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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________________To___________________.
Commission file number 0-15087
HEARTLAND EXPRESS, INC.
(Exact name of registrant as specified in its charter)
Nevada 93-0926999
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
2777 Heartland Drive
Coralville, Iowa 52241
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 319-545-2728
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act: $0.01 Par Value
Common Stock
The above securities are registered on The NASDAQ National Market.
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 Act).
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the registrant's definitive proxy statement
incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the shares of the registrant's $0.01 par value
common stock held by non-affiliates of the registrant was approximately
$679,585,000 based on the average closing bid and asked price of common stock on
June 30, 2003, which is the last business day of the registrant's most recently
completed second fiscal quarter. In making this calculation the issuer has
assumed, without admitting for any purpose, that all executive officers and
directors of the registrant, and no other persons, are affiliates.
The number of shares outstanding of the Registrant's common stock as March 10,
2004 was 50,000,000.
Portions of the Proxy Statement of Registrant for the Annual Meeting of
Stockholders to be held on May 6, 2004 are incorporated in Part III of this
report.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 12
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 26
Item 9A. Controls and Procedures 26
Part III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management 27
Item 13. Certain Relationships and Related Transactions 27
Item 14. Principal Accounting Fees and Services 27
Part IV
Item 15. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 28
PART I
ITEM 1. BUSINESS
General
Heartland Express, Inc. ("Heartland" or the "Company") is a short-to-medium
haul truckload carrier based near Iowa City, Iowa. The Company provides
nationwide transportation service to major shippers, using late-model equipment
and a combined fleet of company-owned and owner-operator tractors. The Company's
primary traffic lanes are between customer locations east of the Rocky
Mountains, with selected service to the West. Management believes that the
Company's service standards and equipment accessibility have made it a core
carrier to many of its major customers.
Heartland was founded by Russell A. Gerdin in 1978 and became publicly
traded in November 1986. Over the seventeen years from 1986 to 2003, Heartland
has grown to $405.1 million in revenue from $21.6 million and net income has
increased to $57.2 million from $3.0 million. Much of this growth has been
attributable to expanding service for existing customers, acquiring new
customers, and continued expansion of the Company's operating regions.
In addition to internal growth, Heartland has completed five acquisitions
since 1987 with the most recent in 2002. In June 2002, the Company purchased the
business and trucking assets of Chester, Virginia based truckload carrier Great
Coastal Express. The Company serves its customers in the mid-Atlantic region
from the terminal located in Chester. These five acquisitions have enabled
Heartland to solidify its position within existing regions, expand its customer
base in the East and Northeast United States, and to pursue new customer
relationships in new markets.
Heartland Express, Inc. is a holding company incorporated in Nevada, which
owns all of the stock of Heartland Express Inc. of Iowa, Heartland Equipment,
Inc., and A & M Express, Inc.
Operations
Heartland's operations department focuses on the successful execution of
customer expectations and providing consistent opportunity for the fleet of
employee drivers and independent contractors, while maximizing equipment
utilization. These objectives require a combined effort of marketing, regional
operations managers, and fleet management.
The Company's operations department is responsible for maintaining the
continuity between the customer's needs and Heartland's ability to meet those
needs by communicating customer's expectations to the fleet management group.
They are charged with development of customer relationships, ensuring service
standards, coordinating proper freight-to-capacity balancing, trailer asset
management, and daily tactical decisions pertaining to matching the customer
demand with the appropriate capacity within geographical service areas. They
assign orders to drivers based on well-defined criteria, such as driver safety
and DOT compliance, customer needs and service requirements, equipment
utilization, driver time at home, operational efficiency, and equipment
maintenance needs.
Fleet management employees are charged with the management and development
of their fleets of drivers. Additionally, they maximize the capacity that is
available to the organization to meet the service needs of the Company's
customers. Their responsibilities include meeting the needs of the drivers
within the standards that have been set by the organization and communicating
the requirements of the customers to the drivers on each order to ensure
successful execution.
Serving the short-to-medium haul market (532-mile average length of haul in
2003) permits the Company to use primarily single, rather than team drivers and
dispatch most trailers directly from origin to destination without an
intermediate equipment change other than for driver scheduling purposes.
Heartland also operates seven specialized regional distribution operations
near Atlanta, Georgia; Carlisle, Pennsylvania; Columbus, Ohio; Jacksonville,
Florida; Kingsport, Tennessee; Chester, Virginia and Olive Branch, Mississippi.
These short-haul operations concentrate on freight movements generally within a
400-mile radius of the regional terminal, and are designed to meet the needs of
significant customers in those regions.
1
Dispatchers at the regional locations handle these operations, and the Company
uses a centralized computer network and regular communication to achieve
system-wide load coordination.
The Company emphasizes customer satisfaction through on-time performance,
dependable late-model equipment, and consistent equipment availability to serve
large customers' volume requirements. The Company also maintains a high trailer
to tractor ratio, which facilitates the stationing of trailers at customer
locations for convenient loading and unloading. This minimizes waiting time,
which increases tractor utilization and assists with driver retention.
Customers and Marketing
The Company targets customers in its operating area that require multiple,
time-sensitive shipments, including those employing "just-in-time" manufacturing
and inventory management. In seeking these customers, Heartland has positioned
itself as a provider of premium service at compensatory rates, rather than
competing solely on the basis of price. Freight transported for the most part is
non-perishable and predominantly does not require driver handling. We believe
Heartland's reputation for quality service, reliable equipment, and equipment
availability makes it a core carrier to many of its customers.
Heartland seeks to transport freight that will complement traffic in its
existing service areas and remain consistent with the Company's focus on
short-to-medium haul and regional distribution markets. Management believes that
building additional service in the Company's primary traffic lanes will assist
in controlling empty miles and enhancing driver "home time."
The Company's 25, 10, and 5 largest customers accounted for 57%, 43%, and
33% of revenue, respectively, in 2003. The Company's primary customers include
retailers and manufacturers. The distribution of customers is not significantly
different from the previous year. One customer accounted for 13% of revenue in
2003. No other customer accounted for as much as ten percent of revenue.
Seasonality
The nature of the Company's primary traffic (appliances, automotive parts,
paper products, retail goods, and packaged foodstuffs) causes it to be
distributed with relative uniformity throughout the year. However, seasonal
variations during and after the winter holiday season have historically resulted
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 and higher fuel consumption in colder weather.
Drivers, Independent Contractors, and Other Personnel
Heartland's workforce is an essential ingredient in achieving its business
objectives. As of December 31, 2003, Heartland employed 2,805 persons. The
Company also contracted with independent contractors to provide and operate
tractors. Independent contractors own their own tractors and are responsible for
all associated expenses, including financing costs, fuel, maintenance,
insurance, and taxes. The Company historically has operated a combined fleet of
company and independent contractor tractors. Management believes that a combined
fleet compliments the Company's recruiting efforts and offers greater
flexibility in responding to fluctuations in shipper demand.
Management's strategy for both employee and independent contractor drivers
is to (1) hire the best; (2) promote retention through financial incentives,
positive working conditions, and targeting freight that requires little or no
handling; and (3) minimize safety problems through careful screening, mandatory
drug testing, continuous training, and financial rewards for accident-free
driving. Heartland also seeks to minimize turnover of its employee drivers by
providing modern, comfortable equipment, and turnover of all drivers by
regularly scheduling them to their homes. All drivers are compensated for empty
miles as well as loaded miles. This provides an incentive for the Company to
minimize empty miles and at the same time does not penalize drivers for
inefficiencies of operations that are beyond their control.
Heartland is not a party to a collective bargaining agreement. Management
believes that the Company has good relationships with its employees.
2
Revenue Equipment
Heartland's management believes that operating high-quality, efficient
equipment is an important part of providing excellent service to customers.
