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, 1995 Commission File No. 0-15087
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HEARTLAND EXPRESS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 93-0926999
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2777 Heartland Drive, Coralville, Iowa 52241
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(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
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At September 30, 1995, there were 13,016,600 shares of the Company's $.10 par
value common stock outstanding.
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial statements
Consolidated balance sheets
September 30, 1995 (unaudited) and
December 31, 1994 2-3
Consolidated statements of income
(unaudited) for the three and nine
month periods ended September 30, 1995
and 1994 4
Consolidated statements of cash flows
(unaudited) for the nine months ended
September 30, 1995 and 1994 5
Notes to financial statements 6-7
Item 2. Management's discussion and analysis of
financial condition and results of
operations 8-10
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
-1-
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
--------
SEPTEMBER 30, DECEMBER 31,
1995 1994
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(unaudited) *(Note 1)
CURRENT ASSETS
Cash and cash equivalent $ 35,714,253 $ 10,218,484
Trade receivables, less allowance
of $402,812 and $402,812 respectively 16,067,358 17,443,434
Prepaid tires 2,793,057 2,244,185
Municipal bonds 8,747,318 2,856,558
Deferred income taxes 11,561,000 10,933,000
Other current assets 967,510 693,252
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Total current assets $ 75,850,496 $ 44,388,913
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PROPERTY AND EQUIPMENT
Land and land improvements $ 2,463,010 $ 2,463,010
Buildings 7,299,415 7,098,843
Furniture and fixtures 1,656,095 3,319,817
Shop and service equipment 1,090,852 1,586,635
Revenue equipment 98,509,650 119,195,666
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$ 111,019,022 $ 133,663,971
Less accumulated depreciation & amortization 34,367,964 42,848,820
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Property and equipment, net $ 76,651,058 $ 90,815,151
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OTHER ASSETS $ 1,161,070 $ 1,188,534
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$ 153,662,624 $ 136,392,598
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*Note: See Note 1 of "Notes to Financial Statements" for information
regarding the December 31, 1994 balance sheet.
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1995 1994
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(Unaudited) *(Note 1)
CURRENT LIABILITIES
Current maturities of long-term debt $ 809,790 $ 450,531
Accounts payable & accrued liabilities 5,098,045 5,687,651
Compensation & benefits 5,207,713 4,569,622
Income taxes payable 2,821,000 2,865,902
Insurance accruals
Liability claims 21,268,506 19,623,257
Workers' compensation accrual 6,050,146 6,039,846
Other 2,206,580 2,356,150
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Total current liabilities $ 43,461,780 $ 41,592,959
LONG-TERM DEBT $ -- $ 705,437
DEFERRED INCOME TAXES $ 16,691,000 $ 16,044,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred, $.10 par value; authorized
5,000,000 share; none issued $ -- $ --
Common, $.10 par value; authorized
35,000,000 shares; issued and outstanding
13,016,600 shares 1,301,660 1,301,660
Additional paid-in capital 5,606,510 5,606,510
Retained earnings 86,601,674 71,142,032
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$ 93,509,844 $ 78,050,202
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$ 153,662,624 $ 136,392,598
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*Note: See Note 1 of "Notes to Financial Statements" for information
regarding the December 31, 1994 balance sheet.
