Heartland Express, Inc. (NASDAQ:HTLD) (“Heartland”), one of North
America’s largest and most profitable truckload transportation
companies, announced today that it has acquired 100% of the
outstanding stock of Interstate Distributer Co. of Tacoma,
Washington (“IDC”) from Saltchuk Resources, Inc. (“Saltchuk”).
Highlights
- IDC's truckload business generated approximately $325
million in total revenue during 2016.
- IDC's Tacoma, Washington headquarters and national
terminal network overlap substantially with existing Heartland
locations and will be consolidated together over the near to medium
term.
- The transaction enterprise value of approximately $113
million includes approximately $94 million in cash for the equity,
$23 million in assumed debt, and $4 million of acquired
cash.
Company Comments
Michael Gerdin, Chairman, President, and CEO of
Heartland, commented: “We are excited to add IDC's high quality
drivers, experienced personnel, and strong customer base to
Heartland's operations. Our first criterion is always safe and
highly qualified professional truck drivers. IDC has an experienced
driver base with improving safety results over the past several
years, and we are impressed by their culture. Additionally,
IDC is an excellent operational fit, as its terminal network has
nearly direct overlap with our current locations. Heartland
will gain significant additional traffic density in the West, and
our stronger eastern network will improve service for IDC's
customers in the East.
"Since expanding our footprint and density with
the acquisition of Gordon Trucking, Inc. in late 2013, we have
invested significantly in a new tractor and trailer fleet, returned
our operating ratio to the low- to mid-80s, repaid all of the
acquisition debt, and accumulated approximately $170 million in
cash. With a strong operating base and confidence in the future, we
have been carefully evaluating several acquisition candidates and
ranked IDC at the top because of the direct path to achieving
synergies. I would like to thank Mark Tabbutt and his
colleagues at Saltchuk, as their integrity and professionalism made
for a smooth and successful transaction process.”
Mark Tabbutt, Chairman of Saltchuk,
commented: "Since acquiring IDC in 2012, we have made
significant investments in IDC's fleet, personnel, and business
practices. We are very proud of the advancements in safety and
customer service on our watch and we appreciate the efforts of
IDC's management to improve the business. Ultimately, we
decided to look for a new home for Interstate to allow us to focus
investment in other areas of our business. Heartland offered not
only a strategic fit for the business that would allow it to grow,
but a good cultural match for the team. As we announce this next
chapter for IDC, I would like to thank all of the IDC employees for
their service to Saltchuk, as they have made us proud."
About the Transaction
Heartland acquired 100% of IDC's outstanding
stock from Saltchuk for cash. The enterprise value of the
transaction was approximately $113 million. The transaction
was funded through $94 million of Heartland's existing cash, plus
assumption of approximately $23 million of IDC's debt, and
acquisition of $4 million in cash on IDC’s balance sheet. Heartland
expects to pay off all of IDC’s debt after closing. After
funding the transaction, including repayment of assumed debt but
excluding funding of certain insurance reserves with restricted
cash, Heartland will remain debt-free, with substantial liquidity
and financial flexibility from a remaining cash balance of over $50
million and $170 million of availability on its revolving line of
credit.
From a tax perspective, Heartland will obtain an
increase in the basis of IDC’s physical assets, depreciation of
which will be tax deductible over the remaining useful lives.
Heartland’s purchase accounting remains ongoing and, depending on
the planned schedule for refreshing IDC's fleet, the carrying
values of the physical assets could be reduced versus the values
previously recorded by IDC due to shorter useful lives. Any
intangibles recorded will be tax deductible over 15 years.
Actual cash tax savings will depend on the final purchase price
allocation, the amount and timing of future taxable income and
deductions, changes in law, and other factors.
The purchase agreement contains customary terms
and conditions, including an invested capital true up as of June
30, 2017. The parties will provide certain post-closing services to
each other under transition services and other agreements.
About Interstate Distributor
Co.
IDC was founded in 1933 and provides primarily
dry van truckload transportation services, including local,
regional, dedicated, and transcontinental services. The company’s
primary operating territories are the western and southeastern
United States. IDC employs primarily experienced professional
truck drivers and provides customers a high level of service.
In each of the last three years, IDC was recognized as one of the
top three safest fleets in America by the Truckload Carriers
Association and has consistently been recognized as one of the Best
Fleets to Drive For by CarriersEdge.
IDC's truckload business generated approximately
$325 million in total revenue for 2016, including fuel surcharge
revenue. IDC generated an operating loss for 2016 and expects an
operating loss for the six months ended June 30,
2017.
