SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2002 Commission File No. 0-15087
HEARTLAND EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 93-0926999
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
2777 Heartland Drive, Coralville, Iowa 52241
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (319) 545-2728
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
At September 30, 2002, there were 50,000,000 shares of the Company's $.01 par
value common stock outstanding.
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 (unaudited) and
December 31, 2001 2 - 3
Consolidated Statements of Income
(unaudited) for the Three and Nine Months
ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows
(unaudited) for the Nine Months ended
September 30, 2002 and 2001 5
Notes to Consolidated Financial Statements (unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ...................... $132,940,674 $120,794,142
Investments .................................... 23,315,543 40,281,980
Trade receivables, less allowance of
$650,000 in 2002 and $402,812 in 2001 ........ 37,509,731 25,700,435
Prepaid tires .................................. 4,245,680 4,077,276
Deferred income taxes .......................... 19,582,000 17,358,000
Other current assets ........................... 1,184,640 144,890
------------ ------------
Total current assets ........................ 218,778,268 208,356,723
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements ...................... 4,402,820 4,402,820
Buildings ....................................... 8,532,621 8,532,621
Furniture and fixtures .......................... 1,414,094 1,300,848
Shop and service equipment ...................... 1,433,776 1,453,755
Revenue equipment ............................... 162,902,701 133,902,094
------------ ------------
178,686,012 149,592,138
Less accumulated depreciation ................... 42,848,275 47,473,283
------------ ------------
Property and equipment, net ..................... 135,837,737 102,118,855
------------ ------------
OTHER ASSETS, net ................................. 8,654,022 3,762,832
------------ ------------
$363,270,027 $314,238,410
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2002 2001
------------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable & accrued liabilities ....... $ 14,105,393 $ 7,073,957
Compensation & benefits ...................... 7,787,364 6,383,984
Income taxes payable ......................... 6,716,214 6,693,398
Insurance accruals ........................... 39,613,088 36,443,348
Other ........................................ 4,512,131 3,858,496
------------- -------------
Total current liabilities ................. 72,734,190 60,453,183
------------- -------------
DEFERRED INCOME TAXES .......................... 25,877,000 20,996,000
------------- -------------
CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred, $.01 par value; authorized
5,000,000 share; none issued ............... -- --
Common, $.01 par value; authorized
395,000,000 shares; issued and
outstanding 50,000,000 shares .............. 500,000 500,000
Additional paid-in capital ................... 8,603,762 6,608,170
Retained earnings ............................ 257,317,848 225,681,057
------------- -------------
266,421,610 232,789,227
Less: unearned compensation .................. (1,762,773) --
------------- -------------
264,658,837 232,789,227
------------- -------------
$ 363,270,027 $ 314,238,410
============= =============
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
OPERATING REVENUE .......................... $ 91,123,367 $ 73,917,920 $ 248,753,449 $ 221,092,616
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages, and benefits ........... $ 29,341,346 $ 21,969,335 $ 78,931,009 $ 65,188,099
Rent and purchased transportation ....... 17,170,890 16,474,914 48,834,154 50,664,406
Operations and maintenance .............. 14,921,425 12,405,409 40,000,709 36,714,887
Taxes and licenses ...................... 1,953,378 1,586,127 5,249,886 4,489,242
Insurance and claims .................... 2,530,868 1,779,205 7,373,504 5,504,601
Communications and utilities ............ 911,176 698,956 2,240,502 2,320,610
Depreciation ............................ 5,666,127 4,279,356 14,027,837 12,723,996
Other operating expenses ................ 2,460,928 1,785,209 6,251,675 5,036,289
(Gain) loss on disposal of fixed assets . 37,759 -- 38,272 (104,763)
------------- ------------- ------------- -------------
74,993,897 60,978,511 202,947,548 182,537,367
------------- ------------- ------------- -------------
Operating income .................. 16,129,470 12,939,409 45,805,901 38,555,249
Interest income ......................... 648,359 1,022,472 2,128,631 3,569,134
------------- ------------- ------------- -------------
Income before income taxes ........... 16,777,829 13,961,881 47,934,532 42,124,383
