Filed Pursuant to Rule 424(B)(1)
Registration No. 333-76508
PROSPECTUS
3,000,000 Shares
[LOGO] Heartland Express
Common Stock
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Of the 3,000,000 shares in this offering, 2,550,000 are offered by Russell
A. Gerdin, our chairman, president, chief executive officer and principal
stockholder. The additional 450,000 shares are offered by The Gerdin Charitable
Foundation following a donation by Mr. Gerdin. The selling stockholders will
receive all of the net proceeds of this offering. After this offering, Mr.
Gerdin will beneficially own approximately 13,127,146 shares, or 41.4% of our
common stock.
Our common stock is traded on the Nasdaq National Market under the symbol
"HTLD." The last reported sale price for our common stock on January 17, 2002
was $31.28 per share.
See "Risk Factors" beginning on page 4 to read about certain risks that you
should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
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Per Share Total
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Public offering price................................. $30.75 $ 92,250,000
Underwriting discounts and commissions................ $ 1.461 $ 4,381,875
Proceeds, before expenses, to the selling stockholders $29.289 $ 87,868,125
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The underwriters may, under certain circumstances, purchase up to an
additional 450,000 shares of common stock from Mr. Gerdin at the public
offering price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on January 23, 2002.
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Bear, Stearns & Co. Inc. Deutsche Banc Alex. Brown
BB&T Capital Markets
Morgan Keegan & Company, Inc. Stephens Inc.
The date of this Prospectus is January 17, 2002.
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
Prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in the common stock. You
should read the entire Prospectus carefully, especially the risks of investing
in the common stock discussed under "Risk Factors."
The Company
We are a short-to-medium haul, dry van truckload carrier based near Iowa
City, Iowa. We transport freight for major shippers in our operating regions,
concentrating on high-density traffic lanes east of the Rocky Mountains. We
focus on achieving high asset utilization and providing premium customer
service through our regional operating structure. As a result of our intense
focus on cost control, we are the most profitable publicly traded truckload
carrier in the United States, measured by net margin.
Our operating strategy has two main components. First, we are disciplined in
the execution of our regional operations. We selectively target customers in
our operating regions that have high service standards, and we seek to provide
them with service that differentiates us from our competitors. We do this by
maintaining disciplined operating lanes, concentrating our equipment in
targeted regions to afford consistent equipment capacity, stationing trailers
at customer locations for ready access, locating terminals in areas of
significant customer concentration, and offering on-time delivery on up to 99%
of loads. Second, we strive for the lowest possible cost structure. We do this
by scrutinizing all expenditures, minimizing non-driving personnel, operating a
uniform, late-model fleet of tractors and trailers to minimize maintenance
costs and enhance fuel efficiency, and adopting proven technology only when
cost-justified.
We believe our strategy has been successful over the long term. From the
year we became publicly traded in 1986 through 2000, we grew from $21.6 million
in revenue and $3.0 million in net income to $274.8 million in revenue and
$34.3 million in net income. During that period, our revenue and earnings per
share grew at compounded annual rates of over 19%. At September 30, 2001, we
had no long term debt and approximately $152.9 million of cash and investments,
all generated internally.
We plan to continue to grow internally and through acquisitions when we
expect the additional revenue to generate profitability levels consistent with
our historical performance. Historically, our growth rate has fluctuated with
economic and other factors, as well as with our four acquisitions since 1987.
Over the past several years, we slowed our growth from our historical rate as
competition for drivers, rate pressure from an overcapacity of trucks, and a
slowing economy made internal growth unattractive based on our targeted
margins. At the same time, many acquisition targets carried valuation
expectations we deemed unreasonable. We believe that significant economic and
industry pressures are forcing less profitable and undercapitalized competitors
to consolidate or exit the industry and other companies to slow their fleet
growth. We believe the resulting decline in truck capacity and our financial
strength position us to expand internally and take advantage of acquisition
opportunities.
Company Information
We are incorporated in Nevada. Our principal executive offices are located
at 2777 Heartland Drive, Coralville, Iowa 52241 and our telephone number is
(319) 545-2728. Our website address is http://www.heartlandexpress.com.
Information contained on our website is not incorporated by reference into this
Prospectus, and you should not consider information contained on our website as
part of this Prospectus.
1
The Offering
The selling stockholders are offering for sale 3,000,000 shares of our $0.01
par value common stock owned by them. We will not receive any proceeds from
this offering.
Common stock offered by the selling stockholders (1)... 3,000,000 shares
Common stock outstanding before and after this offering 31,708,131 shares
Nasdaq National Market symbol.......................... HTLD
Risk Factors
For a description of certain risks that you should consider before buying
shares of the common stock, see "Risk Factors."
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(1) Excludes a 30-day option granted by Mr. Gerdin to the underwriters to
purchase up to 450,000 additional shares of common stock to cover
over-allotments, if any.
2
Summary Historical Financial and Operating Data
The following summary financial data of the Company as of and for the years
ended December 31, 1997, 1998, 1999, and 2000, under the captions "Statement of
Operations Data," "Other Financial Data" and "Balance Sheet Data" are derived
from the financial statements of the Company. These financial statements have
been audited by Arthur Andersen LLP. These financial statements are
incorporated by reference in this Prospectus. The summary financial data as of
and for the periods ended September 30, 2000 and 2001, have been derived from
our unaudited interim financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which we
consider necessary for a fair presentation of our financial position and the
results of operation for these periods. This data should be read in conjunction
with the financial statements, related notes, and other financial information
incorporated by reference in this Prospectus.
