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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 2004 Commission File No. 0-15087
HEARTLAND EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 93-0926999
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2777 Heartland Drive, Coralville, Iowa 52241
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (319) 545-2728
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
At June 30, 2004, there were 50,000,000 shares of the Company's $.01 par value
common stock outstanding.
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
June 30, 2004 and
December 31, 2003 1-2
Consolidated Statements of Income
for the Three and Six Months
Ended June 30, 2004 and 2003 3
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 2004 and 2003 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of 12
Security Holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12-16
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
2004 2003
------------- --------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ............. $123,628,076 $127,885,474
Investments ........................... 105,461,499 74,545,681
Trade receivables,
less allowance of
$775,000 and $675,000 ................. 38,065,754 36,836,728
Prepaid tires ......................... 2,113,480 2,529,580
Deferred income taxes ................. 24,467,000 21,308,000
Other current assets .................. 3,611,629 673,101
------------ ------------
Total current assets ............... 297,347,438 263,778,564
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements ............ 9,536,271 9,440,329
Buildings ............................. 17,494,255 17,006,260
Furniture and fixtures ................ 1,210,424 1,210,424
Shop and service equipment ............ 2,567,484 2,287,172
Revenue equipment ..................... 210,662,009 202,706,807
------------ ------------
241,470,443 232,650,992
Less accumulated depreciation ......... 65,500,979 56,951,186
------------ ------------
Property and equipment, net ........... 175,969,464 175,699,806
------------ ------------
OTHER ASSETS ............................. 8,796,373 8,928,186
------------ ------------
$482,113,275 $448,406,556
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2004 2003
-------------- --------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable & accrued liabilities .... $ 13,612,430 $ 15,684,826
Compensation & benefits ................... 12,905,721 10,704,329
Income taxes payable ...................... 8,514,370 7,720,875
Insurance accruals ........................ 41,196,089 37,125,109
Other ..................................... 7,495,270 5,895,502
------------- -------------
Total current liabilities ................. 83,723,880 77,130,641
------------- -------------
DEFERRED INCOME TAXES ........................ 39,862,000 39,760,000
------------- -------------
CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred, $.01 par value; authorized
5,000,000 share; none issued ............ -- --
Common, $.01 par value; authorized
395,000,000 shares; issued and
outstanding 50,000,000 shares ........... 500,000 500,000
Additional paid-in capital ................ 8,510,305 8,510,305
Retained earnings ......................... 350,531,562 323,710,296
------------- -------------
359,541,867 332,720,601
Less: unearned compensation ............... (1,014,472) (1,204,686)
------------- -------------
358,527,395 331,515,915
------------- -------------
$ 482,113,275 $ 448,406,556
============= =============
2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2004 2003 2004 2003
OPERATING REVENUE .......................... $ 113,511,541 $ 102,799,789 $ 220,348,453 $ 197,639,524
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages, and benefits ........... $ 39,091,825 $ 35,190,604 $ 78,857,921 $ 67,502,911
Rent and purchased transportation ....... 9,522,915 13,151,043 20,041,540 27,104,114
Operations and maintenance .............. 22,710,926 18,141,646 43,656,478 37,451,826
Taxes and licenses ...................... 2,204,958 2,125,293 4,495,240 3,998,699
Insurance and claims .................... 5,395,577 4,164,378 7,892,218 6,535,371
Communications and utilities ............ 980,349 923,038 1,942,532 1,816,883
Depreciation ............................ 6,757,757 6,926,441 13,371,461 12,293,984
Other operating expenses ................ 3,411,410 3,551,159 6,915,444 6,105,931
(Gain) on disposal of fixed assets ...... (65,638) (27,110) (101,889) (30,771)
------------- ------------- ------------- -------------
90,010,079 84,146,492 177,070,945 162,778,948
------------- ------------- ------------- -------------
Operating income ............ 23,501,462 18,653,297 43,277,508 34,860,576
Interest income ......................... 651,871 492,404 1,219,387 1,031,021
------------- ------------- ------------- -------------
Income before income taxes ........... 24,153,333 19,145,701 44,496,895 35,891,597
Income taxes ............................ 8,453,664 6,509,537 15,675,629 12,203,141
------------- ------------- ------------- -------------
Net income ........................... $ 15,699,669 $ 12,636,164 $ 28,821,266 $ 23,688,456
