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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 September 30, 2003 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ X ] No [ ]
At September 30, 2003, 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 (Unaudited)
Consolidated Balance Sheets
September 30, 2003 and
December 31, 2002 2 - 3
Consolidated Statements of Operations
for the Three and Nine Months
ended September 30, 2003 and 2002 4
Consolidated Statements of Cash Flows
for the Nine Months ended
September 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 6 - 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
Item 4 Controls and Procedures 14
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of 15
Security Holders
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS September 30, December 31,
2003 2002
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ..................... $ 98,027,969 $ 89,717,866
Investments ................................... 88,469,104 64,143,556
Trade receivables, less allowance of
$675,000 in 2003
and $650,000 in 2002 ........................ 37,599,129 33,012,394
Prepaid tires ................................. 2,890,810 4,757,850
Deferred income taxes ......................... 23,760,000 21,134,000
Other current assets .......................... 2,805,209 620,344
------------ ------------
Total current assets ..................... 253,552,221 213,386,010
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements .................... 6,612,819 4,402,820
Buildings ..................................... 16,977,604 8,532,621
Furniture and fixtures ........................ 1,106,173 1,300,848
Shop and service equipment .................... 2,053,790 1,403,633
Revenue equipment ............................. 201,136,213 175,476,971
------------ ------------
227,886,599 191,116,893
Less accumulated depreciation ................. 55,923,089 39,715,307
------------ ------------
Property and equipment, net ................... 171,963,510 151,401,586
------------ ------------
OTHER ASSETS, net ...................... 8,929,116 8,320,593
------------ ------------
$434,444,847 $373,108,189
============ ============
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
September 30, December 31,
2003 2002
------------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable & accrued liabilities ........ $ 12,729,106 $ 8,632,810
Compensation & benefits ....................... 9,981,028 7,632,766
Income taxes payable .......................... 11,977,132 6,070,318
Insurance accruals ............................ 44,472,479 40,228,160
Other ......................................... 5,533,811 4,525,396
------------- -------------
Total current liabilities .................. 84,693,556 67,089,450
------------- -------------
DEFERRED INCOME TAXES ........................... 36,341,000 30,089,000
------------- -------------
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 shares .............. 500,000 500,000
Additional paid-in capital .................... 8,603,762 8,603,762
Retained earnings ......................... 305,670,184 268,488,971
------------- -------------
314,773,946 277,592,733
Less: unearned compensation ............... (1,363,655) (1,662,994)
------------- -------------
313,410,291 275,929,739
------------- -------------
$ 434,444,847 $ 373,108,189
============= =============
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
OPERATING REVENUE ............................... $ 104,460,615 $ 91,123,367 $ 302,100,139 $ 248,753,449
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages, and benefits ................ $ 34,949,275 $ 29,341,346 $ 102,452,186 $ 78,931,009
Rent and purchased transportation ............ 12,090,171 17,170,890 39,194,285 48,834,154
Operations and maintenance ................... 19,094,695 14,921,425 56,546,521 40,000,709
Taxes and licenses ........................... 2,265,221 1,953,378 6,263,920 5,249,886
Insurance and claims ......................... 3,384,300 2,526,170 9,919,671 7,263,313
Communications and utilities ................. 946,331 911,176 2,763,214 2,240,502
Depreciation ................................. 7,139,016 5,666,127 19,433,000 14,027,837
Other operating expenses ..................... 3,080,052 2,460,928 9,185,983 6,251,675
(Gain) loss on disposal of fixed assets ...... 23,802 42,457 (6,969) 148,463
------------- ------------- ------------- -------------
82,972,863 74,993,897 245,751,811 202,947,548
------------- ------------- ------------- -------------
Operating income ................. 21,487,752 16,129,470 56,348,328 45,805,901
Interest income .............................. 470,972 648,359 1,501,993 2,128,631
------------- ------------- ------------- -------------
Income before income taxes ................ 21,958,724 16,777,829 57,850,321 47,934,532
Income taxes ................................. 7,465,967 5,704,463 19,669,108 16,297,741
------------- ------------- ------------- -------------
Net income ................................ $ 14,492,757 $ 11,073,366 $ 38,181,213 $ 31,636,791
============= ============= ============= =============
Earnings per common share:
Basic earnings per share ................. $ 0.29 $ 0.22 $ 0.76 $ 0.63
============= ============= ============= =============
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)
Nine months ended