Nine Months Ended
Year Ended December 31, September 30,
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1997 1998 1999 2000 2000 2001
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(unaudited) (unaudited)
(in thousands, except per share data and percentages)
Statement of Operations Data:
Operating revenue.............. $262,504 $263,489 $261,004 $274,827 $204,559 $221,093
Operating income............... 43,186 46,041 44,706 46,250 35,769 38,555
Interest income, net........... 3,782 4,896 5,953 5,726 4,245 3,569
Income before income taxes..... 46,968 50,937 50,660 51,976 40,014 42,124
Net income..................... $ 30,073 $ 33,109 $ 33,123 $ 34,304 $ 26,409 $ 27,802
======== ======== ======== ======== ======== ========
Basic weighted average shares
outstanding (1).............. 37,500 37,500 36,700 31,925 31,998 31,708
Basic earnings per share (1)(2) $ 0.80 $ 0.88 $ 0.90 $ 1.07 $ 0.82 $ 0.88
======== ======== ======== ======== ======== ========
Other Financial Data:
Operating ratio (3)............ 83.5% 82.5% 82.9% 83.2% 82.5% 82.6%
Net margin..................... 11.5% 12.6% 12.7% 12.5% 12.9% 12.6%
Return on equity (4)........... 21.7% 19.4% 18.3% 18.5% -- --
EBITDA (5)..................... $ 60,675 $ 65,268 $ 62,018 $ 63,468 $ 48,410 $ 51,863
Capital expenditures, net...... $ 22,113 $ 5,028 $ 17,028 $ 34,172 $ 21,886 $ 21,509
September 30,
2001
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Balance Sheet Data: (unaudited)
Cash, cash equivalents and investments........................................ $152,940
Working capital............................................................... 139,658
Total assets.................................................................. 305,346
Long term debt, including current portion --
Total stockholders' equity.................................................... 222,936
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(1) We do not have any authorized or outstanding warrants, options, rights, or
other common stock equivalents.
(2) Basic earnings per share for all periods presented have been restated to
reflect a five-for-four stock split effective May 31, 2001.
(3) Operating expenses, as a percentage of revenue.
(4) Return on equity is defined as net income divided by average stockholders'
equity.
(5) We define EBITDA as operating income plus depreciation and amortization. We
have included data with respect to EBITDA because it is commonly used as a
measurement of financial performance by investors to analyze and compare
companies on the basis of operating performance. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative either to operating
income, as determined in accordance with generally accepted accounting
principles, as an indicator of our operating performance, or to cash flows
from operating activities, as determined in accordance with generally
accepted accounting principles, as a measurement of our liquidity.
3
RISK FACTORS
Any investment in the common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this Prospectus, before buying shares
of common stock.
Our business is subject to general economic and business factors that are
largely out of our control, any of which could have a materially adverse effect
on our operating results.
Our business is dependent upon a number of factors that may have a
materially adverse effect on the results of our operations, many of which are
beyond our control. These factors include significant increases or rapid
fluctuations in fuel prices (which affected our operating performance in 2000
and 2001 and could also exacerbate the driver shortages our industry
periodically suffers by forcing independent contractors to exit the business),
excess capacity in the trucking industry, surpluses in the market for used
equipment, interest rates, fuel taxes, license and registration fees and
insurance premiums, self-insurance levels, and difficulty in attracting and
retaining qualified drivers and independent contractors.
We are also affected by recessionary economic cycles and downturns in
customers' business cycles, particularly in market segments and industries,
such as retail and manufacturing, where we have a significant concentration of
customers. Economic conditions may adversely affect our customers and their
ability to pay for our services. It is not possible to predict the medium or
long-term effects of the September 11, 2001, terrorist attacks and subsequent
events on the economy or on customer confidence in the United States, or the
impact, if any, on our future results of operations. Customers encountering
adverse economic conditions represent a greater potential for loss, and we may
be required to increase our reserve for bad-debt losses. In addition, our
results of operations may be affected by seasonal factors. Customers tend to
reduce shipments after the winter holiday season, and our operating expenses
tend to be higher in the winter months primarily due to colder weather, which
causes higher fuel consumption from increased idle time.
We operate in a highly competitive and fragmented industry, and our business
will suffer if we are unable to adequately address downward pricing pressures
and other factors that may adversely affect our ability to compete with other
carriers.
Numerous competitive factors could impair our ability to maintain our
current profitability. These factors include the following:
. we compete with many other truckload carriers of varying sizes and, to a
lesser extent, with less-than-truckload carriers and railroads, many of
which have more equipment and greater capital resources than we do;
. many of our competitors periodically reduce their freight rates to gain
business, especially during times of reduced growth rates in the economy,
which may limit our ability to maintain or increase freight rates or
maintain significant growth in our business;
. many customers reduce the number of carriers they use by selecting
so-called "core carriers" as approved service providers, and in some
instances we may not be selected;
. many customers periodically accept bids from multiple carriers for their
shipping needs, and this process may depress freight rates or result in
the loss of some business to competitors;
. the trend toward consolidation in the trucking industry may create other
large carriers with greater financial resources and other competitive
advantages relating to their size;
. advances in technology require increased investments to remain
competitive, and our customers may not be willing to accept higher freight
rates to cover the cost of these investments;
4
. competition from Internet-based and other logistics and freight brokerage
companies may adversely affect our customer relationships and freight
rates; and
. economies of scale that may be passed on to smaller carriers by
procurement aggregation providers may improve their ability to compete
with us.
We are highly dependent on our major customers, the loss of one or more of
which could have a materially adverse effect on our business.