IDC's fleet consists of approximately 1,350
company tractors, 220 tractors supplied by independent contractors,
and 4,700 trailers. The company tractors have an average age
of approximately 3.0 years, and the trailers have an average age of
approximately 7.5 years.
IDC’s diverse customer base covers end markets
such as retail, food and beverage, consumer products, and
transportation and logistics, including more than 60 Fortune 500
companies. No single customer accounted for more than 5% of IDC’s
total revenue in 2016. Of IDC's top 10 customers in 2016,
only three were in the top 10 customers of Heartland for the same
period.
Expected Synergies and Integration
Plan
Heartland expects to integrate IDC into
Heartland's existing operations and operate under the Heartland
brand soon after closing. Administrative, sales and
marketing, pricing, recruiting, safety, accounting, information
technology, and similar functions will be combined using personnel
from both companies to provide seamless service to customers and
drivers.
The overlapping Heartland and IDC locations
largely will be consolidated over the next 18 months. Regions
with overlap of significant facilities include Seattle-Tacoma,
Oregon, Southern California, Phoenix, and Nashville. In addition,
numerous IDC drop yards will no longer be needed, as Heartland has
a footprint of 21 terminal locations across the U.S. that will be
utilized along with numerous drop locations.
From a fleet perspective, Heartland expects to
invest in refreshing IDC's tractor and trailer fleet to bring the
average age closer to Heartland's normal fleet age.
Heartland's warranty, maintenance, and operating practices with
respect to equipment will be implemented. In addition,
purchasing economies in equipment, fuel, tires, parts, over the
road services, and other areas are expected.
Because of the overlap of facilities and
operating territories, the overall capacity of the companies will
be available to the combined customer base. We expect
substantial opportunities to use greater lane density to improve
utilization and yields through more efficient dispatch and capacity
allocation.
Based on expected synergies, the transaction is
expected to be accretive to Heartland's earnings in the first full
quarter of operations.
Advisors
Scudder Law Firm, P.C., L.L.O. served as
transaction and legal advisor to Heartland. Zachary Scott & Co.
served as financial advisor, and Garvey Schubert Barer served as
legal counsel, to IDC.
Investor Call
Heartland will conduct a live conference call
the morning of Friday, July 7, at 8:00 am Eastern Time. The dial-in
number is 1-877-410-5657, access code 28539. Heartland
representatives will include Heartland's CEO Michael Gerdin,
Heartland's CFO John Cosaert, and Heartland’s Vice President of
Finance, Chris Strain. 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.
About Heartland
Heartland Express, Inc. is an irregular route
truckload carrier based in North Liberty, Iowa, serving customers
with shipping lanes throughout the United States. Heartland focuses
on medium to short haul regional freight, offering shippers
industry-leading safety and superior on-time service so they can
achieve their strategic goals. Since its initial public offering in
1986, Heartland has grown from approximately $20 million in revenue
to one of North America’s largest, most profitable, and best
capitalized truckload carriers. Heartland has been recognized 18
times by Forbes Magazine as one of the Top 200 Best Small Companies
in America, as well as being ranked by Logistics Management
Magazine 13 times as one of the Best Truckload Carriers in America.
More information about Heartland can be found on the company
website at www.heartlandexpress.com.
This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, as amended. Forward-looking
statements generally may be identified by words such as
“anticipates,” “believes,” “estimates,” “plans,” “projects,”
“expects,” “hopes,” “intends,” “will,” “could,” “may,” and terms
and phrases of similar substance. In this press release,
forward-looking statements cover matters such as expected revenues,
expenses, synergies, capital expenditures, fleet age, cash and debt
balances, purchase accounting, tax effects, locations, and future
operations. Forward-looking statements are based upon the
current beliefs and expectations of Heartland’s management and are
inherently subject to risks and uncertainties, some of which cannot
be predicted or quantified, which could cause future events and
actual results to differ materially from those set forth in,
contemplated by, or underlying the forward-looking
statements. Accordingly, actual results may differ from those
set forth in the forward-looking statements. Readers
should review and consider the factors that may affect future
results and other disclosures by Heartland in its press releases,
stockholder reports, Annual Report on Form 10-K, and other filings
with the Securities and Exchange Commission. Heartland disclaims
any obligation to update or revise any forward-looking statements
to reflect actual results or changes in the factors affecting the
forward-looking information.
Contact: Michael Gerdin, Chief Executive Officer, or John P. Cosaert, Chief Financial Officer – (319) 626-3600
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