September 30,
2003 2002
------------- -------------
OPERATING ACTIVITIES
Net income ................................... $ 38,181,213 $ 31,636,791
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization .............. 19,448,003 14,034,505
Deferred income taxes ...................... 3,626,000 2,657,000
Unearned compensation ...................... 299,339 232,819
(Gain) loss on disposal of fixed assets .... (6,969) 148,463
Changes in certain working capital items:
Trade receivables ........................ (4,586,735) (11,809,296)
Other current assets ..................... (2,184,865) 58,396
Prepaid expenses ......................... 1,867,040 (1,039,750)
Accounts payable and accrued expenses .... 11,265,120 9,221,856
Accrued income taxes ..................... 5,906,814 22,816
------------- -------------
Net cash provided by operating activities 73,814,960 45,163,600
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment . 116,974 5,475,880
Capital additions ............................ (40,672,757) (28,342,032)
Acquisition of business ........................ -- (26,719,495)
Net maturities (purchases) of municipal bonds (24,325,548) 6,385,472
Increase in other assets ..................... (623,526) (397,858)
------------- -------------
Net cash used in investing activities ........ (65,504,857) (43,598,033)
------------- -------------
Net increase in cash and cash equivalents .... 8,310,103 1,565,567
CASH AND CASH EQUIVALENTS
Beginning of period .......................... 89,717,866 104,139,838
------------- -------------
End of period ................................ $ 98,027,969 $ 105,705,405
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes,net ........................... $ 10,136,294 $ 13,617,925
Noncash investing activities:
Book value of revenue equipment traded .... $ 1,686,114 $ 11,969,142
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 unaudited financial statements of Heartland Express, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and 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
normal, recurring adjustments considered necessary for a fair presentation have
been included. Certain prior year amounts have been reclassified for
comparability purposes. The financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 2002
included in the Annual Report on Form 10-K of the Company filed with the
Securities and Exchange Commission. Interim results of operations are not
necessarily indicative of the results to be expected for the full year or any
other interim periods.
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.
On June 21, 2002 a driver for the Company was involved in a multiple (5)
fatality accident in Knoxville, TN. Three wrongful death lawsuits were filed in
U.S. District Court for the Eastern District of TN Northern Division in
Knoxville. The combined relief sought in the cases was approximately $65 million
for compensatory damages and $200 million for punitive damages. One of the suits
was dismissed soon after being filed. During the second quarter of 2003, the
second (4 fatality) lawsuit was settled for an amount well within the Company's
insurance limits. The third (single fatality) lawsuit was settled during July of
2003, again for an amount well within the Company's insurance limits. A fourth
personal injury lawsuit was subsequently filed, which seeks relief in the amount
of $387,500; this case is still active.
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 Change in Accounting Estimate
Effective April 1, 2003 the Company reduced the salvage value on its
trailer fleet from $6,000 to $4,000 per trailer. This change in accounting
estimate increased third quarter 2003 depreciation expense by approximately
$576,000 and depreciation for the nine months ended September 30, 2003 by
approximately $1,152,000.
6
Note 5 Investments
Investments include primarily short-term municipal bonds, municipal bonds
with interest reset provisions and corporate auction preferreds. The Company has
chosen to reclassify these securities from held-to maturity to
available-for-sale to provide more flexibility. Since cost, or amortized cost,
and fair value are substantially the same, due to the periodic interest reset
provisions, accumulated other comprehensive income (loss) has not been
recognized as a separate component of stockholders' equity. The cost of the
investments at September 30, 2003 and December 31, 2002 approximates fair value.
Note 6 Acquisition
On June 1, 2002, the Company acquired the business and trucking assets of
Great Coastal Express, Inc. ("Great Coastal"), a privately-held truckload
carrier. Great Coastal had gross revenues of approximately $70.0 million in 2001
and operated approximately 500 company tractors, 125 owner-operators, and 1,650
trailers at the date of the acquisition. The acquired assets were recorded at
their estimated fair values as of the acquisition date in accordance with
Financial Accounting Standards Board statement Number 141 (SFAS 141), "Business
Combinations". Goodwill has been recorded in "Other Assets, net" for the amount,
which the purchase price exceeded the fair value of the assets acquired. The
acquisition has been accounted for in the Company's results of operations since
the acquisition date. The pro forma effect of the acquisition on the Company's
results of operation is immaterial.