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HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ende Nine months ended
September 30, September 30,
1995 1994 1995 1994
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Operating revenue $ 47,527,998 $ 53,878,550 $142,084,902 $174,562,785
------------ ------------ ------------ ------------
Operating expenses:
Salaries, wages, benefits $ 9,403,056 $ 13,742,059 $ 31,179,475 $ 43,863,901
Rent and purchased transportation 16,633,973 14,425,432 45,432,847 44,527,794
Operations and maintenance 4,826,811 7,292,588 15,787,416 25,825,752
Taxes and licenses 1,227,778 1,707,104 3,735,381 7,410,684
Insurance and claims 1,857,006 2,891,287 6,418,802 9,889,232
Communications and utilities 586,286 561,720 1,900,818 1,982,188
Depreciation 3,629,116 4,890,809 11,597,253 15,785,084
Other operating expenses 837,719 1,005,531 2,563,105 5,035,595
(Gain) on sale of fixed assets (5,022) -- (27,134) (224,772)
Merger consumation and integration costs -- -- -- 1,978,600
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$ 38,996,723 $ 46,516,530 $118,587,963 $156,074,058
------------ ------------ ------------ ------------
Operating income $ 8,531,275 $ 7,362,020 $ 23,496,939 $ 18,488,727
Interest income 458,571 19,000 1,113,570 274,101
Interest (expense) (19,995) (296,127) (67,793) (2,011,146)
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Income before income taxes $ 8,969,851 $ 7,084,893 $ 24,542,716 $ 16,751,682
Federal and state income taxes 3,323,647 2,635,580 9,083,075 6,787,960
Deferred income tax charge for change
in tax status -- -- -- 2,925,600
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Total income tax expense $ 3,323,647 $ 2,635,580 $ 9,083,075 $ 9,713,560
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Net income $ 5,646,204 $ 4,449,313 $ 15,459,641 $ 7,038,122
------------ ------------ ------------ ------------
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Pro forma adjustment to reflect income tax
provision as if the combined company
was a "C" corporation for the entire period $ -- $ -- $ -- $ (3,304,126)
------------ ------------ ------------ ------------
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Pro forma income tax expense $ -- $ -- $ -- $ 6,409,434
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Pro forma net income $ -- $ -- $ -- $ 10,342,248
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Earnings per share:
Outstanding shares 13,016,600
Net income $ 0.43 $ 0.34 $ 1.19 $ 0.54
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------------ ------------ ------------ ------------
Pro forma net income $ -- $ -- $ -- $ 0.79
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See Notes to Financial Statements.
-4-
HEARTLAND EXPRESS,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine months ended
September 30,
1995 1994
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OPERATING ACTIVITIES
Net Income $ 15,459,641 $ 7,038,122
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 11,932,573 15,795,084
Deferred income taxes 19,000 1,036,607
Gain on sale of fixed assets (27,134) (224,772)
Changes in certain working capital items:
Trade receivables 1,376,076 2,422,093
Other current assets (274,258) 1,033,428
Prepaid expenses 1,621,296 308,728
Accounts payable and accrued expenses 1,550,898 7,655,080
Accrued income taxes (44,902) 1,182,275
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Net cash provided by operating activities $ 31,613,190 $ 36,246,645
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INVESTING ACTIVITIES
Proceeds from sale of prop. and equip. $ 47,805 $ 1,804,640
Purchase of property and equipment 44,248 (7,817,337)
Purchase of municipal bonds (5,890,760) (22,633)
Redemption of municipal bonds -- 15,567,910
Other 27,464 --
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Net cash provided by (used in) investment activities $ (5,771,243) $ 9,532,580
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FINANCING ACTIVITIES
Net (repayments) borrowings on revolving credit agreements $ -- $ (725,833)
Proceeds from long-term notes payable -- 14,205,565
Principal payments on long-term notes (346,178) (67,695,552)
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Net cash (used in) financing activities $ (346,178) $ (54,215,820)
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Net increase (decrease) in cash and cash equivalents $ 25,495,769 $ (8,436,595)
CASH AND CASH EQUIVALENTS
Beginning of year 10,218,484 9,391,651
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End of quarter $ 35,714,253 $ 955,056
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 67,793 $ 2,108,974
Income taxes 9,082,222 7,469,589
Noncash investing activities:
Book value of revenue equipment traded $ 19,911,625 $ 13,565,984
See Notes to 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, 1995 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1995. 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, 1994.
Note 2. Heartland/Munson Merger
Effective March 21, 1994, Heartland consummated a merger with Munson
Transportation, Inc. and two affiliated companies (collectively, "Munson").