Company-owned and owner-owned tractors are equipped with satellite
communications systems manufactured by Qualcomm. The satellite technology allows
for efficient communication with our drivers to accommodate the needs of our
customers. A uniform fleet of tractors and trailers are utilized to minimize
maintenance costs and to standardize the Company's maintenance program. The
tractors are manufactured by Freightliner while trailers are manufactured by
Wabash National. The Company's policy is to operate its tractors while under
warranty to minimize repair and maintenance cost and reduce service
interruptions caused by breakdowns. In addition, the Company's preventive
maintenance program is designed to minimize equipment downtime, facilitate
customer service, and enhance trade value when equipment is replaced. Factors
considered when purchasing new equipment include fuel economy, price,
technology, warranty terms, manufacturer support, driver comfort, and resale
value. Owner-operator tractors are inspected by the Company for compliance with
operational and safety requirements of the Company and the United States
Department of Transportation (DOT). These tractors are periodically inspected to
monitor continued compliance.
Effective October 1, 2002, all newly manufactured truck engines must comply
with the engine emission standards mandated by the Environmental Protection
Agency (EPA). All truck engines manufactured prior to October 1, 2002 are not
subject to these new standards. During 2002 and the first quarter of 2003, the
Company significantly increased the purchase of trucks with pre-October 2002
engines to delay the business risk of buying new engines until adequate testing
is completed. During 2003, the Company purchased 13 trucks with engines
conforming to the new standards in order to evaluate the engines. Future truck
purchases will depend on the Company's evaluation of these new EPA-compliant
engines in addition to industry wide evaluations of the longevity and
reliability of the engines.
Fuel
The Company purchases fuel through a network of approximately 100 fuel
stops throughout the United States at which the Company has negotiated price
discounts. Bulk fuel sites are maintained at primarily all of the Company's
terminal locations in order to take advantage of volume pricing. Both above
ground and underground storage tanks are utilized at the bulk fuel sites.
Exposure to environmental clean up costs is minimized by periodic inspection and
monitoring of the tanks.
Increases in fuel prices due to decreases in production can have an adverse
effect on the results of operations. The Company has fuel surcharge agreements
with most customers enabling the pass through of long-term price increases. Fuel
consumed by empty and out-of-route miles and by truck engine idling time are not
recoverable.
Competition
The truckload industry is highly competitive and includes thousands of
carriers, none of which dominates the market. The Company competes primarily
with other truckload carriers, and to a lesser extent with railroads, intermodal
service, less-than-truckload carriers, and private fleets operated by existing
and potential customers. Although intermodal and rail service has improved in
recent years, such service has not been a major factor in the Company's
short-to-medium haul traffic lanes (532-mile average length of haul).
Historically, competition has created downward pressure on the truckload
industry's pricing structure. Management believes that competition for the
freight targeted by the Company is based primarily upon service and efficiency
and to a lesser degree upon freight rates.
Regulation
The Company is a common and contract motor carrier regulated by the United
States Department of Transportation (DOT). The DOT generally governs matters
such as safety requirements, registration to engage in motor carrier operations,
accounting systems, certain mergers, consolidations, acquisitions, and periodic
financial reporting. The Company currently has a satisfactory DOT safety rating,
which is the highest available rating. A conditional or unsatisfactory DOT
safety rating could have an adverse effect on the Company, as some of the
Company's contracts with customers require a satisfactory rating. Such matters
as weight and dimensions of equipment are also subject to federal, state, and
international regulations.
3
The DOT adopted revised hours-of-service regulations on April 28, 2003.
Compliance with the newly mandated regulations took 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. 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.
The Company's operations are subject to various federal, state, and local
environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
other discharge of pollutants into the air and surface and underground waters,
and the disposal of certain substances. Management believes that its operations
are in material compliance with current laws and regulations and does not know
of any existing condition that would cause compliance with applicable
environmental regulations to have a material effect on the Company's capital
expenditures, earnings and competitive position. In the event the Company should
fail to comply with applicable regulations, the Company could be subject to
substantial fines or penalties and to civil or criminal liability.
Available Information
The Company files its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, Definitive Proxy Statements and periodic Current Reports on Form 8-K
with the Securities and Exchange Commission (SEC). The public may read and copy
any material filed by the Company with the SEC at the SEC's Public Reference
Room at 450 Fifth Street NW, Washington, DC 20549. The public may obtain
information from the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Definitive Proxy Statements, Current Reports on Form 8-K and other information
filed with the SEC are available to the public over the Internet at the SEC's
website at http://www.sec.gov and through a hyperlink on the Company's Internet
website, at http://www.heartlandexpress.com.
Forward-Looking Information
The forward-looking statements in this report, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in the
forward-looking statements included herein as a result of a number of factors,
including, but not limited to, those discussed in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 2. PROPERTIES
Heartland's headquarters is located adjacent to Interstate 80, near Iowa
City, Iowa. The facilities include five acres of land, two office buildings of
approximately 25,000 square feet combined and a storage building, all leased
from the Company's president and principal stockholder. Company-owned facilities
at this location include three tractor and trailer maintenance garages totaling
approximately 26,500 square feet, and a safety and service complex adjacent to
Heartland's corporate offices. The adjacent facility provides the Company with
six acres of additional trailer parking space, a drive-through inspection bay,
an automatic truck wash facility, and 6,000 square feet of office space and
driver facilities. The Company also owns a motel located adjacent to its
corporate offices, which functions as a motel and driver training center.
The Company owns regional facilities in Ft. Smith, Arkansas; O'Fallon,
Missouri; Atlanta, Georgia; Columbus, Ohio; Jacksonville, Florida; Kingsport,
Tennessee; Olive Branch, Mississippi; and Chester, Virginia. The Company leases
a facility in Etters, Pennsylvania.
4
Company-owned facilities in Dubois, Pennsylvania and Columbus, Ohio are being
leased to unrelated third parties. In December 2003, the Company purchased a
facility in Carlisle, Pennsylvania to replace the facility in Etters,
Pennsylvania when the lease expires in May 2004.
ITEM 3. LEGAL PROCEEDINGS
On June 21, 2002 a driver for the Company was involved in a multiple (5)
fatality accident in Knoxville, Tennessee. 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 open.
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 claims for personal injury and property damage incurred in connection
with the transportation of freight. The Company maintains insurance to cover
liabilities arising from the transportation of freight for amounts in excess of
certain self-insured retentions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2003, no matters were submitted to a vote of
security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock has been traded on the NASDAQ National Market
under the symbol HTLD, since November 5, 1986, the date of the Company's initial
public offering. The following table sets forth for the calendar period
indicated the range of high and low price quotations for the Company's common
stock as reported by NASDAQ and the Company's dividends declared per common
share from January 1, 2002 to December 31, 2003. The prices have been restated
to reflect a stock split of approximately 57.7% on February 19, 2002.
Dividends Declared
Period High Low Per Common Share
Calendar Year 2003
1st Quarter $ 23.15 $ 17.04 $ -
2nd Quarter 24.42 18.98 -
3rd Quarter 26.92 22.24 .02
4th Quarter 26.60 23.33 .02
Calendar Year 2002
1st Quarter $ 25.03 $ 17.46 $ -
2nd Quarter 24.09 17.15 -
3rd Quarter 24.07 17.25 -
4th Quarter 23.39 16.77 -
The prices reported reflect interdealer quotations without retail mark-ups,
markdowns or commissions, and may not represent actual transactions. As of
February 20, 2004 the Company had 233 stockholders of record of its common
stock. However, the Company estimates that it has a significantly greater number
of stockholders because a substantial number of the Company's shares are held of
record by brokers or dealers for their customers in street names.
5
Dividend Policy
During the third quarter of 2003 the Company announced the implementation
of a quarterly cash dividend program. The Company paid a dividend following the
third and fourth quarters of 2003. The Company does not currently intend to
discontinue the quarterly cash dividend program. However, future payments of
cash dividends will depend upon the financial condition, results of operations
and capital requirements of the Company, as well as other factors deemed
relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's consolidated financial statements and notes under Item 8 of this
Form 10-K.