A significant portion of our revenue is generated from our major customers.
For 2000, our top 25 customers, based on revenue, accounted for approximately
68% of our revenue; our top ten customers, approximately 49% of our revenue;
our top five customers, approximately 35% of our revenue; and our largest
customer, Sears Logistics Services, accounted for approximately 16% of our
revenue. Generally, we do not have long term contractual relationships with our
major customers, and we cannot assure you that our customer relationships will
continue as presently in effect. A reduction in or termination of our services
by our major customers could have a materially adverse effect on our business
and operating results.
Ongoing insurance and claims expenses could significantly reduce our earnings.
Our future insurance and claims expenses might exceed historical levels,
which could reduce our earnings. We currently self-insure for a portion of our
claims exposure resulting from cargo loss, personal injury, property damage,
worker's compensation, and health claims in amounts ranging from $150,000 to
$500,000. If the number or severity of claims for which we are self-insured
increases, our operating results could be adversely affected. Also, we maintain
insurance above the amounts for which we self-insure with licensed insurance
companies. After several years of aggressive pricing, insurance carriers have
begun to raise premiums for most trucking companies. This could increase our
insurance and claims expense after our current coverage expires in April, 2003
or cause us to raise our self-insured retention. The terrorist attacks of
September 11, 2001, and other significant events, may result in increases in
our insurance premiums. If these expenses increase, and we are unable to offset
the increase with higher freight rates, our earnings could be materially and
adversely affected.
If we are unable to retain our key employees, our business, financial
condition, and results of operations could be harmed.
We are highly dependent upon the services of the following key employees:
Russell A. Gerdin, our Chairman of the Board, President, Chief Executive
Officer, and Secretary; Richard L. Meehan, our Executive Vice President of
Marketing and Operations; John P. Cosaert, our Executive Vice President of
Finance and Treasurer; Thomas E. Hill, Vice President and Controller; Dennis J.
Wilkinson, our Vice President of Operations; and Michael J. Gerdin, our Vice
President of Regional Operations. We do not have employment agreements with any
of these persons. The loss of any of their services could have a materially
adverse effect on our operations and future profitability. We must continue to
develop and retain a core group of managers if we are to realize our goal of
expanding our operations and continuing our growth. We cannot assure you that
we will be able to do so.
Our growth and profitability may not continue at historical rates, which could
adversely affect our stock price.
We have experienced significant growth in revenue and net income since going
public in 1986. Over the past several years, however, our growth rate of
revenue and net income slowed. There can be no assurance that our growth rate
will return to historical levels or that we can effectively adapt our
management, administrative, and operational systems to respond to any future
growth. We can provide no assurance that our operating margins will not be
adversely affected by future changes in and expansion of our business or by
changes in economic conditions. Slower or less profitable growth could
adversely affect our stock price.
5
Russell A. Gerdin will continue to control a large portion of our stock and
will continue to have substantial control over us following this offering,
which could limit your ability to influence the outcome of key transactions,
including changes of control.
Russell A. Gerdin beneficially owns approximately 50.9% of our outstanding
common stock before this offering and will continue to beneficially own
approximately 41.4% of our outstanding common stock after this offering.
Accordingly, he will continue to be able to influence decisions requiring
stockholder approval, including election of our board of directors, the
adoption or extension of anti-takeover provisions, mergers, and other business
combinations. This concentration of ownership may allow Mr. Gerdin to prevent
or delay a change of control of Heartland, which other stockholders may favor.
We have significant ongoing capital requirements that could affect our
profitability if we are unable to generate sufficient cash from operations.
The truckload industry is very capital intensive. Historically, we have
operated debt-free and have depended on cash from operations to expand the size
of our fleet and maintain modern revenue equipment. If we are unable to
generate sufficient cash from operations in the future, we may have to limit
our growth, enter into financing arrangements, or operate our revenue equipment
for longer periods, any of which could have a materially adverse effect on our
profitability.
Increased prices for new revenue equipment and decreases in the value of used
revenue equipment may adversely affect our earnings and cash flows.
In the past, we have acquired new tractors and trailers at favorable prices
and traded or disposed of them at prices significantly higher than current
market values. There is currently a large supply of used tractors and trailers
on the market, which has depressed the market value of used equipment to levels
significantly below the values we historically received. In addition, some
manufacturers have communicated their intention to raise the prices of new
equipment. If either or both of these events occur, we may increase our
depreciation expense or recognize less gain (or a loss) on the disposition of
our tractors and trailers. This would adversely affect our earnings and cash
flows.
Our stock price is volatile, which could cause you to lose a significant
portion of your investment.
The market price of our common stock could be subject to significant
fluctuations in response to certain factors, such as variations in our
anticipated or actual results of operations, the operating results of other
companies in the transportation industry, changes in conditions affecting the
economy generally, including incidents of terrorism, analyst reports, general
trends in the industry, sales of common stock by insiders, as well as other
factors unrelated to our operating results. Volatility in the market price of
our common stock may prevent you from being able to sell your shares at or
above the price you paid for your shares.
Difficulty in attracting drivers could affect our profitability and ability to
grow.
Periodically, the transportation industry experiences substantial difficulty
in attracting and retaining qualified drivers, including independent
contractors. If we are unable to continue to attract drivers and contract with
independent contractors, we could be required to adjust our driver compensation
package or let trucks sit idle, which could adversely affect our growth and
profitability.
We may not be successful in our acquisition strategy, which could limit our
growth prospects.