Former Munson stockholders received approximately 4% of the Company's
outstanding stock in the transaction, which was a merger accounted for as a
pooling of interests. Merger consummation and integration costs of $3.5 million
associated with the merger of Munson and the cost of closing duplicate
facilities were incurred in 1994. These nonrecurring expenses consisted
primarily of changes in reserve estimates for liability and workers'
compensation claims, conforming accounting policies, accounting and legal
expenses, severance pay, and writing down the value of the Monmouth, Illinois
terminal. During the first nine months of 1994, $1.9 million of this
nonrecurring charge was recorded and accordingly, decreased net income for the
nine-month period ended September 30, 1994 by approximately $1.3 million ($0.11
per share).
The Company continued Munson's separate operations throughout much of 1994, and
in December relocated all administrative and operational functions to
Heartland's headquarters. The Company retained Munson's Monmouth, Illinois
maintenance and repair facility until April, 1995 when it was then relocated to
Heartland's headquarters.
-6-
Under the accounting rules applicable to transactions qualifying as a pooling of
interest, the Company restated prior years' financial statements as if Heartland
and Munson had been operated on a combined basis for all periods presented.
Therefore, all financial information concerning the Company presented in this
report reflects the combined operations of both companies.
Note 3. Income Taxes
Income taxes for the three and nine month periods ended September 30, 1995 are
based on the Company's estimated effective tax rates. The rate for the quarters
ended September 30, 1995 and 1994 was 37%. The rate for the nine months ended
September 30, 1995 and 1994 was 37% and 41%, respectively. The effective tax
rate for the nine month period ended September 30, 1994 was impacted by Munson's
losses incurred prior to the merger on March 21, 1994 which cannot be deducted
and certain merger related expenses, primarily professional fees which are not
deductible.
The Company recorded a $2.9 million one-time charge during the first quarter of
1994 to recognize a deferred income tax obligation representing temporary
differences in the basis of assets and liabilities for financial reporting and
tax purposes. The Company was required to record the charge following the
merger of Munson, which had previously been a "S" corporation, and as such had
not recorded such obligations.
The pro forma income tax expense presented for the first nine months of 1994
reflects the estimated amount of income tax expense that would have been
recorded if the combined company was a "C" corporation for the entire period.
-7-
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 third quarter
of 1995 compared with the third quarter of 1994 and the changes in financial
condition through the third quarter of 1995.
Results of Operations:
Operating revenue decreased 11.8% to $47.5 million in the third quarter of 1995
from $53.9 million in the third quarter of 1994. Operating revenue for the nine
months ended September 30, 1995 (the "1995 period") decreased 18.6% to $142.1
million from $174.6 million for the nine months ended September 30, 1994 (the
"1994 period"). For the 1995 period, this decrease was attributable to the
Company's decision to eliminate unprofitable flatbed, brokerage, and
temperature-controlled operations during 1994. Revenue for both the nine-month
and third quarter periods in 1995 was impacted by the discontinuance of
selective traffic lanes that did not meet the Company's operating strategy and
by a decrease in customer demand due to overall softness in the economy.
Salaries, wages, and benefits decreased to 21.9% of revenue in the 1995 period
from 25.1% in the 1994 period and to 19.8% of revenue in the third quarter of
1995 from 25.5% in the third quarter of 1994. This decrease was attributable to
(i) a substantial reduction in the number of non-driver personnel due to the
consolidation of facilities, (ii) a reduction in the miles driven by company
drivers resulting from the reduction in revenue discussed above and a reduction
in the percentage of company drivers in favor of independent contractors, and
(iii) a reduction in health and workers' compensation claims due to fewer and
less severe claims. The decrease in total company driver payroll was offset by
an approximate 12.0% increase in the rate per mile paid to company drivers and
by the increase in rent and purchased transportation attributable to the
increase in independent contractors.
Operations and maintenance expenses decreased to 11.1% of revenue in the 1995
period from 14.8% in the 1994 period and to 10.2% of revenues in the third
quarter of 1995 from 13.5% in the third quarter of 1994. This reduction is the
result of lower repair and maintenance costs and better fuel efficiency
attributable to the replacement of older model revenue equipment with new
tractors and trailers. The average age of the Company's tractor fleet at
September 30, 1995 was 17 months compared to 26 months at September 30, 1994.
