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, 1999 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 Driver, 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, 1999, 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, 1999 (unaudited) and
December 31, 1998 2 - 3
Consolidated statements of income
(unaudited) for the three month
period ended March 31, 1999 and 1998 4
Consolidated statements of cash flows
(unaudited) for the three months ended
March 31, 1999 and 1998 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 of Form 8-K 11 - 13
1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ................. $155,091,738 $143,434,594
Trade receivables, less allowance:
1999 and 1998 $402,812 .................... 22,342,024 21,391,206
Prepaid tires ............................. 1,121,672 1,039,405
Deferred income taxes ..................... 15,875,000 16,082,000
Other current assets ...................... 2,372,219 306,142
------------ ------------
Total current assets ............... $196,802,653 $182,253,347
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements ................ $ 3,830,779 $ 3,830,779
Buildings ................................. 9,214,397 9,214,397
Furniture and fixtures .................... 2,611,166 2,535,343
Shop and service equipment ................ 1,433,379 1,444,764
Revenue equipment ......................... 115,980,911 112,162,731
------------ ------------
$133,070,632 $129,188,014
Less accumulated depreciation & amortization 64,384,976 60,618,544
------------ ------------
Property and equipment, net ............... $ 68,685,656 $ 68,569,470
------------ ------------
OTHER ASSETS .................................... $ 5,847,757 $ 6,005,191
------------ ------------
$271,336,066 $256,828,008
============ ============
2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable & accrued liabilities .... $ 11,462,607 $ 7,615,143
Compensation & benefits ................... 4,856,927 4,431,905
Income taxes payable ...................... 7,299,706 3,578,501
Insurance accruals ........................ 34,690,072 35,503,314
Other ..................................... 2,958,516 3,135,232
------------ ------------
Total current liabilities .......... $ 61,267,828 $ 54,264,095
------------ ------------
DEFERRED INCOME TAXES ........................... 15,656,000 15,716,000
------------ ------------
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 ......................... 187,504,068 179,939,743
------------ ------------
$194,412,238 $186,847,913
------------ ------------
$271,336,066 $256,828,008
============ ============
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
March 31,
1999 1998
------------ ------------
OPERATING REVENUE ............................... $ 63,097,105 $ 66,840,310
------------ ------------
OPERATING EXPENSES:
Salaries, wages, benefits ................. $ 14,114,982 $ 13,755,590
Rent and purchased transportation ......... 22,765,645 25,263,218
Operations and maintenance ................ 6,585,507 6,920,529
Taxes and licenses ........................ 1,371,059 1,511,671
Insurance and claims ...................... 1,773,251 2,006,134
Communications and utilities .............. 651,908 773,178
Depreciation .............................. 4,068,078 4,663,099
Other operating expenses .................. 1,608,101 1,319,575
(Gain) on sale of fixed assets ............ -- (326,610)
------------ ------------
$ 52,938,531 $ 55,886,384
------------ ------------
Operating income ................... $ 10,158,574 $ 10,953,926
Interest income ........................... 1,479,028 1,054,816
------------ ------------
Income before income taxes ................ $ 11,637,602 $ 12,008,742
Federal and state income taxes (Note 2) ... 4,073,277 4,203,060
------------ ------------
Net income ................................ $ 7,564,325 $ 7,805,682
============ ============
Earnings per common share:
Basic earnings per share ............... $ 0.25 $ 0.26
============ ============
Basic weighted average shares outstanding . 30,000,000 30,000,000
============ ============
4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
Three months ended
March 31,
1999 1998
------------- -------------
OPERATING ACTIVITIES
Net income ................................ $ 7,564,325 $ 7,805,682
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization .......... 4,342,188 4,948,862
Deferred income taxes .................. 147,000 (910,000)
Gain on sale of fixed assets ........... -- (326,610)
Changes in certain working capital items:
Trade receivables ................... (950,818) (1,090,230)
Other current assets ................ (2,066,077) (3,105,358)
Prepaid expenses .................... (318,057) (36,904)
Accounts payable and accrued expenses 840,263 2,304,478
Accrued income taxes ................ 3,721,205 4,731,767
------------- -------------
Net cash provided by operating activities $ 13,280,029 $ 14,321,687
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of prop. and equipment.. -- 433,700
Purchase of property and equipment ........ (1,585,790) (2,666,020)
Redemption (purchase) of municpal bonds ... -- (2,266,261)
Other ..................................... (37,095) (138,402)
------------- -------------
Net cash (used) in investment activities .. $ (1,622,885) $ (4,636,983)
------------- -------------
Net increase in cash and cash equivalents $ 11,657,144 $ 9,684,704
CASH AND CASH EQUIVALENTS
Beginning of year ......................... 143,434,594 76,240,422
------------- -------------
End of quarter ............................ $ 155,091,738 $ 85,925,126
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ........................... $ 205,072 $ 381,293
Noncash investing activities:
Book value of revenue equipment traded . $ 650,538 $ 1,731,757
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 month
period ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999. 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, 1998.
