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 March 31, 1998 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 March 31, 1998, there were 30,000,000 shares of the Company's $.01 par
value common stock outstanding.
PART I
FINANCIAL INFORMATION
Page Number
Item 1. Financial statements
Consolidated balance sheets
March 31, 1998 (unaudited) and
December 31, 1997 2-3
Consolidated statements of income
(unaudited) for the three month
periods ended March 31, 1998 and 1997 4
Consolidated statements of cash flows
(unaudited) for the three months ended
March 31, 1998 and 1997 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 11-13
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, DECEMBER 31,
1998 1997
---------------- ----------------
(Unaudited) *(Note 1)
CURRENT ASSETS
Cash and cash equivalents $ 85,925,126 $ 76,240,422
Trade receivables, less allowance:
1998 $425,122; 1997 $491,971 25,337,537 24,247,307
Prepaid tires 1,528,658 1,617,464
Municipal bonds 22,036,026 19,769,765
Deferred income taxes 16,189,000 15,841,000
Other current assets 2,641,834 280,243
---------------- ----------------
Total current assets $ 153,658,181 $ 137,996,201
---------------- ----------------
PROPERTY AND EQUIPMENT
Land and land improvements $ 3,830,779 $ 3,936,843
Buildings 9,214,397 9,215,477
Furniture and fixtures 1,982,818 1,982,818
Shop and service equipment 1,351,440 1,351,440
Revenue equipment 117,790,137 118,819,981
---------------- --------------
$ 134,169,571 $ 135,306,559
Less accumulated depreciation &
amortization 55,755,497 54,336,481
---------------- ----------------
Property and equipment, net $ 78,414,074 $ 80,970,078
---------------- ----------------
OTHER ASSETS $ 6,444,268 $ 6,500,395
---------------- ----------------
$ 238,516,523 $ 225,466,674
================ ================
*Note: See Note 1 of "Notes to Financial Statements" for information
regarding the December 31, 1997 balance sheet.
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
DECEMBER 31,
1998
1997
(Unaudited)
*(Note 1)
CURRENT LIABILITIES
Accounts payable & accrued liabilities $ 9,265,586 $ 8,857,820
Compensation & benefits 5,066,042 4,992,714
Income taxes payable 8,955,917 4,224,150
Insurance accruals 34,922,079 34,671,707
Other 3,423,157 3,080,223
--------------- ---------------
Total current liabilities $ 61,632,781 $ 55,826,614
DEFERRED INCOME TAXES 15,339,000 15,901,000
--------------- ---------------
$ 76,971,781 $ 71,727,614
--------------- ---------------
COMMITMENTS AND 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
30,000,000 shares 300,000 300,000
Additional paid in capital 6,608,170 6,608,170
Retained earnings 154,636,572 146,830,890
--------------- ----------------
$ 161,544,742 $ 153,739,060
--------------- ----------------
$ 238,516,523 $ 225,466,674
=============== ================
*Note: See Note 1 of "Notes to Financial Statements" for information
regarding the December 31, 1997 balance sheet.