Income taxes ............................ 5,704,463 4,746,965 16,297,741 14,322,216
------------- ------------- ------------- -------------
Net income ........................... $ 11,073,366 9,214,916 $ 31,636,791 $ 27,802,167
============= ============= ============= =============
Earnings per common share:
Basic earnings per share ............ $ 0.22 $ 0.18 $ 0.63 $ 0.56
============= ============= ============= =============
Basic weighted average shares outstanding 50,000,000 50,000,000 50,000,000 50,000,000
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
2002 2001
------------- -------------
OPERATING ACTIVITIES
Net income ................................... $ 31,636,791 $ 27,802,167
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization .............. 14,034,505 13,307,583
Deferred income taxes ...................... 2,657,000 1,597,000
Unearned compensation ...................... 232,819 --
Loss on disposal of fixed assets ........... 148,463 16,913
Changes in certain working capital items:
Trade receivables ........................ (11,809,296) (2,409,434)
Other current assets ..................... 58,396 (388,172)
Prepaid expenses ......................... (1,039,750) (450,501)
Accounts payable and accrued expenses .... 9,221,856 4,462,893
Accrued income taxes ..................... 22,816 2,384,303
------------- -------------
Net cash provided by operating activities 45,163,600 46,322,752
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment . 5,475,880 182,795
Capital additions ............................ (50,561,527) (21,691,442)
Net maturities (purchases) of municipal bonds 16,966,437 (23,875,039)
(Increase) decrease in other assets .......... (4,897,858) 98,843
------------- -------------
Net cash used in investing activities ........ (33,017,068) (45,284,843)
------------- -------------
Net increase in cash and cash equivalents .... 12,146,532 1,037,909
CASH AND CASH EQUIVALENTS
Beginning of period .......................... 120,794,142 128,027,076
------------- -------------
End of period ................................ $ 132,940,674 $ 129,064,985
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ............................... $ 13,617,925 $ 10,340,913
Noncash investing activities:
Book value of revenue equipment traded ..... $ 11,969,142 $ 9,250,948
The accompanying notes are an integral part of these consolidated financial
statements.
5
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Heartland Express, Inc., a Nevada holding company, and its wholly-owned
subsidiaries ("Heartland" or the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles ("GAAP"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures have been omitted or condensed pursuant to
such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Results of operations in interim periods are
not necessarily indicative of results for a full year. These consolidated
financial statements and notes thereto should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2001. The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of contingent
assets and liabilities, at the date of the accompanying consolidated financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Note 2. Contingencies
The Company is involved in certain legal proceedings arising in the normal
course of business. In the opinion of management, the Company's potential
exposure under pending legal proceedings is adequately provided for in the
accompanying consolidated financial statements.
On June 21, 2002 a driver for the Company was involved in a multiple (5)
fatality accident in Knoxville, TN. Three lawsuits have been field in U.S.
District Court for the Eastern District of TN Northern Division of Knoxville,
TN. The combined relief sought in the cases is approximately $54.5 million for
compensatory damages and $215 million for punitive damages. No other action
including governmental is contemplated. No further developments have occurred.
Note 3. Segment Information
The Company has nine operating divisions; however, it has determined that
it has one reportable segment. All of the divisions are managed based on similar
economic characteristics. Each of the regional operating divisions provides
short to medium-haul truckload carrier services of general commodities to a
similar class of customers. In addition, each division exhibits similar
financial performance, including average revenue per mile and operating ratio.
As a result of the foregoing, the Company has determined that it is appropriate
to aggregate its operating divisions into one reportable segment consistent with
the guidance in SFAS No. 131. Accordingly, the Company has not presented
separate financial information for each of its operating divisions as the
Company's consolidated financial statements presents its one reportable segment.
