NORTH LIBERTY, Iowa, Nov. 11, 2013 (GLOBE NEWSWIRE) -- The Board of
Directors of Heartland Express, Inc. ("Heartland") (Nasdaq:HTLD) is
pleased to announce today that it has acquired 100% of the stock of
Gordon Trucking, Inc. of Pacific, Washington ("GTI") and certain
associated assets in transactions valued at approximately $300 million.
With combined total revenue of approximately $1 billion and a terminal
network spanning from Washington to Florida and from Pennsylvania to
Southern California, Heartland estimates the combined companies will
operate the fifth largest asset-based truckload fleet in North America.
Steve and Scott Gordon have joined Heartland's management team. Larry
and Virginia Gordon will retire after 50 years of building GTI, and
Larry Gordon has joined Heartland's Board of Directors. The
transactions are expected to be immediately accretive to Heartland's
earnings per share, excluding transaction-related expenses.
Highlights
-- Total transactions value at closing of approximately $300 million
consisting of cash, Heartland stock, and assumed GTI debt, before taking
into account approximately $60 million in net present value of expected
future cash tax savings attributable to a Section 338(h)(10) tax
election.
-- Total transactions valued at closing, on a debt-free, cash-free basis,
at approximately 5.0x adjusted earnings before interest, taxes,
depreciation, and amortization ("Adjusted EBITDA") for the twelve months
ended September 30, 2013 ("LTM") (approximately 4.0x LTM Adjusted EBITDA
considering net present value of expected future cash tax savings).
Adjusted EBITDA is a non-GAAP financial measure. See Appendix for
reconciliation and non-GAAP disclosures.
-- Earn-out of up to $20 million strongly aligned with goal of
approximately $30 million in consolidated adjusted operating income
improvements through 2017.
-- GTI's West Coast-centered operations and terminal network dramatically
increase Heartland's size, geographic coverage, and customer
diversification.
-- GTI's customer service, safety, and driver focus are similar to
Heartland's.
Description of Transaction
Heartland acquired 100% of the outstanding voting and non-voting stock
of GTI and certain associated assets. At closing, the transactions were
valued at approximately $300 million before taking into account the net
present value of future cash tax savings, the potential earn-out, and
any post-closing working capital adjustment. Heartland expects to use
approximately $165 million of its cash reserves and expects to have
approximately $95 million in outstanding debt after the transaction and
repayment of assumed GTI debt.
The consideration at closing included approximately $150 million in
assumed or refinanced GTI debt and $150 million paid to the
stockholders of GTI and associated asset owners. Payments to
stockholders of GTI and associated asset owners were approximately $110
million in cash and approximately $40 million in Heartland's common
stock. The allocation was approximately $14 million for voting stock,
$121 million for non-voting stock, and $15 million for associated
assets. The Gordon family has agreed to retain a substantial portion of
its Heartland stock through 2017 to align the family's interests with
the interests of Heartland's other stockholders.
GTI was an S corporation for federal tax purposes and passed through
most of its income tax attributes to its stockholders. The transaction
included an election under Internal Revenue Code Section 338(h)(10),
under which Heartland will acquire tax basis of approximately $191
million relating to revenue equipment and other fixed assets. The
balance of the transaction value, after adjustments, will be allocated
to intangible assets. Future tax deductions associated with the
increase in tax basis and deductible intangible assets are expected to
generate cash tax savings with a net present value of approximately $60
million (discounted at 6%). The actual cash savings will depend on the
final purchase price allocation, the amount and timing of future
taxable income and deductions, any earn-out achieved, escrow releases,
changes in law, and other factors.
About GTI
GTI is a truckload carrier headquartered near Seattle, Washington. GTI
was founded by the Gordon family in 1946, and the family remains
actively involved in the business. GTI is primarily focused on dry van
markets but also gains approximately 14% of its revenue from
refrigerated operations and 7% from freight brokerage operations. GTI's
equipment includes approximately 2,000 tractors and 6,500 trailers.
GTI's average length of haul is approximately 400 miles.
GTI's service center network is concentrated in strategic markets in
the western United States, with major locations in Washington, Oregon,
Northern California, Southern California, and Idaho. These locations
have no overlap with Heartland's locations and are expected to provide
substantial geographic diversity to Heartland's overall operations.
Other locations include Arizona, Wisconsin, Illinois, and Indiana. Most
of these facilities are leased from limited liability companies
controlled by the Gordon family.
GTI has a diverse and high-quality customer base, with major customers
including Georgia Pacific, General Mills, Pepsi, Wal-Mart, and
Unilever. Only one customer accounts for more than 10% of GTI's total
revenue, and on a combined basis, no customer is expected to account
for more than 8.5% of combined Heartland/GTI total revenues. Of GTI's
ten largest customers by revenue, only 5 are among Heartland's top 10
accounts.
