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, 1997 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 (I.R.S. 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) 645-2728
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, 1997, there were 30,000,000 shares of the Company's $0.01
par value common stock outstanding.
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial statements
Consolidated balance sheets
September 30, 1997 (unaudited) and
December 31, 1996 2-3
Consolidated statements of income
(unaudited) for the three and nine month
periods ended September 30, 1997 and 1996 4
Consolidated statements of cash flows
(unaudited) for the nine months ended
September 30, 1997 and 1996 5
Notes to financial statements 6
Item 2. Management's discussion and analysis of
financial condition and results of
operations 7-10
PART II
OTHER INFORMATION
Item 1. Legal proceedings 11
Item 2. Changes in securities 11
Item 3. Defaults upon senior securities 11
Item 4. Submission of matters to a vote of 11
security holders
Item 5. Other information 11
Item 6. Exhibits and reports on Form 8-K 11-12
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 70,900,045 $ 59,593,468
Trade receivables, less allowance
of $702,812 in each period 24,424,065 15,696,591
Prepaid tires 1,905,440 1,213,210
Municipal bonds 12,262,276 31,461,259
Deferred income taxes 16,006,500 13,057,000
Other current assets 1,828,278 395,594
--------------- -------------
Total current assets $ 127,326,604 $ 121,417,122
--------------- -------------
PROPERTY AND EQUIPMENT
Land and land improvements $ 3,971,843 $ 2,401,010
Buildings 9,215,476 6,886,615
Furniture and fixtures 2,601,115 2,125,847
Shop and service equipment 1,401,746 1,245,337
Revenue equipment 121,004,459 97,433,211
---------------- ------------
$ 138,194,639 $ 110,092,020
Less accumulated depreciation & amortization 51,799,058 41,697,199
---------------- ------------
Property and equipment, net $ 86,395,581 $ 68,394,821
---------------- ------------
OTHER ASSETS $ 7,527,635 $ 1,692,279
---------------- --------- --
$ 221,249,820 $ 191,504,222
================ ============
See accompanying notes to consolidated financial statements.
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- --------------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable & accrued liabilities $ 11,545,012 $ 11,384,188
Compensation & benefits 5,252,348 3,878,002
Income taxes payable 4,538,410 3,913,871
Insurance accruals 34,562,547 30,085,809
Other 2,963,886 2,310,185
-------------- -------------
Total current liabilities $ 58,862,203 $ 51,572,055
DEFERRED INCOME TAXES 15,961,000 16,266,000
-------------- -------------
$ 74,823,203 $ 67,838,055
-------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred, par value 1997 $.01; 1996 $.10
Authorized 5,000,000 share; none issued $ -- $ --
Common, par value 1997 $.01; 1996 $.10
Authorized shares 1997 395,000,000;
1996 35,000,000; issued and outstanding
30,000,000 shares 300,000 3,000,000
Additional paid in capital 6,608,170 3,908,170
Retained earnings 139,518,447 116,757,997
--------------- -------------
$ 146,426,617 $ 123,666,167
--------------- -------------
$ 221,249,820 $ 191,504,222
=============== =============
See accompanying notes to consolidated financial statements.
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
------------- ------------- ------------- -------------
1997 1996 1997 1996
OPERATING REVENUE $ 70,179,846 $ 58,177,937 $ 195,448,551 $ 171,924,603
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages, benefits $ 13,478,023 $ 10,129,576 $ 36,071,129 $ 30,186,733
Rent and purchased transportation 25,946,445 23,924,344 76,602,178 70,935,912
Operations and maintenance 7,798,257 5,231,531 20,258,428 16,216,874
Taxes and licenses 1,645,831 1,379,260 4,401,443 4,141,414
Insurance and claims 2,456,295 2,614,319 8,391,392 7,695,224
Communications and utilities 751,781 512,504 1,905,781 1,544,271
Depreciation 4,787,204 3,235,931 11,437,215 10,240,622
Other operating expense 1,238,926 1,389,160 3,491,534 3,304,521
(Gain) on sale of fixed assets (6,739) 0 (32,519) (189,041)
------------- ------------- ------------- --------------
$ 58,096,023 $ 48,416,625 $ 162,526,581 $ 144,076,530
------------- ------------- ------------- --------------
Operating income $ 12,083,823 $ 9,761,312 $ 32,921,970 $ 27,848,073
Interest income, net 844,204 698,296 2,795,961 1,915,030
------------- ------------- ------------- --------------
Income before income taxes $ 12,928,027 $ 10,459,608 $ 35,717,931 $ 29,763,103
Federal and state income taxes(Note 2) 4,525,214 3,870,265 12,957,481 11,012,612
------------- ------------- ------------- --------------
Net income $ 8,402,813 $ 6,589,343 $ 22,760,450 $ 18,750,491
============= ============= ============= ==============
Earnings per common share:
Net income $ 0.28 $ 0.22 $ 0.76 $ 0.63
============= ============= ============= =============
Weighted average shares outstanding 30,000,000 30,000,000 30,000,000 30,000,000
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
-4-
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine months ended
September 30,
1997 1996
------------- ------------
