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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, 1996
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 of Incorporation) (I.R.S. Employer I.D. No.)
2777 Heartland Drive
Coralville, Iowa 52241
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 319-645-2728
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act: $0.10 Par Value
Common Stock
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 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. [X]
The aggregate market value of the shares of the registrant's $0.10 par
value common stock held by non-affiliates of the registrant as of March 3,
1997 was $353,530,719 (based upon $20.63 per share being the average of the
closing bid and asked price on that date as reported by NASDAQ). 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 of
March 3, 1997 was 30,000,000.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under
Part III, Items 10, 11, 12, and 13 of this Report is incorporated by
reference from the registrant's definitive proxy statement for the 1997
annual meeting of stockholders that will be filed no later than
April 30, 1997.
Cross Reference Index
The following cross reference index indicates the document and location of
the information contained herein and incorporated by reference into the
Form 10-K.
Document and Location
Part I
Item 1 Business Page 3 herein
Item 2 Properties Page 5 herein
Item 3 Legal Proceedings Page 5 herein
Item 4 Submission of Matters to a Vote of Stockholders Page 5 herein
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters Page 6 herein
Item 6 Selected Financial Data Page 7 herein
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations Pages 8-12 herein
Item 8 Financial Statements and Supplementary Data Pages 17-26 herein
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure Page 12 herein
Part III
Item 10 Directors and Executive Officers of Pages 2 to 4 of
the Registrant Proxy Statement
Item 11 Executive Compensation Pages 5 and 6 of
Proxy Statement
Item 12 Security Ownership of Certain Beneficial Page 7 of Proxy
Owners and Management Statement
Item 13 Certain Relationships and Related Transactions Pages 4 and 7 of
Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Pages 13 and 14
Reports on Form 8-K herein
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 tractors and a uniform fleet of 53-foot aluminum plate dry vans.
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 eleven years from 1986 to 1996,
Heartland has grown to $229.0 million in revenue from $21.6 million and net
income has increased to $25.0 million from $3.0 million. Much of this
growth has been attributable to expanding service for existing customers
and acquiring new customers. In addition, in March 1994, the Company
engaged in a merger by which truckload carrier Munson Transportation, Inc.
and two related entities (collectively, "Munson Transportation") became
subsidiaries. Munson Transportation had generated approximately $116
million in revenue during 1993, while serving customers primarily in
Midwest, Northeast, and Western states. Munson Transportation had been
unprofitable, and during 1994 and the first half of 1995 management
eliminated duplicate and undesirable operations, integrated administrative
and operational functions, and upgraded Munson Transportation's older fleet
of tractors and trailers. All of the Company's operations and
administrative functions are now unified at its Iowa City headquarters.
Heartland Express, Inc. is a holding company incorporated in Nevada,
which owns, directly or indirectly, all of the stock of Heartland
Express, Inc. of Iowa, Heartland Equipment, Inc., Munson
Transportation, Inc., Munson Transport Services, Inc., and Munson
Equipment, Inc..
Operations
Heartland's operations department focuses on serving customer needs
and maximizing equipment utilization. The Company divides its operating
area into geographic regions and appoints a regional dispatcher for each
region. Regional dispatchers communicate with customers and drivers to
coordinate equipment resources with inbound and outbound load demand.
Dispatchers are responsible for monitoring the timeliness of all pickups
and deliveries within their regions. Frequent driver contact enables
dispatchers to closely monitor equipment and load positions to ensure
proper performance. Serving the short to medium haul market (600-mile
average length of haul in 1996) 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 three specialized regional distribution
operations for major customers near Atlanta, Georgia; Columbus, Ohio; and
Iowa City, Iowa. 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.
These operations are handled by dispatchers at the regional locations, 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.
The Company's primary customers include both retailers and manufacturers.
All freight transported is non-perishable and predominantly does not
require driver handling. Heartland's reputation for quality service,
reliable equipment and equipment availability makes it a core carrier to
many of its customers.
Heartland's sales personnel seek to expand business with existing
customers and establish service with new customers by emphasizing premium
service, regularly monitoring customer needs and the Company's performance,
and coordinating customer requirements with operations personnel.
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 73%, 58%,
and 44% of revenue, respectively, in 1996. Major customers of the Company
represent the consumer appliances, food products, and automotive
industries. The distribution of customers is not significantly different
from the previous year. Sears Logistics Services accounted for 15.1% of
revenue in 1996. No other customer accounted for as much as ten percent of
revenue.
Drivers, Independent Contractors, and Other Personnel
Heartland's workforce is an essential ingredient in achieving its
business objectives. As of December 31, 1996, Heartland employed 1,009
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
balanced fleet of company and independent contractor tractors. Management
believes that a balanced 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 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 and independent contractors.
Revenue Equipment
Heartland's management believes that operating high-quality, efficient
equipment is an important part of providing excellent service to customers.
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. The average age of company tractors at year end was
19 months, and all tractors remained covered by manufacturers' warranties.
The average age of company trailers at year end was 37 months.
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 (600-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 of general
commodities. Historically, the Interstate Commerce Commission (the "ICC")
and various state agencies regulated motor carriers' operating rights,
accounting systems, mergers and acquisitions, periodic financial reporting,
and other matters. In 1995 federal legislation preempted state regulation
of prices, routes, and services of motor carriers and eliminated the ICC.
Several ICC functions were transferred to the Department of Transportation
(the "DOT"). Management does not believe that regulation by the DOT or by
the states in their remaining areas of authority will have a material
effect on the Company's operations. The Company's employee and independent
contractor drivers also must comply with the safety and fitness regulations
promulgated by the DOT, including those relating to drug and alcohol
testing and hours of service.
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 or
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.
ITEM 2. FACILITIES AND 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 recruiting and
driver training center.