6
Note 4. Recapitalization and Stock Split
On January 28, 2002, the Board of Directors approved an approximate three
for two stock spilt, effected in the form of a 57.68826 percent stock dividend.
The stock split occurred on February 19, 2002, to stockholders of record on the
close of business on February 8, 2002. The number of common shares issued and
outstanding and all per share amounts have been adjusted to reflect the stock
split for all periods presented.
On March 7, 2002, the principal stockholder awarded 90,750 shares of his
common stock to key employees of the Company. The shares will vest to them over
a five-year period subject to restrictions on transferability and to forfeiture
in the event of termination of employment. Any forfeited shares will be returned
to the principal stockholder. The fair market value of these shares was treated
as a contribution of capital and is being amortized over the five-year vesting
period as compensation.
Note 5. Acquisition
On June 1, 2002, the Company acquired the business and trucking assets of
Great Coastal Express, Inc. ("Great Coastal"), a privately-held truckload
carrier. Great Coastal had gross revenues of approximately $70.0 million in 2001
and operated approximately 500 company tractors, 125 owner-operators, and 1,650
trailers at the date of acquisition. The accquired assets were recorded at their
estimated fair values as of the acquisition date in accordance with Financial
Accounting Standards Board statement number 141 (SFAS 141), "Business
Combinations". Goodwill has been recorded in "Other Assets, net" for the amount,
which the purchase price exceeded the fair value of the assets acquired. The
acquisition has been accounted for in the Company's results of operations since
the acquisition date. The pro forma effect of the acquisition on the Company's
results of operations is immaterial.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Information
Except for certain historical information contained herein, this Quarterly
Report on Form 10-Q contains forward-looking statements that involve risks,
assumptions and uncertainties which are difficult to predict. All statements,
other than statements of historical fact, are statements that could be deemed
forward-looking statements, including any projections of earnings, revenues, or
other financial items; any statements of plans, strategies, and objectives of
management for future operations; any statement concerning proposed new
strategies or developments; any statements regarding future economic conditions
or performance; any statements of belief and any statement of assumptions
underlying any of the foregoing. Words such as "believe," "may," "could,"
"expects," "anticipates," and "likely," and variations of these words or similar
expressions, are intended to identify such forward-looking statements. The
Company's actual results could differ materially from those discussed in the
section entitled "Factors That May Affect Future Results," included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth in the Company's Annual report on Form 10-K, which is by
this reference incorporated herein. The Company does not assume, and
specifically disclaims, any obligation to update any forward-looking statements
contained in this Quarterly Report.
7
Results of Operations:
The following table sets forth the percentage relationship of expense items
to operating revenue for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------ ------ ------ ------
Operating revenue 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Operating expenses:
Salaries, wages, and benefits 32.2% 29.8% 31.7% 29.5%
Rent and purchased transportation 22.3 19.6 22.9 18.9
Operations and maintenance 16.4 16.8 16.1 16.7
Taxes and licenses 2.1 2.1 2.1 2.0
Insurance and claims 2.8 2.3 3.0 2.4
Communications and utilities 1.0 0.9 0.9 1.0
Depreciation 5.8 6.2 5.8 5.7
Other operating expenses 2.7 2.4 2.5 2.3
(Gain) loss on disposal of fixed assets 0.0 0.1 0.0 0.0
------ ------ ------ ------
Total operating expenses 82.3% 82.5% 81.6% 82.6%
------ ------ ------ ------
Operating income 17.7% 17.5% 18.4% 17.4%
Interest income 0.7 1.4 0.9 1.6
------ ------ ------ ------
Income before income taxes 18.4% 18.9% 19.3% 19.0%
Income taxes 6.2 6.4 6.6 6.4
------ ------ ------ ------
Net income 12.2% 12.5% 12.7% 12.6%
====== ====== ====== ======
The following is a discussion of the results of operations of the three and
nine months periods ended September 30, 2002 compared with the same periods in
2001, and the changes in financial condition through the third quarter of 2002.
