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 March 31, 2005 Commission File No. 0-15087
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HEARTLAND EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 93-0926999
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2777 Heartland Drive, Coralville, Iowa 52241
- -------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (319) 545-2728
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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 March 31, 2005, there were 75,000,000 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
March 31, 2005 and
December 31, 2004 1-2
Consolidated Statements of Income
for the Three Months
Ended March 31, 2005 and 2004 3
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 2005 and 2004 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 7-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11-12
Item 4. Controls and Procedures 12
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
March 31, December 31,
2005 2004
-------------- -------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ................. $ 994,070 $ 1,610,543
Short-term investments .................... 287,184,043 256,727,782
Trade receivables, less allowance
of $775,000 in 2005 and 2004 ............ 38,283,677 37,102,813
Prepaid tires ............................. 2,280,990 2,692,090
Deferred income taxes ..................... 26,275,000 24,964,000
Other current assets ...................... 3,198,427 158,267
------------ ------------
Total current assets ................... 358,216,207 323,255,495
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements ................ 9,543,953 9,543,953
Buildings ................................. 17,494,255 17,494,255
Furniture and fixtures .................... 1,042,131 1,210,424
Shop and service equipment ................ 2,541,642 2,557,654
Revenue equipment ......................... 226,997,757 222,842,499
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257,619,738 253,648,785
Less accumulated depreciation ............. 76,987,853 68,973,751
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Property and equipment, net ............... 180,631,885 184,675,034
------------ ------------
GOODWILL ..................................... 4,814,597 4,814,597
OTHER ASSETS ................................. 4,206,596 4,266,725
------------ ------------
$547,869,285 $517,011,851
============ ============
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
March 31, December 31,
2005 2004
------------- -------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued liabilities .. $ 13,418,791 $ 9,722,099
Compensation and benefits ................. 14,402,754 11,151,523
Income taxes payable ...................... 17,767,286 7,918,914
Insurance accruals ........................ 47,077,892 45,995,442
Other accruals ............................ 6,719,540 5,995,943
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Total current liabilities .............. 99,386,263 80,783,921
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DEFERRED INCOME TAXES ........................ 45,451,000 46,885,000
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred, $.01 par value; authorized
5,000,000 shares; none issued .......... -- --
Common, $.01 par value; authorized
395,000,000 shares; issued and
outstanding 75,000,000 ................. 750,000 750,000
Additional paid-in capital ................ 8,510,305 8,510,305
Retained earnings ......................... 394,500,869 380,906,884
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403,761,174 390,167,189
Less unearned compensation ................ (729,152) (824,259)
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403,032,022 389,342,930
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$ 547,869,285 $ 517,011,851
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
2005 2004
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OPERATING REVENUE ........................ $ 118,677,472 $ 106,836,912
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OPERATING EXPENSES:
Salaries, wages, and benefits ......... 42,716,841 39,766,096
Rent and purchased transportation ..... 7,712,212 10,518,625
Operations and maintenance ............ 28,133,948 20,945,552
Taxes and licenses .................... 2,075,290 2,290,282
Insurance and claims .................. 2,832,265 2,496,641
Communications and utilities .......... 698,877 962,183
Depreciation .......................... 8,388,684 6,613,704
Other operating expenses .............. 4,234,394 3,504,034
Gain on disposal of fixed assets ...... (181,342) (36,251)
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96,611,169 87,060,866
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Operating income ................... 22,066,303 19,776,046
Interest income ....................... 1,335,225 567,516
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Income before income taxes ............ 23,401,528 20,343,562
Federal and state income taxes ........ 8,307,543 7,221,965
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Net income ............................ $ 15,093,985 $ 13,121,597
============= =============
Net income per common share:
Basic net income per share .......... $ 0.20 $ 0.17
============= =============
Basic weighted average shares
outstanding ........................ 75,000,000 75,000,000
============= =============
Dividends declared per share .......... $ 0.020 $ 0.013
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
2005 2004
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OPERATING ACTIVITIES
Net income .................................. $ 15,093,985 $ 13,121,597
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............. 8,393,685 6,618,705
Deferred income taxes ..................... (2,745,000) (1,788,000)
Unearned compensation ..................... 95,107 95,107
Gain on disposal of fixed assets .......... (181,342) (36,251)
Changes in certain working capital items:
Trade receivables ....................... (1,180,864) (2,292,535)
Other current assets .................... (3,040,160) (2,449,546)
Prepaid tires ........................... 497,500 788,350
Accounts payable and accrued liabilities. 6,093,226 3,173,568
Accrued income taxes .................... 9,848,372 8,362,958
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Net cash provided by operating activities ... 32,874,509 25,593,953
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INVESTING ACTIVITIES
Proceeds from sale of property and equipment. 421,000 36,251
Capital additions ........................... (2,012,417) (5,382,578)
Net purchases of municipal bonds ............ (30,456,261) (48,099,106)
Increase in other assets .................... 55,128 71,718
------------ ------------
Net cash used in investing activities ....... (31,992,550) (53,373,715)
------------ ------------
FINANCING ACTIVITIES, cash dividend ............ (1,498,432) (999,594)
------------ ------------
Net decrease in cash and cash equivalents ... (616,473) (28,779,356)
CASH AND CASH EQUIVALENTS
Beginning of year ........................... 1,610,543 38,618,430
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End of quarter .............................. $ 994,070 $ 9,839,074
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ............................. $ 1,204,171 $ 647,007
The accompany 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. and subsidiaries (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, 2004 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. There were no changes
to the Company's significant accounting policies during the quarter.