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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------ ------ ------ ------
Operating revenue ....................... 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Operating expenses:
Salaries, wages, and benefits ......... 33.5% 32.2% 33.9% 31.7%
Rent and purchased transportation ..... 11.6 18.9 13.0 19.6
Operations and maintenance ............ 18.3 16.4 18.7 16.1
Taxes and licenses .................... 2.2 2.1 2.1 2.1
Insurance and claims .................. 3.2 2.8 3.3 3.0
Communications and utilities .......... 0.9 1.0 0.9 0.9
Depreciation .......................... 6.8 6.2 6.4 5.7
Other operating expenses .............. 2.9 2.7 3.0 2.5
(Gain) loss on disposal of fixed
assets .............................. 0.0 0.0 0.0 0.0
------ ------ ------ ------
Total operating expenses .............. 79.4% 82.3% 81.3% 81.6%
------ ------ ------ ------
Operating income .............. 20.6% 17.7% 18.7% 18.4%
Interest income ......................... 0.4 0.7 0.4 0.9
------ ------ ------ ------
Income before income taxes ............ 21.0% 18.4% 19.1% 19.3%
Federal and state income taxes .......... 7.1 6.2 6.5 6.6
------ ------ ------ ------
Net income ............................ 13.9% 12.2% 12.6% 12.7%
====== ====== ====== ======
The following is a discussion of the results of operations of the three and
nine month periods ended September 30, 2003 compared with the same periods in
2002, and the changes in financial condition through the third quarter of 2003.
Three Months Ended September 30, 2003 and 2002
Operating revenue increased $13.4 million (14.6%), to $104.5 million in the
third quarter of 2003 from $91.1 million in the third quarter of 2002. The
increase in revenue resulted from additional business from existing customers
and the growth of our customer base. Operating revenue was also positively
impacted by fuel surcharges assessed to customers. Fuel surcharge revenue
increased to $3.5 million in the third quarter of 2003 from $1.7 million in the
third quarter of 2002 due to higher average fuel prices. Operating revenue for
the third quarter of 2003 increased 12.8% before fuel surcharge.
Salaries, wages, and benefits increased $5.6 million (19.1%), to $34.9
million in the third quarter of 2003 from $29.3 million in the third quarter of
2002. As a percentage of revenue, salaries, wages and benefits increased to
33.5% in 2003 from 32.2% in 2002. These increases were primarily the result of
increased reliance on employee drivers and a decrease in the percentage of miles
driven by independent contractors. The increase in employee driver miles was
attributable to internal growth in the company tractor fleet. During the third
quarter of 2003, employee drivers accounted for 83% and independent contractors
17% of the total fleet miles, compared with 73% and 27%, respectively, in the
third quarter of 2002. In addition, the Company incurred increased workers'
compensation costs due to the increased frequency and severity of claims.
8
Rent and purchased transportation decreased $5.1 million (29.6%), to $12.1
million in the third quarter of 2003 from $17.2 million in the third quarter of
2002. As a percentage of revenue, rent and purchased transportation decreased to
11.6% in the third quarter of 2003 from 18.9% in the third quarter of 2002. This
reflects the Company's decreased reliance upon independent contractors. During
both periods, the Company reimbursed independent contractors for the higher cost
of fuel based on fuel surcharges collected from customers. Rent and purchased
transportation, before fuel surcharge, decreased 31.1% over the same period in
2002.
Operations and maintenance increased $4.2 million (28.0%) to $19.1 million
in the third quarter of 2003 from $14.9 million in the third quarter of 2002. As
a percentage of revenue, operations and maintenance increased to 18.3% in the
third quarter of 2003 from 16.4% during the third quarter of 2002. The increase
in operations and maintenance is primarily attributable to increased fuel costs
resulting from increased reliance on the company-owned tractors and increased
fuel prices in the third quarter of 2003.
Taxes and licenses increased $0.3 million (16.0%), to $2.3 million in the
third quarter of 2003 from $2.0 million in the third quarter of 2002. As a
percentage of revenue, taxes and licenses increased to 2.2% in 2003 from 2.1%
during the third quarter of 2002.
Insurance and claims increased $0.9 million (34.0%), to $3.4 million in the
third quarter of 2003 from $2.5 million in the third quarter of 2002. As a
percentage of revenue, insurance and claims increased to 3.2% in the third
quarter of 2003 from 2.8% in the third quarter of 2002. The Company experienced
higher insurance premiums and an increased self-insurance retention level
compared to the third quarter of 2002. In addition, 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 remained constant at $0.9 million for both
compared periods. As a percentage of revenue, communications and utilities
decreased to 0.9% in the third quarter of 2003 from 1.0% in the third quarter of
2002.
