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, 2001 Commission File No. 0-15087 HEARTLAND EXPRESS, INC. (Exact Name of Registrant as Specified in Its Charter) Nevada 93-0926999 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 2777 Heartland Drive, Coralville, Iowa 52241 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code (319)545-2728 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At March 31, 2001, there were 25,366,582 shares of the Company's $.01 par value common stock outstanding.
PART I FINANCIAL INFORMATION Page Number Item 1. Financial statements Consolidated Balance Sheets March 31, 2001 (unaudited) and December 31, 2000 2 - 3 Consolidated Statements of Income (unaudited) for the three months ended March 31, 2001 and 2000 4 Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2001 and 2000 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 PART II OTHER INFORMATION Item 1. Legal proceedings 10 Item 2. Changes in securities 10 Item 3. Defaults upon senior securities 10 Item 4. Submission of matters to a vote of 10 security holders Item 5. Other information 10 Item 6. Exhibits and reports on Form 8-K 10 - 12 1
HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31, 2001 2000 ------------ ------------ (Unaudited) CURRENT ASSETS Cash and cash equivalents .................... $130,782,657 $128,027,076 Trade receivable, less allowance: $402,812 at both 2001 and 2000 ............... 29,222,254 24,954,681 Prepaid tires ................................ 4,276,940 3,780,644 Investments .................................. 2,045,270 -- Deferred income taxes ........................ 16,959,000 16,846,000 Other current assets ......................... 2,150,299 328,273 ------------ ------------ Total current assets .................. $185,436,420 $173,936,674 ------------ ------------ PROPERTY AND EQUIPMENT Land and land improvements ................... $ 3,237,875 $ 3,237,875 Buildings .................................... 8,532,621 8,532,621 Furniture and fixtures ....................... 2,602,090 2,604,400 Shop and service equipment ................... 1,455,355 1,459,862 Revenue equipment ............................ 127,709,608 129,572,317 ------------ ------------ $143,537,549 $145,407,075 Less accumulated depreciation and amortization .............................. 50,620,005 56,329,103 ------------ ------------ Property and equipment, net .................. $ 92,917,544 $ 89,077,972 ------------ ------------ OTHER ASSETS ....................................... $ 4,931,527 $ 5,040,358 ------------ ------------ $283,285,491 $268,055,004 ============ ============ 2
HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, DECEMBER 31, 2001 2000 ------------ ------------ (Unaudited) CURRENT LIABILITIES Accounts payable and accrued liabilities ..... $ 7,894,821 $ 6,712,053 Compensation and benefits .................... 5,664,381 5,132,589 Income taxes payable ......................... 8,844,422 4,618,882 Insurance accruals ........................... 35,599,201 35,657,944 Other accruals ............................... 3,321,017 3,308,925 ------------ ------------ Total current liabilities ............. $ 61,323,842 $ 55,430,393 ------------ ------------ DEFERRED INCOME TAXES .............................. 17,899,000 17,491,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Capital Stock: Preferred, $.01 par value; authorized 5,000,000 shares; none issued ......... $ -- $ -- Common, $.01 par value; authorized 395,000,000 shares; issued and outstanding 25,366,582 in 2001 and 2000 253,666 253,666 Additional paid-in capital ................... 6,608,170 6,608,170 Retained earnings ............................ 197,200,813 188,271,775 ------------ ------------ $204,062,649 $195,133,611 ------------ ------------ $283,285,491 $268,055,004 ============ ============ 3
HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended March 31, 2001 2000 ------------ ------------ OPERATING REVENUE .................................$ 71,923,347 $ 67,189,786 ------------ ------------ OPERATING EXPENSES: Salaries, wages, and benefits ...............$ 21,251,332 $ 16,578,699 Rent and purchased transportation ........... 16,879,169 20,640,115 Operations and maintenance .................. 12,061,535 9,624,698 Taxes and licenses .......................... 1,385,155 1,305,330 Insurance and claims ........................ 1,681,071 1,976,441 Communications and utilities ................ 832,184 704,214 Depreciation ................................ 4,183,579 3,867,218 Other operating expenses .................... 1,534,166 1,457,438 (Gain) on sale of fixed assets .............. (44,881) (1,493,478) ------------ ------------ $ 59,763,310 $ 54,660,675 ------------ ------------ Operating income .....................$ 12,160,037 $ 12,529,111 Interest income ............................. 1,368,807 1,322,885 ------------ ------------ Income before income taxes ..................$ 13,528,844 $ 13,851,996 Federal and state income taxes .............. 4,599,806 4,709,679 ------------ ------------ Net income ..................................$ 8,929,038 $ 9,142,317 ============ ============ Earnings per common share: Basic earnings per share .................$ 0.35 $ 0.35 ============ ============ Basic weighted average shares outstanding ... 25,366,582 26,063,646 ============ ============ 4
HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended March 31, 2001 2000 ------------- ------------- OPERATING ACTIVITIES Net income ................................$ 8,929,038 $ 9,142,317 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization ........... 4,378,108 4,141,329 Deferred income taxes ................... 295,000 (174,000) Gain on sale of fixed assets ............ (44,881) (1,493,478) Changes in certain working capital items: Trade receivables ..................... (4,267,573) (1,709,182) Other current assets .................. (1,656,715) (1,933,688) Prepaid expenses ...................... (496,296) (355,984) Accounts payable and accrued expenses . 206,903 1,890,567 Accrued income taxes .................. 4,225,540 4,708,296 ------------- ------------- Net cash provided by operating activities .$ 11,569,124 $ 14,216,177 ------------- ------------- INVESTING ACTIVITIES Proceeds from sale of property and equipment ................................. 182,795 2,121,520 Purchase of property and equipment ........ (6,865,370) (4,295,696) Purchase of municpal bonds ................ (2,045,270) (6,126,524) Other ..................................... (85,698) 17,489 ------------- ------------- Net cash (used) in investing activities ...$ (8,813,543) $ (8,283,211) ------------- ------------- FINANCING ACTIVITIES Repurchase of common stock ................$ -- $ (14,009,900) ------------- ------------- Net increase (decrease) in cash and cash equivalents ...............................$ 2,755,581 $ (8,076,934) CASH AND CASH EQUIVALENTS Beginning of year ......................... 128,027,076 126,211,056 ------------- ------------- End of quarter ............................$ 130,782,657 $ 118,134,122 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes .......................$ 79,266 $ 175,383 Noncash investing activities: Book value of revenue equipment traded .............................$ 4,486,321 $ 2,138,161 5
HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of 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 adjustments (consisting of normal recurring and certain nonrecurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Heartland Express, Inc. and Subsidiaries ("Heartland" or the "Company") annual report on Form 10-K for the year ended December 31, 2000. Note 2. Income Taxes Income taxes for the three month period ended March 31, 2001 are based on the Company's estimated effective tax rates. The rate for the three months ended March 31, 2001 and 2000 was 34%. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Information Except for the historical information contained herein, the discussion in this quarterly report contains forward-looking statements that involve risk, assumptions, and uncertainties that are difficult to predict. Words such as "believe," "may," "could," "expects," "likely," variations of these words, and similar expressions, are intended to identify such forward-looking statements. The Company's actual results could differ materially from those discussed herein. Forward-looking information is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Without limitation, these risks and uncertainties include economic factors such as recessions, downturns in customers' business cycles, surplus inventories, inflation, fuel price increases, and higher interest rates: the resale value of the Company's used revenue equipment; the availability and compensation of qualified drivers, competition from trucking, rail, and intermodal competitors; and the ability to identify acceptable acquisition targets and negotiate, finance, and consummate acquisitions and integrate acquired companies. Readers should review and consider the various disclosures made by the Company in its press releases, stockholders reports, and public filings, as well as the factors explained in greater detail in the Company's annual report on Form 10-K. 6
