
| Salaries, wages, and benefits | 124,506 | 108,854 | (1,800) | (A) (F) | 231,560 | |||||||||||||||||||||||||||
| Rent and purchased transportation | 3,874 | 50,346 | 54,220 | |||||||||||||||||||||||||||||
| Operations and maintenance | 89,466 | 100,505 | (988) | (B) (F) | 188,983 | |||||||||||||||||||||||||||
| Insurance and claims | 11,905 | 5,724 | 17,629 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 47,620 | 31,122 | 10,368 | (C) | 89,110 | |||||||||||||||||||||||||||
| Other operating expenses | 20,246 | 10,777 | (300) | (F)(G) | 30,723 | |||||||||||||||||||||||||||
| Gain on disposal of property and equipment | (85,970) | (27,915) | (113,885) | |||||||||||||||||||||||||||||
| 211,647 | 279,413 | 7,280 | 498,340 | |||||||||||||||||||||||||||||
| Operating income | 127,450 | 40,926 | (7,280) | 161,096 | ||||||||||||||||||||||||||||
| Interest income | 406 | — | 406 | |||||||||||||||||||||||||||||
| Interest expense | (174) | (960) | (10,260) | (D) | (11,394) | |||||||||||||||||||||||||||
| Income before income taxes | 127,682 | 39,966 | (17,540) | 150,108 | ||||||||||||||||||||||||||||
| Federal and state income taxes | 34,001 | 8,522 | (5,028) | (E) | 37,495 | |||||||||||||||||||||||||||
| Net income | $ | 93,681 | $ | 31,444 | $ | (12,512) | $ | 112,613 | ||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | 515 | — | — | ||||||||||||||||||||||||||||
| Comprehensive income | $ | 93,681 | $ | 31,959 | $ | (12,512) | $ | 112,613 | ||||||||||||||||||||||||
| Net income per share | ||||||||||||||||||||||||||||||||
| Basic | $ | 1.19 | $ | 1.43 | ||||||||||||||||||||||||||||
| Diluted | $ | 1.19 | $ | 1.43 | ||||||||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||||||||||
| Basic | 78,931 | 78,931 | ||||||||||||||||||||||||||||||
| Diluted | 78,956 | 78,956 | ||||||||||||||||||||||||||||||
| HEARTLAND EXPRESS, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||
| UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||||||||||
| Twelve Months Ended December 31, 2021 | ||||||||||||||||||||||||||||||||
| Heartland Express | Transportation Resources | Pro Forma Adjustments | Notes | Pro Forma Consolidated | ||||||||||||||||||||||||||||
| (I) | ||||||||||||||||||||||||||||||||
| OPERATING REVENUE | $ | 607,284 | $ | 545,128 | $ | — | $ | 1,152,412 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||
| Salaries, wages, and benefits | 250,035 | 186,587 | (3,400) | (A) (F) | 433,222 | |||||||||||||||||||||||||||
| Rent and purchased transportation | 3,810 | 93,054 | 96,864 | |||||||||||||||||||||||||||||
| Operations and maintenance | 134,714 | 129,676 | (2,176) | (B) (F) | 262,214 | |||||||||||||||||||||||||||
| Insurance and claims | 20,826 | 21,084 | 41,910 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 104,083 | 54,972 | 20,940 | (C) | 179,995 | |||||||||||||||||||||||||||
| Other operating expenses | 25,847 | 17,882 | 800 | (F)(G) | 44,529 | |||||||||||||||||||||||||||
| Gain on disposal of property and equipment | (37,438) | (8,027) | (45,465) | |||||||||||||||||||||||||||||
| 501,877 | 495,228 | 16,164 | 1,013,269 | |||||||||||||||||||||||||||||
| Operating income | 105,407 | 49,900 | (16,164) | 139,143 | ||||||||||||||||||||||||||||
| Interest income | 640 | 44 | 684 | |||||||||||||||||||||||||||||
| Interest expense | — | (603) | (21,837) | (D) | (22,440) | |||||||||||||||||||||||||||
| Income before income taxes | 106,047 | 49,341 | (38,001) | 117,387 | ||||||||||||||||||||||||||||
| Federal and state income taxes | 26,770 | 17,505 | (10,571) | (E) | 33,704 | |||||||||||||||||||||||||||
| Net income | $ | 79,277 | $ | 31,836 | $ | (27,430) | $ | 83,683 | ||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | (464) | — | (464) | ||||||||||||||||||||||||||||
| Comprehensive income | $ | 79,277 | $ | 31,372 | $ | (27,430) | $ | 83,219 | ||||||||||||||||||||||||