The Company has regional facilities in Ft. Smith, Arkansas; O'Fallon,
Missouri; Forest Park, Georgia; and Columbus, Ohio. A facility in Dubois,
Pennsylvania was closed in 1996 and is being leased to an unrelated third
party. In January 1997, the Company purchased a facility in Jacksonville,
Florida. The Company closed facilities in Woodville, Ohio and Monmouth,
Illinois during 1994 and 1995 and is attempting to dispose of such
facilities. The carrying amount of the closed facilities were reduced in
years prior to 1996 to reflect fair market value less costs to sell.
ITEM 3. LEGAL PROCEEDINGS AND INSURANCE
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury and property
damage incurred in the transportation of freight. The Company believes
that adverse results in these cases, whether individual or in the
aggregate, would not have a material effect upon the Company's financial
position or results of operations. The Company's exposure is minimized by
setting self-insured retention levels based on historical claim experience
and through maximizing safe driving with driver hiring and training
practices. Heartland maintains insurance covering public liability,
property damage, workers compensation, cargo loss or damage, fire, general
liability and other risks, with a $500,000 self insured retention ("SIR")
for liability arising from personal injury and property damage claims. The
Company has a $300,000 SIR for workers' compensation in states where an SIR
is allowed. Liability insurance coverage has been established with
aggregate limits of $25,000,000 per occurrence. During 1994 the company
was granted self insured status by the ICC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
During the fourth quarter of 1996, no matters were submitted to a vote
of securities 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. During October 1996 the Company
effected a stock split in the form of a dividend that increased the number
of shares outstanding from 20,000,000 to 30,000,000. The following table
sets forth for the calendar period indicated the range of high and low bid
quotations for the Company's common stock as reported by NASDAQ from
January 1, 1995 to December 31, 1996. All quotations have been adjusted to
give effect to the stock dividend.
Period High Low
Calendar Year 1996
1st Quarter $18.67 $13.17
2nd Quarter 20.83 16.75
3rd Quarter 20.17 16.50
4th Quarter 26.50 18.17
Calendar Year 1995
1st Quarter $12.80 $11.63
2nd Quarter 12.27 10.56
3rd Quarter 14.19 11.09
4th Quarter 14.00 11.52
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual
transactions. As of March 4, 1997 the Company had 267 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.
Dividend Policy
The Company has never declared and paid a cash dividend. It is the
current intention of the Company's Board of Directors to retain earnings to
finance the growth of the Company's business. 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 selected consolidated financial data presented below reflect the
consolidated financial position and results of operations of Heartland
Express, Inc., and its subsidiaries. The selected consolidated financial
data are derived from the Company's consolidated financial statements,
which have been restated for years prior to 1995 to reflect the merger of
Munson Transportation in a transaction accounted for as a pooling of
interests. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Company's consolidated financial statements and notes thereto
included elsewhere herein.
Year Ended December 31,
(in thousands, except share data)
1996 1995 1994 1993 1992
Income Statement Data:
Operating revenue $229,011 $191,507 $224,248 $236,017 $205,214
--------- --------- --------- --------- ---------
Operating expenses:
Salaries, wages,
and benefits 40,261 40,715 56,440 63,551 56,792
Rent and purchased
transportation 93,961 64,043 57,799 51,478 35,759
Operations and
maintenance 22,158 21,035 35,557 45,370 42,377
Taxes and licenses 5,693 5,246 7,347 7,790 6,606
Insurance and claims 9,976 7,967 11,872 10,969 13,196
Communication
and utilities 2,158 2,562 2,618 3,077 2,696
Depreciation 13,571 15,066 20,061 22,818 20,705
Other operating
expenses 4,534 3,745 5,468 8,301 7,564
(Gain) on sale of
fixed assets (189) (27) (149) (360) (944)
Merger consummation
and integration costs - - 3,494 - -
--------- --------- --------- --------- ---------
192,123 160,352 200,507 212,994 184,751
--------- --------- --------- --------- ---------
Operating income 36,888 31,155 23,741 23,023 20,463
Interest income/
(expense), net 2,839 1,524 (1,930) (4,747) (4,829)
--------- --------- --------- ---------- ---------
Income before
income taxes and
cumulative effect
of change in
accounting for
income taxes 39,727 32,679 21,811 18,276 15,634
Federal and state
income taxes 14,697 12,094 11,734 8,028 6,220
Cumulative effect
of change in method
of accounting for
income taxes - - - (700) -
--------- --------- --------- --------- ---------
Net income $ 25,030 $ 20,585 $ 10,077 $ 10,948 $ 9,414
========= ========= ========= ========= =========
Average shares
outstanding 30,000 30,036 30,039 30,039 30,039
========= ========= ========= ========= =========
Net income per share $ 0.83 $ 0.69 $ 0.34 $ 0.36 $ 0.31
========= ========= ========= ========= =========
Balance sheet data:
Working capital $ 69,845 $ 40,780 $ 2,542 $(11,084) $ 140
========= ========= ========= ========= =========
Total assets 191,504 158,146 136,393 168,934 150,217
========= ========= ========= ========= =========
Long term debt - - 705 21,403 38,378
========= ========= ========= ========= =========
Stockholders' equity 123,666 98,636 78,050 67,974 57,030
========= ========= ========= ========= =========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The following table sets forth the percentage relationship of expense
items to operating revenue for the periods indicated.