We have made four acquisitions since 1987 and have accumulated a balance of
approximately $152.9 million in cash and investments at September 30, 2001, in
contemplation of financing additional acquisitions. There is no assurance,
however, that we will be successful in identifying, negotiating, or
consummating any acquisitions. If we fail to make any acquisitions, our revenue
and earnings growth rate could be materially and adversely affected.
6
Any acquisitions we undertake could involve the dilutive issuance of equity
securities and/or incurring indebtedness. In addition, acquisitions involve
numerous risks, including difficulties in assimilating the acquired company's
operations, the diversion of our management's attention from other business
concerns, risks of entering into markets in which we have had no or only
limited direct experience, and the potential loss of customers, key employees,
and drivers of the acquired company, all of which could have a materially
adverse effect on our business and operating results. If we make acquisitions
in the future, we cannot assure you that we will be able to successfully
integrate the acquired companies or assets into our business.
A lawsuit has been filed against us by the owner-operator trade association,
and if we do not prevail our profitability could be materially and adversely
affected.
On January 7, 2002, the Owner-Operator Independent Drivers Association, Inc.
served a lawsuit against us in the United States District Court for the
Southern District of Iowa. The lawsuit seeks class action status on behalf of
our owner-operators since 1996. Among other things, the lawsuit alleges that we
failed to adequately inform the owner-operators of certain deductions from
their settlement statements in violation of Department of Transportation
regulations and that our standard contract with owner-operators violates those
regulations. The lawsuit seeks unspecified damages and an injunction to prevent
owner-operators from hauling for us until alleged contractual deficiencies are
corrected. We intend to defend the lawsuit vigorously. However, if we do not
prevail, our results of operations and financial condition could be materially
and adversely affected.
Our operations are subject to various environmental laws and regulations, the
violation of which could result in substantial fines or penalties.
We are subject to various environmental laws and regulations dealing with
the handling of hazardous materials, underground fuel storage tanks, and
discharge and retention of stormwater. We operate in industrial areas, where
truck terminals and other industrial activities are located, and where
groundwater or other forms of environmental contamination have occurred. Our
operations involve the risks of fuel spillage or seepage, environmental damage,
and hazardous waste disposal, among others. We also maintain bulk fuel storage
and fuel islands at several of our facilities. If we are involved in a spill or
other accident involving hazardous substances, or if we are found to be in
violation of applicable laws or regulations, it could have a materially adverse
effect on our business and operating results. If we should fail to comply with
applicable environmental regulations, we could be subject to substantial fines
or penalties and to civil and criminal liability.
The Iowa Department of Natural Resources has issued a notice of violation
concerning fuel spillage at our Iowa City headquarters. We were fined
approximately $6,000 and are presently conducting Phase I and Phase II
environmental audits on a portion of the property to determine whether further
remediation is required.
We operate in a highly regulated industry and increased costs of compliance
with, or liability for violation of, existing or future regulations could have
a materially adverse effect on our business.
The U.S. Department of Transportation and various state agencies exercise
broad powers over our business, generally governing such activities as
authorization to engage in motor carrier operations, operations, safety, and
financial reporting. We may also become subject to new or more restrictive
regulations relating to fuel emissions, drivers' hours in service, and
ergonomics. Compliance with such regulations could substantially impair
equipment productivity and increase our operating expenses.
Lower interest rates on fixed income investments will reduce our income earned
on cash and investments.
At September 30, 2001, we had approximately $152.9 million in cash and
investments. As interest rates on fixed income securities have fallen over the
past several quarters, our net interest income has decreased despite the
increase in cash balances. Continued low interest rates will reduce our
interest income.
7
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This prospectus
contains these types of statements, which are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. We
make these statements directly in this prospectus and in the documents filed
with the Securities and Exchange Commission that are incorporated by reference
in this prospectus.
Words such as "anticipates," "estimates," "expects," "projects," "intends,"
"plans," "believes," and words or terms of similar substance used in connection
with any discussion of future operating results or financial performance
identify forward-looking statements. All forward-looking statements reflect our
management's present expectation of future events and are subject to a number
of important factors and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. The
factors listed in the "Risk Factors" section of this prospectus, as well as any
cautionary language in this prospectus, provide examples of these risks and
uncertainties.
You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this prospectus or the date of
the document incorporated by reference, in this prospectus. We are under no
obligation, and expressly disclaim any obligation, to update or alter any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock and do not anticipate
paying cash dividends in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of our board of directors and will
depend upon our financial condition, results of operations, capital
requirements, and other factors the board of directors deems relevant.
8
BUSINESS
General
We are a short-to-medium haul, dry van truckload carrier based near Iowa
City, Iowa. We transport freight for major shippers in our operating regions,
concentrating on high-density traffic lanes east of the Rocky Mountains. We
focus on achieving high asset utilization and providing premium customer
service through our regional operating structure. Through our intense focus on
cost control, we are the most profitable publicly traded truckload carrier in
the United States, measured by net margin.
We are committed to profitable growth. From 1986, the year we became
publicly traded, through 2000, we grew from $21.6 million in revenue and $3.0
million in net income to $274.8 million in revenue and $34.3 million in net
income. During that period, we achieved over 19% compounded annual growth in
both revenue and earnings per share. At September 30, 2001, we had no long-term
debt and approximately $152.9 million in cash and investments, all generated
internally.
Operating Strategy
We focus our operations primarily within targeted regions surrounding our
nine terminals. For general operations, we route freight within our terminal
network throughout much of the eastern United States. We also operate
specialized short-haul operations, which are located near Atlanta, Georgia;
Carlisle, Pennsylvania; Columbus, Ohio; Decatur, Illinois; Iowa City, Iowa;
Jacksonville, Florida; and Kingsport, Tennessee. These operations concentrate
on freight movements generally within a 400-mile radius of the terminal and are
designed to meet the needs of significant customers in those regions. Our
average length of haul during 2000 was 558 miles. This length of haul is
approximately the distance a driver can deliver a load in one day and be ready
for dispatch the next day.