Three Months Ended September 30, 2002 and 2001
Operating revenue increased $17.2 million (23.3%), to $91.1 million in the
third quarter of 2002 from $73.9 million in the third quarter of 2001. The
growth in our fleet resulted in increased revenue from existing customers and
the expansion of our customer base. Operating revenue for both periods, was
positively impacted by fuel surcharges assessed to customers.
Salaries, wages, and benefits increased $7.4 million (33.6%), to $29.3
million in the third quarter of 2002 from $21.9 million in the third quarter of
2001. As a percentage of revenue, salaries, wages and benefits increased to
32.2% in 2002 from 29.8% in 2001. These increases were primarily the result of
increased reliance on employee drivers and a decrease in the percentage of miles
driven by independent contractors. During the third quarter of 2002, employee
drivers accounted for 73% and independent contractors 27% of the total fleet
miles, compared with 68% and 32%, respectively, in the third quarter of 2001.
The Company also experienced an increase in the cost of health insurance claims
in comparison to the 2001 period.
8
Rent and purchased transportation increased $0.7 million (4.2%), to $17.2
million in the third quarter of 2002 from $16.5 million in the third quarter of
2001. As a percentage of revenue, rent and purchased transportation decreased to
18.8% in the third quarter of 2002 from 22.3% in the third quarter of 2001. The
Company continues to reduce its reliance upon independent contractors. During
both periods, the Company reimbursed independent contractors for the higher cost
of fuel based on fuel surcharges collected from customers.
Operations and maintenance increased $2.5 million (20.3%) to $14.9 million
in the third quarter of 2002 from $12.4 million in the third quarter of 2001. As
a percentage of revenue, operations and maintenance decreased to 16.4% during
the third quarter of 2002 from 16.8% in the third quarter of 2001. The increase
in operations and maintenance is primarily attributable to increased fuel costs
due to increased reliance on company-owned tractors.
Taxes and licenses increased $0.4 million (23.2%), to $2.0 million in the
third quarter of 2002 from $1.6 million in the third quarter of 2001. As a
percentage of revenue, taxes and licenses remained constant at 2.1% for both
compared periods.
Insurance and claims increased $0.8 million (42.2%), to $2.5 million in the
third quarter of 2002 from $1.7 million in the third quarter of 2001. As a
percentage of revenue, insurance and claims increased to 2.8% during the third
quarter of 2002 from 2.4% in the third quarter of 2001. Insurance and claims
expense will vary as a percentage of operating revenue from period to period
based on the frequency and severity of claims incurred in a given period as well
as changes in claims development trends.
Communications and utilities increased $0.2 million (30.4%), to $0.9
million in the 2002 period from $0.7 million in the 2001 period. As a percentage
of revenue, communications and utilities increased to 1.0% in the third quarter
of 2002 from 0.9% in the third quarter of 2001. The increased reliance on
company-owned tractors increased expenses related to satellite communications.
Depreciation increased $1.4 million (32.4%) to $5.7 million during the
third quarter of 2002 from $4.3 million in the third quarter of 2001. As a
percentage of revenue, depreciation increased to 6.2% of revenue during the
third quarter of 2002 from 5.8% during the third quarter of 2001. Depreciation
increased because of the growth of our company owned tractor and trailer fleet.
Other operating expenses increased $0.7 million (37.9%) to $2.5 million
during the third quarter of 2002 from $1.8 million during the third quarter
2001. As a percentage of revenue, other operating expenses increased to 2.7%
from 2.4% in the third quarter of 2001. Other operating expenses consist
primarily of costs incurred for freight handling, highway tolls, driver
recruiting expenses, and administrative costs.
Interest income decreased $0.4 (36.6%) to $0.6 million in the third quarter
of 2002 from $1.0 million in the third quarter of 2001. Interest income earned
is primarily exempt from federal taxes and therefore earned at a lower pre-tax
rate. Interest earned has been negatively impacted by Federal Reserve Bank
reductions in short term interest rates.