Note 2. 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.
Note 3. Segment Information
The Company has nine operating divisions; however, it has determined
that it has one reportable segment. All of the divisions are managed based on
similar economic characteristics. Each of the regional operating divisions
provides short to medium-haul truckload carrier services of general commodities
to a similar class of customers. In addition, each division exhibits similar
financial performance, including average revenue per mile and operating ratio.
As a result of the foregoing, the Company has determined that it is appropriate
to aggregate its operating divisions into one reportable segment consistent with
the guidance in SFAS No. 131. Accordingly, the Company has not presented
separate financial information for each of its operating divisions as the
Company's consolidated financial statements present its one reportable segment.
Note 4. 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. The Company previously reported municipal bonds with a reset provision of
three months or less as a cash equivalent. The Company is now classifying all
municipal bonds based upon their original maturity date without respect to any
reset provisions. Reclassifications have been completed on all prior periods
reported herein to be consistent with this change. Restricted and designated
cash and investments totaling $4.2 million at March 31, 2005 and $4.0 million at
March 31, 2004 are classified as other assets. The restricted funds represent
those required for self-insurance purposes and designated funds that are
earmarked for a specific purpose not for general business use.
5
Note 5. 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 6. 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 $768,750 in the
first quarter of 2005.
Note 7. Stock Split
On July 21, 2004, the Board of Directors approved a three-for-two stock
split, affected in the form of a fifty percent stock dividend. The stock split
occurred on August 20, 2004, to shareholders of record as of August 9, 2004.
This stock split increased the number of outstanding shares to 75.0 million from
50.0 million. The number of common shares issued and outstanding and all per
share amounts have been adjusted to reflect the stock split for all periods
presented.
Note 8. 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 are equal to basic earnings per share. All earnings per share
data presented have been restated to reflect a three-for-two stock split on
August 20, 2004.
Note 9. Stock Based Compensation
At March 31, 2005 the Company has a restricted stock award plan. The
plan shares are being amortized over a five year period as compensation expense.
Amortized compensation expense of $95,107 in each of the three month periods
ended March 31, 2005 and 2004 is recorded in salaries, wages, and benefits on
the statement of operations. The unamortized portion of the stock awards is
recorded in stockholders' equity as unearned compensation. All unvested shares
are included in the Company's 75.0 million outstanding shares.
Note 10. New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment," a revision of SFAS No. 123, which addresses the accounting for
share-based payment transactions. SFAS No. 123(R) eliminates the ability to
account for employee share-based compensation transactions using APB Opinion No.
25, "Accounting for Stock Issued to Employees," and generally requires instead
that such transactions be accounted and recognized in the statement of
operations based on their fair value. The Company does not anticipate that SFAS
No. 123(R) will have an impact on the Company.
6
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-monetary Assets--An Amendment of APB Opinion No. 29, Accounting for
Non-monetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from
fair value measurement for non-monetary exchanges of similar productive assets
in paragraph 21(b) of APB Opinion No. 29, "Accounting for Non-monetary
Transactions," and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 153 is effective for the
fiscal periods beginning after June 15, 2005. The Company is currently
evaluating the affect that the adoption of SFAS 153 will have on its
consolidated results of operations and financial condition and has not
determined the financial impact.
Note 11. 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 January 2005, Heartland Express paid
$250,000 to the plaintiffs and class members. In March 2005, the District Court
awarded attorneys' fees on behalf of the plaintiffs in the amount of $225,381 to
resolve all claims in the case. The award of the attorneys' fees has been
accrued as of March 31, 2005.