We believe that our regional operating strategy offers several advantages,
including the following:
. We have access to large freight volumes because approximately 80% of all
truckload freight moves in short-to-medium lengths of haul. This allows us
to efficiently target our marketing efforts and be more selective about
the freight we haul.
. Concentrating our equipment in defined regions and disciplined traffic
lanes enables us to offer customers consistent capacity and a high level
of service as well as minimize our empty miles between loads. We believe
these factors contribute to higher revenue per mile.
. Achieving significant density of equipment and loads in designated regions
and traffic lanes allows us to enhance asset utilization by turning
equipment quickly from one load to the next with minimal time and unloaded
miles in between.
. Regional operations allow us to target our driver recruitment efforts,
keep our drivers on familiar routes, and return them home more frequently.
We believe this enhances our driver recruitment and retention ability,
reduces those costs, and improves our safety experience.
. Shorter hauls reduce rate competition from rail and intermodal
competitors, who usually are unable to meet the service standards of
regional distribution. We also are able to reduce the competition from
truckload carriers that do not have a significant presence in our regions
and cannot offer equipment capacity or service standards comparable to
ours.
Industry
The U.S. market for truck-based transportation services approximates $500
billion in annual revenue and is growing in line with the overall U.S. economy.
We believe truckload services, such as those we provide, include approximately
$65 billion of for-hire revenue and $80 billion of private fleet revenue. The
truckload industry is highly fragmented. The ten largest dry van truckload
carriers, measured by revenue, make up 19.5%, or approximately $12.7 billion,
in annual for-hire revenue.
9
Since late 1999, the truckload industry has experienced several forces that
have made operating conditions extremely difficult for many carriers. Insurance
costs have increased substantially following several years of aggressive
pricing by insurance companies. Fuel prices have remained high for much of the
past two years. The market for used tractors and trailers has been depressed by
an oversupply of used trucks and falling demand. The economy has slowed into a
recession. This combination of events raised operating expenses at a time when
slowing demand limited the ability to raise rates. In addition, falling tractor
values have eroded the net worth of many carriers and forced them to accept
losses on disposition or operate their equipment longer, with an increase in
repairs, maintenance, and other expenses.
In response to the industry forces described above, many less profitable or
undercapitalized carriers have been forced to consolidate or exit the industry.
Others have ordered fewer new tractors and slowed the growth of their fleets,
further easing the oversupply of trucks in relation to freight demand. We
believe this creates an opportunity for well-capitalized and efficiently
operated companies, like Heartland, to expand internally and make opportunistic
acquisitions.
Growth Strategy
We are committed to profitable growth. From 1986 through 2000, we grew from
$21.6 million in revenue and $3.0 million in net income to $274.8 million in
revenue and $34.3 million in net income. Our growth has been both internal and
through four acquisitions. Although our growth has been substantial over time,
our growth rate in given years has fluctuated with economic and other factors
as well as with acquisitions. Over the past several years, we slowed our
revenue growth from our historical rate as competition for drivers, rate
pressure from an overcapacity of trucks, and a slowing economy made internal
growth unattractive based on our expected margins. At the same time, many
acquisition targets carried valuation expectations we deemed unreasonable. Our
growth strategy remains to grow internally and through acquisitions.
We expect future growth opportunities to come from the following areas:
. Pursuing acquisitions. We are constantly reviewing acquisition
opportunities to identify targets that offer customer relationships,
operating regions, and other attributes that meet our goals. We
concentrate on selecting the right opportunity and executing our plan
after the transaction. In 1994, we doubled our size, established a strong
presence on the East Coast, and gained new key customers by acquiring
Munson Transportation for approximately 4% of our outstanding stock.
Munson had generated over $115 million in revenue at a 97.2% operating
ratio the year prior to the acquisition. By 1995, we operated the combined
companies at an 83.7% operating ratio and paid off essentially all of the
$57 million in assumed debt. In 1997 we acquired A&M Express, which gave
us an immediate regional presence in a strategically important portion of
the Southeast. A&M Express was a $30 million revenue carrier with an
operating ratio of approximately 90%. In 1998, we achieved an 82.5%
operating ratio overall while retaining virtually all of the key customers
and employees of A&M.
. Opening additional short-haul operations. Regional short-haul operations
now generate approximately 50% of our revenue, and the percentage is
growing. We may establish new short-haul operations based on our
opportunity to acquire new customers or the acquisition of one or more
carriers that would fit into our philosophy of providing a high level of
service through close working relationships with customers.
. Expanding core carrier relationships. We expect our service standards,
financial strength, and equipment capacity to lead to opportunities for
additional customer relationships, private fleet conversions, and
dedicated fleet operations as customers seek strong partners in response
to industry conditions. We expect these opportunities to increase lane
density in our existing operating regions and incrementally expand our
operations into new territories.
. Maintaining a strong balance sheet to provide flexibility. Our absence of
long-term debt and $152.9 million balance of cash and investments at
September 30, 2001, provide flexibility in acquiring target carriers or
private fleets and in making other capital investments.