The Company's effective tax rate was 34.0% for both the three month period
ended September 30, 2002 and 2001. Income taxes have been provided at the
statutory federal and state rates, adjusted for certain permanent differences
between financial statement and income tax reporting.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 82.3% during the third
quarter of 2002 compared with 82.5% during the third quarter of 2001. Net income
increased $1.9 million (20.2%), to $11.1 million during the third quarter of
2002 from $9.2 million during the third quarter of 2001.
9
Nine Months Ended September 30, 2002 and 2001
Operating revenue increased $27.7 million (12.5%), to $248.8 million in the
nine months ended September 30, 2002 from $221.1 million in the 2001 period. The
growth of our fleet resulted in increased revenue from existing customers and
the expansion of our customer base. Operating revenue for both periods was also
positively impacted by fuel surcharges assessed to customers.
Salaries, wages, and benefits increased $13.7 million (21.1%), to $78.9
million in the nine months ended September 30, 2002 from $65.2 million in the
2001 period. As a percentage of revenue, salaries, wages and benefits increased
to 31.7% in 2002 from 29.5% in 2001. These increases were primarily the result
of increased reliance on employee drivers and a decrease in the percentage of
miles driven by independent contractors. During the first nine months of 2002,
employee drivers accounted for 71% and independent contractors 29% of the total
fleet miles, compared with 67% and 33%, respectively, in the compared 2001
period. The Company also experienced an increase in the frequency and severity
of workers' compensation and health insurance claims in comparison to the
compared 2001 period.
Rent and purchased transportation decreased $1.8 million (3.6%), to $48.8
million in the first nine months of 2002 from $50.7 million in the 2001 period.
As a percentage of revenue, rent and purchased transportation decreased to 19.6%
in the 2002 period from 22.9% in the compared 2001 period. This reflects the
Company's decreased reliance upon independent contractors. During both periods,
the Company has reimbursed independent contractors for the higher cost of fuel
based on fuel surcharges collected from customers.
Operations and maintenance increased $3.3 million (8.9%) to $40.0 million
in the nine months ended September 30, 2002 from $36.7 million in the 2001
period. As a percentage of revenue, operations and maintenance decreased to
16.1% in the 2002 period from 16.7% during the 2001 period. The increase is
attributable to cost increases, primarily fuel, associated with the increased
reliance on the company-owned fleet.
Taxes and licenses increased $0.8 million (16.9%), to $5.2 million in the
first nine months of 2002 from $4.4 million in the compared 2001 period. As a
percentage of revenue, taxes and licenses increased to 2.1% in the 2002 period
from 2.0% in the compared 2001 period. The increases are primarily the result of
fleet growth.
Insurance and claims increased $1.9 million (34.0%), to $7.4 million in the
first nine months of 2002 from $5.5 million in the compared 2001 period. As a
percentage of revenue, insurance and claims increased to 2.5% in the 2002 period
from 2.4% in the 2001 period. Insurance and claims expense will vary as a
percentage of operating revenue from period to period based on the frequency and
severity of claims incurred in a given period as well as changes in claims
development trends.
Communications and utilities decreased $0.1 million (3.5%), to $2.2 million
in the 2002 period from $2.3 million in 2001 period. As a percentage of revenue,
communications and utilities decreased to 0.9% in the 2002 period from 1.0% in
the 2001 periods.
Depreciation increased $1.3 million (10.2%) to $14.0 million during the
first nine months of 2002 from $12.7 million in the compared 2001 period. As a
percentage of revenue, depreciation decreased to 5.6% in the 2002 period from
5.8% in the 2001 periods. Depreciation expense increased due to growth in the
company owned tractor and trailer fleet.
10
Other operating expenses increased $1.3 million (24.1%) to $6.3 million
during the first nine months 2002 from $5.0 million during the compared 2001
period. As a percentage of revenue, other operating expenses increased to 2.5%
in the 2002 period from 2.3% in the 2001 periods. Other operating expenses
consist primarily of costs incurred for freight handling, highway tolls, driver
recruiting expenses, and administrative costs.
