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 June 30, 1998
Commission File No. 0-15087
HEARTLAND EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada (State or Other Jurisdiction of Incorporation or Organization)
93-0926999 (I.R.S. Employer 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 June 30, 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
June 30, 1998 (unaudited and
December 31, 1997) ............................ 2-3
Consolidated statements of income
(unaudited) for the three and six month
periods ended June 30, 1998 and 1997 .......... 4
Consolidated statements of cash flows
(unaudited) for the six months ended
June 30, 1998 and 1997 ........................ 5
Notes to financial statements .................... 6
Item 2 Management's discussion and analysis of
financial condition and results of
operations .................................... 6-9
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
-1-
HEARTLAND EXPRESS, INC.
AND SUBSIDIAIRIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1998 1997
------------ ------------
(Unaudited) * (Note 1)
CURRENT ASSETS
Cash and cash equivalents .................... $101,493,444 $ 76,240,422
Trade receivables, less allowance:
1998 $429,677; 1997 $491,971 ................. 23,415,457 24,247,307
Prepaid Tires ................................ 1,317,211 1,617,464
Municipal Bonds .................................. 17,770,292 19,769,765
Deferred income taxes ........................ 16,773,000 15,841,000
Other current assets ......................... 3,544,214 280,243
------------ ------------
Total current assets .................... $164,313,618 $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 ....................... 2,535,343 1,982,818
Shop and service equipment ................... 1,419,478 1,351,440
Revenue equipment ............................ 113,015,128 118,819,981
------------ ------------
$130,015,125 $135,306,559
Less accumulated depreciation & amortization . 55,995,243 54,336,481
------------ ------------
Property and equipment, net .................. $ 74,019,882 $ 80,970,078
------------ ------------
OTHER ASSETS ..................................... $ 6,175,763 $ 6,500,395
------------ ------------
$244,509,263 $225,466,674
============ ============
<FN>
*Note: See Note 1 of "Notes to Financial Statements" for information regarding
the December 31, 1997 balance sheet.
</FN>
-2-
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1998 1997
------------ ------------
CURRENT LIABILITIES .............................. (Unaudited) *(Note 1)
Accounts payable & accrued liabilities ........ $ 10,240,277 $ 8,857,820
Compensation & benefits ....................... 5,040,493 4,992,714
Income taxes payable .......................... 5,609,054 4,224,150
Insurance accruals ............................ 35,658,726 34,671,707
Other ......................................... 3,260,209 3,080,223
------------ ------------
Total current liabilities ............... $ 59,808,759 $ 55,826,614
DEFERRED INCOME TAXES ............................ 14,638,000 15,901,000
------------ ------------
$ 74,446,759 $ 71,727,614
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCHOLDERS' 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 ............................ 163,154,334 146,830,890
------------ ------------
$170,062,504 $153,739,060
------------ ------------
$244,509,263 $225,466,674
============ ============
<FN>
*Note: See Note 1 of "Notes to Financial Statements" for information
regarding the December 31, 1997 balance sheet
</FN>
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
OPERATING REVENUE ........................... $ 69,222,503 $ 65,381,405 $ 136,062,813 $ 125,268,705
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages, benefits ............... $ 13,212,053 $ 11,688,827 $ 26,967,643 $ 22,593,106
Rent and purchased transportation ....... 26,967,946 26,801,685 52,231,164 50,655,733
Operations and maintenance .............. 6,675,135 6,276,055 13,595,664 12,460,171
Taxes and licenses ...................... 1,548,562 1,413,861 3,060,233 2,755,612
Insurance and claims .................... 2,025,573 3,073,478 4,031,707 5,935,097
Communications and utilities ............ 661,364 520,913 1,434,542 1,156,861
Depreciation ............................ 4,580,527 3,345,012 9,243,626 6,647,150
Other operating expenses ................ 1,581,022 1,090,205 2,900,597 2,252,608
(Gain) on sale of fixed assets .......... (5,645) (24,980) (332,255) (25,780)
------------- ------------- ------------- -------------