OPERATING ACTIVITIES
Net income $ 22,760,450 $ 18,750,491
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 11,868,268 10,529,284
Deferred income taxes (3,254,500) (1,313,000)
Gain on sale of fixed assets (22,303) (189,041)
Changes in certain working capital items:
Trade receivables (4,657,077) 899,602
Other current assets (1,453,934) (1,177,021)
Prepaid expenses 897,759 1,257,340
Accounts payable and accrued expenses 7,279,887 4,207,000
Accrued income taxes 452,539 818,612
------------- ------------
Net cash provided by operating activities $ 33,871,039 $ 33,783,267
------------- ------------
INVESTING ACTIVITIES
Proceeds from sale of prop. and equipment 32,519 393,513
Capital expenditures and acquisition (22,598,157) (2,683,371)
Redemption of municipal bonds 19,198,983 1,294,461
Other (655,722) (16,685)
------------- ------------
Net cash used in investing activities $ (4,022,377) $(1,012,082)
------------- ------------
FINANCING ACTIVITIES
Principal payments on long-term notes $(18,542,135) $ (705,437)
------------- ------------
Net cash used in financing activities $(18,542,135) $ (705,437)
------------- ------------
Net increase in cash and cash equivalents $ 11,306,577 $ 32,065,748
CASH AND CASH EQUIVALENTS
Beginning of year 59,593,468 46,162,143
------------- ------------
End of quarter $ 70,900,045 $ 78,227,891
============= ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 64,513 $ 30,943
Income taxes 15,587,442 11,507,001
Noncash investing activities:
Book value of revenue equipment traded $ 1,002,703 $ 5,585,217
See accompanying notes to consolidated financial statements.
-5-
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring and certain
nonrecurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Heartland Express, Inc. and Subsidiaries ("Heartland" or
the "Company")annual report on Form 10-K for the year ended December 31,
1996.
Note 2. Acquisition
On July 14, 1997, the Company acquired the outstanding stock of
A & M Express, Inc., ("A & M") a Kingsport, Tennessee based truckload motor
carrier. The acquisition was accounted for by the purchase method of
accounting. A & M Express, Inc.,a dry van carrier that operates
predominantly in the eastern half of the United States, reported gross
revenues for 1996 of approximately $28 million.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following is a discussion of the results of operations of the quarter
and nine months ended September 30, 1997 compared with the same periods in
1996, and the changes in financial condition through the third quarter of
1997.
Results of Operations:
Operating revenue increased 20.6% to $70.1 million in the third quarter of
1997 from $58.2 million in the third quarter of 1996. Operating revenue
for the nine months ended September 30, 1997, increased 13.7% to $195.4
million from $171.9 million for the nine months ended September 30, 1996.
The revenue increase for the compared periods is a result of increased
shipper demand and an increased customer base due to the July acquisition
of A & M Express, Inc.
Salaries, wages, and benefits increased to 19.2% of revenue in the third
quarter of 1997 from 17.4% in the third quarter of 1996 and to 18.5% of
revenue in the 1997 nine month period from 17.6% of revenue in the compared
1996 period. For both the quarter and nine month periods, the increase was
the result of the increase in the company driver mileage pay rate effective
January 1, 1997 and increased reliance on the company driver fleet. During
the third quarter of 1997, company drivers accounted for 46.1% and
independent contractors 53.9% of the total fleet miles, compared with 38.8%
and 61.2%, respectively, in the third quarter of 1996. During the first
nine months of 1997, company drivers accounted for 42.3% and independent
contractors 57.7% of the total fleet miles, compared with 39.3% and 60.7%
respectively in the first nine months of 1996.
The aforementioned increased reliance on the company driver fleet
contributed to a shift in costs from rent and purchased transportation to
several other expense categories as follows.
Rent and purchased transportation decreased to 37.0% of revenue during the
third quarter of 1997 from 41.1% in the third quarter of 1996 and to 39.2%
of revenue during the nine months ended September 30, 1997, from 41.3%
during the compared 1996 period. The decrease in both the quarter and nine
months was attributable
-7-
to the decrease in percentage of fleet miles driven by independent
contractors.
Operations and maintenance expense increased to 11.1% of revenue in the
third quarter of 1997 from 9.0% in the third quarter of 1996 and increased
to 10.4% of revenue during the nine month 1997 period from 9.4% during the
compared 1996 Period. The increase results from the reduced percentage of
fleet miles driven by independent contractors who pay their own fuel,
maintenance, and repair costs.
Insurance and claims represented 3.5% and 4.5% of revenues in the third
quarter of 1997 and 1996. For the compared nine month periods, this expense
decreased to 4.3% of revenue in 1997 from 4.5% in 1996. 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 based on historical claims development trends.