Note 2. Income Taxes
Income taxes for the three month period ended March 31, 1999 are based on the
Company's estimated effective tax rates. The rate for the three months ended
March 31, 1999 and 1998 was 35%.
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, 1999 compared with the same period in 1998, and the changes in
financial condition through the first quarter of 1999.
6
Results of Operations:
Operating revenue decreased $3.7 million (5.6%), to $63.1 million in the first
quarter of 1999 from $66.8 million in the first quarter of 1998. The revenue
decrease was attributable primarily to an industry-wide shortage of experienced
employee drivers and independent contractors.
Salaries, wages, and benefits increased $0.4 million (2.6%), to $14.1 million in
the first quarter of 1999 from $13.8 million in the first quarter of 1998. As a
percentage of revenue, salaries, wages and benefits increased to 22.4% in 1999
from 20.6% in 1998. These increases were a result of 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 and increases in the employee driver pay rate during the
fourth quarter of 1998. During the first quarter of 1999, employee drivers
accounted for 48% and independent contractors 52% of the total fleet miles,
compared with 46% and 54%, respectively, in the first quarter of 1998. Rent and
purchased transportation decreased $2.5 million (9.9%), to $22.8 million in the
first quarter of 1999 from $25.3 million in the first quarter of 1998. As a
percentage of revenue, rent and purchased transportation decreased to 36.1% in
the first quarter of 1999 from 37.8% in the first quarter of 1998. This
reflected the Company's decreased reliance upon independent contractors.
Operations and maintenance decreased $0.3 million (4.8%) to $6.6 million in the
first quarter of 1999 from $6.9 million in the first quarter of 1998. As a
percentage of revenue, operations and maintenance remained constant at 10.4%
during the first quarter of 1999 and 1998. The cost increases associated with
increased reliance on employee drivers were offset by a decrease in fuel prices
compared to those experienced in the first quarter of 1998.
Taxes and licenses decreased $0.1 million (9.3%), to $1.4 million in the first
quarter of 1999 from $1.5 million in the first quarter of 1998. As a percentage
of revenue, taxes and licenses decreased to 2.2% in the first quarter of 1999
from 2.3% in the first quarter of 1998. The cost decrease was primarily
attributable to the decrease in fleet size.
Insurance and claims decreased $0.2 million (11.6%), to $1.8 million in the
first quarter of 1999 from $2.0 million in the first quarter of 1998. As a
percentage of revenue, insurance and claims decreased to 2.8% in the first
quarter of 1999 from 3.0% in the first quarter of 1998. Insurance and claims
expense will vary as a percentage of operating revenue form 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 1999
expense reflects the lessor severity of claims incurred.
7
Depreciation decreased $0.6 million (12.8%) to $4.1 million during the first
quarter of 1999 from $4.7 million in the first quarter of 1998. As a percentage
of revenue, depreciation decreased to 6.4% of revenue during the first quarter
of 1999 from 7.0% during the first quarter of 1998. The decrease resulted from
the reduction in the number of company owned trailers and tractors.