$ 57,246,537 $ 54,185,056 $ 113,132,921 $ 104,430,558
------------- ------------- ------------- -------------
Operating income ................... $ 11,975,966 $ 11,196,349 $ 22,929,892 $ 20,838,147
Interest income ......................... 1,128,318 1,072,712 2,183,134 1,951,757
------------- ------------- ------------- -------------
Income before income taxes .............. $ 13,104,284 $ 12,269,061 $ 25,113,026 $ 22,789,904
Federal and state income taxes (Note 3) . 4,586,522 4,539,695 8,789,582 8,432,267
------------- ------------- ------------- -------------
Net income .............................. $ 8,517,762 $ 7,729,366 $ 16,323,444 $ 14,357,637
============= ============= ============= =============
Earnings per common share:
Basic earnings per share .............. $ 0.28 $ 0.26 $ 0.54 $ 0.48
============= ============= ============= =============
Basic weighted average shares outstanding 30,000,000 30,000,000 30,000,000 30,000,000
============= ============= ============= =============
-4-
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30, June 30,
1998 1997
------------- -------------
OPERATING ACTIVITIES
Net Income ..................................... $ 16,323,444 $ 14,357,637
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization ................ 9,813,048 6,764,674
Deferred income taxes ........................ (2,195,000) (2,717,500)
Gain on sale of fixed assets ................. (302,084) (15,564)
Changes in certain working capital items:
Trade receivables ........................... 831,850 (4,246,505)
Other current assets ........................ (4,007,738) (1,484,429)
Prepaid expenses ............................ 410,060 409,169
Accounts payable and accrued expenses ....... 3,857,576 6,599,212
Accrued income tax .......................... 1,384,904 617,933
------------- -------------
Net cash provided by operating activities . $ 26,116,060 $ 20,284,627
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of prop. and equipment ... 473,200 25,780
Purchase of property and equipment .......... (3,271,285) (5,685,831)
Net redemption of municipal bonds ........... 1,999,473 21,015,532
Other ....................................... (64,426) 12,871
------------- -------------
Net cash (used in) provided by investment
activities ................................. $ (863,038) $ 15,368,352
------------- -------------
Net increase in cash and cash equivalents . $ 25,253,022 $ 35,652,979
CASH AND CASH EQUIVALENTS
Beginning of year ........................... 76,240,422 59,593,468
------------- -------------
End of quarter .............................. $ 101,493,444 $ 95,246,447
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes .............................. $ 9,599,678 $ 10,531,834
Noncash investing activities:
Book value of revenue equipment traded .... $ 5,900,477 $ 340,884
-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 six month
period ended June 30, 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 of 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 and six month periods ended June 30, 1998 are based
on the Company's estimated effective tax rates. The rate for the three and six
month period ended June 30, 1998 and 1997 was 35% and 37%, respectively.
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 three and six
month periods ended June 30, 1998 compared with the same periods in 1997, and
the changes in financial condition through the second quarter of 1998.
Results of Operations:
Three Months Ended June 30, 1998 and 1997
Operating revenue increased $3.8 million (5.9%), to $69.2 million in the second
quarter of 1998 from $65.4 million in the second 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.
- 6 -
Salaries, wages, and benefits increased $1.5 million (13.0%), to $13.2 million
in the second quarter of 1998 from $11.7 million in the second quarter of 1997.
As a percentage of revenue, salaries, wages and benefits increased to 19.1% in
1998 from 17.9% 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 second quarter of 1998, employee drivers accounted for 44% and
independent contractors 56% of the total fleet miles, compared with 40% and 60%,
respectively, in the second quarter of 1997. Rent and purchased transportation
increased $0.2 million (.6%), to $27.0 million in the second quarter of 1998
from $26.8 million in the second quarter of 1997. As a percentage of revenue,
rent and purchased transportation decreased to 39.0% in the second quarter of
1998 from 41.0% in the second quarter of 1997. This reflected the Company's
decreased reliance upon independent contractors.
