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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, 2002 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 (IRS 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) 545-2728
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, 2002, there were 50,000,000 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, 2002 (unaudited) and
December 31, 2001 2 - 3
Consolidated Statements of Income
(unaudited) for the Three and Six Months
ended June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows
(unaudited) for the Six Months ended
June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14 - 16
Signature 17
1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ...................... $113,693,870 $120,794,142
Investments .................................... 36,945,065 40,281,980
Trade receivables, less allowance:
$402,812 at both 2002 and 2001 ................. 33,662,693 25,700,435
Prepaid tires .................................. 3,648,246 4,077,276
Deferred income taxes .......................... 18,949,000 17,358,000
Other current assets ........................... 2,229,898 144,890
------------ ------------
Total current assets ........................ 209,128,772 208,356,723
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements ..................... 4,402,820 4,402,820
Buildings ...................................... 8,532,621 8,532,621
Furniture and fixtures ......................... 1,414,094 1,300,848
Shop and service equipment ..................... 1,438,955 1,453,755
Revenue equipment .............................. 156,328,909 133,902,094
------------ ------------
172,117,399 149,592,138
Less accumulated depreciation .................. 43,391,716 47,473,283
------------ ------------
Property and equipment, net .................... 128,725,683 102,118,855
------------ ------------
OTHER ASSETS, net ................................. 8,366,450 3,762,832
------------ ------------
$346,220,905 $314,238,410
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable & accrued liabilities ........ $ 10,983,413 $ 7,073,957
Compensation & benefits ....................... 7,165,744 6,383,984
Income taxes payable .......................... 8,467,288 6,693,398
Insurance accruals ............................ 39,088,872 36,443,348
Other ......................................... 4,459,897 3,858,496
------------ ------------
Total current liabilities .................. 70,165,214 60,453,183
------------ ------------
DEFERRED INCOME TAXES ............................ 22,570,000 20,996,000
------------ ------------
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 50,000,000 ...................... 500,000 500,000
Additional paid-in capital .................... 8,603,762 6,608,170
Retained earnings ............................. 246,244,482 225,681,057
------------ ------------
255,348,244 232,789,227
Less unearned compensation .................... (1,862,553) --
------------ ------------
253,485,691 232,789,227
------------ ------------
$346,220,905 $314,238,410
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
OPERATING REVENUE ....................... $ 84,359,840 $ 75,251,349 $ 157,630,082 $ 147,174,696
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages, and benefits ........ $ 26,315,038 $ 21,967,432 $ 49,589,663 $ 43,218,764
Rent and purchased transportation .... 16,738,604 17,310,323 31,663,264 34,189,492
Operations and maintenance ........... 13,651,365 12,247,943 25,079,284 24,309,478
Taxes and licenses ................... 1,689,400 1,517,960 3,296,508 2,903,115
Insurance and claims ................. 2,983,966 1,984,443 4,842,636 3,725,396
Communications and utilities ......... 659,332 789,470 1,329,326 1,621,654
Depreciation ......................... 4,461,581 4,261,061 8,361,710 8,444,640
Other operating expenses ............. 1,866,942 1,716,914 3,790,747 3,251,080
(Gain) loss on sale of fixed assets .. 10,492 -- 513 (104,763)
------------- ------------- ------------- -------------
68,376,720 61,795,546 127,953,651 121,558,856
------------- ------------- ------------- -------------
Operating income ............ 15,983,120 13,455,803 29,676,431 25,615,840
Interest income ...................... 722,163 1,177,855 1,480,272 2,546,662
------------- ------------- ------------- -------------
Income before income taxes ........ 16,705,283 14,633,658 31,156,703 28,162,502
Income taxes ......................... 5,679,795 4,975,445 10,593,278 9,575,251
------------- ------------- ------------- -------------
Net income ........................ $ 11,025,488 9,658,213 $ 20,563,425 $ 18,587,251
============= ============= ============= =============
Earnings per common share:
Basic and diluted earnings
per share ..................... $ 0.22 $ 0.19 $ 0.41 $ 0.37
============= ============= ============= =============
Basic weighted average shares
outstanding........................ 50,000,000 50,000,000 50,000,000 50,000,000
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
2002 2001
------------- --------------
OPERATING ACTIVITIES
Net income ................................. $ 20,563,425 $ 18,587,251
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ........... 8,363,377 8,833,698
Deferred income taxes ................... (17,000) 670,000
Unearned compensation ................... 133,039 --
(Gain) loss on disposal of fixed assets . 106,006 (35,458)
Changes in certain working capital items:
Trade receivables .................... (7,962,258) (4,970,600)
Other current assets ................. (2,085,008) (1,209,236)
Prepaid expenses ..................... 429,030 (592,604)
Accounts payable and accrued expenses. 7,107,203 1,491,746
Accrued income taxes ................. 1,773,890 3,252,540
------------- --------------
Net cash provided by operating activities 28,411,704 26,027,337
------------- --------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 516,874 182,795