GTI's drivers and owner-operators offer a high level of service as well
as a commitment to safe operations. GTI has received numerous "carrier
of the year" and similar service awards from its customers. GTI has
been the Washington Trucking Association's safe carrier of the year for
six straight years, is the 2012 Truckload Carriers' Association safest
carrier in the U.S. (100+ million miles category), and proudly employs
the reigning TCA truck driver of the year. Both companies exhibit
outstanding Compliance, Safety, Accountability ("CSA") scores as
reported by the U.S. Department of Transportation.
Expected Financial Impact
Income Statement
GTI generated approximately $433 million in total revenue and $20
million in operating income, during the twelve months ended September
30, 2013. For the same period, Heartland estimates that GTI generated
approximately $22 million of adjusted operating income and $60 million
of Adjusted EBITDA. The adjustments consist primarily of expenses under
the prior ownership that are not expected to continue, as well as items
considered to be unusual. Adjusted financial items are non-GAAP
financial measures. See Appendix for reconciliation to the most closely
comparable GAAP measure and other disclosures.
Transaction-Related Expenses
Heartland expects to recognize approximately $1.0 million in
transaction-related expenses in the fourth quarter of 2013. Additional,
unknown costs may arise as the acquisition is integrated.
Capital Expenditures
Immediately before the transaction, Heartland's tractors had an average
age of 1.9 years and its trailers had an average age of 3.2 years.
Immediately before the transaction, GTI owned or leased approximately
2,000 tractors with an average age of 3.2 years and 6,500 trailers with
an average age of 5.5 years. GTI's operations include a substantial
amount of very short and specialized hauls, and the fleet age is
expected to become modestly newer but remain somewhat older than
Heartland's historical fleet age.
Synergies
Heartland and GTI have identified a goal of $30 million in consolidated
adjusted operating income improvements (excluding gains on sale and
certain other items) by the end of 2017 compared with combined adjusted
operating income (excluding gains on sale and certain other items) of
approximately $96 million for Heartland and GTI for the twelve months
ended September 30, 2013. The major areas where synergies are expected
include implementing best practices across the organization, increasing
in-house maintenance using the combined network, optimizing staffing
and locations, purchasing economies, conforming insurance and claims
structure, and gaining efficiencies in revenue yield and empty miles
from optimizing the combined operations. The parties expect to gain
these improvements relatively steadily from 2014 through 2017, and a
substantial portion of the earn-out is aligned with this goal.
Outstanding Shares
Heartland issued approximately 2.9 million shares of its common stock
from treasury shares in the GTI acquisition. Shares were valued at
$14.37 per share, the average closing price for the ten trading days
ended November 8, 2013. Heartland's outstanding share count will
increase to approximately 87.7 million, and its diluted share count
will increase to approximately 87.9 million. Heartland expects to
continue paying its regular quarterly dividends of 2 cents per share.
The expected consolidated book effective tax rate is expected to
increase based on the mix of state taxes.
Management Comments
Michael Gerdin, Chairman, President, and CEO of Heartland, commented:
"We searched for many years for the best fit to expand our capabilities
for customers, our opportunities for drivers, and our growth for our
stockholders. With GTI, Heartland acquires a major presence in the
West, affording the combined customer base significant capacity
nationwide through what is expected to be one of the five largest
asset-based truckload fleets in North America. GTI has a well-earned
reputation for superior customer service, with a modern fleet and a
strong safety record. Culturally speaking, it is an excellent fit. I am
pleased that Steve and Scott Gordon have joined Heartland's management
team and Larry Gordon has joined our board of directors.
"We first approached Larry, Virginia, Steve, and Scott some time ago.
As the conversations continued early this year, we jointly identified a
few guiding principles: a fair price, substantial earnings accretion, a
unified culture, the commitment of Steve and Scott to joining the team,
and alignment of interest between the Gordon family and our other
stockholders. At each stage, we were able to progress the discussion
because we kept these guideposts in mind. In the end, we have an
energized team with strong alignment and a commitment to operating a
much larger company at the industry-leading profitability Heartland's
stockholders have come to enjoy. I could not be more excited about the
opportunity or more pleased to add the Gordons to our team."
Larry Gordon, founder and Chairman of GTI, commented: "From the
beginning, I told Mike that the owners were not eager to sell, but we
would consider Heartland's proposal because of our desire to be part of
the best truckload carrier in the industry. Through these transactions,
our people have the opportunity to build on a strong foundation, learn
best practices, contribute to an industry leader, and gain access to
new customers and geographies. We were excited to receive a substantial
portion of the family's value in Heartland shares and become one of
Heartland's largest stockholders. We believe in the transactions and in
our ability to contribute greatly to the combined company."
New Credit Facility
Heartland has entered into a five-year, unsecured $250 million
revolving credit facility supplied by Wells Fargo Bank, N.A. Borrowings
under the facility will bear interest at a floating rate of LIBOR +
62.5 basis points annually (currently an annual rate of 0.865%). Unused
amounts are subject to a commitment fee of 6.25 basis points annually.