10
Customers and Marketing
We seek customers with freight that complements our operations and increases
the density of our equipment in targeted traffic lanes and regions. We believe
that concentrating our equipment in defined lanes allows us to focus our sales
efforts and offer a high level of service in those areas. Our customers
generally are large companies with significant shipping needs. We seek freight
with specialized requirements such as expedited delivery, dedicated equipment
and personnel, and on-time narrow time frames. Many of our customers rely upon
us for just-in-time manufacturing and inventory management, and we are able to
offer service standards as high as 99% on-time delivery. We believe that
providing a high level of service allows us to compete based on performance in
addition to price.
By providing an adequate supply of equipment and offering a high level of
service we seek to establish ourselves as a preferred, or "core carrier" for
many of our customers. In 2000, our 25 largest customers accounted for 68% of
revenue, our ten largest customers for 49% of revenue, our five largest
customers for 35% of revenue. Our largest customer, Sears Logistics Services,
accounted for 16% of our revenue in 2000.
Revenue Equipment
Our revenue equipment strategies form an important part of our overall drive
for operating efficiency. We evaluate our equipment decisions based on factors
such as initial cost, useful life, warranty terms, expected maintenance costs,
fuel economy, driver comfort, customer needs, manufacturer support, and resale
value. We generally operate newer, well-maintained equipment with uniform
specifications to minimize our spare part inventory, streamline our maintenance
program, and simplify driver training. With our strong balance sheet and
liquidity, we do not face any capital constraint to maintaining a late-model
fleet.
Our current policy is to replace most of our tractors within 36 to 42 months
after purchase. Maintaining a relatively new fleet allows us to operate the
tractors while under warranty to minimize repair and maintenance costs. It also
enhances our ability to attract drivers, increases fuel economy, and improves
customer acceptance by minimizing service interruptions caused by breakdowns.
We adhere to a comprehensive maintenance program during the life of our
equipment. We perform most routine servicing and repairs at our regional
terminal facilities to reduce costly on-road repairs and out-of-route trips.
We historically have contracted with owner-operators to provide and operate
a portion of our tractor fleet. Owner-operators own their own tractors and are
responsible for all associated expenses, including financing costs, fuel,
maintenance, insurance, and taxes. We believe that a combined fleet complements
our recruiting efforts and offers greater flexibility in responding to
fluctuations in shipper demand. The percentage of our fleet provided by
owner-operators has generally fluctuated between 30% and 65%.
11
MANAGEMENT
Our senior management team is set forth in the table below. This team has
more than 100 years of combined experience with Heartland. Michael J. Gerdin is
the son of Russell A. Gerdin. In addition to our senior management team, we
have seven regional terminal managers who are responsible for short-haul
operations in their regions.
Years with
Name Age Title Heartland
---- --- ----- ----------
Russell A. Gerdin.. 60 Chairman of the Board, President, Chief 24
Executive Officer, Secretary
Richard L. Meehan.. 56 Executive Vice President of Marketing and 16
Operations
John P. Cosaert.... 54 Executive Vice President of Finance, 23
Treasurer
Thomas E. Hill..... 48 Vice President and Controller 18
Dennis J. Wilkinson 53 Vice President of Operations 11
Michael J. Gerdin.. 32 Vice President of Regional Operations 10
12
PRINCIPAL AND SELLING STOCKHOLDERS
The following table shows the number of shares and percentage of our
outstanding common stock beneficially owned by:
. each person, entity or group known by us to own beneficially more than 5%
of our outstanding common stock;
. each director and executive officer;
. all directors and executive officers as a group; and
. the selling stockholders.
The percentages shown are based on 31,708,131 shares of common stock
outstanding before and after this offering and the sale by the selling
stockholders of 3,000,000 shares. A person is deemed to have "beneficial
ownership" of any security that he or she has a right to acquire within 60 days
after such date. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power for all shares of common stock shown as beneficially owned
by them.
Number of
Number of Shares Shares to be
Beneficially Beneficially
Owned Before Percent of Shares Owned After Percent of
Name of Beneficial Owner Offering Ownership Offered Offering Ownership
------------------------ ---------------- ---------- --------- ------------ ----------
Russell A. Gerdin........................ 16,127,146(1) 50.9% 2,550,000 13,127,146 41.4%
The Gerdin Charitable Foundation......... 450,000 1.4% 450,000 -- *
Richard L. Meehan........................ 32,861(2) * -- 32,861 *
John P. Cosaert.......................... 23,286 * -- 23,286 *
Michael J. Gerdin........................ -- * -- -- *
Richard O. Jacobson...................... 90,500(3) * -- 90,500 *
Benjamin J. Allen........................ 250 * -- 250 *
Lawrence D. Crouse....................... 623,333(4) 2.0% -- 623,333 2.0%
All directors and executive officers as a
group (7 individuals).................. 16,283,418 51.4% 3,000,000 13,283,418 41.9%
--------
* Less than one percent (1%)
(1) Mr. Gerdin owns 15,513,188 shares directly. An additional 613,958 shares
are held of record by a voting trust, the voting trust certificates of
which are owned by Gerdin Family Investments, L.P. Mr. Gerdin is the
general partner of the limited partnership and has dispositive power over
the voting trust certificates and stock. Mr. Gerdin is not the voting
trustee and does not have the power to vote the shares in the voting trust.
As president of The Gerdin Charitable Foundation, Mr. Gerdin has voting and
investment control, and is deemed to have beneficial ownership of, the
450,000 shares held by the foundation prior to this offering. The business
address of Mr. Gerdin is 2777 Heartland Drive, Coralville, Iowa 52241.
(2) Mr. Meehan owns 15,731 shares directly. The remaining shares are held
11,264 by Mr. Meehan's wife and 5,866 by trusts for the benefit of Mr.