Interest income decreased $1.5 million (40.4%) to $2.1 million in the first
nine months of 2002 from $3.6 million in the compared 2001 period. Interest
income earned is primarily exempt from federal taxes and therefore earned at a
lower pre-tax rate. Interest earned has been negatively impacted by the Federal
Reserve Bank reductions in short-term interest rates.
The Company's effective tax rate is 34.0% for both the nine months ended
September 30, 2002 and 2001. Income taxes have been provided at the statutory
federal and state rates, adjusted for certain permanent differences between
financial statement and income tax reporting.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 81.6% during the first nine
months of 2002 compared with 82.6% during the first nine months of 2001. Net
income increased $3.8 million (13.8%), to $31.6 million during the first nine
months of 2002 from $27.8 million during the compared 2001 period.
Liquidity and Capital Resources
The growth of the Company's business has required significant investments
in new revenue equipment. Historically the Company has been debt-free, financing
revenue equipment through cash flow from operations. The Company also obtains
tractor capacity by utilizing independent contractors, who provide a tractor and
bear all associated operating and financing expenses. The Company's primary
source of liquidity for the nine months ended September 30, 2002, was net cash
provided by operating activities of $45.2 million compared to $46.3 million in
the corresponding 2001 period.
Capital expenditures for property and equipment, primarily revenue
equipment net of trade-ins, totaled $50.6 million for the first nine months of
2002 compared to $21.7 million for the same period in 2001.
Management believes the Company has adequate liquidity to meet its current
and projected needs. The Company will continue to have significant capital
requirements over the long term which are expected to be funded by cash flow
provided by operations and from cash, cash equivalents, and investments on hand.
Based on the Company's strong financial position, management believes outside
financing could be obtained, if necessary, to fund capital expenditures.
Factors That May Affect Future Results
The Company's future results may be affected by a number of factors over
which the Company has little or no control. Fuel prices, insurance and claims
costs, liability claims, interest rates, the availability of qualified drivers,
fluctuations in the resale value of revenue equipment, economic and customer
business cycles and shipping demands are economic factors over which the Company
has little or no control. Significant increases or rapid fluctuations in fuel
prices, interest rates or insurance and claims costs, to the extent not offset
by increases in freight rates, and the resale value of revenue equipment could
reduce the Company's profitability. Weakness in the general economy, including a
weakness in consumer demand for goods and services, could adversely affect the
Company's customers and the Company's growth and revenues, if customers reduce
their demand for transportation services. Customers encountering adverse
economic conditions represent a greater potential for loss, and the Company may
be required to increase its reserve for bad debt losses. Weakness in customer
demand for the Company's services or in the general rate environment may also
restrain the Company's ability to increase rates or obtain fuel surcharges.
11
Inflation and Fuel Cost
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased cost of operations. During the past
three years, the most significant effect of inflation has been on revenue
equipment prices and the compensation paid to the drivers. Innovations in
equipment technology and comfort have resulted in higher tractor prices, and
there has been an industry-wide increase in wages paid to attract and retain
qualified drivers. The Company historically has limited the effects of inflation
through increases in freight rates and certain cost control efforts. In addition
to inflation, fluctuations in fuel prices can affect profitability. Most of the
Company's contracts with customers contain fuel surcharge provisions. Although
the Company historically has been able to pass through most long-term increase
in fuel prices and operating taxes to customers in the form of surcharges and
higher rates, shorter-term increases are not fully recovered. Competitive
conditions in the transportation industry, such as lower demand for
transportation services, could affect the Company's ability to obtain rate
increases or fuel surcharges.