After giving effect to the closing and refinancing of existing GTI
debt, Heartland expects to have available borrowing capacity of
approximately $155 million to fund working capital, capital
expenditures, and general corporate uses.
The revolving credit facility contains customary terms and conditions.
Heartland must maintain a consolidated leverage ratio (total funded
debt divided by Adjusted EBITDA) of less than 2:00 to 1:00. In
addition, Heartland must generate at least $1.00 of adjusted net income
annually and maintain tangible net worth of at least $200 million.
Heartland expects to be in compliance with the financial covenants for
the foreseeable future.
Advisors
Scudder Law Firm, P.C., L.L.O. served as transaction and legal advisor
to Heartland. Wells Fargo Bank, N.A. provided financing, and Wells
Fargo Securities, LLC provided financial advice.
Moss Adams Capital LLC served as financial advisor, and Perkins Coie
LLP served as legal advisor, to GTI and its stockholders.
Conference Call
Heartland will conduct a live conference call Tuesday morning at 10:00
am EST. The dial-in number is 866-710-0179, access code 28539.
Heartland representatives will include Heartland's CEO Michael Gerdin
and Heartland's CFO John Cosaert. Also present will be GTI's CEO Larry
Gordon, GTI's COO Steve Gordon, and GTI's CIO Scott Gordon. Heartland
representatives will be referring to a slide presentation that will be
available at
www.heartlandexpress.com/investors and on Form 8-K filed
with the U.S. Securities and Exchange Commission. Telephone replay will
be available for 30 days beginning tomorrow by dialing
877-919-4059 (334-323-7226 international), access code 12686180.
About Heartland
A leader in transportation and logistics, Heartland Express provides
collaborative truckload transportation service that enables companies
to deliver exceptional service across their transportation network to
improve customer satisfaction. Companies choose Heartland Express for
its award winning on-time pickup and delivery, fleet capacity to cover
commitments scaled to their needs, leadership in providing information
about their shipments, and its performance in moving beyond the
transactional to the strategic relationship to solve problems.
Heartland is based in North Liberty, IA with nationwide service from
Washington to Florida and New England to California.
Forward-Looking Statements
This report contains forward-looking statements relating to the
expected results of acquiring GTI, future capital expenditures and debt
levels, expected synergies, and financial goals. Forward-looking
statements are usually identified by words such as "anticipates,"
"believes," "estimates", "plans," "projects," "expects," "hopes,"
"intends," "will," "could," "may," or similar expressions. These
statements are based on information currently available and speak only
as of the date the statement was made. Such forward-looking statements
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements are inherently uncertain, are based upon the current
beliefs, assumptions and expectations of management, and are based on
current market conditions, all of which are subject to significant
risks and uncertainties as set forth in the Risk Factors Section of our
Annual Report Form 10-K for the year ended December 31, 2012, as those
risk factors may be updated from time to time. As a result of these and
other factors, actual results may differ from those set forth in the
forward-looking statements. The prices of the Company's securities may
fluctuate dramatically. The Company makes no commitment, and disclaims
any duty, to update or revise any forward-looking statements to reflect
future events, new information or changes in these expectations.
Appendix
1. Reconciliation of GTI's estimated Adjusted EBITDA to GTI's net
income for the twelve months ended September 30, 2013.
Non-GAAP Reconciliation
This press release contains EBITDA and Adjusted EBITDA, which are
"non-GAAP financial measures" as that term is defined in Regulation G
of the Securities Exchange Act of 1934. In accordance with Regulation
G, Heartland has reconciled these non-GAAP financial measures to their
most directly comparable U.S. GAAP measure.
EBITDA and Adjusted EBITDA are included because Heartland used these
measures in evaluating the GTI acquisition, and management believes
these measures provide investors and securities analysts information
used generally in evaluating acquisitions in Heartland's industry.
EBITDA and Adjusted EBITDA are not intended to represent, and should
not be considered more meaningful than, or as an alternative to, net
income. Investors should not place undue reliance on these measures, as
Heartland primarily evaluates its results using net income.
Estimated
Twelve
Months
Ended
(DOLLARS IN THOUSANDS) September
(Unaudited) 30, 2013
---------
Net Income(1) $ 16,331
Plus:
Income tax expense(1) 188
Interest expense 3,493
Depreciation and amortization 37,561
---------
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) 57,573
Adjustments:(2)
Discontinued owner expenses 983
Discontinued facilities and
aircraft costs 1,130
Other unusual items 410
---------
Adjusted EBITDA $ 60,096
=========
(1) GTI was an S corporation prior to
acquisition date and thus did not
recognize federal or most state income
taxes.
(2) Adjustment items are not expected to
continue. These do not constitute all
adjustments that are required or permitted
under Regulation S-X.
CONTACT: Heartland Express, Inc.
Mike Gerdin, Chief Executive Officer
John Cosaert, Chief Financial Officer
319-626-3600