Year Ended December 31,
(in thousands, except per share data)
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
Income Statement Data:
Operating revenue .................. $ 405,116 $ 340,745 $ 294,617 $ 274,827 $ 261,004
--------- --------- --------- --------- ---------
Operating expenses:
Salaries, wages, and benefits .... 141,293 109,960 87,643 73,847 60,258
Rent and purchased transportation 49,988 64,159 65,912 75,191 90,337
Operations and maintenance ....... 75,516 56,335 47,903 42,651 30,167
Taxes and licenses ............... 8,403 7,144 6,189 5,952 5,935
Insurance and claims ............. 2,187 9,193 7,619 6,706 5,742
Communications and utilities ..... 3,605 2,957 2,903 2,952 2,629
Depreciation ..................... 26,534 20,379 17,001 16,285 16,216
Other operating expenses ......... 12,539 8,843 6,814 6,505 5,941
(Gain) loss on disposal of
fixed assets...................... (46) (274) 14 (1,512) (928)
--------- --------- --------- --------- ---------
320,019 278,696 241,998 228,577 216,297
--------- --------- --------- --------- ---------
Operating income 85,097 62,049 52,619 46,250 44,707
Interest income .................... 2,046 2,811 4,435 5,726 5,953
--------- --------- --------- --------- ---------
Income before income taxes ......... 87,143 64,860 57,054 51,976 50,660
Income taxes ....................... 29,922 22,053 19,398 17,672 17,536
--------- --------- --------- --------- ---------
Net income ......................... $ 57,221 $ 42,807 $ 37,656 $ 34,304 $ 33,124
========= ========= ========= ========= =========
Basic weighted average shares
Outstanding ........................ 50,000 50,000 50,000 50,342 57,871
========= ========= ========= ========= =========
Basic earnings per share ........... $ 1.14 $ 0.86 $ 0.75 $ 0.68 $ 0.57
========= ========= ========= ========= =========
Balance sheet data:
Net working capital ................ $ 186,648 $ 146,297 $ 147,904 $ 118,506 $ 111,675
Total assets ....................... 448,407 373,108 314,238 268,055 246,494
Stockholders' equity ............... 331,516 275,930 232,789 195,134 174,840
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Heartland Express, Inc. is a short-to-medium haul truckload carrier. The
Company transports freight for major shippers and generally earns revenue based
on the number of miles per load delivered. During 2003, freight revenue,
excluding fuel surcharge, increased 16.4% to $389.8 million from $334.9 million
in 2002.
The Company takes pride in the quality of the service that it provides to
its customers. The keys to maintaining a high level of service are reliable
equipment and equipment availability. Heartland has one of the newest fleets in
the industry with an average tractor age of 21 months and trailer age of 28
months. During 2003 the Company purchased $32.2 million in revenue equipment.
These purchases were financed through cash generated by operating activities,
and the Company expects future revenue equipment purchases to be financed using
current cash and investment balances and cash flow provided by future
operations.
The major challenge currently facing the trucking industry is the revised
DOT hours-of-service regulations that took effect on January 4, 2004. These
changes 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. In addition, the Company
may be required to increase the number of drivers that it employs and increase
its fleet of revenue equipment to serve our current customer base and provide
for future growth. The full impact of these changes is not known at this time.
To retain drivers the Company announced that in the first quarter of 2004 it is
increasing pay for all drivers $0.03 per mile. Management is also working with
shippers to decrease the amount of non-driving time per load.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods.
The Company's management routinely makes judgments and estimates about the
effect of matters that are inherently uncertain. As the number of variables and
assumptions affecting the probable future resolution of the uncertainties
increase, these judgments become even more subjective and complex. The Company
has identified certain accounting policies, described below, that are the most
important to the portrayal of the Company's current financial condition and
results of operations. The Company's significant accounting policies are
disclosed in Item 8. Note 1, "Significant Accounting Policies" of Notes to
Consolidated Financial Statements.
The most significant accounting policies and estimates that affect the
financial statements include the following:
* Revenue is recognized when freight is delivered.
* Selections of estimated useful lives and salvage values for purposes
of depreciating tractors and trailers. Depreciable lives of tractors
and trailers are 5 and 7 years, respectively. Estimates of salvage
value are based upon the expected market values of equipment at the
end of the expected useful life.
* Management estimates accruals for the self-insured portion of pending
accident liability, workers' compensation, physical damage and cargo
damage claims. These accruals are based upon individual case
estimates, including reserve development, and estimates of
incurred-but-not-reported losses based upon past experience.
Management periodically re-evaluates these estimates as events and
circumstances change. These factors may significantly impact the Company's
results of operations from period-to-period.
7
Results of Operations
The following table sets forth the percentage relationship of income and
expense items to operating revenue for the years indicated.
Year Ended December 31,
2003 2002 2001
------ ------ ------
Operating revenue ........................... 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses:
Salaries, wages, and benefits ............. 34.9% 32.3% 29.7%
Rent and purchased transportation ......... 12.4 18.8 22.4
Operations and maintenance ................ 18.6 16.5 16.2
Taxes and licenses ........................ 2.1 2.1 2.1
Insurance and claims ...................... 0.5 2.7 2.6
Communications and utilities .............. 0.9 0.9 1.0
Depreciation .............................. 6.5 6.0 5.8
Other operating expenses .................. 3.1 2.6 2.3
(Gain) on disposal of fixed assets ........ (0.0) (0.1) (0.0)
------ ------ ------
Total operating expenses..................... 79.0% 81.8% 82.1%
------ ------ ------
Operating income .......................... 21.0% 18.2% 17.9%
Interest income ............................. 0.5 0.8 1.5
------ ------ ------
Income before income taxes ................ 21.5% 19.0% 19.4%
Federal and state income taxes .............. 7.4 6.4 6.6
------ ------ ------
Net income ................................ 14.1% 12.6% 12.8%
====== ====== ======
Year Ended December 31, 2003 Compared With Year Ended December 31, 2002
Operating revenue increased $64.4 million (18.9%), to $405.1 million in
2003 from $340.7 million in 2002, as a result of the Company's expansion of the
customer base as well as increased volume from existing customers. The June 2002
acquisition of the trucking assets of Great Coastal Express, Inc. contributed
approximately $13.2 million to the increase in revenue for 2003. Operating
revenue for both periods was also positively impacted by fuel surcharges
assessed to the customer base. Fuel surcharge revenue increased $9.4 million to
$15.3 million from $5.9 million in 2003 in comparison to 2002.
Salaries, wages, and benefits increased $31.4 million (28.5%), to $141.3
million in 2003 from $109.9 million in 2002. The increase is the 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 acquisition
of Great Coastal Express. During 2003, employee drivers accounted for 82% and
independent contractors 18% of the total fleet miles, compared with 73% and 27%,
respectively, in 2002. During the fourth quarter of 2003, the Company engaged
consulting actuaries to assist in determining the liability for self insurance
reserves for workers' compensation claims. As a result of the actuarial studies
management increased the amount accrued for workers' compensation claims by $2.9
million.
Rent and purchased transportation decreased $14.1 million (22.1%), to $50.0
million in 2003 from $64.1 million in 2002. This reflected the Company's
decreased reliance upon independent contractors. Rent and purchased
transportation for both periods includes amounts paid to independent contractors
for fuel surcharge.
Operations and maintenance increased $19.2 million (34.0%) to $75.5 million
in 2003 from $56.3 million in 2002. The increase, primarily related to fuel
expense, is attributable to increased reliance on the Company owned fleet. Fuel
prices during 2003 were higher compared to 2002. Average fuel cost per Company
owned tractor mile increased 13.7% during 2003 compared to 2002.
Insurance and claims decreased $7.0 million (76.2%), to $2.2 million in
2003 from $9.2 million in 2002. Insurance and claims expense will vary from
period to period based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends. The Company
increased its accident liability self-insurance retention level to $1.0 from
$0.5 million for claims incurred after April 1, 2003.
8
In addition, the Company is now responsible for up to $2.0 million in aggregate
for claims above $1.0 million and below $2.0 million for the policy year ended
March 31, 2004. Due to the increased exposure, the Company engaged consulting
actuaries to assist in determining the liability for self insurance reserves for
accident liability claims. As a result of the actuarial studies management
decreased the amount accrued for accident liability claims by $11.2 million
during the fourth quarter of 2003. Adjustments in the fourth quarter of 2003 to
self-insurance reserves for workers' compensation and accident liability
resulted in an increase in operating income, net income and earnings per share
of $8.3 million, $5.4 million and $0.11, respectively.