| Net income per share | ||||||||||||||||||||||||||||||||
| Basic | $ | 1.00 | $ | 1.05 | ||||||||||||||||||||||||||||
| Diluted | $ | 1.00 | $ | 1.05 | ||||||||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||||||||||
| Basic | 79,573 | 79,573 | ||||||||||||||||||||||||||||||
| Diluted | 79,612 | 79,612 | ||||||||||||||||||||||||||||||
HEARTLAND EXPRESS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of transaction
On August 31, 2022, Heartland Express, Inc. of Iowa, a wholly owned subsidiary of Heartland Express, Inc. a Nevada corporation (the "Company”) acquired Transportation Resources, Inc., a Missouri corporation (“TRI”) for $525 million of total consideration payable in cash, subject to certain customary adjustments specified in the Stock Purchase Agreement, including for working capital, cash, indebtedness, transaction expenses, and a claims reserve amount. The Stock Purchase Agreement contains customary representations, warranties, covenants, and indemnification provisions.
TRI is a full truckload motor carrier that utilizes a fleet of tractors and trailers to provide short- and long-haul, asset-based transportation services throughout North America. In addition, TRI offers “through-trailer” service into and out of Mexico through major gateways in Texas, Arizona and California.
Note 2 - Estimate of Assets Acquired and Liabilities Assumed
The fair value of the total consideration transferred was $553.8 million, net of approximately $6.8 million of cash balances acquired as of August 31, 2022. The acquisition excluded $9.1 million of assets related to real estate, included in property, plant and equipment, and software, included in other assets, that were historically recorded in the balance sheet of TRI at June 30, 2022. The acquisition also excluded $24.0 million of auto liability and workers’ compensation accruals, that were retained by seller that were previously recorded in liabilities at June 30, 2022. A summary of the preliminary purchase price allocation with the acquisition of TRI, as if the transaction occurred on June 30, 2022, is as follows:
| (in thousands) | ||||||||||||||
| Cash paid | $ | 560,624 | ||||||||||||
| Allocated to: | ||||||||||||||
| Historical book value of TRI’s assets and liabilities, net of cash acquired | $ | 485,125 | ||||||||||||
| Adjustments to recognize assets and liabilities at acquisition-date fair value: | ||||||||||||||
| Property, plant and equipment | 130,641 | |||||||||||||
| Other assets | (241,102) | |||||||||||||
| Liabilities | 36,314 | |||||||||||||
| Fair value of tangible net assets acquired | 410,978 | |||||||||||||
| Identifiable intangibles at acquisition-date fair value | 55,097 | |||||||||||||
| Excess of consideration transferred over the net amount of assets and liabilities recognized. | $ | 94,549 | ||||||||||||
| (in thousands) | ||||||||||||||
| Cash paid for enterprise value pursuant to Stock Purchase Agreement | $ | 525,000 | ||||||||||||
| Cash paid for claims reserve pursuant to Stock Purchase Agreement | 24,000 | |||||||||||||
| Cash paid for estimated working capital and estimated cash pursuant to Stock Purchase Agreement | 11,624 | |||||||||||||
| Cash acquired as of August 31, 2022 | (6,821) | |||||||||||||
| $ | 553,803 | |||||||||||||
| Debt assumption | — | |||||||||||||
| Total purchase price | $ | 553,803 | ||||||||||||
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 | $ | 23,840 | — | |||||
| Customer relationships | 31,257 | 180 | ||||||
| $ | 55,097 | |||||||
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) To reflect the elimination of stock-based compensation related to grants of TRI parent company stock-based awards, including stock options, restricted stock awards, and performance stock awards to certain employees of TRI prior to the acquisition. Employees of TRI are no longer eligible for participation with the close of the acquisition.