Other operating expenses increased $0.3 million (21.9%) to $1.6 million during
the first quarter of 1999 from $1.3 million during the first quarter 1998. As a
percentage of revenue, other operating expenses increased to 2.5% in the first
quarter of 1999 from 2.0% in the first quarter of 1998. Other operating expenses
consists primarily of pallet cost, driver recruiting expense, and administrative
costs. The increase is primarily related to the increased cost of recruiting
employee drivers and independent contractors.
Interest income increased $0.4 (40.2%) to $1.5 million in the first quarter of
1999 from $1.1 million in the first quarter of 1998. This increase is primarily
attributable to the increase in cash, cash equivalents, and municipal bonds.
The Company's effective tax rate was 35.0% for the three month periods ended
March 31, 1999 and 1998.
As a result of the foregoing, the Company's operating ratio (operating expenses
as a percentage of operating revenue) was 83.9% during the first quarter of 1999
compared with 83.6% during the first quarter of 1998. Net income decreased $0.2
million (3.1%), to $7.6 million during the first quarter of 1999 from $7.8
million during the first quarter of 1998. The first quarter 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 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 3.2 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, 1999, the Company generated net cash
flow from operations of $13.3 million. Net cash used in investing and financing
activities included $1.6 million for capital expenditures, primarily revenue
equipment.
8
Working capital at March 31, 1999 was $135.5 million, including $155.1 million
in cash, cash equivalents, and municipal bonds. These investments generated $1.5
million in interest income (primarily tax-exempt) during the three months ended
March 31, 1999. 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 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 form 10-K and 10-Q
Year 2000
The Company has completed a comprehensive inventory and assessment of its risk
associated with the year 2000 problem. The position of the Company is to ensure
successful operation of business processes without interruption before, during,
and after December 31, 1999. A formal year 2000 team was established in 1998 to
identify exposures, develop a compliance plan, correct problems, test results
and monitor progress on a monthly basis, and develop a contingency plan in the
event of any system failures. All internal systems (both information technology
"IT" and non-IT) have been assessed for risk, including operational software,
operational platforms, desktop systems, telephony equipment, data
communications, systems assurance, and facility management systems. Critical
business processes have been assessed for risk, such as customer service, voice
telecommunications, order entry, transportation capacity planning, logistical
balance planning, driver load assignment, driver satellite communications,
rating and invoicing, payment remittance, financial transactions, and electronic
data interchange (EDI) communications for load tendering, shipment status, and
freight invoicing. The Company's operational platform and enterprises software
were upgraded in 1998 and are Year 2000 compliant. The Company will be testing
systems by simulating the transition to the Year 2000. This testing should be
completed prior to June 30, 1999. Future estimated compliance costs are not
expected to be material to the Company's consolidated financial position,
results of operations, or cash flows.
9
As part of the Company's comprehensive review, it is continuing to verify the
year 2000 readiness of third parties (vendors and customers) with whom the
Company has material business relationships. These relationships include
providers of such services as telecommunications, natural gas and electricity,
diesel fuel, satellite communications and financial transactions. Formal
communications have been made with significant customers and suppliers. These
customers and suppliers indicate that they expect to achieve compliance and do
not expect any business interruptions. In addition, engine manufacturers have
confirmed the year 2000 readiness of our company-owned tractor fleet.
At present the Company is not able to determine with certainty the effect on the
Company's result of operations, liquidity, and financial condition in the event
the Company's material suppliers and customers are not Year 2000 compliant.
There can be no assurance that the Company will properly identify all Year 2000
issues or the certain external customers or suppliers will not experience
disruption of IT functions or actual services provided. The Company will
continue to monitor the progress of its material suppliers and customers.
Contingency plans are being developed to address Year 2000 issues that may arise
in the event of system failures or loss of material suppliers or customers.
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 1999.
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.
4.3 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
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.
12
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, 1993.
Commission file no.
0-15087.
27 Financial Data Schedule Filed herewith.
13
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
14