Year Ended December 31,
1996 1995 1994
Operating revenue 100.0% 100.0% 100.0%
---------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits 17.6% 21.2% 25.2%
Rent and purchased transportation 41.0 33.4 25.8
Operations and maintenance 9.7 11.0 15.8
Taxes and licenses 2.5 2.7 3.3
Insurance and claims 4.4 4.2 5.3
Communications and utilities 0.9 1.3 1.2
Depreciation 5.9 7.9 8.9
Other operating expenses 2.0 2.0 2.4
(Gain) on sale of fixed assets (0.1) -- (0.1)
Merger consummation and integration costs -- -- 1.6
---------- ---------- ----------
Total operating expenses 83.9% 83.7% 89.4%
---------- ---------- ----------
Operating income 16.1% 16.3% 10.6%
Interest income/(expense) 1.2 0.8 (0.9)
---------- ---------- ----------
Income before income taxes 17.3% 17.1% 9.7%
Federal and state income taxes 6.4 6.4 5.2
---------- ---------- ----------
Net income 10.9% 10.7% 4.5%
========== ========== ==========
Results of Operations
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
Operating revenue increased 19.6% to $229.0 million in 1996 from
$191.5 million in 1995, as a result of the Company's expansion of the
customer base as well as increased volume from existing customers.
Salaries, wages, and benefits decreased to $40.3 million in 1996 from
$40.7 million in 1995. As a percentage of revenue, salaries, wages and
benefits decreased to 17.6% in 1996 from 21.2% in 1995. A reduction in the
percentage of employee drivers operating the Company's tractor fleet and a
corresponding increase in the percentage of the fleet being provided by
independent contractors was the primary cause. During 1996, employee
drivers accounted for 40% and independent contractors 60% of the total
fleet miles, compared with 51% and 49%, respectively, in 1995. Rent and
purchased transportation increased to $94.0 million in 1996 from $64.0
million in 1995. As a percentage of revenue, rent and purchased
transportation increased to 41.0% in 1996 from 33.4% in 1995. This
reflected the Company's increased reliance upon independent contractors.
Operations and maintenance increased to $22.2 million in 1996 from
$21.0 million in 1995. As a percentage of revenue, operations and
maintenance decreased to 9.7% in 1996 from 11.0% in 1995. Higher fuel
prices incurred in 1996 were offset as a result of the increase in the
percentage of the Company's fleet being operated by independent
contractors, who pay their own fuel, maintenance, and repair cost.
Taxes and licenses increased to $5.7 million in 1996 from $5.2
million in 1995. As a percentage of revenue, taxes and licenses decreased
to 2.5% in 1996 from 2.7% in 1995. The cost increase was primarily
attributable to the increase in fleet size. The reduction in percentage of
revenue can be attributed to improved utilization of equipment.
Insurance and claims increased to $10.0 million in 1996 from $8.0
million in 1995. As a percentage of revenue, insurance and claims
increased to 4.4% in 1996 from 4.2% in 1995. 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. Management believed that the
change as a percentage of revenue was insignificant.
Communications and utilities decreased to $2.2 million in 1996 from
$2.6 in 1995. As a percentage of revenue, communications and utilities
decreased to 0.9% in 1996 from 1.3% in 1995 primarily due to the increase
in percentage of the Company's fleet being operated by independent
contractors.
Depreciation decreased to $13.6 million in 1996 from $15.1 million in
1995. As a percentage of revenue, depreciation decreased to 5.9% in 1996
from 7.9% in 1995. The decrease resulted from the growth in the
independent contractor fleet.
Other operating expenses increased to $4.5 million in 1996 from $3.7
million in 1995. As a percentage of revenue, other operating expenses
remained unchanged from 1996 to 1995. Other operating expenses consists of
pallet cost, driver recruiting expenses and administrative costs.
Primarily as a result of the foregoing, the Company's operating ratio
was 83.9% in 1996 compared with 83.7% in 1995.
Interest income (net) increased to $2.8 million in 1996 from
$1.5 million in 1995. As a percentage of revenue, interest income (net)
increased to 1.2% in 1996 from 0.8% in 1995. At December 31, 1996, the
Company had repaid all debt. The Company had $91.1 million in cash, cash
equivalents, and municipal bonds at December 31, 1996.
The Company's effective tax rate remained at 37% in 1996 and in 1995.
As a result of the foregoing, net income increased to $25.0 million
in 1996 (10.9% of revenue) from $20.6 million in 1995 (10.7% of revenue) .
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Operating revenue decreased to $191.5 million in 1995 from
$224.2 million in 1994, as a result of management's decision to curtail
service for customers whose freight did not meet the Company's operating
strategy. The freight that was eliminated included refrigerated and labor
intensive loads.
Salaries, wages, and benefits decreased to $40.7 million in 1995 from
$56.4 million in 1994. As a percentage of revenue, salaries, wages, and
benefits decreased to 21.2% in 1995 from 25.2% in 1994. A reduction in
the percentage of employee drivers operating the Company's tractor fleet
and a corresponding increase in the percentage of the fleet being provided
by independent contractors was the primary cause. During 1995, employee
drivers accounted for 51% and independent contractors 49% of the total
fleet miles, compared with 62% and 38%, respectively, in 1994. The decrease
was also attributable to a reduction in the number of non-driver personnel
due to the consolidation of facilities and a reduction in health and
workers' compensation claims due to fewer and less severe claims. Rent and
purchased transportation increased to $64.0 million in 1995 from $57.8
million in 1994. As a percentage of revenue, rent and purchased
transportation increased to 33.4% in 1995 from 25.8% in 1994. This
reflected the Company's increased reliance upon independent contractors.
Operations and maintenance decreased to $21.0 million in 1995 from
$35.6 million in 1994. As a percentage of revenue, operations and
maintenance decreased to 11.0% in 1995 from 15.8% in 1994. Lower repair
and maintenance costs and greater fuel efficiency attributable to the
replacement of older equipment with new tractors and 53-foot aluminum plate
trailers. The decrease is also attributable to efficiencies attained from
the consolidation of maintenance facilities. These costs also decreased
with the elimination of refrigerated trailers, which cost more than dry
vans to operate, and a reduction in the use of toll highways. Such
expenses also were affected by the increase in percentage of Company's
fleet being operated by independent contractors, who pay their own
maintenance, repair and fuel costs.