Capital additions .......................... (34,760,480) (16,833,513)
Net maturities (purchases) of municipal
bonds ...................................... 3,336,915 (8,354,526)
Increase in other assets ................... (4,605,285) (160,535)
------------- --------------
Net cash used in investing activities ...... (35,511,976) (25,165,779)
------------- --------------
Net increase (decrease) in cash and
cash equivalents ........................... (7,100,272) 861,558
CASH AND CASH EQUIVALENTS
Beginning of period ........................ 120,794,142 128,027,076
------------- --------------
End of period .............................. $ 113,693,870 $ 128,888,634
============= ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ............................ $ 8,836,388 $ 5,652,711
Noncash investing activities:
Book value of revenue equipment traded .. $ 7,398,759 $ 6,944,787
The accompanying notes are an integral part of these consolidated financial
statements.
5
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Heartland Express, Inc., a Nevada holding company, and its wholly-owned
subsidiaries ("Heartland" or the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles ("GAAP"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures have been omitted or condensed pursuant to
such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Results of operations in interim periods are
not necessarily indicative of results for a full year. These consolidated
financial statements and notes thereto should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2001. The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of contingent
assets and liabilities, at the date of the accompanying consolidated financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Note 2. Contingencies
The Company is involved in certain legal proceedings arising in the normal
course of business. In the opinion of management, the Company's potential
exposure under pending legal proceedings is adequately provided for in the
accompanying consolidated financial statements.
Note 3. Segment Information
The Company has nine operating divisions; however, it has determined that
it has one reportable segment. All of the divisions are managed based on similar
economic characteristics. Each of the regional operating divisions provides
short to medium-haul truckload carrier services of general commodities to a
similar class of customers. In addition, each division exhibits similar
financial performance, including average revenue per mile and operating ratio.
As a result of the foregoing, the Company has determined that it is appropriate
to aggregate its operating divisions into one reportable segment consistent with
the guidance in SFAS No. 131. Accordingly, the Company has not presented
separate financial information for each of its operating divisions as the
Company's consolidated financial statements present its one reportable segment.
Note 4. Recapitalization and Stock Split
On January 28, 2002, the Board of Directors approved an approximate three
for two stock split, effected in the form of a 57.68826 percent stock dividend.
The stock split occurred on February 19, 2002, to stockholders of record on the
close of business on February 8, 2002. The number of common shares issued and
outstanding and all per share amounts have been adjusted to reflect the stock
split for all periods presented.
6
On March 7, 2002, the principal stockholder awarded 90,750 shares of his
common stock to key employees of the Company. The shares will vest to them over
a five-year period subject to restrictions on transferability and to forfeiture
in the event of termination of employment. Any forfeited shares will be returned
to the principal stockholder. The fair market value of these shares was treated
as a contribution of capital and is being amortized over the five-year vesting
period as compensation.
Note 5. Acquisition
The Company acquired the trucking assets of a Virginia-based truckload
carrier during the quarter ended June 30, 2002. The Company's consolidated
financial statements include the operations of this division from June 1, 2002,
the date of acquisition. The acquired assets were recorded at their estimated
fair values at the acquisition date in accordance with Financial Accounting
Standards Board No. 141 (FAS 141), "Business Combinations". Goodwill was
recorded in "Other assets, net" for the amount the purchase price exceeded the
fair value. The amount paid for the acquisition did not exceed 10 percent of the
Company's total assets.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Information
Except for certain historical information contained herein, this Quarterly
Report on Form 10-Q contains forward-looking statements that involve risks,
assumptions and uncertainties which are difficult to predict. All statements,
other than statements of historical fact, are statements that could be deemed
forward-looking statements, including any projections of earnings, revenues, or
other financial items; any statements of plans, strategies, and objectives of
management for future operations; any statement concerning proposed new
strategies or developments; any statements regarding future economic conditions
or performance; any statements of belief and any statement of assumptions
underlying any of the foregoing. Words such as "believe," "may," "could,"
"expects," "anticipates," and "likely," and variations of these words or similar
expressions, are intended to identify such forward-looking statements. The
Company's actual results could differ materially from those discussed in the
section entitled "Factors That May Affect Future Results," included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth in the Company's Annual report on Form 10-K, which is by
this reference incorporated herein. The Company does not assume, and
specifically disclaims, any obligation to update any forward-looking statements
contained in this Quarterly report.