Meehan's children. Mr. Meehan disclaims beneficial ownership of the shares
not owned by him directly.
(3) All shares are owned by the Richard O. Jacobson Foundation, a private
foundation established by Mr. Jacobson. Mr. Jacobson has voting and
dispositive power over the shares, but neither he nor any of his family
members may receive distributions from the foundations assets. Accordingly,
beneficial ownership is disclaimed.
(4) Mr. Crouse beneficially owns 9,375 shares personally. The other 613,958
shares are held by Gerdin Family Investments, L.P., of which Mr. Crouse is
the voting trustee.
13
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
January 17, 2002, the underwriters named below have severally agreed with us
and the selling stockholders to purchase from the selling stockholders the
number of shares of common stock set forth below opposite their respective
names. Bear, Stearns & Co. Inc. and Deutsche Banc Alex. Brown Inc. are the
representatives of the underwriters.
Number of
Name Shares
---- ---------
Bear, Stearns & Co. Inc....................................... 840,000
Deutsche Banc Alex. Brown Inc................................. 840,000
BB&T Capital Markets, a division of Scott & Stringfellow, Inc. 600,000
Morgan Keegan & Company, Inc.................................. 360,000
Stephens Inc.................................................. 360,000
---------
Total.................................................. 3,000,000
=========
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered by this Prospectus are subject to approval by their counsel of legal
matters and to other conditions set forth in the underwriting agreement. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock offered hereby, other than those shares covered by the
over-allotment option described below, if any are purchased.
Russell A. Gerdin, one of the selling stockholders, has granted to the
underwriters a 30-day option to purchase on a pro rata basis up to 450,000
additional shares at the public offering price less the underwriting discounts
and commissions. The option may be exercised only to cover any over-allotments
of common stock.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
indicated on the cover page of this Prospectus and to certain dealers at that
price less a concession of not in excess of $0.87 per share, of which $0.10 may
be reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by the
selling stockholders as indicated on the cover page of this Prospectus. The
common stock is offered by the underwriters as stated in this Prospectus,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. The underwriters have informed us and the
selling stockholders that they do not intend to confirm sales of common stock
to any accounts over which they exercise discretionary authority.
Mr. Gerdin has granted to the underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase from time to time up to an
aggregate of 450,000 shares of our common stock to cover over-allotments, if
any, at the public offering price less underwriting discounts and commissions.
If the underwriters exercise their over-allotment option to purchase any of the
additional 450,000 shares of common stock, each underwriter, subject to certain
conditions, will become obligated to purchase its pro-rata portion of these
additional shares based on the underwriter's percentage purchase commitment in
the offering as indicated in the table above. If purchased, these additional
shares will be sold by the underwriters on the same terms as those on which the
shares offered by this Prospectus are being sold. Mr. Gerdin will be obligated,
pursuant to the over-allotment option, to sell shares to the underwriters to
the extent the over-allotment option is exercised. The underwriters may
exercise the over-allotment option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this offering.
14
The following table summarizes the underwriting compensation to be paid to
the underwriters by the selling stockholders, and the proceeds of the offering,
before expenses, to the selling stockholders. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option
to purchase additional shares.
Total
-----------------------------
Per Without With
share over-allotment over-allotment
------ -------------- --------------
Underwriting discounts and commissions paid by the selling stockholders $1.461 $4,381,875 $5,039,156
Expenses payable by Mr. Gerdin......................................... $0.06 $ 181,067 $ 181,067
The underwriting discount and commission per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to the selling stockholders per share of common stock.
We estimate total expenses payable by the selling stockholders in connection
with this offering, other than the underwriting discounts and commissions
referred to above, will be approximately $181,067.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the underwriters may be required to make in
respect to those liabilities.
Each of our executive officers and directors has agreed, subject to
specified exceptions, not to:
. offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock or
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock
owned as of the date of this Prospectus or thereafter acquired directly by
those holders or with respect to which they have the power of disposition;
or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock (regardless of whether any of these transactions are to be settled
by the delivery of common stock, or such other securities, in cash or
otherwise) for a period of 90 days after the date of this Prospectus
without the prior written consent of Bear, Stearns & Co. Inc. This
restriction terminates after the close of trading of the common stock on
and including the 90th day after the registration statement relating to
the offering has been declared effective by the staff of the Securities
and Exchange Commission. However, Bear, Stearns & Co. Inc. may, in its
sole discretion and at any time or from time to time before the
termination of the 90-day period, without notice, release all or any
portion of the securities subject to lock-up agreements. There are no
existing agreements between the representatives and any of our
stockholders who have executed a lock-up agreement, other than the selling
stockholders, providing consent to the sale of shares prior to the
expiration of the lock-up period.
In addition, we have agreed that, subject to certain exceptions, during the
lock-up period we will not, without the prior written consent of Bear, Stearns
& Co. Inc., consent to the disposition of any shares held by stockholders
subject to lock-up agreements prior to the expiration of the lock-up period, or
issue, sell, contract to sell, or otherwise dispose of, any shares of common
stock, any options or warrants to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering and any issuance of
shares in connection with any business combination or similar acquisition
transaction.
Other than in the United States, no action has been taken by us, the selling
stockholders, or the underwriters that would permit a public offering of the
shares of common stock offered by this Prospectus in any jurisdiction where
action for that purpose is required. The shares of common stock offered by this
Prospectus may not be offered or sold, directly or indirectly, nor may this
Prospectus or any other offering material or advertisements in connection with
the offer and sale of any such shares of common stock be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction.