Operations and maintenance increase $0.4 million (6.4%) to $6.7 million in the
second quarter of 1998 from $6.3 million in the second quarter of 1997. As a
percentage of revenue, operations and maintenance was 9.6% in both compared
quarters. This increase is attributable to the aforementioned increased reliance
on employee drivers operating the Company's 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 second quarter of
1997.
Taxes and licenses increased $.1 million (9.5%), to $1.5 million in the second
quarter of 1998 from $1.4 million in the second quarter of 1997. As a percentage
of revenue, taxes and licenses was 2.2% in both compared quarters. The cost
increase was primarily attributable to the increase in fleet size.
Insurance and claims decreased $1.0 million (34.1%), to $2.0 million in the
second quarter of 1998 from $3.0 million in the second quarter of 1997. As a
percentage of revenue, insurance and claims decreased to 2.9% in the second
quarter of 1998 from 4.7% in the second 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 second quarter 1998
expense reflects the lessor severity of claims incurred.
Depreciation increased $1.2 million (36.9%) to $4.6 million during the second
quarter of 1998 from $3.4 million in the second quarter of 1997. As a percentage
of revenue, depreciation increased to 6.6% of revenue during the second quarter
of 1998 from 5.1% during the second quarter of 1997. The increase resulted from
the growth in the Company owned trailer and tractor fleet.
Other operating expenses increased $0.5 million (45.0%) to $1.6 million during
the second quarter of 1998 from $1.1 million during the second quarter of 1997.
As a percentage of revenue, other operating expenses increased to 2.3% in the
second quarter of 1998 from 1.7% in the second quarter of 1997. Other operating
expenses consists primarily of pallet cost, driver recruiting expense, and
administrative costs.
Interest income increased $0.1 (5.2%) to $1.1 million in the second quarter of
1998 from $1.0 million in the second 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 June 30, 1998 and 1997, respectively. This decrease is primarily
attributable to the increase in tax-exempt interest earned.
- 7 -
As a result of the foregoing, the Company's operating ratio (operating expenses
as a percentage of operating revenue) was 82.7% during the second quarter of
1998 compared with 82.9% during the second quarter of 1997. Net income increased
$0.8 million (10.2%), to $8.5 million during the second quarter of 1998 from
$7.7 million during the second quarter of 1997.
Six Months Ended June 30, 1998 and 1997
Operating revenue increased $10.8 million (8.6%), to $136.1 million in the six
months ended June 30, 1998 from $125.3 million in the compared 1997 period. The
revenue increase was attributable primarily to the Company's acquisition of A &
M Express, Inc., expansion of the customer base, and increase volume from
existing customers.
Salaries, wages, and benefits increased $4.4 million (19.4%), to $27.0 million
in the six months ended June 30, 1998 from $22.6 million in the compared 1997
period. As a percentage of revenue, salaries, wages and benefits increased to
19.8% in 1998 from 18.0% 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 six months ended June 30, 1998, employee drivers
accounted for 45% and independent contractors 55% of the total fleet miles,
compared with 40% and 60%, respectively, in the 1997 period. Rent and purchased
transportation increased $1.6 million (3.1%), to $52.2 million in the six months
ended June 30, 1998 from $50.6 million in the compared 1997 period. As a
percentage of revenue, rent and purchased transportation decreased to 38.4% in
the six months ended June 30, 1998 from 40.4% in the compared 1997 period. This
reflected the Company's decreased reliance upon independent contractors.
Operations and maintenance increased $1.1 million (9.1%) to $13.6 million in the
six months ended June 30,1998 from $12.5 million in the compared 1997 period. As
a percentage of revenue, operations and maintenance increased to 10.0% of
revenue in the six months ended June 30, 1998 from 9.9% during the compared 1997
period. This increase is attributable to the aforementioned increased reliance
on employee drivers operating the Company's 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 six months of
1997.