Seasonality
The nature of the Company's primary traffic (appliances, automotive parts,
paper products, retail goods, and packages foodstuffs) causes it to be
distributed with relative uniformity throughout the year. However, seasonal
variations during and after the winter holiday season have historically resulted
in reduced shipments by several industries served. In addition, the Company's
operating expenses historically have been higher during the winter months due to
increased operating costs in colder weather and higher fuel consumption due to
increased engine idling.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142,
which establishes new accounting and reporting requirements for goodwill and
other intangible assets, all goodwill amortization ceased effective January 1,
2002. The impact of ceasing amortization did not have a material impact on net
income. The Company tested for impairment of its goodwill by comparing the fair
value of the Company to its carrying value and determined that no impairment of
goodwill existed. On an ongoing basis (absent any impairment indicators), the
Company expects to perform the impairment test annually during the fourth
quarter.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be "Disposed of;" however, it retains the fundamental
provisions of that Statement related to the recognition and measurement of the
impairment of long-lived assets to be "held and used." In addition, the
Statement provides some guidance on estimating cash flows when performing a
recoverability test, requires that a long-lived asset to be disposed of other
than by sales (e.g., abandoned) be classified as "held and used" until it is
disposed of and establishes more restrictive criteria to classify an asset as
"held for sale." The Company adopted this statement January 1, 2002 and it did
not have material impact.
In June 2002, the FASB issued Statement No. 146 (SFAS 146), Accounting for
Costs Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
Under SFAS 146, such costs will be recognized when the liability is incurred,
rather than at the date of commitment to an exit plan. SFAS 146 is effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application permitted. The Company will adopt SFAS 146 on January 1, 2003.
There will be no impact on future financial statements unless restructuring
occurs.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company purchases only high quality, liquid investments. Primarily all
investments as of September 30, 2002 have an original maturity of twelve months
or less. The Company holds all investments to maturity and therefore, is exposed
to minimal market risk related to its cash equivalents.
The Company has no debt outstanding as of September 30, 2002 and therefore,
has no market risk related to debt.
As of September 30, 2002, the Company has no derivative financial
instruments to reduce its exposure to fuel price fluctuations.
Item 4. Controls and Procedures
Evaluation of Disclosure Control and Procedures
Within 90 days of the filing of this report, the principal executive
officer and principal financial officer of the Company, under the supervision
and with the participation of the Company's management, have evaluated the
disclosure controls and procedures of the Company as defined in Exchange Act
Rule 13(a)-14(c) and have determined that such controls and procedures are
effective.
Changes in Internal Controls
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referred to in the paragraph
above.
13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
One June 21, 2002 a driver for the Company was involved in a multiple
(5) fatality accident in Knoxville, TN. Three lawsuits have been field
in U.S. District Court for the Eastern District of TN Northern
Division of Knoxville, TN. The combined relief sought in the cases is
approximately $54.5 million for compensatory damages and $215 million
for punitive damages. No other action including governmental is
contemplated. No further developments have occurred.
Additionally, the Company is a party to ordinary, routine litigation
and administrative proceedings incidental to its business. None of the
claims would materially impact net income or financial position. These
proceedings primarily involve claims for personal injury and property
damage incurred in connection with the transportation of freight. The
Company maintains insurance to cover liabilities arising from the
transportation of freight for amounts in excess of self-insured
retentions.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 99.1 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed during the current period.
No other information is required to be filed under Part II of the form.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEARTLAND EXPRESS, INC.
Dated: November 11, 2002 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and Treasurer
(principal accounting and financial
officer)
15
SECTION 302 CERTIFICATION
I, Russell A. Gerdin, President and Chief Executive Officer of
Heartland Express, Inc. , certify that:
1. I have reviewed this quarterly report on Form 10-Q of Heartland Express,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 11, 2002 /s/ Russell A. Gerdin
Russell A. Gerdin
President and Chief
Executive Officer
(principal executive officer)
16
SECTION 302 CERTIFICATION
I, John P. Cosaert, Executive Vice President-Finance, Chief Financial
Officer and Treasurer of Heartland Express, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Heartland Express,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared.
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date:
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 11, 2002 /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and Treasurer
(principal accounting and
financial officer)
17