============= ============= ============= =============
Earnings per common share:
Basic earnings per share ............ $ 0.31 $ 0.25 $ 0.58 $ 0.47
============= ============= ============= =============
Basic weighted average shares outstanding 50,000,000 50,000,000 50,000,000 50,000,000
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
2004 2003
------------- -------------
OPERATING ACTIVITIES
Net income ................................. $ 28,821,266 $ 23,688,456
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization ........... 13,381,463 12,303,986
Deferred income taxes ................... (3,057,000) 2,817,000
Unearned compensation ................... 190,214 199,560
(Gain) on disposal of fixed assets ...... (101,889) (30,771)
Changes in certain working capital items:
Trade receivables .................... (1,229,026) (4,465,324)
Other current assets ................. (2,938,528) (2,890,076)
Prepaid expenses ..................... 416,100 936,910
Accounts payable and accrued expenses 7,201,997 6,419,622
Accrued income taxes ................. 793,495 6,393,888
------------- -------------
Net cash provided by operating activities 43,478,092 45,373,251
------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 101,889 70,936
Capital additions .......................... (15,044,846) (35,529,345)
Net purchases of municipal bonds ........... (30,915,818) (1,777,594)
Change in other assets ..................... 121,811 (310,599)
------------- -------------
Net cash used in investing activities ...... (45,736,964) (37,546,602)
------------- -------------
FINANCING ACTIVITIES, cash dividend ........... (1,998,526) --
------------- -------------
Net increase (decrease) in cash and
cash equivalents ......................... (4,257,398) 7,826,649
CASH AND CASH EQUIVALENTS
Beginning of period ........................ 127,885,474 89,717,866
------------- -------------
End of period .............................. $ 123,628,076 $ 97,544,515
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes,net ........................ $ 17,939,134 $ 2,992,253
Noncash investing activities:
Book value of revenue equipment traded .. $ 5,487,691 $ 1,637,232
The accompanying notes are an integral part of these consolidated financial
statements.
4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Heartland
Express, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
normal, recurring adjustments considered necessary for a fair presentation have
been included. The financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2003
included in the Annual Report on Form 10-K of the Company filed with the
Securities and Exchange Commission. Interim results of operations are not
necessarily indicative of the results to be expected for the full year or any
other interim periods.
Note 2. Segment Information
The Company has nine operating divisions; however, it has determined that
it has one reportable segment. All of the divisions are managed based on similar
economic characteristics. Each of the regional operating divisions provides
short to medium-haul truckload carrier services of general commodities to a
similar class of customers. In addition, each division exhibits similar
financial performance, including average revenue per mile and operating ratio.
As a result of the foregoing, the Company has determined that it is appropriate
to aggregate its operating divisions into one reportable segment consistent with
the guidance in SFAS No. 131. Accordingly, the Company has not presented
separate financial information for each of its operating divisions as the
Company's consolidated financial statements present its one reportable segment.
Note 3. Investments
Investments primarily include municipal bonds with interest reset
provisions and short-term municipal bonds. The cost approximates the fair value
due to the nature of the investments. Therefore, accumulated other comprehensive
income (loss) has not been recognized as a separate component of stockholders'
equity.
Note 4. Commitments and Contingencies
The Company is party to ordinary, routine litigation and administrative
proceedings incidental to its business. In the opinion of management, the
Company's potential exposure under pending legal proceedings is adequately
provided for in the accompanying consolidated financial statements.
The Company has commitments at June 30, 2004 to acquire revenue equipment
for approximately $32.6 in 2004, $39.4 million in 2005, and $43.4 million in
2006. These commitments are expected to be financed from existing cash and
investment balances and cash flows from operations.
Note 5. Property, Equipment, and Depreciation
The Company's tractor fleet has historically been depreciated by the 125%
declining balance method applied to cost, net of salvage value. Tractors
purchased beginning in June, 2004 are being depreciated by the 125% declining
balance method applied to the book value of the asset at the beginning of each
period. The salvage value is no longer being deducted from the book value each
period when computing the depreciation base used to calculate the declining
balance depreciation and resulted in additional depreciation of $60,000 in the
second quarter of 2004.