7
Results of Operations:
The following table sets forth the percentage relationship of expense items
to operating revenue for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Operating revenue...................... 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Operating expenses:
Salaries, wages, and benefits....... 31.2% 29.2% 31.5% 29.4%
Rent and purchased transportation... 23.0 20.1 23.2 19.8
Operations and maintenance.......... 16.2 16.3 15.9 16.5
Taxes and licenses.................. 2.0 2.0 2.1 2.0
Insurance and claims................ 3.5 2.6 3.1 2.5
Communications and utilities........ 0.8 1.0 0.8 1.1
Depreciation........................ 5.7 5.3 5.7 5.3
Other operating expenses............ 2.2 2.3 2.4 2.2
(Gain) on sales of fixed assets..... - - - -
------- ------- ------- -------
Total operating expenses............ 81.1% 82.1% 81.2% 82.6%
------- ------- ------- -------
Operating income................ 18.9% 17.9% 18.8% 17.4%
Interest income........................ 0.9 1.5 0.9 1.7
------- ------- ------- -------
Income before income taxes...... 19.8% 19.4% 19.7% 19.1%
Income taxes........................... 6.7 6.6 6.7 6.5
------- ------- ------- -------
Net income...................... 13.1% 12.8% 13.0% 12.6%
======= ======= ======= =======
The following is a discussion of the results of operations of the three and
six month periods ended June 30, 2002 compared with the same periods in 2001,
and the changes in financial condition through the second quarter of 2002.
Three Months Ended June 30, 2002 and 2001
Operating revenue increased $9.1 million (12.1%), to $84.4 million in the
second quarter of 2002 from $75.3 million in the second quarter of 2001. The
Company's operating revenue, before fuel surcharges, increased 14.7% over the
same period in 2001. The revenue increase was primarily attributable to the
expansion of the Company's customer base as well as increased volume from
existing customers. Operating revenue for both periods, was positively impacted
by fuel surcharges assessed to customers.
Salaries, wages, and benefits increased $4.3 million (19.8%), to $26.3
million in the second quarter of 2002 from $22.0 million in the second quarter
of 2001. As a percentage of revenue, salaries, wages and benefits increased to
31.2% in 2002 from 29.2% in 2001. These increases were a result of increased
reliance on employee drivers and a corresponding decrease in miles driven by
independent contractors. The increase in employee driver miles was attributable
to internal growth in the company tractor fleet. During the second quarter of
2002, employee drivers accounted for 71% and independent contractors 29% of the
total fleet miles, compared with 67% and 33%, respectively, in the second
quarter of 2001. The Company also experienced an increase in the frequency and
severity of workers' compensation claims in comparison to the 2001 period.
8
Rent and purchased transportation decreased $0.6 million (3.3%), to $16.7
million in the second quarter of 2002 from $17.3 million in the second quarter
of 2001. As a percentage of revenue, rent and purchased transportation decreased
to 19.8% in the second quarter of 2002 from 23.0% in the second quarter of 2001.
This reflects the Company's decreased reliance upon independent contractors.
During the 2001 period, the Company reimbursed independent contractors for the
higher cost of fuel based on fuel surcharges collected from customers.
Operations and maintenance increased $1.4 million (11.5%) to $13.6 million
in the second quarter of 2002 from $12.2 million in the second quarter of 2001.
This increase is attributable to increased reliance on the Company owned fleet.
As a percentage of revenue, operations and maintenance decreased to 16.2% during
the second quarter of 2002 from 16.3% in the second quarter of 2001.
Taxes and licenses increased $0.2 million (11.3%), to $1.7 million in the
second quarter of 2002 from $1.5 million in the second quarter of 2001. This
increase is primarily attributable to the growth in fleet miles. As a percentage
of revenue, taxes and licenses remained constant at 2.0% in the second quarter
of 2002 and 2001.
Insurance and claims increased $1.0 million (50.4%), to $3.0 million in the
second quarter of 2002 from $2.0 million in the second quarter of 2001. As a
percentage of revenue, insurance and claims increased to 3.5% in the second
quarter of 2002 from 2.6% in the second quarter of 2001. The frequency of
property damage and related cargo damage claims increased. 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.