Persons into whose possession this Prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the offering and
the distribution of this Prospectus. This Prospectus
15
does not constitute an offering to sell or a solicitation of an offer to buy
any shares of common stock offered by this Prospectus in any jurisdiction in
which such an offer or a solicitation is unlawful.
A Prospectus in electronic format may be made available on the Internet or
through other online services maintained by one or more of the underwriters of
this offering, or by their affiliates. In those cases, prospective investors
may view offering terms online and, depending upon the particular underwriter,
prospective investors may be allowed to place orders online. The underwriters
may agree with the selling stockholders to allocate a specific number of shares
for sale to online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same basis as other
allocations. Other than the Prospectus in electronic format, the information on
any underwriter's website and any information contained in any other website
maintained by an underwriter is not part of the Prospectus or the registration
statement of which this Prospectus forms a part, has not been approved and/or
endorsed by us, the selling stockholders, or any underwriter in its capacity as
underwriter and should not be relied upon by investors.
The representatives have advised us that, pursuant to Regulation M under the
Securities Exchange Act, some participants in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of shares of common stock on behalf of the underwriters
for the purpose of fixing or maintaining the price of the common stock. A
"syndicate covering transaction" is the bid for or purchase of common stock on
behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter to a syndicate member in connection with his
offering if the common stock originally sold by such underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by such underwriter or syndicate
member. The representatives have advised us that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
16
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common stock.
Representations of Purchasers
By purchasing common stock in Canada and accepting a purchase confirmation a
purchaser is representing to us, the selling stockholders and the dealer from
whom the purchase confirmation is received, that:
. the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws;
. where required by law, that the purchaser is purchasing as principal and
not as agent; and
. the purchaser has reviewed the text above under Resale Restrictions.
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein and
the selling stockholders may be located outside of Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process within
Canada upon us or such persons. All or a substantial portion of our assets or
the assets of such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against us or such persons in
Canada or to enforce a judgment obtained in Canadian courts against us or such
persons outside of Canada.
Taxation and Eligibility For Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
17
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
We file annual, quarterly and special reports and other information with the
Securities and Exchange Commission. You may read and copy any document that we
file at the Commission's Public Reference Room at 450 Fifth Street, N.W. Room
1024, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
more information about the Public Reference Room. Most of our filings are also
available to you free of charge at the Commission's web site at
http://www.sec.gov.
Our common stock is listed on the Nasdaq National Market and similar
information can be inspected and copied at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W. Washington, D.C.
20006.
We have filed a registration statement under the Securities Act of 1933 with
the Commission with respect to the common stock offered by this prospectus.
This prospectus is a part of the registration statement. However, it does not
contain all of the information contained in the registration statement and its
exhibits. You should refer to the registration statement and its exhibits for
further information about us and the common stock offered by this prospectus.
The Commission allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the Commission will automatically update and supersede this information. We
have filed the following documents with the Commission that are incorporated by
reference into this prospectus:
. our annual report on Form 10-K for the fiscal year ended December 31, 2000;
. our quarterly reports on Form 10-Q for the quarters ended March 31, 2001,
June 30, 2001, and September 30, 2001;
. our current reports on Form 8-K, including exhibits, filed with the
Commission on May 11, 2001, September 18, 2001, January 10, 2002, January
15, 2002, and January 17, 2002; and
. the description of our common stock in our Registration Statement on Form
8-A, dated October 22, 1986, including any amendment or report filed to
update such description.
Please note that all other documents and reports filed under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 following the date of
this prospectus and prior to the termination of this offering will be deemed to
be incorporated by reference into this prospectus and to be made a part of it
from the date of the filing of our reports and documents.
You may request free copies of filings incorporated herein by reference by
writing or telephoning us at the following address:
Heartland Express, Inc.
2777 Heartland Drive
Coralville, Iowa 52241
(319) 545-2728
Attn: Chief Financial Officer
18
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for us by
Scudder Law Firm, P.C., L.L.O., Lincoln, Nebraska. Certain legal matters
relating to this offering will be passed upon for the underwriters by Brobeck,
Phleger & Harrison LLP, Washington, D.C.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
19
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--------------------------------------
Prospective investors may rely only on the information contained in this
Prospectus. Neither Heartland Express, Inc., the selling stockholders, nor any
U.S. underwriter has authorized anyone to provide prospective investors with
different or additional information. This Prospectus is not an offer to sell
nor is it seeking an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted. The information contained in this
Prospectus is correct only as of the date of this Prospectus, regardless of the
time of the delivery of this Prospectus or any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this Prospectus in any such jurisdiction. Persons who come into possession of
this Prospectus in jurisdictions outside the United States and Canada are
required to inform themselves about and to observe the restrictions of that
jurisdiction related to this offering and the distribution of the Prospectus.
----------------------
TABLE OF CONTENTS
----------------------
Page
----
Prospectus Summary.................... 1
Risk Factors.......................... 4
Special Note Regarding Forward-Looking
Statements........................... 8
Dividend Policy....................... 8
Business.............................. 9
Management............................ 12
Principal and Selling Stockholders.... 13
Underwriting.......................... 14
Notice to Canadian Residents.......... 17
Where You Can Obtain Additional
Information.......................... 18
Legal Matters......................... 19
Experts............................... 19
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Heartland Express, Inc.
[LOGO] Heartland Express
3,000,000 Shares
Common Stock
--------------
PROSPECTUS
--------------
Bear, Stearns & Co. Inc.
Deutsche Banc Alex. Brown
--------------
BB&T Capital Markets
Morgan Keegan & Company, Inc.
Stephens Inc.
January 17, 2002
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