Taxes and licenses decreased to $5.2 million in 1995 from $7.3 million
in 1994. As a percentage of revenue, taxes and licenses decreased to 2.7%
in 1995 from 3.3% in 1994. A reduction in the number of miles operated in
those states with a higher tax cost structures effected this change.
Insurance and claims decreased to $7.9 million in 1995 from $11.9
million in 1994. As a percentage of revenue, insurance and claims
decreased to 4.2% in 1995 from 5.3% in 1994. Management made a decision to
increase driver compensation to attract more experienced drivers. This
decision resulted in fewer and less severe claims. In addition,
managements decision in 1994 to cease using student drivers who typically
experience a higher accident frequency, was effective for the entire year
in 1995.
Communications and utilities remained essentially constant at $2.6
million in 1994 and 1995. As a percentage of revenue, communications and
utilities increased to 1.3% in 1995 from 1.2% in 1994. The Company
completed the process of equipping its Company owned fleet with
satellite-based tracking and communications systems in 1995.
Depreciation decreased to $15.1 million in 1995 from $20.1 million in
1994. As a percentage of revenue, depreciation decreased to 7.9% in 1995
from 8.9% in 1994. These results were from a decreasing percentage of
Company tractors in the fleet in favor of tractors owned by independent
contractors.
Other operating expenses decreased to $3.7 million in 1995 from $5.5
million in 1994. As a percentage of revenue, other operating expenses
decreased to 2.0% in 1995 from 2.4 % in 1994, due to efficiencies gained
from the consolidation of operations and decreased service to selected
customers that required the use of palleted freight.
Primarily as a result of the foregoing, the Company's operating ratio
improved to 83.7% in 1995 from 89.4% in 1994 (87.8% excluding merger and
integration costs).
Interest income (net) was $1.5 million in 1995 compared with interest
expense (net) of $1.9 million in 1994. At December 31, 1995, the Company
had repaid all long-term debt with the exception of approximately $700,000
in capitalized leases which expire in 1996 and carry prepayment penalties.
Such long-term debt was offset by $50.7 million in cash, cash equivalents,
and municipal bonds at December 31, 1995.
The Company's effective tax rate decreased to 37% in 1995 from 54% in
1994. This decrease was primarily attributable to the merger with Munson
Transportation in 1994. In 1994 the Company recorded a $2.9 million
deferred tax charge (because Munson was an "S" corporation and did not have
to record deferred taxes), as well as losses attributable to Munson
Transportation prior to the merger on March 21, 1994, and $2.0 million in
merger costs that were not deductible.
As a result of the foregoing, net income increased to $20.6 million
in 1995 (10.7% of revenue) from $10.1 million in 1994 (4.5 % of revenue).
Forward Looking Information
Certain matters discussed in this annual report and marked with an
asterisk are "forward-looking statements" intended to qualify for the safe
harbors from liability established by Private Securities Litigation Reform
Act of 1995. Such statements address future plans, objectives,
expectations and events or conditions concerning various matters such as
capital expenditures, litigation, liquidity and capital resources, and
accounting matters. Actual results in each case could differ materially
from those currently anticipated in such statements.
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,
financing revenue equipment through cash flow from operations. The Company
also obtains tractor capacity by utilizing independent contractors, who
provide a tractor and bear all associated operating and financing expenses.
Cash and cash equivalents and municipal notes increased to $91.1
million as of December 31, 1996 from $50.7 million at December 31, 1995.
The Company's policy is to purchase only investment quality highly liquid
investments.
Net cash provided by operations was $48.3 million in 1996,
$38.1 million in 1995, and $42.6 million in 1994. The primary source of
funds in 1996 was net income of $25.0 million increased by non-cash
adjustments including depreciation of $14.0 million.
Net cash used in investment and financing activities was $34.9 million
in 1996, $1.9 million in 1995, and $42.0 million in 1994. Such amounts were
used primarily to purchase municipal bonds, revenue equipment, and to pay
off long term debt. The Company expects to finance future growth in its
company-owned fleet primarily through cash flow from operations and cash
equivalents currently on hand.(*)
Trade receivables decreased to $15.7 million as of December 31, 1996
from $18.0 million as of December 31, 1995 primarily due to management's
increased emphasis and effectiveness in collecting outstanding balances.
Cash paid for income taxes increased to $15.3 million in 1996 from $12.4
million in 1995. Higher income taxes on a cash basis are primarily due to
increased income and non-deductible insurance accruals.
Accounts payable and accrued liabilities increased to $11.4 million
as of December 31, 1996 from $7.4 million as of December 31, 1995 due
mostly to an increase in payables due to revenue equipment suppliers which
was paid in early 1997. Insurance accruals increased to $30.1 million as
of December 31, 1996 from $26.7 million as of December 31, 1995 due to the
significant increase of the Company's fleet in recent years. The Company's
insurance program for liability, physical damage and cargo damage involves
self insurance retentions for the first $500,000. Claims in excess of the
risk retention are covered by insurance in amounts which management
considers adequate. The Company accrues the estimated cost of the
uninsured portion of the pending claims. These accruals are estimated
based on management's evaluation of the nature and severity of individual
claims and an estimate of future claims development based on historical
claim development trends. If adjustments to previously established accruals
are required, such amounts are included in operating expenses. In 1996 and
1995, such adjustments were not significant. In 1994, following the
consummation of the Munson merger certain claims were increased to conform
Munson's outstanding claims to practices utilized by the Company.
The Company has one customer who accounted for greater than 10% of
the Company's sales for the year ended December 31, 1996. As disclosed in
footnote three to the financial statements, historically a small number of
customers generate a substantial percentage of revenue. In 1996 the
Company's largest customer generated approximately 15% of operating
revenue. The loss of a major customer could negatively impact the Company.