Taxes and licenses increased $0.3 million (11.1%), to $3.1 million in the six
months ended June 30, 1998 from $2.8 million in the compared 1997 period. As a
percentage of revenue, taxes and licenses was 2.2% for both periods. The cost
increase was primarily attributable to the increase in fleet size.
Insurance and claims decreased $1.9 million (32.1%), to $4.0 million in the six
months ended June 30, 1998 from $5.9 million in the compared 1997 period. As a
percentage of revenue, insurance and claims decreased to 3.0% in the six months
ended June 30, 1998 from 4.7% in the compared 1997 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. The decrease in the first six months of
1998 expense reflects the lessor severity of claims incurred.
Depreciation increased $2.6 million (39.1%) to $9.2 million during the six
months ended June 30, 1998 from $6.6 million in the compared 1997 period. As a
percentage of revenue, depreciation increased to 6.8% of revenue during the six
months ended June 30, 1998 from 5.3% during the compared 1997 period. The
increase resulted from the growth in the Company owned trailer and tractor
fleet.
- 8 -
Other operating expenses increased $0.6 million (28.8%) to $2.9 million during
the six months ended June 30, 1998 from $2.3 million during the compared 1997
period. As a percentage of revenue, other operating expenses increased to 2.1%
in the six months ended June 30, 1998 from 1.8% in the compared 1997 period.
Other operating expenses consists primarily of pallet cost, driver recruiting
expense, and administrative costs.
Interest income increased $0.2 (11.9%) to $2.2 million in the six months ended
June 30, 1998 from $2.0 million in the compared 1997 period. 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 six month periods
ended June 30, 1998 and 1997, respectively. This decrease is primarily
attributable to the increase in tax-exempt interest earned.
As a result of the foregoing, the Company's operating ratio (operating expenses
as a percentage of operating revenue) was 83.1% during the six months ended June
30, 1998 compared with 83.4% during the compared 1997 period. Net income
increased $2.0 million (13.7%), to $16.3 million during the six months ended
June 30, 1998 from $14.3 million during the compared 1997 period. The first six
months of 1998 net income included 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 further 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 2.75 and no debt), management foresees no
barrier to obtaining outside financing, if necessary, to continue with its
growth plans.
During the six months ended June 30, 1998, the Company generated net cash flow
from operations of $26.1 million. Net cash used in investing and financing
activities included $2.0 million net redemptions of municipal bonds and $3.3
million for capital expenditures, primarily revenue equipment.
Working capital at June 30, 1998 was $104.5 million, including $119.3 million in
cash, cash equivalents, and municipal bonds. These investments generated $2.2
million in interest income (primarily tax-exempt) during the six months ended
June 30, 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 looking information that is subject of 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 Form 10-K and 10-Q.
- 9 -
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 second 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.
3.3 Certificate of Amendment To Incorporated by Reference
Articles of Incorporation 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.
-10-
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 to Incorporated by Reference
Articles of Incorporation 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 Reference
June 6, 1997 among the Gerdin to the Company's
Educational Trusts and Larry Form 10-K for the year
Crouse voting trustee. ended December 31, 1997.
Commission file no.
0-15087.
10.1 Business Property Lease Incorporated by Reference
between Russell A. Gerdin to the Company's Form
as Lessor and the Company 10-K for the year ended
as Lessee, regarding the December 31, 1996.
Company's headquarters at Commission file no.
2777 Heartland Drive 0-15087, dated
Coralville, Iowa 52241 March 27, 1997.
10.2 Form of Independent Contractor Incorporated by Reference
Operating Agreement between the to the Company's Form
Company and its independent 10-K for the year ended
contractor providers of tractors December 31, 1993.
Commission file no.
0-15087.
10.3 Description of Key Management Incorporated by Reference
Deferred Incentive Compensation to the Company's Form
Arrangement 10-K for the year ended
December 31, 1993.
Commission file no.
0-15087.
21 Subsidiaries of the Registrant Incorporated by 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.
-11-
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
-12-