Communications and utilities decreased $0.1 million (16.5%), to $0.7
million in the 2002 period from $0.8 million in the 2001 period. As a percentage
of revenue, communications and utilities decreased to 0.8% in the second quarter
of 2002 from 1.0% in the second quarter of 2001.
Depreciation increased $0.2 million (4.7%) to $4.5 million during the
second quarter of 2002 from $4.3 million in the second quarter of 2001.
Depreciation increased because of increased reliance on company owned tractors
and the replacement of fully depreciated trailers. As a percentage of revenue,
depreciation decreased to 5.3% of revenue during the second quarter of 2002 from
5.7% during the second quarter of 2001.
Other operating expenses increased $0.2 million (8.7%) to $1.9 million
during the second quarter of 2002 from $1.7 million during the second quarter
2001. As a percentage of revenue, other operating expenses decreased to 2.2%
during the second quarter of 2002 from 2.3% in the second quarter of 2001. Other
operating expenses consists primarily of pallet cost, driver recruiting expense,
and administrative costs.
Interest income decreased $0.5 (38.7%) to $0.7 million in the second
quarter of 2002 from $1.2 million in the second quarter of 2001. Interest income
earned is primarily exempt from federal taxes and therefore earned at a lower
pre-tax rate. Interest earned has been negatively impacted by Federal Reserve
Bank reductions in short term interest rates.
The Company's effective tax rate was 34.0% for both the three month period
ended June 30, 2002 and 2001. Income taxes have been provided at the statutory
federal and state rates, adjusted for certain permanent differences between
financial statement and income tax reporting.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 81.1% during the second
quarter of 2002 compared with 82.1% during the second quarter of 2001. Net
income increased $1.3 million (14.2%), to $11.0 million during the second
quarter of 2002 from $9.7 million during the second quarter of 2001.
9
Six Months Ended June 30, 2002 and 2001
Operating revenue increased $10.4 million (7.1%), to $157.6 million in the
six months ended June 30, 2002 from $147.2 million in the 2001 period. The
Company's operating revenues, before fuel surcharges, increased 10.4% over the
compared 2001 period. The revenue increase was primarily attributable to the
expansion of the Company's customer base as well as increased volume from
existing customers. Operating revenue for both periods was positively impacted
by fuel surcharges assessed to customers.
Salaries, wages, and benefits increased $6.4 million (14.7%), to $49.6
million in the six months ended June 30, 2002 from $43.2 million in the 2001
period. As a percentage of revenue, salaries, wages and benefits increased to
31.5% in 2002 from 29.4% in 2001. These increases were a result of increased
reliance on employee drivers and a corresponding decrease in miles driven by
independent contractors. The increase in employee driver miles was attributable
to internal growth in the company tractor fleet. During the first six months of
2002, employee drivers accounted for 71% and independent contractors 29% of the
total fleet miles, compared with 67% and 33%, respectively, in the compared 2001
period. The Company also experienced an increase in the frequency and severity
of workers' compensation and health insurance claims in comparison to the
compared 2001 period.
Rent and purchased transportation decreased $2.5 million (7.4%), to $31.7
million in the first six months of 2002 from $34.2 million in the 2001 period.
As a percentage of revenue, rent and purchased transportation decreased to 20.1%
in the 2002 period from 23.2% in the compared 2001 period. This reflects the
Company's decreased reliance upon independent contractors. During the 2001
period, the Company reimbursed independent contractors for the higher cost of
fuel based on fuel surcharges collected from customers.
Operations and maintenance increased $0.8 million (3.2%) to $25.1 million
in the six months ended June 30, 2002 from $24.3 million in the 2001 period.
This increase is attributable to increased reliance on the Company owned fleet.
As a percentage of revenue, operations and maintenance decreased to 15.9% in the
2002 period from 16.5% during the 2001 period.
Taxes and licenses increased $0.4 million (13.6%), to $3.3 million in the
first six months of 2002 from $2.9 million in the compared 2001 period. As a
percentage of revenue, taxes and licenses increased to 2.1% in the 2002 period
from 2.0% in the 2001 period. This increase is primarily attributable to the
growth in fleet miles.
Insurance and claims increased $1.1 million (30.0%), to $4.8 million in the
first six months of 2002 from $3.7 million in the compared 2001 period. As a
percentage of revenue, insurance and claims increased to 3.1% in the 2002 period
from 2.5% in the 2001 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.