Any negative impact would be mitigated by two factors: (1) the strong
overall financial position of the Company (no long term debt at December
31, 1996 and $91.1 million in cash, cash equivalents and municipal notes)
and (2) the flexibility inherent in having a substantial percentage of
fleet miles being generated by independent contractors who provide their
own tractors.(*)
Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard no. 121, "Accounting for the Impairment of Long-Lived
Assets" in 1995. This pronouncement outlines criteria for evaluating
long-lived assets when certain conditions occur that may indicate an
impairment problem. Adoption of this new standard in 1996 did not impact
the Company.
(*) Forward - looking statements
Effective January 1, 1997, the Company adopted the provisions of Statement
of Position (SOP) 96-1; Environmental Remediation Liabilities. This
Statement provides authoritative guidance for recognition, measurement,
display and disclosure of environmental remediation liabilities in
financial statements. Based upon current facts and circumstances, SOP 96-1
is not expected to have a material impact on the Company's financial
position or results of operations as of the date of adoption.(*)
Inflation
Inflation can be expected to have an impact on the Company's operating
costs. The effect of inflation has not been significant over approximately
the last ten years. However, a prolonged period of inflation would
adversely affect the Company's results of operations unless freight rates
could be increased proportionately.
Seasonality
The nature of the Company's primary traffic (appliances, automotive
parts, paper products, electrical equipment, and packaged foodstuffs)
causes it to be distributed with relative uniformity throughout the year.
However, earnings have historically been affected adversely during the
fourth quarter as a result of reduced shipments by customers during the
winter holiday season. In addition, the Company's operating expenses
historically have been higher during the winter months due to increased
operating costs in colder weather and higher fuel consumption due to
increased engine idling.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of operations, cash flows, and
stockholders' equity, and notes related thereto, are contained at pages 16
to 26 of this report. Selected quarterly data is contained at page 26.
Such information is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On April 12 and 22, 1994, the registrant filed Forms 8-K to report the
resignation of McGladrey & Pullen LLP and engagement of Arthur Andersen LLP
as its independent auditors. As stated in such Forms 8-K, the change of
auditors did not involve any disagreement on accounting issues or financial
disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information respecting executive officers and directors set forth
under the caption "Election of Directors- Information Concerning Executive
Officers and Directors" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on pages 2 through 4 and 6 of the
registrant's proxy statement relating to its 1997 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange
Commission in accordance with Rule 14a-6 promulgated under the Securities
Exchange Act of 1934 (the "Proxy Statement"), is incorporated by reference.
With the exception of the foregoing information and other information
specifically incorporated by reference into this form 10-K report, the
Proxy Statement is not being filed as a part hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" on pages 5 and 6 of the Proxy Statement is
incorporated herein by reference; provided, however, that the "Compensation
Committee Report on Executive Compensation" is not incorporated by
reference herein.
(*) Forward - looking statement
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information respecting security ownership of certain beneficial
owners and management included under the caption "Principal Stockholders
and Stock Holdings of Management" on page 7 of the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Board of Directors Interlocks and
Insider Participation" on page 4 and "Certain Transactions and
Relationships" on page 7 of the Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. Financial Statements and Schedules
The Company's audited financial statements are set forth on
the following pages of this report:
Page
Reports of Independent Public Accountants...........................16
Consolidated Balance Sheets.........................................17
Consolidated Statements of Operations...............................18
Consolidated Statements of Stockholders' Equity.....................19
Consolidated Statements of Cash Flows...............................20
Notes to Consolidated Financial Statements........................21-26
(a) 2. Financial Statement Schedule
Page
Valuation and Qualifying Accounts and Reserves......................26
(a) 3. Exhibits required by Item 601 of Regulation S-K are listed
below.
(b) Reports on Form 8-K
The Company did not file a Form 8-K during the last quarter of
1996.
(c) Exhibits
Exhibit No. Document Page of 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.
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.
10.2 Form of Independent Incorporated by reference to the
Contractor Operating Company's Form 10-K for the year
Agreement between the ended December 31, 1993.
Company and its independent
contractor providers of
tractors
10.3 Description of Key Incorporated by reference to the
Management Deferred Company's Form 10-K for the year
Incentive Compensation ended December 31, 1993.
Arrangement
21 Subsidiaries of the Incorporated by reference to the
Registrant Company's Form 10-K for the year
ended December 31, 1994.
27 Financial Data Schedule Incorporated by reference to the
Company's Form 10-K for the year
ended December 31, 1996.