The decrease is also attributable to efficiencies attained from the
consolidation of maintenance facilities and the decrease of company-owned
tractors as a percentage of the Company's fleet and a corresponding increase in
the percentage of independent contractors (who pay their own repair,
maintenance, and fuel costs).
-8-
Insurance and claims expenses decreased to 4.5% of revenue during the 1995
period from 5.7% in the 1994 period and to 3.9% during the third quarter of 1995
from 5.4% during the third quarter of 1994. This decrease was primarily due to
fewer and less severe claims as a result of an increased focus on safe
operations and the practice of hiring only experienced drivers.
Communication and utilities increased to 1.3% of revenue during the 1995 period
from 1.1% in the 1994 period and to 1.2% of revenue during the third quarter of
1995 from 1.0% in the third quarter of 1994 as the Company equipped the
remainder of its company-owned tractors with satellite communication units
during the first half of 1995.
Depreciation expense decreased to 8.2% of revenue during the 1995 period from
9.0% in the 1994 period and to 7.6% of revenues in the third quarter of 1995
from 9.1% reported in the third quarter of 1994. This reduction is the result
of a decreased reliance on company-owned tractors as a percentage of the
Company's fleet and a corresponding increase in the percentage of independent
contractors and favorable trade allowances negotiated on the purchase of new
revenue equipment.
Rent and purchased transportation expenses increased to 32.0% of revenue during
the 1995 period from 25.5% in the 1994 period and to 35.0% of revenue in the
third quarter of 1995 compared to 26.8% reported in the third quarter of 1994.
This increase is attributable to an increase in miles driven by independent
contractors as a result of independent contractors comprising a greater
percentage of the Company's fleet.
Nonrecurring merger and consummation costs of $1.9 million accounted for 1.1% of
revenue in the 1994 period. See Note 1 of the Notes to Financial Statements for
the discussion of this one-time charge.
Interest expense decreased to less than 1% of revenue during the 1995 period
($68,000) from 1.2% in the 1994 period ($2.0 million) and less than .01% of
revenue during the third quarter of 1995 from 0.5% in the third quarter of 1994
as a result of the reduction of debt and capital lease obligations. The
Company's long-term debt was approximately $810,000 at September 30, 1995
compared with $3.4 million at September 30, 1994.
The Company's effective tax rate was 37.0% for the three and nine month periods
ended September 30, 1995. See Note 3 of Notes to Financial Statements for the
discussion of the 1994 effective tax rate and the $2.9 million one-time deferred
tax charge recorded in the first quarter of 1994.
-9-
The Company's operating ratio (operating expenses as a percentage of operating
revenue) improved to 82.1% for the third quarter of 1995 compared with 86.3%
for the third quarter of 1994. The operating ratio for the first nine months of
1995 improved to 83.5% compared with 89.4% for the first nine months of 1994.
Net income for the third quarter of 1995 was $5.6 million compared with $4.4
million for the third quarter of 1994. Net income for the first nine months of
1995 was $15.5 million compared with $7.0 million for the nine months ended
September 30, 1994. The operating ratio and net income for the nine months
ended September 30, 1994 were adversely affected by nonrecurring charges
resulting from the merger with Munson Transportation.
Liquidity and Capital Resources
Net cash flow provided by operations was $31.6 million during the first nine
months of 1995 and $36.2 million for the first nine months of 1994. Working
capital at September 30, 1995 was $32.4 million compared with $2.9 million at
December 31, 1994. This increase is primarily due to a $31.4 million increase
in cash, cash equivalents, and municipal bonds during the first nine months of
1995.
Since the March 21, 1994 merger with Munson Transportation, the Company has
improved its financial position by reducing long-term debt to approximately
$810,000 at September 30, 1995 from $51.0 million at March 31, 1994. The
remaining long-term debt is now classified as a current liability with payoffs
expected to be made in the next twelve months.
The Company expects to finance future growth in its company-owned fleet
primarily through cash flow from operations and with trade allowances received
from traded revenue equipment.
-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
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
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JOHN P. COSAERT
Vice-President
Finance and Treasurer
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