5
Effective April 1, 2003 the Company reduced the salvage value on its
trailer fleet from $6,000 to $4,000 per trailer. This change in accounting
estimate increased depreciation expense during the six months ended June 30,
2003 by approximately $570,000.
Note 6. Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the June 30, 2004 presentation.
Note 7. Subsequent Event
The Company's board of directors approved a three-for-two stock split
payable in the form of a 50% stock dividend. The stock dividend will be paid on
August 20, 2004 to stockholders of record as of August 9, 2004. The Company's
issued and outstanding shares of common stock will increase from 50.0 million to
75.0 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Except for certain historical information contained herein, this Quarterly
Report on Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks, assumptions and uncertainties which are difficult to predict. All
statements, other than statements of historical fact, are statements that could
be deemed forward-looking statements, including any projections of earnings,
revenues, or other financial items; any statements of plans, strategies, and
objectives of management for future operations; any statements concerning
proposed new strategies or developments; any statements regarding future
economic conditions or performance; any statements of belief and any statement
of assumptions underlying any of the foregoing. Words such as "believe," "may,"
"could," "expects," "anticipates," and "likely," and variations of these words
or similar expressions, are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed in the section entitled "Factors That May Affect Future Results,"
included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" set forth in the Company's Annual report on Form 10-K,
which is by this reference incorporated herein. The Company does not assume, and
specifically disclaims, any obligation to update any forward-looking statements
contained in this Quarterly report.
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 the first six months of 2004,
freight revenue, excluding fuel surcharge, increased 10.6% to $209.5 million
from $189.4 million in the first six months of 2003.
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 experienced
drivers, reliable equipment and equipment availability. Heartland has one of the
newest fleets in the industry with an average tractor age of 24 months and
trailer age of 31 months. During April of 2004, the Company entered into an
agreement to replace its entire tractor fleet by December 2006. The Company
started taking delivery of the new tractors during June 2004. The Company
expects future revenue equipment purchases to be financed using current cash and
investment balances and cash flow provided by operations.
6
The Company continues to work with shippers and drivers to minimize the
impact of the revised DOT hours-of-service regulations that took effect on
January 4, 2004. These revised regulations have had minimal effect on our
operations to date primarily due to proper planning and customer cooperation.
Fleet utilization is up slightly over the prior year. On July 16, 2004, the U.
S. Court of Appeals for the District of Columbia issued a decision vacating the
new hours-of-service regulations. The decision is not effective immediately. The
Federal Motor Carrier Safety Administration (FMCSA) will continue to enforce the
new hours-of-service regulations in the interim. The course of action by the
FMCSA is unknown at this time.
In addition to the revised hours-of-service regulations, the trucking
industry is experiencing a shortage of qualified drivers. In order to attract
and retain experienced drivers, the Company increased pay for all drivers $0.03
per mile during the first quarter of 2004. Management believes that the Company
continues to offer one of the highest pay packages in the industry. This pay
package along with increased recruiting efforts should allow the Company to
attract additional qualified drivers; however, a long term shortage of drivers
could hinder growth.
Effective October 1, 2002, all newly manufactured truck engines must comply
with the engine emission standards mandated by the Environmental Protection
Agency (EPA). The new engines have resulted in a significant increase in the
cost of new tractors and testing results indicate lower fuel efficiency and
higher maintenance costs. All 2004 and future tractor purchases by the Company
will include engines that conform to the new standards. As a result of these
purchases, the operating costs associated with tractors are expected to
increase.