10.1 Business Property Lease Filed herewith.
between Russell A. Gerdin
as Lessor and the Company
as Lessee, regarding the
Company's headquarters at
2777 Heartland Drive,
Coralville, Iowa 52241
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 24, 1997 By: /s/ Russell A. Gerdin
Russell A. Gerdin
President and Secretary
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 Chief
Russell A. Gerdin Executive Officer (Principal
Executive Officer), Secretary March 24, 1996
/s/ John P. Cosaert Vice President of Finance
John P. Cosaert (Principal Financial Officer
and Principal Accounting Officer)
and Treasurer March 24, 1996
/s/ Richard O. Jacobson Director March 24, 1996
Richard O. Jacobson
/s/ Michael J. Gerdin Director March 24, 1996
Michael J. Gerdin
/s/ Benjamin J. Allen Director March 24, 1996
Benjamin J. Allen
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, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1996 and 1995,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
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 our audits of the basic
financial statements and, in our opinion, fairly state 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 24, 1997
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS 1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 59,593,468 $ 46,162,143
Trade receivables, less allowance
of $402,812 in 1996 and 1995 15,696,591 18,035,002
Prepaid tires and tubes 1,213,210 2,322,826
Municipal bonds 31,461,259 4,519,461
Deferred income taxes 13,057,000 11,377,000
Other current assets 395,594 481,761
-------------- --------------
Total current assets 121,417,122 82,898,193
-------------- --------------
PROPERTY AND EQUIPMENT
Land and land improvements 2,401,010 2,463,010
Buildings 6,886,615 7,299,415
Furniture and fixtures 2,125,847 1,656,094
Shop and service equipment 1,245,337 1,092,107
Revenue equipment 97,433,211 97,642,433
-------------- --------------
110,092,020 110,153,059
Less accumulated depreciation
and amortization 41,697,199 36,459,541
-------------- --------------
Property and equipment, net 68,394,821 73,693,518
-------------- --------------
OTHER ASSETS 1,692,279 1,554,660
-------------- --------------
$ 191,504,222 $ 158,146,371
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
debt $ -- $ 705,437
Accounts payable and accrued
liabilities 11,384,188 7,388,330
Compensation and benefits 3,878,002 3,349,995
Income taxes payable 3,913,871 1,678,814
Insurance accruals 30,085,809 26,684,440
Other accruals 2,310,185 2,310,679
-------------- --------------
Total current liabilities 51,572,055 42,117,695
DEFERRED INCOME TAXES 16,266,000 17,393,000
-------------- --------------
67,838,055 59,510,695
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred, $.10 par value;
authorized 5,000,000 shares;
none issued -- --
Common, $.10 par value;
authorized 35,000,000 shares in
1996 and 1995; issued and outstanding
30,000,000 in 1996 and 1995. 3,000,000 3,000,000
Additional paid-in capital 3,908,170 3,908,170
Retained earnings 116,757,997 91,727,506
-------------- --------------
123,666,167 98,635,676
-------------- --------------
$ 191,504,222 $ 158,146,371
============== ==============
The accompanying notes are an integral part of these financial statements.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
1996 1995 1994
Operating revenue $ 229,011,108 $ 191,506,741 $ 224,248,262
-------------- -------------- --------------
Operating expenses:
Salaries, wages, and benefits 40,260,524 40,714,787 56,440,576
Rent and purchased transportation 93,961,180 64,043,296 57,798,842
Operations and maintenance 22,158,279 21,035,067 35,557,349
Taxes and licenses 5,692,592 5,246,427 7,346,520
Insurance and claims 9,975,716 7,966,760 11,872,541
Communications and utilities 2,158,489 2,562,142 2,618,541
Depreciation 13,571,284 15,065,539 20,060,652
Other operating expenses 4,534,472 3,745,381 5,468,369
Gain on sale of fixed assets (189,041) (27,134) (149,900)
Merger consummation and
integration costs -- -- 3,493,774
-------------- -------------- --------------
192,123,495 160,352,265 200,507,264
-------------- -------------- --------------
Operating income 36,887,613 31,154,476 23,740,998
Interest income 2,871,089 1,609,572 255,143
Interest expense (30,943) (85,173) (2,185,491)
-------------- -------------- --------------
Income before income taxes and
cumulative effect of change in
accounting for income taxes 39,727,759 32,678,875 21,810,650
Federal and state income taxes 14,697,268 12,093,401 11,734,042
-------------- -------------- --------------
Net income $ 25,030,491 $ 20,585,474 $ 10,076,608
============== ============== ==============
Net income per common share $ 0.83 $ 0.69 $ 0.34
============== ============== ==============
Unaudited pro forma information
(1994 only):
Pro forma income tax adjustment to
reduce expense as if the combined
company was a "C" corporation for
the entire period $ (3,304,126)
==============
Pro forma income tax expense $ 8,429,916
==============
Pro forma net income $ 13,380,734
==============
Pro forma net income per common share $ 0.45
==============
Weighted average shares outstanding 30,000,000 30,035,943 30,039,210
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31
Capital Additional
Stock, Paid-In Retained
Common Capital Earnings Total
Balance, December 31, 1993 $ 3,003,921 $ 3,904,249 $ 61,065,424 $ 67,973,594
Net income -- -- 10,076,608 10,076,608
-------------- -------------- -------------- --------------
Balance, December 31, 1994 3,003,921 3,904,249 71,142,032 78,050,202
Shares retired (3,921) 3,921 -- --
Net income -- -- 20,585,474 20,585,474
-------------- -------------- -------------- --------------
Balance, December 31, 1995 3,000,000 3,908,170 91,727,506 98,635,676
Net income -- -- 25,030,491 25,030,491
-------------- -------------- -------------- --------------
Balance, December 31, 1996 $ 3,000,000 $ 3,908,170 $ 116,757,997 $ 123,666,167
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
1996 1995 1994
OPERATING ACTIVITIES
Net income $ 25,030,491 $ 20,585,474 $ 10,076,608
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation 13,956,088 15,902,128 20,070,652
Deferred income taxes (2,807,000) 905,000 (239,647)
Gain on sale of fixed assets (189,041) (27,134) (149,900)
Changes in certain working
capital items:
Trade receivables 2,338,411 (591,568) 2,160,961
Other current assets (14,758) 316,568 1,426,903
Prepaids 2,605,830 2,339,937 922,776
Accounts payable and
accrued expenses 5,159,151 (135,813) 6,514,997
Accrued income taxes 2,235,057 (1,187,088) 1,819,598
-------------- -------------- --------------
Net cash provided by operating
activities 48,314,229 38,107,504 42,602,948
-------------- -------------- --------------
INVESTING ACTIVITIES
Proceeds from sale of property
and equipment 393,513 47,085 1,855,436
Purchase of property and equipment (7,491,563) (382,181) (3,689,806)
Net sale(purchase) of municipal bonds (26,941,798) (1,662,903) 15,615,938
Other (137,619) 538,275 311,330
-------------- -------------- --------------
Net cash provided by (used in)
investment activities (34,177,467) (1,459,724) 14,092,898
-------------- -------------- --------------
FINANCING ACTIVITIES
Net (repayments) borrowings on
revolving credit agreements -- -- (718,430)
Proceeds from related party borrowing -- -- 9,772,141
Repayment of related party borrowing -- -- (9,772,141)
Proceeds from long-term notes payable -- -- 588,664
Principal payments on long-term notes (705,437) (450,531) (55,992,837)
-------------- -------------- --------------
Net cash used in financing activities (705,437) (450,531) (56,122,603)
-------------- -------------- --------------
Net increase in cash and
cash equivalents 13,431,325 36,197,249 573,243
CASH AND CASH EQUIVALENTS
Beginning of year 46,162,143 9,964,894 9,391,651
-------------- -------------- --------------
End of year $ 59,593,468 $ 46,162,143 $ 9,964,894
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 30,943 $ 85,174 $ 2,164,519
Income taxes 15,269,211 12,372,064 10,196,059
Noncash investing activities:
Book value of revenue
equipment traded 5,585,217 23,572,701 17,550,774
The accompanying notes are an integral part of these financial statements.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business And Significant Accounting Policies
Nature of Business:
Heartland Express, Inc., (the "Company") is a short-to-medium-haul,
irregular
route, truckload carrier of general commodities. The Company's primary
traffic lanes are between customer locations east of the Rocky Mountains,
with selected service to the West.