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
March 31,
1998 1997
------------ -------------
OPERATING REVENUE $ 66,840,310 $ 59,887,300
------------ -------------
OPERATING EXPENSES:
Salaries, wages, benefits $ 13,755,590 $ 10,904,279
Rent and purchased transportation 25,263,218 23,854,048
Operations and maintenance 6,920,529 6,184,116
Taxes and licenses 1,511,671 1,341,751
Insurance and claims 2,006,134 2,861,619
Communications and utilities 773,178 635,948
Depreciation 4,663,099 3,302,138
Other operating expenses 1,319,575 1,162,403
(Gain) on sale of fixed assets (326,610) (800)
------------- -------------
$ 55,886,384 $ 50,245,502
------------- -------------
Operating income $ 10,953,926 $ 9,641,798
Interest income 1,054,816 879,045
------------- -------------
Income before income taxes $ 12,008,742 $ 10,520,843
Federal and state income taxes(Note 3) 4,203,060 3,892,572
------------ -------------
Net income $ 7,805,682 $ 6,628,271
============ =============
Earnings per common share:
Basic earnings per share $ 0.26 $ 0.22
Basic weighted average shares
outstanding 30,000,000 30,000,000
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three months ended
March 31,
1998 1997
------------- -------------
OPERATING ACTIVITIES
Net income $ 7,805,682 $ 6,628,271
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 4,948,862 3,365,316
Deferred income taxes (910,000) (1,987,300)
Gain on sale of fixed assets (326,610) (800)
Changes in certain working capital items:
Trade receivables (1,090,230) (3,329,714)
Other current assets (3,105,358) (1,713,122)
Prepaid expenses (36,904) 348,007
Accounts payable and accrued expenses 2,304,478 2,210,170
Accrued income taxes 4,731,767 4,204,216
------------- -------------
Net cash provided by operating activities $ 14,321,687 $ 9,725,044
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of prop. and equipment 433,700 801
Purchase of property and equipment (2,666,020) (2,952,129)
Redemption (purchase) of municipal bonds (2,266,261) 3,166,347
Other (138,402) 57,702
------------- -------------
Net cash (used) in investment activities $ (4,636,983) $ 272,721
------------- -------------
Net increase in cash and cash equivalents $ 9,684,704 $ 9,997,765
CASH AND CASH EQUIVALENTS
Beginning of year 76,240,422 59,593,468
------------- -------------
End of quarter $ 85,925,126 $ 69,591,233
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 381,293 $ 1,675,656
Noncash investing activities:
Book value of revenue equipment traded $ 1,731,757 $ 0
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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 month period ended March
31, 1998 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1998. 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, 1997.
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
predominately in the eastern half of the United States, reported
gross revenues for 1996 of approximately $28 million.
Note 3. Income Taxes
Income taxes for the three month period ended March 31, 1998 are based on
the Company's estimated effective tax rates. The rate for the three months
ended March 31, 1998 and 1997 was 35% and 37%, respectively.
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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
ended March 31, 1998 compared with the same period in 1997, and the changes
in financial condition through the first quarter of 1998.
Results of Operations:
Operating revenue increased $6.9 million (11.6%), to $66.8 million in the
first quarter of 1998 from $59.9 million in the first quarter of 1997. The
revenue increase was attributable primarily to the Company's acquisition of
A & M Express, Inc., expansion of the customer base, and increased volume
from existing customers.
Salaries, wages, and benefits increased $2.9 million (26.1%), to $13.8
million in the first quarter of 1998 from $10.9 million in the first
quarter of 1997. As a percentage of revenue, salaries, wages and benefits
increased to 20.6% in 1998 from 18.2% in 1997. An increase in the
percentage of employee drivers operating the Company's tractor fleet and a
corresponding decrease in the percentage of the fleet being provided by
independent contractors was the primary cause. This increase in
employee driver miles was attributable to internal growth and the
acquisition of A & M Express which relies primarily on employee drivers.
During the first quarter of 1998, employee drivers accounted for 46% and
independent contractors 54% of the total fleet miles, compared with 41% and
59%, respectively, in the first quarter of 1997. Rent and purchased
transportation increased $1.4 million (5.9%), to $25.3 million in the
first quarter of 1998 from $23.9 million in the first quarter of 1997. As
a percentage of revenue, rent and purchased transportation decreased to
37.8% in the first quarter of 1998 from 39.8% in the first quarter of 1997.
This reflected the Company's decreased reliance upon independent
contractors.
Operations and maintenance increased $0.7 million (11.9%) to $6.9 million
in the first quarter of 1998 from $6.2 million in the first quarter of
1997. As a percentage of revenue, operations and maintenance increased to
10.4% of revenue in the first quarter of 1998 from 10.3% during the first
quarter of 1997. This increase is attributable to the aforementioned
increased reliance on employee drivers operating the Company's
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tractor fleet. The cost increases associated with increased reliance on
employee drivers were effected by a decrease in fuel prices compared to
those experienced in the first quarter of 1997.
Taxes and licences increased $0.2 million (12.7%), to $1.5 million in the
first quarter of 1998 from $1.3 million in the first quarter of 1997. As a
percentage of revenue, taxes and licences increased to 2.3% in the first
quarter of 1998 from 2.2% in the first quarter of 1997. The cost increase
was primarily attributable to the increase in fleet size.