Communications and utilities decreased $0.3 million (18.0%), to $1.3
million in the 2002 period from $1.6 million in 2001 period. As a percentage of
revenue, communications and utilities decreased to 0.8% in the 2002 period from
1.1% in the 2001 periods.
Depreciation decreased $0.1 million (1.0%) to $8.3 million during the first
six months of 2002 from $8.4 million in the compared 2001 period. As a
percentage of revenue, depreciation decreased to 5.3% in the 2002 period from
5.7% in the 2001 periods. Depreciation expense decreased due to the replacement
of tractors without a salvage value with new tractors with an assigned salvage
value.
10
Other operating expenses increased $0.5 million (16.6%) to $3.8 million
during the first six months 2002 from $3.3 million during the compared 2001
period. As a percentage of revenue, other operating expenses increased to 2.4%
in the 2002 period from 2.2% in the 2001 periods. Other operating expenses
consists primarily of pallet cost, driver recruiting expense, goodwill, and
administrative costs.
Interest income decreased $1.1 (41.9%) to $1.5 million in the first six
months of 2002 from $2.6 million in the compared 2001 period. Interest income
earned is primarily exempt from federal taxes and therefore earned at a lower
pre-tax rate. Interest earned has been negatively impacted by the Federal
Reserve Bank reductions in short-term interest rates.
The Company's effective tax rate is 34.0% for both the six months ended
June 30, 2002 and 2001. Income taxes have been provided at the statutory federal
and state rates, adjusted for certain permanent differences between financial
statement and income tax reporting.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 81.2% during the first six
months of 2002 compared with 82.6% during the first six months of 2001. Net
income increased $2.0 million (10.6%), to $20.6 million during the first six
months of 2002 from $18.6 million during the compared 2001 period.
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's primary
source of liquidity for the six months ended June 30, 2002, was net cash
provided by operating activities of $28.4 million compared to $26.0 million in
the corresponding 2001 period.
Capital expenditures for property and equipment, primarily revenue
equipment net of trade-ins, totaled $34.8 million for the first six months of
2002 compared to $16.8 million for the same period in 2001.
Management believes the Company has adequate liquidity to meet its current
and projected needs. The Company will continue to have significant capital
requirements over the long term which are expected to be funded by cash flow
provided by operations and from cash, cash equivalents, and investments on hand.
Based on the Company's strong financial position, management believes outside
financing could be obtained, if necessary, to fund capital expenditures.
Factors That May Affect Future Results
The Company's future results may be affected by a number of factors over
which the Company has little or no control. Fuel prices, insurance and claims
costs, liability claims, interest rates, the availability of qualified drivers,
fluctuations in the resale value of revenue equipment, economic and customer
business cycles and shipping demands are economic factors over which the Company
has little or no control. Significant increases or rapid fluctuations in fuel
prices, interest rates or insurance costs or liability claims, to the extent not
offset by increases in freight rates, and the resale value of revenue equipment
could reduce the Company's profitability. Weakness in the general economy,
including a weakness in consumer demand for goods and services, could adversely
affect the Company's customers and the Company's growth and revenues, if
customers reduce their demand for transportation services. Customers
encountering adverse economic conditions represent a greater potential for loss,
and the Company may be required to increase its reserve for bad debt losses.
Weakness in customer demand for the Company's services or in the general rate
environment may also restrain the Company's ability to increase rates or obtain
fuel surcharges.
11
Inflation and Fuel Cost
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operations. During the past
three years, the most significant effects of inflation have been on revenues
equipment prices and the compensation paid to the drivers. Innovations in
equipment technology and comfort have resulted in higher tractor prices, and
there has been an industry-wide increase in wages paid to attract and retain
qualified drivers. The Company historically has limited the effects of inflation
through increases in freight rates and certain cost control efforts. In addition
to inflation, fluctuations in fuel prices can affect profitability. Most of the
Company's contracts with customers contain fuel surcharge provisions. Although
the Company historically has been able to pass through most long-term increases
in fuel prices and operating taxes to customers in the form of surcharges and
higher rates, shorter-term increases are not fully recovered. Competitive
conditions in the transportation industry, such as lower demand for
transportation services, could affect the Company's ability to obtain rate
increases or fuel surcharges.