Depreciation increased $1.4 million (26.0%) to $7.1 million during the
third quarter of 2003 from $5.7 million in the third quarter of 2002. As a
percentage of revenue, depreciation increased to 6.8% in 2003 from 6.2% during
the third quarter of 2002. Effective April 1, 2003 the Company reduced the
salvage value on its trailer fleet to $4,000 from $6,000 resulting in an
increase of approximately $576,000 in trailer depreciation for the quarter.
Additionally, depreciation increased because of the growth of our company owned
tractor fleet.
Other operating expenses increased $0.6 million (25.2%) to $3.1 million
during the third quarter of 2003 from $2.5 million during the third quarter
2002. As a percentage of revenue, other operating expenses increased to 2.9%
during the third quarter of 2003 from 2.7% in the third quarter of 2002. Other
operating expenses consist primarily of cost incurred for freight handling,
highway tolls, driver recruiting expenses, and administrative costs.
Interest income decreased $0.1 (27.4%) to $0.5 million in the third quarter
of 2003 from $0.6 million in the third quarter of 2002. Interest income earned
is primarily exempt from federal taxes and therefore earned at a lower pre-tax
rate. Interest earned continues to be negatively impacted by Federal Reserve
Bank reductions in short term interest rates.
The Company's effective tax rate was 34.0% for both compared three month
periods. Income taxes have been provided at the statutory federal and state
rates, adjusted for certain permanent differences between financial statement
and income tax reporting.
9
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 79.4% during the third
quarter of 2003 compared with 82.3% during the third quarter of 2002. Net income
increased $3.4 million (30.9%), to $14.5 million during the third quarter of
2003 from $11.1 million during the third quarter of 2002.
Nine Months Ended September 30, 2003 and 2002
Operating revenue increased $53.3 million (21.4%), to $302.1 million in the
nine months ended September 30, 2003 from $248.8 million in the 2002 period. The
Company's operating revenues, before fuel surcharges, increased 18.2% over the
compared 2002 period. Fuel surcharge revenue increased to $11.8 million for the
nine months ended September 30, 2003 from $3.1 million in the compared 2002
period. The revenue increase was primarily attributable to the expansion of the
Company's customer base as well as increased volume from existing customers, and
the June 1, 2002 acquisition of Great Coastal Express. The acquisition of Great
Coastal Express contributed $28.9 million to the 2003 year-to-date revenues
compared to $17.1 million during the nine months ended September 30, 2002.
Salaries, wages, and benefits increased $23.6 million (29.8%), to $102.5
million in the nine months ended September 30, 2003 from $78.9 million in the
2002 period. As a percentage of revenue, salaries, wages and benefits increased
to 33.9% in 2003 from 31.7% in 2002. 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 and the June 1, 2002 acquisition
of Great Coastal Express. During the first nine months of 2003, employee drivers
accounted for 81% and independent contractors 19% of the total fleet miles,
compared with 71% and 29%, respectively, in the compared 2002 period. The
Company also experienced an increase in the frequency and severity of workers'
compensation and health insurance claims in comparison to the compared 2002
period.
Rent and purchased transportation decreased $9.6 million (19.7%), to $39.2
million in the first nine months of 2003 from $48.8 million in the 2002 period.
As a percentage of revenue, rent and purchased transportation decreased to 13.0%
in the 2003 period from 19.6% in the compared 2002 period. This reflects the
Company's decreased reliance upon independent contractors. During both compared
periods, the Company reimbursed independent contractors for the higher cost of
fuel based on fuel surcharges collected from customers. Rent and purchased
transportation, before fuel surcharge, decreased 23.1% from the 2002 period.
Operations and maintenance increased $16.5 million (41.4%) to $56.5 million
in the nine months ended September 30, 2003 from $40.0 million in the 2002
period. This increase is attributable to increased reliance on the Company owned
fleet and record high fuel prices experienced in the first nine months of 2003.
As a percentage of revenue, operations and maintenance increased to 18.7% in the
2003 period from 16.1% during the 2002 period.
Taxes and licenses increased $1.1 million (19.3%), to $6.3 million in the
first nine months of 2003 from $5.2 million in the compared 2002 period. As a
percentage of revenue, taxes and licenses remained constant at 2.1% for both
compared periods. This cost increase is primarily attributable to the growth in
fleet miles.