Depreciation increased $6.1 million (30.2%), to $26.5 million in 2003 from
$20.4 million in 2002. The increase is due to an increase in the number of
Company-owned tractors, the growth of the trailer fleet and a change in salvage
value on Company owned trailers during 2003. Effective April 1, 2003, the
Company decreased the salvage value on all trailers to $4,000 from $6,000. The
reduction of salvage value increased depreciation expense approximately $1.7
million during 2003.
Other operating expenses increased $3.7 million (41.8%), to $12.5 million
in 2003 from $8.8 million in 2002 due to an increase in total fleet miles. Other
operating expenses consist of costs incurred for freight handling, highway
tolls, driver recruiting expenses, and administrative costs. During 2003,
advertising expense relating to driver recruiting increased $1.3 million
compared to 2002.
The Company's effective tax rate was 34.3% and 34.0% in 2003 and 2002,
respectively.
Year Ended December 31, 2002 Compared With Year Ended December 31, 2001
Operating revenue increased $46.1 million (15.7%), to $340.7 million in
2002 from $294.6 million in 2001, as a result of the Company's expansion of the
customer base as well as increased volume from existing customers. The June 2002
acquisition of the trucking assets of Great Coastal Express, Inc. contributed
approximately $27.3 million to the increase in revenue for 2002. Operating
revenue for both periods was also positively impacted by fuel surcharges
assessed to the customer base. Fuel surcharge revenue decreased in 2002 in
comparison to 2001.
Salaries, wages, and benefits increased $22.3 million (25.5%), to $109.9
million in 2002 from $87.6 million in 2001. This increase is the 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 acquisition
of Great Coastal Express. During 2002, employee drivers accounted for 73% and
independent contractors 27% of the total fleet miles, compared with 68% and 32%,
respectively, in 2001. In addition, the increased reliance on employee driver
resulted in higher workers' compensation and health insurance costs for the
year.
Rent and purchased transportation decreased $1.8 million (2.7%), to $64.1
million in 2002 from $65.9 million in 2001. This reflected the Company's
decreased reliance upon independent contractors. Rent and purchased
transportation for both periods includes amounts paid to independent contractors
for fuel surcharge.
Operations and maintenance increased $8.4 million (17.6%), to $56.3 million
in 2002 from $47.9 million in 2001. The increase, primarily related to fuel
expense, is attributable to increased reliance on the Company owned fleet.
Average fuel prices during 2002 were lower compared to 2001 with the exception
of the fourth quarter of 2002 when prices rose substantially.
Insurance and claims increased $1.5 million (18.2%), to $9.2 million in
2002 from $7.7 million in 2001. Insurance and claims expense will vary from
period to period based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends. The 2002 increase
is a result of less favorable claims experience and a slight increase in
frequency.
Depreciation increased $3.4 million (19.9%), to $20.4 million in 2002 from
$17.0 million in 2001 primarily due to an increase in the number of
Company-owned tractors. As a percentage of revenue, depreciation increased to
6.0% in 2002 from 5.8% in 2001.
Other operating expenses increased $2.0 million (29.8%), to $8.8 million in
2002 from $6.8 million in 2001 due to an increase in total fleet miles. Other
operating expenses consist of costs incurred for freight handling, highway
tolls, driver recruiting expenses, and administrative costs.
9
The Company's effective tax rate was 34.0% in both 2002 and 2001.
Liquidity and Capital Resources
The growth of the Company's business requires 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 year ended December 31, 2003, was
net cash provided by operating activities of $97.1 million compared to $67.9
million in the corresponding 2002 period.
Capital expenditures for property and equipment, net of trade-ins, totaled
$47.1 million for the year during 2003 compared to $58.5 million during 2002. In
addition to purchasing revenue equipment, the Company purchased terminal
locations in Columbus, Ohio; Olive Branch, Mississippi; Chester, Virginia; and
Carlisle, Pennsylvania in 2003. The Company purchased the business and trucking
assets of Great Coastal Express on June 1, 2002 for $26.7 million. The decrease
in purchases of revenue equipment during 2003 is primarily due to the Company
increasing tractor purchases during 2002 to delay the business risk of buying
tractors with engines that comply with the new EPA emission standards.
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 year with $202.4 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.
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 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 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.
10
Contractual Obligations
The impact that our contractual obligations as of December 31, 2003 are
expected to have on our liquidity and cash flow in future periods is as follows:
Payments due by period
---------------------------------------
Less than 1
Total year 1-3 years
------------- -------------- -----------
Operating Lease Obligations $ 424,469 $ 299,625 $ 124,844
============= ============== ===========
Forward-Looking Statements and Risk Factors
Statements in this report that are not reported financial results or other
historical information are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on present information the Company has related to its existing business
circumstances and involve a number of business risks and uncertainties, any of
which could cause actual results to differ materially from such forward-looking
statements. Further, investors are cautioned that the Company does not assume
any obligation to update forward-looking statements based on unanticipated
events or changed expectations. In addition to specific factors that may be
described in connection with any particular forward-looking statement, the
following factors could cause actual results to differ materially.
Growth with existing customers and the ability to solicit new business is
dependent upon the Company's ability to provide on-time service and certain
economic factors. Weakness in the economy, including decreased consumer demand,
could adversely affect the demand for the Company's transportation services and
future growth. The ability to negotiate increased freight rates to offset
effects of inflation and cost increases is also dependent upon the state of the
economy to a certain extent. The Company may also be affected by the financial
failure of existing customers resulting in fewer shipments or potential bad debt
write-offs. An extended period of economic downturn could also enhance revenue
growth because of industry consolidation. The truckload industry is highly
competitive with an abundance of trucking companies, both profitable and
marginal. The business failures of the marginal competition may result in
increased opportunities for the financially strong.
Shortages of fuel and the resulting increase in the price of diesel can
have an adverse impact on operations and profitability. Instability in the
Middle East and South America caused dramatic increases in the price of fuel in
the second half of 2002 and throughout 2003. The Company's operating results are
negatively impacted to the extent that high fuel costs cannot be recovered
through customer fuel surcharge agreements.
The Company is subject to regulation by the DOT, EPA, and various other
federal and state authorities. New or more comprehensive regulations pertaining
to fuel emissions, driver hours-of-service, or other mandated regulation could
result in increased cost of operations. In addition, increased taxes and
operating fees mandated by federal and state taxing authorities can have an
adverse effect on profitability.
Effective October 1, 2002 all newly manufactured engines must comply with
emission standards mandated by the EPA. Truck engines manufactured prior to
October 1, 2002 are not subject to the new emission standards. The Company does
not intend to make significant purchases of tractors with EPA-compliant engines
until adequate testing by the manufacturers has been completed. The pricing,
engine life, maintenance cost, and fuel efficiency of the new engine could have
an impact on the Company's operating expenses.
The Company's operation is highly dependent on the hiring and retention of
experienced drivers with safe driving records. There has been a shortage of
qualified drivers and independent contractors over the past several years. The
availability of company employed drivers improved in 2003 primarily due to
industry consolidation caused by the business failures of marginal competitors.
However, the availability of independent contractors has declined due to high
fuel prices and the decreased availability of tractor financing. The Company
expects that the hiring of qualified drivers will remain competitive. A shortage
of qualified drivers and independent contractors for an extended period of time
could effect the growth and operating results of the Company.
11
The Company is a party to ordinary, routine litigation and administrative
proceedings incidental to its business. These proceedings primarily involve
claims for personal injury and property damage incurred in connection with the
transportation of freight. The Company maintains insurance to cover liabilities
arising from the transportation of freight for amounts in excess of certain
self-insured retentions. Claims in excess of these retentions are covered by
premium-based policies to levels that management considers adequate. In recent
years the cost of insurance in the industry has increased dramatically due to
increased claims and economic conditions. The Company's current insurance
policies expire in 2004. Increases in premiums and self-retention levels could
impact the results of operations.
New Accounting Pronouncements
See Note 1 of the Consolidated Financial Statements for a full description
of recent accounting pronouncements and the respective expected dates of
adoption and effects on results of operations and financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company purchases only high quality liquid investments. Primarily all
investments as of December 31, 2003 have an original maturity or interest reset
date of six months or less. Due to the short term nature of the investments the
Company is exposed to minimal market risk related to its cash equivalents and
investments.