(B) To reflect the increase 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.
(C) To reflect the increase 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, net of the elimination of amortization expense of eliminated TRI identifiable intangibles from prior acquisitions of TRI and (2) net increase 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.
(D) To reflect the increase in interest expense associated with term debt issued at close of the acquisition. Outstanding borrowings accrue interest, at the option of the borrower, at a per annum rate of (i) for an “ABR Loan”, the alternate base rate (defined as the interest rate per annum equal to the highest of (a) the variable rate of interest announced by the administrative agent as its “prime rate”, (b) 0.50% above the Federal Funds Rate, (c) the Term SOFR for an interest period of one-month plus 1.1%, or (d) 1.00%) plus the applicable margin or (ii) for a “SOFR Loan”, the Term SOFR Rate for an interest period of one, three or six-months as selected by Company plus the applicable margin. The applicable margin for ABR Loans ranges from 0.250% to 0.875% and the applicable margin for SOFR Loans ranges from 1.250% to 1.875%, depending on the Company’s net leverage ratio. The weighted average interest rate on outstanding borrowings at closing was 4.8%, which rate was used to compute pro forma interest expese. A 0.125% change in interest rates would increase or decrease annual interest expense an estimated $0.6 million.
(E) To reflect the income tax effect of each of the pro forma adjustments, at an effective tax rate of 25.5%.
(F) To remove expenses for corporate costs charged by TFI International, Inc. to TRI. These costs included expenses for accounting, claims management, other financial services such as treasury and audit functions, human resources, legal, facilities, marketing and business support.
(G) Represents the full amount of transaction costs ($1.2 million) incurred by the Company related to the acquisition of TRI. The transaction costs recorded of $0.1 million were removed from the historical Consolidated Statement of Comprehensive Income for the six months ended June 30, 2022 to reflect the transaction having occurred on January 1, 2021. The $1.1 million remaining amount was incurred subsequent to June 30, 2022. These costs will not affect the Company’s Consolidated Statement of Comprehensive Income beyond twelve months after the acquisition date.
(H)
| (1) | (2) | ||||||||||||||||
| Revenue | $ | 260,591 | |||||||||||||||
| Fuel Surcharge | 59,748 | ||||||||||||||||
| Total Revenue | 320,339 | Operating Revenues | $ | 320,339 | |||||||||||||
| Materials and services expenses | 156,575 | Operations and maintenance | 100,505 | ||||||||||||||
| Rent and purchased transportation | 50,346 | ||||||||||||||||
| Insurance and claims | 5,724 | ||||||||||||||||
| 156,575 | |||||||||||||||||
| Personnel expenses | 108,854 | Salaries, wages, and benefits | 108,854 | ||||||||||||||
| Other operating expenses | 10,777 | Other operating expenses | 10,777 | ||||||||||||||
| Depreciation of property and equipment | 29,666 | Depreciation and amortization | 29,666 | ||||||||||||||
| Amortization of intangible assets | 1,456 | Depreciation and amortization | 1,456 | ||||||||||||||
| 31,122 | Depreciation and amortization | 31,122 | |||||||||||||||
| Gain on sale of rolling stock and equipment | (27,871) | Gain on disposal of property and equipment | (27,871) | ||||||||||||||
| Other | (44) | Gain on disposal of property and equipment | (44) | ||||||||||||||
| (27,915) | Gain on disposal of property and equipment | (27,915) | |||||||||||||||
| Total operating expenses | 279,413 | Total operating expenses | 279,413 | ||||||||||||||
| Operating income | 40,926 | Operating income | 40,926 | ||||||||||||||
| Interest income | — | Interest income | — | ||||||||||||||
| Interest expense | (960) | Interest expense | (960) | ||||||||||||||
| Income before income tax | 39,966 | Income before income tax | 39,966 | ||||||||||||||
| Income tax expense | 8,522 | Federal and state income taxes | 8,522 | ||||||||||||||
| Net income | $ | 31,444 | Net income | $ | 31,444 | ||||||||||||
| Other comprehensive income (loss) | 515 | Other comprehensive income, net of tax | 515 | ||||||||||||||
| Total comprehensive income | $ | 31,959 | Comprehensive income | $ | 31,959 | ||||||||||||
(1) Represents respective line items of the Combined Carve-out Statements of Comprehensive Income for the six months ended June 30, 2022 as presented by Transportation Resources Inc.