Results of Operations:
The following table sets forth the percentage relationship of expense items
to operating revenue for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
------ ------ ------ ------
Operating revenue 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Operating expenses:
Salaries, wages, and benefits 34.4% 34.2% 35.8% 34.2%
Rent and purchased transportation 8.4 12.8 9.1 13.7
Operations and maintenance 20.0 17.6 19.8 19.0
Taxes and licenses 1.9 2.1 2.0 2.0
Insurance and claims 4.8 4.1 3.6 3.3
Communications and utilities 0.9 0.9 0.9 0.9
Depreciation 6.0 6.7 6.1 6.2
Other operating expenses 3.0 3.5 3.1 3.1
(Gain) loss on disposal of fixed (0.1) - - -
assets ------ ------ ------ ------
Total operating expenses 79.3% 81.9% 80.4% 82.4%
------ ------ ------ ------
Operating income 20.7% 18.1% 19.6% 17.6%
Interest income 0.6 0.5 0.6 0.5
------ ------ ------ ------
Income before income taxes 21.3% 18.6% 20.2% 18.1%
Federal and state income taxes 7.5 6.3 7.1 6.1
------ ------ ------ ------
Net income 13.8% 12.3% 13.1% 12.0%
====== ====== ====== ======
The following is a discussion of the results of operations of the three and
six month periods ended June 30, 2004 compared with the same periods in 2003,
and the changes in financial condition through the second quarter of 2004.
7
Three Months Ended June 30, 2004 and 2003
Operating revenue increased $10.7 million (10.4%), to $113.5 million in the
second quarter of 2004 from $102.8 million in the second quarter of 2003. The
increase in revenue resulted from additional business from existing customers,
growth of our customer base, and rate increases. Operating revenue for both
periods was positively impacted by fuel surcharges assessed to customers. Fuel
surcharge revenue increased $2.3 million to $6.3 million in the second quarter
of 2004 from $4.0 million in the second quarter of 2003.
Salaries, wages, and benefits increased $3.9 million (11.1%), to $39.1
million in the second quarter of 2004 from $35.2 million in the second quarter
of 2003. These increases were primarily the result of increased reliance on
employee drivers due to a decrease in the number of independent contractors
utilized by the Company. During the second quarter of 2004, employee drivers
accounted for 88% and independent contractors 12% of the total fleet miles,
compared with 82% and 18%, respectively, in the second quarter of 2003. The
Company also increased pay for all drivers $0.03 per mile during the first
quarter of 2004. During the second quarter of 2004, the Company experienced a
decrease in workers' compensation costs due to a decrease in frequency and
severity of claims.
Rent and purchased transportation decreased $3.6 million (27.6%), to $9.5
million in the second quarter of 2004 from $13.1 million in the second quarter
of 2003. This reflects the Company's decreased reliance upon independent
contractors. Rent and purchased transportation for both periods includes amounts
paid to independent contractors under the Company's fuel stability program.
Operations and maintenance increased $4.6 million (25.2%) to $22.7 million
in the second quarter of 2004 from $18.1 million in the second quarter of 2003.
The increase in operations and maintenance is primarily attributable to
increased fuel costs due to the increased percentage of fleet miles driven by
employee drivers and record high fuel prices during the second quarter of 2004.
Insurance and claims increased $1.2 million (29.6%), to $5.4 million in the
second quarter of 2004 from $4.2 million in the second quarter of 2003.
Insurance and claims expense will vary as a percentage of operating revenue from
period to period based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends.
Depreciation decreased $0.1 million (2.4%) to $6.8 million during the
second quarter of 2004 from $6.9 million in the second quarter of 2003.
Depreciation expense was flat for the quarter due to the Company not incurring
significant growth of the fleet compared to the second quarter of 2003.
Other operating expenses decreased $0.2 million (3.9%) to $3.4 million
during the second quarter of 2004 from $3.6 million during the second quarter of
2003. Other operating expenses consist primarily of costs incurred for freight
handling, highway tolls, driver recruiting expenses, and administrative costs.
The Company's effective tax rate was 35.0% and 34.0% for the second quarter
of 2004 and 2003, respectively.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 79.3% during the second
quarter of 2004 compared with 81.9% during the second quarter of 2003. Net
income increased $3.1 million (24.2%), to $15.7 million during the second
quarter of 2004 from $12.6 million during the second quarter of 2003.
Six Months Ended June 30, 2004 and 2003
Operating revenue increased $22.7 million (11.5%), to $220.3 million in the
six months ended June 30, 2004 from $197.6 million in the 2002 period. The
increase in revenue resulted from additional business from existing customers,
growth of our customer base, and rate increases. Operating revenue for both
periods was positively impacted by fuel surcharges assessed to customers.