The Company has no debt outstanding as of December 31, 2003 and therefore,
has no market risk related to debt.
As of December 31, 2003, the Company has no derivative financial
instruments to reduce its exposure to diesel fuel price fluctuations.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
To the Board of Directors and
Stockholders of Heartland Express, Inc.:
We have audited the accompanying consolidated balance sheets of Heartland
Express, Inc. (a Nevada corporation) and subsidiaries (the Company) as of
December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years then ended. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement Schedule II for the years ended December
31, 2003 and 2002. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits. The
consolidated financial statements and financial statement schedule of Heartland
Express, Inc. and subsidiaries as of December 31, 2001 and for the year then
ended were audited by other auditors who have ceased operations. Those auditors
expressed an unqualified opinion on those consolidated financial statements and
financial statement schedule in their report dated January 13, 2002 (except with
respect to the matter discussed in Note 6, as to which the date is January 28,
2002).
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements and financial statement schedule are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements and
financial statement schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Heartland Express,
Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement Schedule II for the years ended
December 31, 2003 and 2002, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 2002, the
Company changed its method of accounting for goodwill and related amortization.
KPMG LLP
Des Moines, Iowa
January 23, 2004
13
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Heartland Express, Inc.:
We have audited the accompanying consolidated balance sheets of Heartland
Express, Inc. (a Nevada corporation) and Subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements and schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Heartland Express,
Inc. and Subsidiaries, as of December 31, 2002 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
January 13, 2002 (except with respect to the matter discussed in Note 6, as to
which the date is January 28, 2002)
THIS REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS
REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN AND IS INCLUDED HEREIN PURSUANT
TO RULE 2-02(e) OF REGULATION S-X OF THE SECURITIES AND EXCHANGE COMMISSION.
THIS REPORT REFERS TO PERIODS NOT PRESENTED HEREIN.
14
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2003 2002
------------- --------------
CURRENT ASSETS
Cash and cash equivalents .................. $ 127,885,474 $ 89,717,866
Investments ................................ 74,545,681 64,143,556
Trade receivables, net of allowance
for doubtful accounts of: $675,000
and $650,000, respectively ................ 36,836,728 33,012,394
Prepaid tires and tubes .................... 2,529,580 4,757,850
Deferred income taxes ...................... 21,308,000 21,134,000
Other current assets ....................... 673,101 620,344
------------- -------------
Total current assets ....................... 263,778,564 213,386,010
------------- -------------
PROPERTY AND EQUIPMENT
Land and land improvements ................. 6,912,819 4,402,820
Buildings .................................. 19,777,586 8,532,621
Furniture and fixtures ..................... 1,210,424 1,300,848
Shop and service equipment ................. 2,043,356 1,403,633
Revenue equipment .......................... 202,706,807 175,476,971
------------- -------------
232,650,992 191,116,893
Less accumulated depreciation .............. 56,951,186 39,715,307
------------- -------------
Property and equipment, net ................ 175,699,806 151,401,586
------------- -------------
OTHER ASSETS ................................. 8,928,186 8,320,593
------------- -------------
$ 448,406,556 $ 373,108,189
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities .. $ 15,684,826 $ 8,632,810
Compensation and benefits ................. 10,704,329 7,632,766
Income taxes payable ...................... 7,720,875 6,070,318
Insurance accruals ........................ 37,125,109 40,228,160
Other accruals ............................ 5,895,502 4,525,396
------------- -------------
Total current liabilities ................. 77,130,641 67,089,450
------------- -------------
DEFERRED INCOME TAXES ........................ 39,760,000 30,089,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01;
authorized 5,000,000 shares; none
issued .................................... -- --
Common stock, par value $.01;
authorized 395,000,000 shares;
issued and outstanding: 50,000,000
in both 2003 and 2002 ..................... 500,000 500,000
Additional paid-in capital ................ 8,510,305 8,603,762
Retained earnings ......................... 323,710,296 268,488,971
------------- -------------
332,720,601 277,592,733
Less unearned compensation ................ (1,204,686) (1,662,994)
------------- -------------
331,515,915 275,929,739
------------- -------------
$ 448,406,556 $ 373,108,189
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
15
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2003 2002 2001
------------- ------------- -------------
Operating revenue ...................... $ 405,116,097 $ 340,745,026 $ 294,617,263
------------- ------------- -------------
Operating expenses:
Salaries, wages, and benefits ....... 141,292,791 109,959,772 87,643,187
Rent and purchased transportation ... 49,988,074 64,159,365 65,911,825
Operations and maintenance .......... 75,516,232 56,334,769 47,903,499
Taxes and licenses .................. 8,402,986 7,144,078 6,188,628
Insurance and claims ................ 2,187,537 9,192,632 7,618,919
Communications and utilities ........ 3,604,661 2,956,810 2,902,496
Depreciation ........................ 26,533,937 20,378,720 17,000,927
Other operating expenses ............ 12,538,652 8,843,137 6,814,399
(Gain) loss on disposal of
fixed assets ....................... (45,782) (273,549) 14,442
------------- ------------- -------------
320,019,088 278,695,734 241,998,322
------------- ------------- -------------
Operating income .................... 85,097,009 62,049,292 52,618,941
Interest income ........................ 2,045,793 2,811,181 4,434,914
------------- ------------- -------------
Income before income taxes .......... 87,142,802 64,860,473 57,053,855
Income taxes ........................... 29,921,477 22,052,559 19,398,239
------------- ------------- -------------
Net income .......................... $ 57,221,325 $ 42,807,914 $ 37,655,616
============= ============= =============
Basic earnings per share ............... $ 1.14 $ 0.86 $ 0.75
============= ============= =============
Basic weighted average shares outstanding 50,000,000 50,000,000 50,000,000
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
16
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital Additional Unearned
Stock, Paid-In Retained Compen-
Common Capital Earnings sation Total
----------- ------------- ------------- ----------- ------------
Balance, December 31, 2000 ..... $ 253,666 $ 6,608,170 $188,271,775 $ -- $195,133,611
Stock splits (Note 6) .......... 246,334 -- (246,334) -- --
Net income ..................... -- -- 37,655,616 -- 37,655,616
----------- ----------- ------------ ----------- ------------
Balance, December 31, 2001 ..... 500,000 6,608,170 225,681,057 -- 232,789,227
Net income ..................... -- -- 42,807,914 -- 42,807,914
Transfer pursuant to stock
awards (Note 6) ................ -- 1,995,592 -- (1,995,592) --
Amortization of unearned
compensation ................... -- -- -- 332,598 332,598
----------- ----------- ------------ ----------- ------------
Balance, December 31, 2002 ..... 500,000 8,603,762 268,488,971 (1,662,994) 275,929,739
Net income ..................... -- -- 57,221,325 -- 57,221,325
Dividends on common stock,
$0.04 per share ................ -- -- (2,000,000) -- (2,000,000)
Forfeiture of stock awards
(Note 6) ....................... -- (93,457) -- 93,457 --
Amortization of unearned
compensation ................... -- -- -- 364,851 364,851
----------- ----------- ------------ ----------- ------------
Balance, December 31, 2003 ..... $ 500,000 $ 8,510,305 $323,710,296 $(1,204,686) $331,515,915
=========== =========== ============ =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
17
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2003 2002 2001
------------- ------------- -------------
OPERATING ACTIVITIES
Net income .......................................... $ 57,221,325 $ 42,807,914 $ 37,655,616
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization .................... 26,553,933 20,390,389 17,779,043
Deferred income taxes ............................ 9,497,000 5,317,000 2,993,000
Amortization of unearned compensation ............ 364,851 332,598 --
(Gain) loss on disposal of fixed assets .......... (45,782) (273,549) 14,442
Changes in certain working capital items:
Trade receivables .............................. (3,824,334) (7,311,959) (745,754)
Prepaids ....................................... 2,228,270 (678,174) (296,632)
Other current assets ........................... (52,757) (475,454) 183,383
Accounts payable, accrued liabilities,
and accrued expenses ........................... 3,491,247 8,399,063 1,594,686
Accrued income taxes ........................... 1,650,557 (623,080) 2,074,516
------------- ------------- -------------
Net cash provided by operating activities ........... 97,084,309 67,884,748 61,252,300
------------- ------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment ........ 173,624 10,159,471 402,113
Additions to property and equipment ................. (47,062,344) (58,469,994) (29,104,777)
Acquisition of business ............................. -- (26,719,495) --
Net purchases of municipal bonds .................... (10,402,125) (23,861,576) (40,281,980)
Other ............................................... (627,597) (69,430) 499,410
------------- ------------- -------------
Net cash used in investing activities ............... (57,918,442) (98,961,024) (68,485,234)
------------- ------------- -------------
FINANCING ACTIVITIES, cash dividend ................. (998,260) -- --
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 38,167,607 (31,076,276) (7,232,934)
CASH AND CASH EQUIVALENTS
Beginning of year ................................... 89,717,866 120,794,142 128,027,076
------------- ------------- -------------
End of year ......................................... $ 127,885,474 $ 89,717,866 $ 120,794,142
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ..................................... $ 18,773,920 $ 17,358,639 $ 14,330,723
Noncash investing activities:
Book value of revenue equipment traded ........... $ 2,338,332 $ 25,770,052 $ 11,516,930
The accompanying notes are an integral part of these consolidated financial
statements.