(2) Represents respective line items of the Combined Carve-out Statements of Comprehensive Income for the six months ended June 30, 2022 as presented by Transportation Resources Inc. reclassified to conform to the Consolidated Statements of Comprehensive Income as presented by Heartland Express, Inc. and subsidiaries.
(I)
| (1) | (2) | ||||||||||||||||
| Revenue | $ | 472,733 | |||||||||||||||
| Fuel Surcharge | 72,395 | ||||||||||||||||
| Total Revenue | 545,128 | Operating Revenues | $ | 545,128 | |||||||||||||
| Materials and services expenses | 243,814 | Operations and maintenance | 129,676 | ||||||||||||||
| Rent and purchased transportation | 93,054 | ||||||||||||||||
| Insurance and claims | 21,084 | ||||||||||||||||
| 243,814 | |||||||||||||||||
| Personnel expenses | 186,587 | Salaries, wages, and benefits | 186,587 | ||||||||||||||
| Other operating expenses | 17,882 | Other operating expenses | 17,882 | ||||||||||||||
| Depreciation of property and equipment | 52,265 | Depreciation and amortization | 52,265 | ||||||||||||||
| Amortization of intangible assets | 2,707 | Depreciation and amortization | 2,707 | ||||||||||||||
| 54,972 | Depreciation and amortization | 54,972 | |||||||||||||||
| Gain on sale of rolling stock and equipment | (8,011) | Gain on disposal of property and equipment | (8,011) | ||||||||||||||
| Other | (16) | Gain on disposal of property and equipment | (16) | ||||||||||||||
| (8,027) | Gain on disposal of property and equipment | (8,027) | |||||||||||||||
| Total operating expenses | 495,228 | Total operating expenses | 495,228 | ||||||||||||||
| Operating income | 49,900 | Operating income | 49,900 | ||||||||||||||
| Interest income | 44 | Interest income | 44 | ||||||||||||||
| Interest expense | (603) | Interest expense | (603) | ||||||||||||||
| Income before income tax | 49,341 | Income before income tax | 49,341 | ||||||||||||||
| Income tax expense | 17,505 | Federal and state income taxes | 17,505 | ||||||||||||||
| Net income | $ | 31,836 | Net income | $ | 31,836 | ||||||||||||
| Other comprehensive income (loss) | (464) | Other comprehensive income, net of tax | (464) | ||||||||||||||
| Total comprehensive income | $ | 31,372 | Comprehensive income | $ | 31,372 | ||||||||||||
(1) Represents respective line items of the Combined Carve-out Statements of Comprehensive Income for the year ended December 31, 2021 as presented by Transportation Resources Inc.
(2) Represents respective line items of the Combined Carve-out Statements of Comprehensive Income for the year ended December 31, 2021 as presented by Transportation Resources Inc. reclassified to conform to the Consolidated Statements of Comprehensive Income as presented by Heartland Express, Inc. and subsidiaries.