Insurance and claims decreased $0.9 million (29.9%), to $2.0 million in the
first quarter of 1998 from $2.9 million in the first quarter of 1997. As a
percentage of revenue, insurance and claims decreased to 3.0% in the first
quarter of 1998 from 4.8%
in the first quarter of 1997. 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. The decrease in the first quarter
1998 expense reflects the lessor severity of claims incurred.
Depreciation increased $1.4 million (41.2%) to $4.7 million during the
first quarter of 1998 from $3.3 million in the first quarter of 1997. As a
percentage of revenue,,depreciation increased to 7.0% of revenue during the
first quarter of 1998 from 5.5%, during the first quarter of 1997. The
increase resulted from the growth in the Company owned trailer and tractor
fleet.
Other operating expenses increased $0.1 million (13.5%) to $1.3 million
during the first quarter of 1998 from $1.2 million during the first quarter
of 1997. As a percentage of revenue, other operating expenses increased to
2.0% in the first quarter of 1998 from 1.9% in the first quarter of 1997.
Other operating expenses consists primarily of pallet cost, driver
recruiting expense, and administrative costs.
Interest income increased $0.2 (20.0%) to $1.1 million in the first quarter
of 1998 from $0.9 million in the first quarter of 1997. This increase is
primarily attributable to the increase in cash, cash equivalents, and
municipal bonds.
The Company's effective tax rate was 35.0% and 37.0% for the three month
periods ended March 31, 1998 and 1997, respectively. This decrease is
primarily attributable to theincrease in tax-exempt interest earned.
-8-
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 83.6% during the first
quarter of 1998 compared with 83.9% during the first quarter of 1997. Net
income increased $1.2 million (17.8%), to $7.8 million during the first
quarter of 1998 from $6.6 million during the first quarter of 1997. The
first quarter 1998 net income includes a $0.3 million gain recognized on a
parcel of land sold.
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 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 (current ratio of 2.49 and
no debt), management foresees no barrier to obtaining outside financing, if
necessary, to continue with its growth plans.
During the three months ended March 31, 1998, the Company generated net
cash flow from operations of $14.3 million. Net cash used in investing and
financing activities included $2.3 million net purchases of municipal bonds
and $2.7 million for capital expenditures, primarily revenue equipment.
Working capital at March 31, 1998 was $92.0 million, including $85.9
million in cash, cash equivalents, and municipal bonds. These investments
generated $1.1 million in interest income (primarily tax-exempt) during the
three months ended March 31, 1998. The company's policy is to purchase
only investment quality, highly liquid investments.
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
-9-
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 customer's 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
None filed during the first quarter of 1998.
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-
3.3 Certificate of Amendment Incorporated by
To Articles of Incorporation Reference to the
Company's Form
10-QA, for the
quarter ended June
30, 1997, dated
March 26, 1998.
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.
4.3 Certificate of Amendment Incorporated by
to Articles of Incorporation Reference to the
Company's Form
10-QA, for the
quarter ended June
30, 1997, dated
March 26, 1998.
9.1 Voting Trust Agreement dated Incorporated by
June 6, 1997 among the Gerdin Reference to the
Educational Trusts and Larry Company's Form 10-K
Crouse voting trustee. for the year ended
December 31, 1997.
Commission file no.
0-15087.
10.1 Business Property Lease Incorporated by
between Russell A. Gerdin Reference to the
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as Lessor and the Company Company's Form 10-K
as Lessee, regarding the for the year ended
Company's headquarters at December 31, 1996.
2777 Heartland Drive, Commission file no.
Coralville, Iowa 52241 0-15087, dated
March 27, 1997.
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 Commission file no.
0-15087.
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.
Commission file no.
0-15087.
21 Subsidiaries of the Incorporated by
Registrant Reference to the
Company's Form 10-K
for the year ended
December 31, 1997.
Commission file no.
0-15087.
27 Financial Data Schedule Filed herewith.
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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
Vice-President
Finance and Treasurer
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