8
Fuel surcharge revenue increased $2.6 million to $10.9 million for the six
months ended June 30, 2004 from $8.3 million in the compared 2003 period.
Salaries, wages, and benefits increased $11.4 million (16.8%), to $78.9
million in the six months ended June 30, 2004 from $67.5 million in the 2003
period. These increases were a result of increased reliance on employee drivers
due to a decrease in the number of independent contractors utilized by the
Company. During the first six months of 2004, employee drivers accounted for 87%
and independent contractors 13% of the total fleet miles, compared with 80% and
20%, respectively, in the compared 2003 period. In addition, the Company
incurred increased workers' compensation costs during the six month period of
2004 due to an increase in the frequency and severity of workers' compensation
claims during the first quarter of 2004.
Rent and purchased transportation decreased $7.1 million (26.1%), to $20.0
million in the first six months of 2004 from $27.1 million in the 2002 period.
This reflects the Company's decreased reliance upon independent contractors.
Rent and purchased transportation for both periods includes amounts paid to
independent contractors under the Company's fuel stability program.
Operations and maintenance increased $6.2 million (16.6%) to $43.7 million
in the six months ended June 30, 2004 from $37.5 million in the 2003 period. The
increase in operations and maintenance is primarily attributable to increased
fuel costs due to the increased percentage of fleet miles driven by employee
drivers and record high fuel prices during the first six months of 2004.
Insurance and claims increased $1.4 million (20.8%), to $7.9 million in the
first six months of 2004 from $6.5 million in the compared 2003 period.
Insurance and claims expense will vary as a percentage of operating revenue from
period to period based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends.
Depreciation increased $1.1 million (8.8%) to $13.4 million during the
first six months of 2004 from $12.3 million in the compared 2002 period.
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 by approximately $0.6 million.
Other operating expenses increased 0.8 million (13.3%) to $6.9 million
during the first six months 2004 from $6.1 million during the compared 2003
period. Other operating expenses consist primarily of freight handling, highway
tolls, drivers recruiting expenses, and administrative costs.
The Company's effective tax rate was 35.2% and 34.0% for the six months
ended June 30, 2004 and 2003, respectively.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 80.4% during the first six
months of 2004 compared with 82.4% during the first six months of 2003. Net
income increased $5.1 million (21.7%), to $28.8 million during the first six
months of 2004 from $23.7 million during the compared 2003 period.
Liquidity and Capital Resources
The growth of the Company's business has required significant investments
in new revenue equipment. Historically the Company has been debt-free, funding
revenue equipment purchases with cash flow provided by operations. The Company
also obtains tractor capacity by utilizing independent contractors, who provide
a tractor and bear all associated operating and financing expenses. The
Company's primary source of liquidity for the six months ended June 30, 2004,
was net cash provided by operating activities of $43.5 million compared to $45.4
million in the corresponding 2003 period.
Capital expenditures for property and equipment, primarily revenue
equipment net of trade-ins, totaled $15.0 million for the first six months of
2004 compared to $34.5 million for the same period in 2003.
9
The decrease inpurchases of revenue equipment thus far in 2004 is primarily due
to the Company increasing tractor purchases during 2002 and the first quarter of
2003 to delay the business risk of buying tractors with engines that comply with
new EPA emissions 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. Future capital expenditures are expected to be
funded by cash flow provided by operations and from existing cash, cash
equivalents, and investments. The Company ended the quarter with $229.1 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.
Contractual Obligations
The impact that our contractual obligations as of June 30, 2004 are
expected to have on our liquidity and cash flow in future periods is as follows
(in thousands):
Payments due by period
------------------------------------
Less than 1-3
Total 1 year year
Purchase Obligations, net $115,435 $ 32,648 $ 82,787
Operating Lease Obligations 275 150 125
-------- -------- --------
Total $115,710 $ 32,798 $ 82,912
======== ======== ========
The purchase obligations reflect the total purchase price, net of trade-in
values, for tractors scheduled for delivery through December 2006. These
purchases are expected to be financed by existing cash and investment balances,
and with cash flows from operations.