Insurance and claims increased $2.6 million (36.6%), to $9.9 million in the
first nine months of 2003 from $7.3 million in the compared 2002 period. As a
percentage of revenue, insurance and claims increased to 3.3% in the 2003 period
from 3.0% in the 2002 period. The Company's liability insurance premiums and
self-insurance retention level increased effective April 1, 2003. In addition,
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.
10
Communications and utilities increased $0.6 million (23.3%), to $2.8
million in the 2003 period from $2.2 million in 2002 period. As a percentage of
revenue, communications and utilities remained constant at 0.9% for both
compared periods. The increase is primarily the result of increased fleet growth
and the implementation of satellite communications with independent contractors.
Depreciation increased $5.4 million (38.5%) to $19.4 million during the
first nine months of 2003 from $14.0 million in the compared 2002 period. As a
percentage of revenue, depreciation increased to 6.4% in the 2003 period from
5.7% in the 2002 periods. Depreciation expense increased approximately $1.2
million due to the April 1, 2003 reduction of salvage value for the Company's
trailer fleet. Trailer salvage values were decreased to $4,000 from $6,000
previously recorded. In addition, depreciation expense has increased due to the
growth in the Company's tractor fleet.
Other operating expenses increased 2.9 million (46.9%) to $9.2 million
during the first nine months 2003 from $6.3 million during the compared 2002
period. As a percentage of revenue, other operating expenses increased to 3.0%
in the 2003 period from 2.5% in the 2002 periods. Other operating expenses
consist primarily of freight handling, highway tolls, drivers recruiting
expenses, and administrative costs.
Interest income decreased $0.6 (29.4%) to $1.5 million in the first nine
months of 2003 from $2.1 million in the compared 2002 period. Interest income
earned is primarily exempt from federal taxes and therefore earned at a lower
pre-tax rate. Interest continues to be 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 nine months ended
September 30, 2003 and 2002. 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 81.3% during the first nine
months of 2003 compared with 81.6% during the first nine months of 2002. Net
income increased $6.6 million (20.7%), to $38.2 million during the first nine
months of 2003 from $31.6 million during the compared 2002 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, funding
revenue equipment purchases with cash flow provided by 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 nine months ended September 30,
2003, was net cash provided by operating activities of $73.8 million compared to
$45.2 million in the corresponding 2002 period.
Capital expenditures for property and equipment, primarily revenue
equipment net of trade-ins, totaled $40.7 million for the first nine months of
2003 compared to $28.3 million for the same period in 2002. In addition, the
Company purchased terminal locations in Columbus, Ohio, Olive Branch,
Mississippi and Chester, Virginia during the first nine months of 2003. The
Company purchased the trucking assets of Great Coastal Express on June 1, 2002
for $26.7 million.
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 existing cash, cash equivalents, and
investments. The Company ended the quarter with $186.5 million in cash, cash
equivalents, and investments and no debt. Based on the Company's strong
financial position, management believes outside financing could be obtained, if
necessary, to fund capital expenditures.
11
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 and claims costs, 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.
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 revenue
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. Fuel prices have
remained high throughout most of 2000, 2001, 2002, and 2003, thus increasing our
cost of operations. 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.
Regulation
The United States Department of Transportation ("DOT") and various state
and local agencies exercise broad powers over our industry, generally governing
such activities as authorization to engage in motor carrier operations, safety,
and insurance requirements. The DOT adopted revised hours-of-service regulations
on April 28, 2003. Compliance with the newly mandated regulations take effect on
January 4, 2004. This change could reduce the potential or practical amount of
time that drivers can spend driving, if we are unable to limit their other
on-duty activities. These changes could adversely affect our profitability if
shippers are unwilling to assist in managing the drivers' non-driving
activities, such as loading, unloading, and waiting. A decline in driver
productivity may require increases to driver pay to attract and retain qualified
drivers and also require the purchase of additional revenue equipment to serve
our customers.
12
If we cannot pass additional costs through to shippers, our operating results
could be materially and adversely affected. We also may become subject to new or
more restrictive regulations relating to matters such as fuel emissions and
ergonomics. Our company drivers and independent contractors also must comply
with the safety and fitness regulations promulgated by the DOT, including those
relating to drug and alcohol testing. Additional changes in the laws and
regulations governing our industry could affect the economics of the industry by
requiring changes in operating practices or by influencing the demand for, and
the costs of providing, services to shippers.
New Accounting Standards
In June 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company adopted this statement effective January 1,
2003. The adoption of this SFAS did not have a material impact on its
Consolidated Financial Statements.