18
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Nature of Business:
Heartland Express, Inc., (the "Company") is a short-to-medium-haul,
truckload carrier of general commodities. The Company provides nationwide
transportation service to major shippers, using late-model equipment and a
combined fleet of company-owned and owner-operator tractors. The Company's
primary traffic lanes are between customer locations east of the Rocky
Mountains, with selected service to the West. The Company operates the business
as one reportable segment.
Principles of Consolidation:
The accompanying consolidated financial statements include the parent
company, Heartland Express, Inc., and its subsidiaries, all of which are wholly
owned. All material intercompany items and transactions have been eliminated in
consolidation.
Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
Cash equivalents are short-term, highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less.
Investments:
Investments include primarily municipal bonds with interest reset
provisions and short-term municipal bonds. During the year ended December 31,
2003 the Company chose to reclassify these securities from held-to-maturity to
available-for-sale to provide more flexibility. Due to the nature of the
investments, the cost at December 31, 2003 and 2002 approximates fair value;
therefore accumulated other comprehensive income (loss) has not been recognized
as a separate component of stockholders' equity. Investment income received is
generally exempt from federal income taxes.
Revenue and Expense Recognition:
Revenue, drivers' wages and other direct operating expenses are recognized
when freight is delivered.
Property, Equipment, and Depreciation:
Property and equipment are stated at cost, while maintenance and repairs
are charged to operations as incurred. If equipment is traded rather then sold,
the cost of the new equipment is recorded at an amount equal to the lower of the
monetary consideration paid plus the net book value of the traded equipment or
the fair value of the new equipment.
19
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation for financial statement purposes is computed by the
straight-line method for all assets other than tractors, which are depreciated
by the 125% declining balance method applied to cost, net of salvage value. For
revenue equipment purchased after January 1, 2000, trailers are depreciated
using a $6,000 salvage value and the tractors using a $15,000 salvage value.
During 2003, the Company decreased the salvage value of all trailers to $4,000
from $6,000. The Company based its decision on changes in the estimated market
values of trailers at the end of the expected useful life. This change in
accounting estimate resulted in an increase in depreciation expense of
approximately $1,728,000 during the year ended December 31, 2003.
Lives of the assets are as follows:
Years
Land improvements and building 3-30
Furniture and fixtures 2-3
Shop and service equipment 3-5
Revenue equipment 5-7
Tires and Tubes:
The cost of tires and tubes on new revenue equipment is carried as a
prepayment and amortized over the estimated tire life of two years. Replacement
tires (including recapped tires) are expensed when purchased.
Goodwill:
The Company adopted Statement of Financial Accounting Standards No. 142,
"Accounting for Goodwill and Other Intangible Assets" (SFAS No. 142), on January
1, 2002. SFAS No. 142 requires that goodwill be tested at least annually for
impairment by applying a fair value based analysis. With the adoption of SFAS
No. 142, goodwill is no longer be subject to amortization resulting in a
decrease in annualized operating expenses of $778,116 for the years ended
December 31, 2003 and 2002. Prior to 2002, goodwill was amortized on a
straight-line basis over a five year period. Goodwill is recorded in other
assets. Management determined that no impairment charge was required for the
years ending December 31, 2003 and 2002.
Earnings Per Share:
Basic earnings per share are based upon the weighted average common shares
outstanding during each year. Diluted earnings per share are based upon the
weighted average common and common equivalent shares outstanding during each
year. Heartland Express has no common stock equivalents; therefore, diluted
earnings per share is equal to basic earnings per share.
Insurance and Claims accruals:
Insurance accruals reflect the estimated cost for cargo loss and damage,
bodily injury and property damage (BI/PD), group health and workers'
compensation claims, including estimated loss development and loss adjustment
expenses, not covered by insurance. The cost of cargo and BI/PD insurance and
claims are included in insurance and claims expense, while the costs of group
health and workers' compensation insurance and claims are included in salaries,
wages, and benefits in the consolidated statements of operations.
20
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets:
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144). The Company periodically evaluates property and
equipment for impairment upon the occurrence of events or changes in
circumstances that indicate the carrying amount of asset may not be recoverable.
There were no impairment charges recognized during the years ended December 31,
2003 and 2002.
Income Taxes:
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
New Accounting Pronouncements:
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.
Reclassifications:
Certain reclassifications have been made to prior year financial statements
to conform to the December 31, 2003 presentation.
Note 2. Concentrations of Credit Risk and Major Customers
The Company's major customers represent the consumer goods, appliances,
food products and automotive industries. Credit is usually granted to customers
on an unsecured basis. The Company's five largest customers accounted for 33%,
37%, and 38% of revenues for the years ended December 31, 2003, 2002, and 2001,
respectively. Operating revenue from one customer exceeded 10% of total gross
revenues in 2003, 2002 and 2001. Annual revenues for this customer were $53.3
million, $46.3 million, and $45.3 million for the years ended December 31, 2003,
2002, and 2001, respectively.
21
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes 3. Income Taxes
Deferred income taxes are determined based upon the differences between the
financial reporting and tax basis of the Company's assets and liabilities.
Deferred taxes are provided at the enacted tax rates to be in effect when the
differences reverse.
Deferred tax assets and liabilities as of December 31 are as follows:
2003 2002
------------ ------------
Deferred income tax liabilities,
related to property and equipment $ 39,760,000 $ 30,089,000
============ ============
Deferred income tax assets:
Allowance for doubtful accounts $ 267,000 $ 263,000
Accrued expenses 5,303,000 3,263,000
Insurance accruals 14,701,000 16,293,000
Other 1,037,000 1,315,000
------------ ------------
Deferred income tax assets $ 21,308,000 $ 21,134,000
============ ============
The income tax provision is as follows:
2003 2002 2001
------------ ------------ ------------
Current income taxes:
Federal $ 18,853,846 $ 15,372,814 $ 15,357,642
State 1,570,631 1,362,745 1,047,597
------------ ------------ ------------
20,424,477 16,735,559 16,405,239
------------ ------------ ------------
Deferred income taxes:
Federal 9,403,000 5,684,000 3,027,000
State 94,000 (367,000) (34,000)
------------ ------------ ------------
9,497,000 5,317,000 2,993,000
------------ ------------ ------------
Total $ 29,921,477 $ 22,052,559 $ 19,398,239
============ ============ ============
The income tax provision differs from the amount determined by applying the
U.S. federal tax rate as follows:
2003 2002 2001
------------ ------------ ------------
Federal tax at statutory
rate (35%) $ 30,499,981 $ 22,701,166 $ 19,968,849
State taxes, net of federal
benefit 1,122,000 807,000 502,000
Non-taxable interest income (675,000) (907,000) (1,458,000)
Other (1,025,504) (548,607) 385,390
------------ ------------ ------------
$ 29,921,477 $ 22,052,559 $ 19,398,239
============ ============ ============
22
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Related Party Transactions
The Company leases two office buildings and a storage building from its
president under a lease which provides for monthly rentals of $24,969 plus the
payment of all property taxes, insurance and maintenance. The lease expires May
31, 2005 and contains a five-year renewal option. In the opinion of management,
the rates paid are comparable to those that could be negotiated with a third
party.