Depreciation increased to 6.8% of revenue during the third quarter of 1997
from 5.6% reported in the third quarter of 1996. The increase resulted
from the growth in the company-owned tractor fleet. The nine month periods
were affected to a lesser extent.
Interest income (net) increased to $0.9 million for the three months ended
September 30, 1997 from $0.7 million for the three months ended September
30, 1996 and to $2.9 million for the first nine months of 1997 from $1.9
million for the nine month 1996 period. The Company invests primarily in
tax exempt financial instruments. The Company's effective income tax rate
was 35% and 37% for the three months ended September 30, 1997 and 1996,
respectively. The rates decreased to 36.5% for the first nine months of
1997, from 37.0% for the compared 1996 period. This decline is primarily
attributable to the Company's investments in tax exempt instruments.
-8-
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 82.8% during the third
quarter of 1997 compared with 83.2% during the third quarter of 1996 and
83.2% during the first nine months of 1997, compared with 83.8% during the
compared 1996 Period. Net income increased 27.5% to $8.4 million during
the third quarter of 1997 from $6.6 million during the third quarter of
1996, and increased 21.4% to $22.8 million during the first nine months of
1997 from $18.8 million during the compared 1996 Period. The decrease in
the operating ratio for both 1997 periods and the corresponding increase in
net income was attributable primarily to cost controls, increased tractor
utilization, and the reduction of empty miles driven.
Liquidity and Capital Resources
The growth of the Company's business requires 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 expects to finance future growth in its company-owned fleet
through cash flow from operations and cash equivalents currently on hand.
Based on the Company's strong financial position, management foresees no
barrier to obtaining outside financing, if necessary, to continue with its
growth plans.
During the nine months ended September 30, 1997, the Company generated net
cash flow from operations of $33.8 million and had municipal bond
redemptions of $19.1 million. Net cash used in investing and financing
activities included $22.5 million for capital expenditures and the
acquisition of A & M, and $18.5 million for the retirement of debt assumed
in the A & M acquisition.
Working capital at September 30, 1997 was $68.5 million, including $83.2
million in cash, cash equivalents, and municipal bonds. These investments
generated $2.9 million in interest income (primarily tax exempt) during the
nine months ended September 30, 1997. The Company's policy is to purchase
only investment quality, highly liquid investments.
-9-
Forward Looking Information
Statements by the Company in reports to its stockholders and public
filings, as well as oral public statements by Company representatives may
contain certain forward looking information that is subject to certain
risks and uncertainties that could cause actual results to differ
materially from those projected. Without limitation, these risks and
uncertainties include economic recessions or downturns in customers'
business cycles, excessive increase in capacity within truckload markets,
decreased demand for transportation services offered by the Company, rapid
inflation and fuel price increases, increases in interest rates, and the
availability and compensation of qualified drivers and owner-operators.
Readers should review and consider the various disclosures made by the
Company in its reports to stockholders and periodic reports on forms 10-K
and 10-Q.
-10-
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in securities
Not applicable
Item 3. Defaults upon senior securities
Not applicable
Item 4. Submission of matters to a vote of security
holders
Not applicable
Item 5. Other information
Not applicable
Item 6. Exhibits and reports on Form 8-K
There were no reports on Form 8-K during the
3rd Quarter of 1997.
Page of Method of
Exhibit No. Document Filing
3.1 Articles of Incorporation Incorporated by
Reference to the
Company's registration
statement on Form S-1,
Registration No. 33-
8165, effective
November 5, 1986.
3.2 Bylaws Incorporated by
Reference to the
Company's registration
statement on form S-1,
Registration No. 33-
8165, effective
November 5, 1986.
-11-
4.1 Articles of Incorporation Incorporated by
Reference to the
Company's registration
statement on form S-1
Registration No. 33-
8165, effective
November 5, 1986.
4.2 Bylaws Incorporated by
Reference to the
Company's registration
statement on form S-1,
Registration No. 33-
8165, effective
November 5, 1986.
10.1 Business Property Lease Incorporated by
between Russell A. Gerdin Reference to the
as Lessor and the Company Company's Form 10-K
as Lessee, regarding the for the year ended
Company's headquarters at December 31, 1995.
2777 Heartland Drive,
Coralville, Iowa 52241
10.2 Form of Independent Incorporated by
Contractor Operating Reference to the
Agreement between the Company's Form 10-K
Company and its for the year ended
independent contractor December 31, 1993.
providers of tractors
10.3 Description of Key Incorporated by
Management Deferred Reference to the
Incentive Compensation Company's Form 10-K
Arrangement for the year ended
December 31, 1993.
-12-
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.
BY: /s/ JOHN P. COSAERT
JOHN P. COSAERT
Executive Vice-President
Finance and Treasurer
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