Seasonality
The nature of the Company's primary traffic (appliances, automotive parts,
paper products, retail goods, and packages foodstuffs) causes it to be
distributed with relative uniformity throughout the year. However, seasonal
variations during and after the winter holiday season have historically results
in reduced shipments by several industries served. In addition, the Company's
operating expenses historically have been higher during the winter months due to
increased operating costs in colder weather and higher fuel consumption due to
increased engine idling.
Recently Issued Account Pronouncements
In June 2001, the Financial Accounting Standards Board issued FAS No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142"). Under FAS 142, which
establishes new accounting and reporting requirements for goodwill and other
intangible assets, all goodwill amortization ceased effective January 1, 2002.
The impact of ceasing amortization did not have a material impact on net income.
The Company tested for impairment of its goodwill by comparing the fair value of
the Company to its carrying value and determined that no impairment of goodwill
existed. On an ongoing basis (absent any impairment indicators), the Company
expects to perform the impairment test annually during the fourth quarter.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of;" however, it retains the fundamental
provisions of that Statement related to the recognition and measurement of the
impairment of long-lived assets to be "held and used." In addition, the
Statement provides some guidance on estimating cash flows when performing a
recoverability test, requires that a long-lived asset to be disposed of other
than by sales (e.g., abandoned) be classified as "held and used" until it is
disposed of and establishes more restrictive criteria to classify an asset as
"held for sale." The Company adopted this statement January 1, 2002 and it did
not have a material impact.
In June 2002, the FASB issued Statement No. 146 (FAS 146), Accounting for
Costs Associates with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
Under FAS 146, such costs will be recognized when the liability is incurred,
rather than at the date of commitment to an exit plan. FAS 146 is effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application permitted. The Company does not expect the adoption of FAS 146
to have a material effect on the financial statements.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company purchases only high quality, liquid investments. Primarily all
investments as of June 30, 2002 have an original maturity of six months or less.
The Company holds all investments to maturity and therefore, is exposed to
minimal market risk related to its cash equivalents and investments.
The Company has no debt outstanding as of June 30, 2002 and therefore, has
no market risk related to debt.
As of June 30, 2002, the Company has no derivative financial instruments to
reduce its exposure to diesel fuel price fluctuations.
13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On June 21, 2002 a driver for the Company was involved in a multiple
(5) fatality accident in Knoxville, TN. Three lawsuits have been filed
in U.S. District Court for the Eastern District of TN Northern
Division of Knoxville, TN. The combined relief sought in the cases is
approximately $54.5 million for compensatory damages and $215 million
for punitive damages. No other action including governmental is
contemplated.
The Company is a party to ordinary, routine litigation and adminis-
trative proceedings incidental to its business. None of the claims
would materially impact net income or financial position. These
proceedings primarily involve personnel matters and claims for
personal injury or property damage incurred in the transportation of
freight. The Company maintains insurance to cover liabilities arising
from the transportation of freight for amounts in excess of self-
insured retentions.
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
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulations S-K
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.
14
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 September 30, 2000.
2777 Heartland Drive, Commission file no.
Coralville, Iowa 52241 0-15087.
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.
15
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.
99.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 .
99.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
(i) Report on Form 8-K, dated April 8, 2002, announcing the
appointment of KPMG LLP as independent auditors effective
April 5, 2002.
16
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.
Dated: August 12, 2002 By: /s/ Russell A. Gerdin
Russell A. Gerdin
President and Chief Executive Officer
(principal executive officer)
By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and Treasurer
(principal accounting and financial
officer)
17
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. 1350, and accompanies the quarterly report on Form 10-Q for
the quarter ended June 30, 2002 (the "Form 10-Q") of Heartland Express, Inc.
(the "Issuer").
I, Russell A. Gerdin, President and Chief Executive Officer of the Issuer,
certify that:
(i) The Form 10-Q fully complies with the requirements of Section 13(a) or
Section 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d); and
(ii) The information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Dated: August 12, 2002 By: /s/ Russell A. Gerdin
Russell A. Gerdin
President and Chief Executive Officer
(principal executive officer)
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. 1350, and accompanies the quarterly report on Form 10-Q for
the quarter ended June 30, 2002 (the "Form 10-Q") of Heartland Express, Inc (the
"Issuer").
I, John P. Cosaert, Executive Vice President - Finance, Chief Financial Officer
, and Treasurer of the Issuer, certify that:
(i) The Form 10-Q fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d); and
(ii) The information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Dated: August 12, 2002 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer, and Treasurer
(principal accounting and financial
officer)
END OF FILING