In April 2002, FASB issued SFAS No. 145 "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinds previous accounting guidance, which required all gains and
losses from the extinguishments of debt be classified as an extraordinary item.
Under SFAS No. 145 classification of debt extinguishments depends on the facts
and circumstances of the transaction. The Company adopted this statement
effective January 1, 2003. The adoption of this SFAS did not have a material
impact upon its Consolidated Financial Statements as the Company has no debt.
In July 2002, FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for the costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)." This statement is effective for exit or
disposal activities initiated after December 31, 2002. The Company adopted this
statement effective January 1, 2003; however, the Company has had no
transactions to which this statement would be applicable during the first nine
months of 2003.
In December 2002, FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure" which requires certain pro form
disclosures. This statement also amended the transition provisions of SFAS No.
123. The Company adopted SFAS No. 123 as amended by SFAS No. 148 effective
January 1, 2003; however, the Company has had no transactions to which this
statement would be applicable during the first nine months of 2003.
In November 2002, FASB issued Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others" which requires that guarantor to recognize at inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing a guarantee. The Company has not guaranteed the indebtedness or
obligations of others. Therefore, the adoption of this Interpretation will not
have a material impact upon its Consolidated Financial Statements.
In January 2003, FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities" which addresses the consolidation and disclosures of
these entities by business enterprises. As the Company does not have any
interest in such types of entities the adoption of this Interpretation will not
have a material impact upon its Consolidated Financial Statements.
13
On May 15, 2003, the Financial Accounting Standards Board issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." SFAS No. 150 requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer. Generally, SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. We adopted the provisions of SFAS No. 150
on July 1, 2003. The Company did not enter into any financial instruments within
the scope of the SFAS No. 150 during the period ending September 30, 2003.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company purchases only high quality, liquid investments. Primarily all
investments as of September 30, 2003 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 September 30, 2003 and therefore,
has no market risk related to debt.
As of September 30, 2003, the Company has no derivative financial
instruments to reduce its exposure to diesel fuel price fluctuations.
Item 4 Controls and Procedures
As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operations of the Company's
disclosure controls and procedures, and as defined in Exchange Act Rule
15d-15(e). Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in enabling the Company to record, process, summarize
and report information required to be included in the Company's periodic SEC
filings within the required time period. There have been no changes in the
Company's internal controls over financial reporting that occurred during the
Company's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
14
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 wrongful death lawsuits were
filed in U.S. District Court for the Eastern District of TN Northern
Division in Knoxville. The combined relief sought in the cases was
approximately $65 million for compensatory damages and $200 million for
punitive damages. One of the suits was dismissed soon after being filed.
During the second quarter of 2003, the second (4 fatality) lawsuit was
settled for an amount well within the Company's insurance limits. The third
(single fatality) lawsuit was settled during July of 2003, again for an
amount well within the Company's insurance limits. A fourth personal injury
lawsuit was subsequently filed, which seeks relief in the amount of
$387,500; this case is still active.
Additionally, the Company is a party to ordinary, routine litigation and
administrative 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
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 99.1Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
(b) Reports on Form 8-K
Report on Form 8-K, dated July 16, 2003, announcing the Company's Financial
results for the quarter ended June 30, 2003.
Report on Form 8-K, dated September 2, 2003, announcing the Declaration of
a Quarterly Cash Dividend.
No other information is required to be filed under Part II of the form.
15
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: November 13, 2003 By /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and Treasurer
(principal accounting and
financial officer)
16
SECTION 302 CERTIFICATION
I, Russell A. Gerdin, President and Chief Executive Officer of Heartland
Express, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Heartland
Express, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared.
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls over financial reporting.
Date: November 13, 2003 /s/ Russell A. Gerdin
Russell A. Gerdin
President and Chief Executive Officer
(principal executive officer)
17
SECTION 302 CERTIFICATION
I, John P. Cosaert, Executive Vice President and Chief Financial Officer and
Treasurer of Heartland Express, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Heartland
Express, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared.
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonability likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 13, 2003 /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance
Chief Financial Officer and Treasurer
(principal accounting and financial officer)
18
Exhibit 99
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Heartland Express, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2003, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), each
of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best
knowledge of the undersigned:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been
provided to Heartland Express, Inc. and will be retained by Heartland Express,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.
Dated: November 13, 2003 By: /s/ Russell A. Gerdin
Russell A. Gerdin
Chairman, President and
Chief Executive Officer
Dated: November 13, 2003 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President
and Chief Financial Officer
END OF REPORT