Factors That May Affect Future Results
The Company's future results may be affected by a number of factors over
which the Company has little or no control. Fuel prices, insurance and claims
costs, liability claims, interest rates, the availability of qualified drivers,
fluctuations in the resale value of revenue equipment, economic and customer
business cycles and shipping demands are economic factors over which the Company
has little or no control. Significant increases or rapid fluctuations in fuel
prices, interest rates or insurance and claims costs, to the extent not offset
by increases in freight rates, and the resale value of revenue equipment could
reduce the Company's profitability.
Weakness in the general economy, including a weakness in consumer demand
for goods and services, could adversely affect the Company's customers and the
Company's growth and revenues, if customers reduce their demand for
transportation services. Customers encountering adverse economic conditions
represent a greater potential for loss, and the Company may be required to
increase its reserve for bad debt losses. Weakness in customer demand for the
Company's services or in the general rate environment may also restrain the
Company's ability to increase rates or obtain fuel surcharges.
Inflation and Fuel Cost
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operations. During the past
three years, the most significant effects of inflation have been on revenue
equipment prices and the compensation paid to the drivers. Innovations in
equipment technology and comfort have resulted in higher tractor prices, and
there has been an industry-wide increase
10
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, short-term increases are not fully
recovered. Competitive conditions in the transportation industry, such as lower
demand for transportation services, could affect the Company's ability to obtain
rate increases or fuel surcharges.
Seasonality
The nature of the Company's primary traffic (appliances, automotive parts,
paper products, retail goods, and packages foodstuffs) causes it to be
distributed with relative uniformity throughout the year. However, seasonal
variations during and after the winter holiday season have historically 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company purchases only high quality, liquid investments. Primarily all
investments as of June 30, 2004 have an original maturity or interest reset date
of twelve 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 June 30, 2004 and therefore, has
no market risk related to debt.
As of June 30, 2004, the Company has no derivative financial instruments to
reduce its exposure to fuel price fluctuations.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operations of the Company's
disclosure controls and procedures, and as defined in Exchange Act Rule
15d-15(e). Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in enabling the Company to record, process, summarize
and report information required to be included in the Company's periodic SEC
filings within the required time period. There have been no changes in the
Company's internal controls over financial reporting that occurred during the
Company's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
31.1 Certification of Chief Executive 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 Officer Pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32 Certification of Chief Executive 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 1.
Report on Form 8-K, dated April 15, 2004, announcing the Company's
financial results for the quarter ended March 31, 2004. 2. Report on Form
8-K, dated April 27, 2004, announcing the replacement of the Company's
tractor fleet. 3. Report on Form 8-K, dated June 10, 2004, announcing the
declaration of a quarterly cash dividend.
No other information is required to be filed under Part II of the form.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEARTLAND EXPRESS, INC.
Date: August 4, 2004 BY:/s/ John P. Cosaert_____
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and Treasurer
(principal accounting and financial
officer)
13
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 quarterly report on Form 10-Q of Heartland Express,
Inc. (the "Registrant");
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 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) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
first 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: August 4, 2004 By /s/ Russell A. Gerdin
Russell A. Gerdin
Chairman, President and
Chief Executive Officer
14
Exhibit No. 31.2
Certification
I, John P. Cosaert, Executive Vice President, Chief Financial Officer and
Treasurer of Heartland Express, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Heartland Express,
Inc. (the "Registrant");
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
first 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: August 4, 2004 By /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance
Chief Financial Officer and
Treasurer
(principal accounting and
financial officer)
15
Exhibit No. 32
CERTIFICATION 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
Quarterly Report of Heartland Express, Inc., on Form 10-Q for the period ended
June 30, 2004 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 Quarterly Report on Form 10-Q fairly presents in all material respects
the financial condition and results of operations of Heartland Express, Inc.
Dated: August 4, 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 Quarterly
Report of Heartland Express, Inc., on Form 10-Q for the period ended June 30,
2004 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 Quarterly Report on Form 10-Q fairly presents in all material respects the
financial condition and results of operations of Heartland Express, Inc.
Dated: August 4, 2004 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President
and Chief Financial Officer
16
End of Form