The total minimum rental commitment under the building lease is as follows:
Year Ending December 31:
2004 299,625
2005 124,844
---------
$ 424,469
=========
Rent expense paid to the Company's president totaled $299,625 for the years
ended December 31, 2003, 2002, and 2001.
During the year ended December 31, 2003, the Company purchased 8.9 acres of
land at its headquarters from the Company's president for $1,350,000. The
property was appraised by a third party, and the transaction was approved by the
Board of Directors.
Note 5. Accident and Workers' Compensation Claims
The Company has acted as a self-insurer for liability up to $500,000 for
any single occurrence involving cargo, personal injury or property damage. The
Company increased the retention amount to $1,000,000 for all claims made after
April 1, 2003. In addition, the Company is responsible for up to $2,000,000 in
aggregate for claims above $1,000,000 and below $2,000,000 for the policy year
ended March 31, 2004. Liabilities in excess of these amounts are assumed by an
insurance company.
The Company acts as a self-insurer for workers' compensation liability up
to a maximum liability of $500,000 per claim. Liability in excess of this amount
is assumed by an insurance company. The State of Iowa has required the Company
to deposit $700,000 into a trust fund as part of the self-insurance program.
This deposit has been classified in other long-term assets on the balance sheet.
In addition, the Company has provided its insurance carriers with letters of
credit and deposits of approximately $4,600,000 in connection with its liability
and workers' compensation insurance arrangements. This deposit has been
classified in other assets on the balance sheet.
Accident and workers' compensation accruals include the estimated
settlements, settlement expenses and an allowance for claims incurred but not
yet reported for property damage, personal injury and public liability losses
from vehicle accidents and cargo losses as well as workers' compensation claims
for amounts not covered by insurance.
Claims are based upon individual case estimates, including reserve
development, and estimates of incurred-but-not-reported losses based upon past
experience. Since the reported liability is an estimate, the ultimate liability
may be more or less than reported. If adjustments to previously established
accruals are required, such amounts are included in operating expenses. During
the fourth quarter of 2003, the Company engaged consulting actuaries to assist
in determining the liability for self insurance reserves for accident liability
and workers' compensation claims. As a result of the actuarial studies
management decreased the amount accrued for accident liability claims by $11.2
million and increased the amount accrued for workers' compensation claims by
$2.9 million. These adjustments resulted in an increase in operating income, net
income and earnings per share of $8.3 million, $5.4 million and $0.11,
respectively.
23
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Stockholders' Equity
On May 10, 2001 the Company's Board of Directors approved a five-for-four
split of the Company's common stock effected in the form of a 25% stock dividend
for stockholders of record as of May 21, 2001. A total of 6,341,549 common
shares were issued in this transaction. On January 28, 2002 the Company's Board
of Directors approved a two and seven tenths for one and seven tenths split of
the Company's common stock effect in the form of a 57.7% stock dividend for
stockholders of record as of February 8, 2002. A total of 18,291,869 common
shares were issued in this transaction. The effect of the stock dividends have
been recognized retroactively in the shareholders' equity accounts on the
balance sheet as of December 31, 2002 and 2001, and in all share and per share
data in the accompanying consolidated financial statements, notes to financial
statements and supplemental data.
In September, 2001, the Board of Directors of the Company authorized a
program to repurchase five million shares of the Company's Common Stock in open
market or negotiated transactions using available cash and cash equivalents. No
shares were purchased during 2003, 2002 and 2001. The authorization to
repurchase remains open at December 31, 2003 and has no expiration date.
On March 7, 2002, the principal stockholder awarded 90,750 shares of his
common stock to key employees of the Company. These shares had a fair market
value of $21.99 per share on the date of the award. The shares will vest 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, $1,995,592 on
the date of the award, was treated as a contribution of capital and is being
amortized on a straight-line basis over the five year vesting period as
compensation expense. During the year ended December 31, 2003, 4,250 shares were
forfeited. The original value of the shares was treated as a reduction of
Additional Paid in Capital and Unearned Compensation. Compensation expense of
approximately $365,000 and $333,000 was recognized for the years ended December
31, 2003 and 2002, respectively.
Note 7. Profit Sharing Plan and Retirement Plan
The Company has a retirement savings plan (the "Plan") for substantially
all employees who have completed one year of service and are 19 years of age or
older. Employees may make 401(k) contributions subject to Internal Revenue Code
limitations. The Plan provides for a discretionary profit sharing contribution
to non-driver employees and a matching contribution of a discretionary
percentage to driver employees. Company contributions totaled approximately
$853,000, $843,000, and $660,000, for the years ended December 31, 2003, 2002,
and 2001, respectively.
Note 8. Acquisition of Business
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 million in 2001.
The acquired assets (primarily revenue equipment) were recorded at their
estimated fair values of approximately $22.2 million in accordance with SFAS No.
141, Business Combinations. Goodwill in the amount of $4.4 million has been
recorded in "Other Assets" for the amount which the purchase price exceeded the
fair value of the assets acquired and is primarily attributable to the driver
workforce acquired as part of the acquisition. 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 operations
is immaterial. The acquisition was funded from cash and investments.
24
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Commitments and Contingencies
On January 7, 2002, the Owner-Operators Independent Drivers Association,
Inc. served a lawsuit against the Company in the United States District Court
for the Southern District of Iowa. The lawsuit alleges that the Company failed
to adequately inform the owner-operators of certain deductions from their
settlement statements in violation of Department of Transportation regulations
and that the Company's standard contract with owner-operators violates those
regulations. The lawsuit sought unspecified damages and an injunction to prevent
owner-operators from hauling for the Company until alleged contractual
deficiencies are corrected. In December 2003, Heartland Express made an "offer
of judgment" in which to pay plaintiffs and class members $250,000 plus
reasonable attorneys' fees to resolve all claims in the case. The offer was
accepted by OOIDA, and the parties have jointly asked the court to approve the
offer and acceptance of judgment. Management's estimate of the total loss has
been accrued as of December 31, 2003.
On June 21, 2002 a driver for the Company was involved in a multiple (5)
fatality accident in Knoxville, Tennessee. 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 open.
The Company is a party to ordinary, routine litigation and administrative
proceedings incidental to its business. These proceedings primarily involve
claims for personal injury and property damage incurred in connection with the
transportation of freight. The Company maintains insurance to cover liabilities
arising from the transportation of freight for amounts in excess of certain
self-insured retentions. In the opinion of management, the Company's potential
exposure under pending legal proceedings is adequately provided for in the
accompanying financial statements.
Note 10. Quarterly Financial Information (Unaudited)
First Second Third Fourth
--------- --------- --------- ---------
(In thousands, Except Per Share Data)
Year ended December 31, 2003
Operating revenue $ 94,840 $ 102,800 $ 104,461 $ 103,015
Operating income 16,207 18,653 21,488 28,749 (1)
Income before income taxes 16,746 19,146 21,959 29,292 (1)
Net income 11,052 12,636 14,493 19,040 (1)
Basic earnings per share 0.22 0.25 0.29 0.38 (1)
Year ended December 31, 2002
Operating revenue $ 73,270 $ 84,360 $ 91,123 $ 91,992
Operating income 13,693 15,983 16,129 16,243
Income before income taxes 14,451 16,705 16,778 16,926
Net income 9,538 11,025 11,073 11,171
Basic earnings per share 0.19 0.22 0.22 0.22
(1) See Note 5 to the consolidated financial statements.