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 March 31, 2005 to acquire revenue
equipment for approximately $49.4 million in 2005 and $49.5 million in 2006.
These commitments are expected to be financed from existing cash and investment
balances and cash flows from operations.
Note 12. Reclassifications
Certain reclassifications have been made to the prior period financial
statements to conform to the current year's presentation.
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.
7
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 quarter of
2005, freight revenue, excluding fuel surcharge, increased 6.2% to $108.6
million from $102.2 million in the first quarter of 2004.
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 22
months and trailer age of 38 months. The Company anticipates making significant
capital expenditures for revenue equipment during the remainder of 2005. The
Company expects future revenue equipment purchases to be financed using current
cash and investment balances and cash flow provided by operations.
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 new regulations were rescinded in September of 2004 by
the United States Circuit Court of Appeals for the District of Columbia on
grounds that driver health was not properly addressed. At that time the new
regulations were extended to September 30, 2005 at which time further rule
changes could become effective.
The trucking industry continues to experience 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
and again in the first quarter of 2005. 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, lower fuel efficiency, and higher maintenance
costs. All new tractor purchases beginning in 2004 will include engines that
conform to the new standards. As a result of these purchases, the operating
costs associated with new replacement tractors have increased. Additional EPA
engine design requirements will take affect in 2007 and are expected to further
reduce fuel efficiency and increase engine prices.
8
Results of Operations:
The following table sets forth the percentage relationship of expense
items to operating revenue for the periods indicated.
Three months Ended
March 31,
2005 2004
------- -------
Operating revenue 100.0% 100.0%
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Operating expenses:
Salaries, wages, and benefits 36.0% 37.2%
Rent and purchased transportation 6.5 9.9
Operations and maintenance 23.7 19.6
Taxes and licenses 1.7 2.1
Insurance and claims 2.4 2.3
Communications and utilities 0.6 0.9
Depreciation 7.1 6.2
Other operating expenses 3.6 3.3
(Gain) on disposal of fixed assets (0.2) (0.0)
------- -------
Total operating expenses 81.4% 81.5%
------- -------
Operating income 18.6% 18.5%
Interest income 1.1 0.5
------- -------
Income before income taxes 19.7% 19.0%
Federal and state income taxes 7.0 6.7
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Net income 12.7% 12.3%
======= =======
The following is a discussion of the results of operations of the
quarter ended March 31, 2005 compared with the same period in 2004, and the
changes in financial condition through the first quarter of 2005.
Operating revenue increased $11.8 million (11.1%), to $118.7 million in
the first quarter of 2005 from $106.8 million in the first quarter of 2004. The
increase in revenue resulted from improved freight rates and improved
optimization of revenue equipment. Operating revenue for both periods was
positively impacted by fuel surcharges assessed to customers. Fuel surcharge
revenue increased $5.5 million to $10.1 million in the first quarter of 2005
from $4.6 million in the first quarter of 2004.
Salaries, wages, and benefits increased $2.9 million (7.4%), to $42.7
million in the first quarter of 2005 from $39.8 million in the first quarter of
2004. 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 and a driver pay increase. During the first quarter of
2005, employee drivers accounted for 90% and independent contractors 10% of the
total fleet miles, compared with 86% and 14%, respectively, in the first quarter
of 2004. For the second year in a row the Company increased pay for all drivers
$0.03 per mile during the first quarter. The driver pay increased was phased in
at $.01 per month in the first quarter of 2005. In addition, the Company
incurred increased health insurance costs due to the increased frequency and
severity of claims.
Rent and purchased transportation decreased $2.8 million (26.7%), to
$7.7 million in the first quarter of 2005 from $10.5 million in the first
quarter of 2004. 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. The
Company increased the independent contractor base mileage pay by $.03 per mile
on January 1, 2005.
Operations and maintenance increased $7.2 million (34.3%) to $28.1
million in the first quarter of 2005 from $20.9 million in the first quarter of
2004. The increase in operations and maintenance is primarily attributable to
9
increased fuel costs due to the increased percentage of fleet miles driven by
employee drivers. Fuel cost per mile, net of fuel surcharge, increased 11.0% in
the first quarter of 2005 compared to the same period of 2004. The industry
experienced record high fuel prices throughout the first quarter of 2005. In
addition, fuel efficiency for new tractors purchased beginning in 2004 is being
negatively impacted due to EPA mandated engine clean air standards.