Significant Accounting Policies:
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.
Cash and Cash Equivalents:
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less. Cash equivalents consists of municipal
demand bonds, funds and trusts investing in those notes and auction
preferred stocks.
Municipal Bonds:
Municipal bonds are stated at amortized cost which approximates market
primarily because the bonds mature in one year or less. Historically, the
Company has held these investments to maturity.
Revenue and Expense Recognition:
Operating revenues are recognized on the date the freight is delivered and
expenses are recognized as incurred.
Property and Equipment:
Property and equipment are stated at cost. At the time of trade-in, the
cost of new equipment is recorded at an amount equal to the net book value
of the traded equipment plus cash paid. Depreciation is computed by the
straight-line method for all assets other than tractors, which are
depreciated by the 125% declining balance method. Trailers are
depreciated to a 30% salvage value except for trailers purchased after
January 1, 1996 which have no salvage value. 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
Assets to be disposed of are measured at the lower of carrying amount or
fair market value, as estimated by management, less costs to sell.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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.
Earnings Per Common Share:
Earnings per share is determined using the weighted average shares
outstanding for each period presented. Earnings per share were restated
for the stock splits and due to the merger with Munson Transportation
(Note2).
Reclassifications:
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the current year presentation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles 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 2. Heartland/Munson Merger
Effective March 21, 1994, Heartland consummated a merger with Munson
Transportation, Inc., and two affiliated companies (collectively referred
to as "Munson"). Prior to the merger, Munson had been a truckload carrier
offering service primarily in the Midwest and Northeast states. Pursuant
to the Amended and Restated Merger Agreement and Plan of Reorganization
dated February 18, 1994, Heartland issued 1,133,150 shares of its common
stock in exchange for all of the stock of Munson. The transaction costs
associated with the merger (consisting primarily of legal and accounting
fees) and the expenses of integrating the operations of the two companies
(consisting primarily of changes in reserve estimates for liability and
workers' compensation claims and other combination costs) resulted in
nonrecurring charge of $1,978,600 which was recorded in the first quarter
of 1994. During the fourth quarter of 1994, management decided to
consolidate certain duplicate activities. As a result of this decision,
the headquarters facility used by Munson in Monmouth, Illinois was closed.
The transaction costs associated with the elimination of this duplicate
facility (consisting primarily of a write down of the facility and
severance pay for the terminated employees) resulted in a nonrecurring
charge of $1,515,774 which was recorded in the fourth quarter of 1994.
The merger has been accounted for as a pooling of interests. Accordingly,
the accompanying consolidated financial statements have been retroactively
restated for all periods presented to include the results of operations,
financial position and cash flows of the merged entities.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 3. Concentrations of Credit Risk and Major Customers
The Company's major customers represent the consumer appliances, food
products and automotive industries. Credit is usually granted to customers
on an unsecured basis. The Company's five largest customers accounted for
44%, 48%, and 43% of revenues for the years ended December 31, 1996, 1995,
and 1994, respectively. Operating revenue from customers with revenue
exceeding 10% of total gross revenues in 1994, 1995 or 1996 approximated:
CUSTOMER 1996 1995 1994
1 $ 35,000,000 $ 28,000,000 $ 34,000,000
2 17,000,000 17,000,000 23,000,000
3 22,000,000 21,000,000 14,000,000
Note 4. 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.
Prior to the merger with Heartland, Munson had been an " S" corporation. "
S" corporations do not typically record income tax liabilities since these
generally represent personal obligations of the stockholders. The change
in Munson's tax status, which resulted from the merger, required a deferred
income tax obligation of $2,925,600 to be recorded in the first quarter of
1994.
The pro forma income tax expense (unaudited) presented on the accompanying
consolidated statements of operations reflects the estimated amount of
income tax that would have been recorded if Heartland and Munson had been
combined for the entire year ended December 31, 1994.