25
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------
Charges To
---------------------
Balance At Cost Balance
Beginning And Other At End
Description of Period Expense Accounts Deductions of Period
- -------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended December 31, 2003 $650,000 $ 42,677 $ - $ 17,677 $ 675,000
Year ended December 31, 2002 402,812 248,986 - 1,798 650,000
Year ended December 31, 2001 402,812 178,457 - 178,457 402,812
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 5, 2002, on recommendation of the Audit Committee of the Company's
Board of Directors, the Company's Board of Directors dismissed Arthur Andersen
as the Company's independent public accountants and engaged KPMG LLP (KPMG) to
audit the consolidated financial statements of the Company for the fiscal year
2002. KPMG has not audited any of the Company's financial statements for
year-ends prior to December 31, 2002 and therefore is unable to express an
opinion on any prior years' financial information.
During the Company's fiscal year ended December 31, 2001, and during the
subsequent interim period through the date of Arthur Andersen's dismissal, there
were no disagreements with Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Arthur Andersen's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on the Company's consolidated financial statements for such years; and
there were no reportable events, as listed in Item 304(a)(1)(v) of Regulation
S-K. Arthur Andersen's reports on the Company's consolidated financial
statements for Company's fiscal year ended December 31, 2001 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles.
During the Company's fiscal year ended December 31, 2001 and the subsequent
interim period through the date of Arthur Andersen's dismissal, the Company did
not consult KPMG with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events listed in Item
304(a)(2)(i) and (ii) of Regulation S-K.
ITEM 9A. 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.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Part III is presented under the
items entitled "Information Concerning Directors and Executive Officers,"
"Section 16(a) Beneficial Ownership Reporting Compliance," "Meetings and
Independent Directors," and "Code of Ethics" in the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders on May 6, 2004. Such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III is presented under the item
entitled "Executive Compensation" in the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders on May 6, 2004. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Part III is presented under the item
entitled "Security Ownership of Principal Stockholders and Management" in the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on
May 6, 2004. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Part III is presented under the item
entitled "Certain Relationships and Related Transactions" in the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on May 6,
2004. Such information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding principal auditor fees and services is set forth
under "Principal Auditor Fees and Services" in the Proxy Statement, which
information is incorporated herein by reference.
27
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
(a) (1) Financial Statements: See Part II, Item 8 hereof.
Page
Independent Auditors' Report - KPMG LLP................................... 13
Report of Independent Accountants - Arthur Andersen LLP.................. 14
Consolidated Balance Sheets.............................................. 15
Consolidated Statements of Operations..................................... 16
Consolidated Statements of Stockholders' Equity........................... 17
Consolidated Statements of Cash Flows..................................... 18
Notes to Consolidated Financial Statements................................ 19
(a) (2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves.............. 26
Schedules not listed have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.
(a) (3) Exhibits required by Item 601 of Regulation S-K are listed below.
EXHIBIT INDEX
Exhibit No. Document Method of Filing
3.1 Articles of Incorporation Incorporated by reference
to the Company's
registration statement on
Form S-1, Registration
No.33-8165, effective
November 5, 1986.
3.2 Bylaws Incorporated by reference
to the Company's
registration statement on
Form S-1, Registration
No.33-8165, effective
November 5, 1986.
3.3 Certificate of Amendment to Incorporated by reference
Articles of Incorporation to the Company's
Form 10-QA, for the
quarter ended June 30,
1997, dated March 20, 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.
4.2 Bylaws Incorporated by reference
to the Company's
registration statement on
Form S-1, Registration No.
33-8165, effective
November 5, 1986.
28
4.3 Certificate of Amendment Incorporated by reference
to Articles of Incorporation to the Company's
Form 10-QA, for the quarter
ended June 30, 1997, dated
March 20, 1998.
9.1 Voting Trust Agreement Incorporated by reference
dated June 6, 1997 between to the Company's Form 10-K
Larry Crouse as trustee under for the year ended December
the Gerdin Educational Trusts and 31, 1997. Commission file
Larry Crouse voting trustee. No. 0-15087.
10.1 Business Property Lease between Incorporated by reference
Russell A. Gerdin as Lessor and to the Company's Form 10-Q
the Company as Lessee, regarding for the quarter ended
the Company's headquarters at September, 30, 2000.
2777 Heartland Drive, Commission file No.0-15087.
Coralville, Iowa 52241
10.2 Restricted Stock Agreement Incorporated by reference
to the Company's Form 10-K
for the year ended December
31, 2002. Commission file
No. 0-15087.
10.3 Incentive Compensation Plan Incorporated by reference
to the Company's Form 10-K
for the year ended December
31, 1993. Commission file
No. 0-15087.
16 Letter of Arthur Andersen LLP Incorporated by reference
regarding change in certifying to the Company's Form 10-K
accountant. for the year ended December
31, 2002. Commission file
No. 0-15087.
21 Subsidiaries of the Registrant Filed herewith.
31.1 Certification of Chief Executive Filed herewith.
Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
31.2 Certification of Chief Financial Filed herewith.
Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
32 Certification of Chief Executive Filed herewith.
Officer and Chief Financial Officer
Pursuant to 18 U.S.C.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 October 21, 2003, announcing the Company's
financial results for the quarter ended September 30, 2003.
Report on Form 8-K, dated December 10, 2003, announcing the Declaration of
a Quarterly Cash Dividend.
29
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused the report to be signed on its behalf by
the undersigned thereunto duly authorized.
HEARTLAND EXPRESS, INC.
Date: March 10, 2004 By: /s/ Russell A. Gerdin
Russell A. Gerdin
President and Chief
Executive Officer
(principal executive officer)
Pursuant to the Securities Act of 1934, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
Signature Title Date
/s/ Russell A. Gerdin Chairman, President and
Russell A. Gerdin Chief Executive Officer
and Secretary,
(principal executive officer) March 10, 2004
/s/ John P. Cosaert Executive Vice President
John P. Cosaert of Finance, Chief Financial
Officer and Treasurer
(principal accounting and
financial officer) March 10, 2004
/s/ Richard O. Jacobson Director March 10, 2004
Richard O.Jacobson
/s/ Michael J. Gerdin Vice President of Regional
Michael J. Gerdin Operations and Director March 10, 2004
/s/ Benjamin J. Allen Director March 10, 2004
Benjamin J. Allen
/s/ Lawrence D. Crouse Director March 10, 2004
Lawrence D. Crouse
30
Exhibit No. 21
Subsidiaries of the Registrant
Heartland Express, Inc. Parent
A & M Express, Inc. Subsidiary
Heartland Equipment, Inc. Subsidiary
Heartland Express, Inc. of Iowa Subsidiary
Exhibit No. 31.1
Certification
I, Russell A. Gerdin, Chairman, President and Chief Executive Officer of
Heartland Express, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Heartland Express, Inc.
(the "Registrant");
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure control and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule 13a-15(f)
and 15d-15(f)) 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) Designed such internal control over financial reporting, or cause such
disclosure controls and procedures to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluate 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
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's fourth
fiscal quarter 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 function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls: 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: March 10, 2004 /s/ Russell A. Gerdin
Russell A. Gerdin
Chairman, President and
Chief Executive Officer
Certification
I, John P. Cosaert, Chairman, Executive Vice President and Chief Financial
Officer and Treasurer of Heartland Express, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Heartland Express, Inc.
(the "Registrant");
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure control and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f) and
15d-15(f)) 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) Designed such internal control over financial reporting, or cause such
disclosure controls and procedures to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluate 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
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's fourth
fiscal quarter 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 function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls: 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: March 10, 2004 /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance
Chief Financial Officer and
Treasurer
(principal accounting and
financial officer)
Exhibit No. 32
CERTIFICATION PURSUANT OF
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Russell A. Gerdin, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Heartland Express, Inc., on Form 10-K for the fiscal year ended
December 31, 2003 fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, and that information
contained in such Annual Report on Form 10-K fairly presents in all material
respects the financial condition and results of operations of Heartland Express,
Inc.
Dated: March 10, 2004 By /s/ Russell A. Gerdin
Russell A. Gerdin
Chairman, President and
Chief Executive Officer
I, John P. Cosaert, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Heartland Express, Inc., on Form 10-K for the fiscal year ended
December 31, 2003 fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, and that information
contained in such Annual Report on Form 10-K fairly presents in all material
respects the financial condition and results of operations of Heartland Express,
Inc.
Dated: March 10, 2004 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President
And Chief Financial Officer
End of Report