Heartland Express, Inc. Acquires Gordon Trucking, Inc.
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.
*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
*Earn-out of up to $20 million strongly aligned with goal of approximately
$30 million in consolidated adjusted operating income improvements through
*GTI's West Coast-centered operations and terminal network dramatically
increase Heartland's size, geographic coverage, and customer
*GTI's customer service, safety, and driver focus are similar to
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.
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
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
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
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.
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.
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.
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 November8,
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.
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
"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
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.
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.
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.
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
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
1.Reconciliation of GTI's estimated Adjusted EBITDA to GTI's net income for
the twelve months ended September 30, 2013.
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
(DOLLARS IN THOUSANDS)(Unaudited) Months Ended
September 30, 2013
Net Income^(1) $16,331
Income tax expense^(1) 188
Interest expense 3,493
Depreciation and amortization 37,561
Earnings before interest, taxes, depreciation and 57,573
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
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