Deferred tax assets and liabilities as of December 31 are as follows:
1996 1995
Deferred income tax liabilities, related to
property and equipment $ 16,266,000 $ 17,393,000
============= =============
Deferred income tax assets:
Allowance for doubtful accounts $ 153,000 $ 153,000
Accrued expenses 1,914,000 1,344,000
Insurance accruals 10,938,000 9,835,000
Other 52,000 45,000
------------- -------------
Deferred income tax assets $ 13,057,000 $ 11,377,000
============= =============
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The income tax provision is as follows:
1996 1995 1994
Current income taxes:
Federal $ 16,769,090 $ 10,792,272 $ 10,486,640
State 735,178 396,129 1,487,049
------------- ------------- -------------
$ 17,504,268 $ 11,188,401 $ 11,973,689
------------- ------------- -------------
Deferred income taxes:
Federal $ (2,689,106) $ 873,000 $ (215,647)
State (117,894) 32,000 (24,000)
------------- ------------- -------------
$ (2,807,000) $ 905,000 $ (239,647)
------------- ------------- -------------
Total $ 14,697,268 $ 12,093,401 $ 11,734,042
============= ============= =============
The income tax provision differs from the amount determined by applying the
U.S. federal tax rate as follows:
1996 1995 1994
Federal tax at statutory
rate (35%) $ 13,904,716 $ 11,437,606 $ 7,633,728
Non-deductible losses -- -- 527,820
Change in tax status,
Munson -- -- 2,925,600
Non-deductible merger
expenses -- -- 432,600
State taxes, net of
federal benefit 648,000 340,000 397,500
Non-taxable interest
income (797,000) (441,000) (88,000)
Other 941,552 756,795 (95,206)
------------- ------------- -------------
$ 14,697,268 $ 12,093,401 $ 11,734,042
============= ============= =============
Note 5. 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 $23,500 plus
the payment of all property taxes, insurance and maintenance. The lease
expires May 31, 2000 and contains a five year renewal option.
The total minimum rental commitment under the building lease is as follows:
Year ending December 31:
1997 $ 282,000
1998 282,000
1999 282,000
2000 117,500
------------
$ 963,500
============
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Rent expense to the Company's president totaled $282,000, $239,500, and
$180,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Rentals paid were increased in June, 1995 as a result of
additional buildings being added to the lease agreement. The amended lease
was on a month-to-month basis from June to December 1995, when the new
lease was signed. The Company also maintains cash accounts with a bank
owned by the Company's president. The Company sold a subsidiary to a
stockholder and former director for $150,000, which approximated book
value, in 1996. The Company also paid this shareholder $242,000 in
connection with the settlement of an employment agreement and the
shareholder repaid the Company $340,000, plus accrued interest, in 1996.
Note 6. Accident and Workers' Compensation Claims
Accident and workers' compensation claims 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.
Accrued claims are determined based on estimates of the ultimate cost of
settling reported and unreported claims, including expected settlement
expenses. Such estimates are based on management's evaluation of the
nature and severity of individual claims and an estimate of future claims
development based on historical claims development trends. 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. In 1996 and
1995, such adjustments were not significant. In 1994, following the
consummation of the Munson merger certain claims were increased to conform
Munson's outstanding claims to practices utilized by the Company.
The Company acts as a self-insurer for liability up to $500,000 for any
single occurrence involving cargo, personal injury or property damage.
Liability in excess of this amount is assumed by the underwriter.
The Company acts as a self-insurer for workers' compensation liability up
to a maximum liability of $300,000 per claim. Liability in excess of this
amount is assumed by the underwriter. 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 with other long-term assets on
the balance sheet. In addition, the Company has provided its insurance
carriers with letters of credit for approximately $7.8 million in
connection with its liability and workers' compensation insurance
arrangements.
Note 7. Stockholders' Equity
On September 12, 1996 the Company's Board of Directors approved a 1.5 for
1.0 split of the Company's common stock effected in the form of a 50% stock
dividend for stockholders of record as of September 23, 1996. A total of
10,000,000 common shares were issued. On October 26, 1995, the Company's
Board of Directors approved a 1.54 for 1.0 split of the Company's common
stock effected in the form of a 54% stock dividend for stockholders of
record as of November 20, 1995. A total of 7,009,540 common shares were
issued. The stated par value of each share was not changed from $.10. All
share and per share amounts, and capital accounts, have been restated to
retroactively reflect the stock splits.
Note 8. Profit Sharing Plan and Retirement Plan
The Company has a profit sharing plan with 401(k) plan features whereby the
Company may make contributions to the plan at its discretion. Individual
employees may make voluntary contributions to the plan. Company
contributions totaled $529,000, $434,000 and $512,000 for the years ended
December 31, 1996, 1995, and 1994, respectively. The Munson Transportation
defined contribution retirement plan was terminated in December 1994.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 9. Long-Term Debt
Long-term debt and capital lease obligations at December 31, 1995 consisted
of capital lease obligations of $705,437 on revenue equipment, discounted
at rates of 7.9% to 13.2%, due in monthly installments through September
1996. The face value of long term debt was not materially different than
the fair market value of the debt at December 31, 1995. The Company has no
long-term debt and capital lease obligations at December 31, 1996.
Note 10. Commitments and Contingencies
Various claims and legal actions are pending against the Company. In
management's opinion, the resolution of these matters will not materially
impact the Company's financial condition or results of operations
Note 11. Quarterly Financial Information (Unaudited)
First Second Third Fourth
(In Thousands, Except Per Share Data)
Year ended December 31, 1996
Operating revenue $ 54,363 $ 59,384 $ 58,178 $ 57,086
Operating income 8,480 9,607 9,761 9,040
Income before income taxes 9,096 10,207 10,460 9,965
Net income 5,731 6,431 6,589 6,279
Earnings per common share 0.19 0.21 0.22 0.21
Year ended December 31, 1995
Operating revenue $ 47,583 $ 46,974 $ 47,528 $ 49,422
Operating income 7,026 7,940 8,531 7,657
Income before income taxes 7,282 8,291 8,970 8,136
Net income 4,587 5,226 5,646 5,126
Earnings per common share 0.15 0.17 0.19 0.17
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Charged 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, 1996 $ 402,812 $ 33,710 $ -- $ 33,710 $ 402,812
Year ended
December 31, 1995 $ 402,812 $ 7,428 $ -- $ 7,428 $ 402,812
Year ended
December 31, 1994 $ 573,629 $ 331,237 $ -- $ 502,054 $ 402,812