Insurance and claims increased $0.3 million (13.4%), to $2.8 million in
the first quarter of 2005 from $2.5 million in the first quarter of 2004.
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 $1.8 million (26.8%) to $8.4 million during the
first quarter of 2005 from $6.6 million in the first quarter of 2004. Effective
June 1, 2004, the Company began depreciating new tractors by applying the 125%
declining balance to the book cost of the tractor. Previously, the 125%
declining balance method was applied to book cost, net of salvage. This change
in estimate increased depreciation by approximately $768,750 during the three
months ended March 31, 2005. In addition, depreciation increased because of the
growth of our company owned tractor and trailer fleet.
Other operating expenses increased $0.7 million (20.8%) to $4.2 million
during the first quarter of 2005 from $3.5 million during the first quarter
2004. Other operating expenses consist primarily of costs incurred for freight
handling, highway tolls, driver recruiting expenses, and administrative costs.
During the first quarter of 2005, freight handling and tolls increased $0.6
million and advertising expense related to driver recruiting increased $0.2
million compared to the first quarter of 2004.
The Company's effective tax rate was 35.5% in the first quarter of 2005
and 2004.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 81.4% during the first
quarter of 2005 compared with 81.5% during the first quarter of 2004. Net income
increased $2.0 million (15.0%), to $15.1 million during the first quarter of
2005 from $13.1 million during the first quarter of 2004.
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 three
months ended March 31, 2005, was net cash provided by operating activities of
$32.9 million compared to $25.6 million in the corresponding 2004 period.
Capital expenditures for property and equipment, primarily revenue
equipment net of trade-ins, totaled $2.0 million for the first three months of
2005 compared to $5.4 million for the same period in 2004. The Company
anticipates new tractor and trailer purchases, net of trades, totaling
approximately $54.0 million in 2005.
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
$288.2 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.
10
Factors That May Affect Future Results
The Company's future results may be affected by a number of factors
over which the Company has little or no control. Fuel prices, insurance and
claims costs, liability claims, interest rates, the availability of qualified
drivers, fluctuations in the resale value of revenue equipment, economic and
customer business cycles and shipping demands are economic factors over which
the Company has little or no control. Significant increases or rapid
fluctuations in fuel prices, interest rates or insurance and claims costs, to
the extent not offset by increases in freight rates, and the resale value of
revenue equipment could reduce the Company's profitability.
Weakness in the general economy, including a weakness in consumer
demand for goods and services, could adversely affect the Company's customers
and the Company's growth and revenues, if customers reduce their demand for
transportation services. Customers encountering adverse economic conditions
represent a greater potential for loss, and the Company may be required to
increase its reserve for bad debt losses. Weakness in customer demand for the
Company's services or in the general rate environment may also restrain the
Company's ability to increase rates or obtain fuel surcharges.
Inflation and Fuel Cost
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operations. During the past
three years, the most significant effects of inflation have been on revenue
equipment prices and the compensation paid to the drivers. Innovations in
equipment technology and comfort have resulted in higher tractor prices, and
there has been an industry-wide increase in wages paid to attract and retain
qualified drivers. The Company historically has limited the effects of inflation
through increases in freight rates and certain cost control efforts.
In addition to inflation, fluctuations in fuel prices can affect
profitability. Based on the Department of Energy national average diesel prices,
the cost of fuel increased 29% over the first quarter of 2004. 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.
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 34%
and 33% of revenues for the quarter ended March 31, 2005 and 2004, respectively.
Operating revenue from one customer exceeded 10% of total gross revenues in the
three months ended March 31, 2005 and 2004.
11
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company purchases only high quality, liquid investments. Primarily
all investments as of March 31, 2005 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 March 31, 2005 and therefore,
has no market risk related to debt.
As of March 31, 2005, 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to ordinary, routine
litigation and administrative proceedings incidental to its
business. These proceedings primarily involve claims for
personal injury, property damage, and workers' compensation
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
12
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 January 18, 2005,
announcing the Company's financial results for
the quarter ended December 31, 2004.
2. Report on Form 8-K, dated March 10, 2005,
announcing the declaration of a quarterly cash
dividend.
No other information is required to be filed under Part II of the form.
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: May 6, 2005 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 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
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 6, 2005
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
functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 6, 2005
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
March 31, 2005 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: May 6, 2005 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
March 31, 2005 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: May 6, 2005 BY: /s/ John P. Cosaert
-----------------------
John P. Cosaert
Executive Vice President
and Chief Financial Officer
16