Results of Operations: The following table sets forth the percentage relationship of expense items to operating revenue for the periods indicated. <TABLE> <CAPTION> Three months Ended March 31, 2001 2000 ------ ------ <S> <C> <C> Operating revenue ..................................... 100.0% 100.0% ------ ------ Operating expenses: Salaries, wages, and benefits ........... 29.6% 24.7% Rent and purchased transportation ....... 23.5 30.7 Operations and maintenance .............. 16.8 14.3 Taxes and licenses ...................... 1.9 1.9 Insurance and claims .................... 2.3 2.9 Communications and utilities ............ 1.2 1.1 Depreciation ............................ 5.8 5.8 Other operating ......................... 2.1 2.2 expenses (Gain) on sale of fixed assets .......... (0.1) (2.2) ------ ------ Total operating ......................... 83.1% 81.4% expenses ------ ------ Operating income ...... 16.9% 18.6% Interest income ....................................... 1.9 2.0 ------ ------ Income before income taxes ............. 18.8% 20.6% Federal and state income taxes ........................ 6.4 7.0 ------ ------ Net income ............................. 12.4% 13.6% ====== ====== </TABLE> The following is a discussion of the results of operations of the quarter ended March 31, 2001 compared with the same period in 2000, and the changes in financial condition through the first quarter of 2001. Operating revenue increased $4.7 million (7.0%), to $71.9 million in the first quarter of 2001 from $67.2 million in the first quarter of 2000. The revenue increase was primarily attributable to the expansion of the Company's customer base as well as increased volume from existing customers. Operating revenue was also positively impacted by fuel surcharges assessed to customers. Salaries, wages, and benefits increased $4.7 million (28.2%), to $21.3 million in the first quarter of 2001 from $16.6 million in the first quarter of 2000. As a percentage of revenue, salaries, wages and benefits increased to 29.6% in 2001 from 24.7% in 2000. These increases were a result of increased reliance on employee drivers and a corresponding decrease in miles driven by independent contractors. In addition, the Company increased employee driver pay in March, 2000. The increase in employee driver miles was attributable to internal growth in the company owned tractor fleet. During the first quarter of 2001, employee drivers accounted for 67% and independent contractors 33% of the total fleet miles, compared with 55% and 45%, respectively, in the first quarter of 2000. Rent and purchased transportation decreased $3.7 million (18.2%), to $16.9 million in the first quarter of 2001 from $20.6 million in the first quarter of 2000. As a percentage of revenue, rent and purchased transportation decreased to 23.5% in the first quarter of 2001 from 30.7% in the first quarter of 2000. This reflects the Company's decreased reliance upon independent contractors. In addition, the extended period of high fuel prices has resulted in a reduction of the number of available independent contractors in the industry. 7
Operations and maintenance increased $2.4 million (25.3%) to $12.0 million in the first quarter of 2001 from $9.6 million in the first quarter of 2000. As a percentage of revenue, operations and maintenance increased to 16.8% in the first quarter of 2001 from 14.3% during the first quarter of 2000. This increase is attributable to an increase in fuel prices and increased reliance on the Company owned fleet. Taxes and licenses increased $0.1 million (6.1%), to $1.4 million in the first quarter of 2001 from $1.3 million in the first quarter of 2000. As a percentage of revenue, taxes and licenses remained constant at 1.9% in 2001 and in 2000. Insurance and claims decreased $0.3 million (14.9%), to $1.7 million in the first quarter of 2001 from $2.0 million in the first quarter of 2000. As a percentage of revenue, insurance and claims decreased to 2.3% in the first quarter of 2001 from 2.9% in the first quarter of 2000. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. Communications and utilities increased $0.1 million (18.2%), to $0.8 million in 2001 from $0.7 million in 2000. As a percentage of revenue, communications and utilities increased to 1.2% in the first quarter of 2001 from 1.0% in the first quarter of 2000. Depreciation increased $0.3 million (8.2%) to $4.2 million during the first quarter of 2001 from $3.9 million in the first quarter of 2000. As a percentage of revenue, depreciation remained constant at 5.8% in 2001 and in 2000. Other operating expenses increased $0.1 million (5.3%) to $1.5 million during the first quarter of 2001 from $1.4 million during the first quarter 2000. As a percentage of revenue, other operating expenses decreased to 2.1% in the first quarter of 2001 from 2.2% in the first quarter of 2000. Other operating expenses consists primarily of pallet cost, driver recruiting expense, and administrative costs. Interest income increased $0.1 (3.5%) to $1.4 million in the first quarter of 2001 from $1.3 million in the first quarter of 2000. Interest income earned is primarily exempt from federal taxes and therefore earned at a lower pre-tax rate. The Company's effective tax rate was 34.0% for both the three month periods ended March 31, 2001 and 2000. As a result of the foregoing, the Company's operating ratio (operating expenses as a percentage of operating revenue) was 83.1% during the first quarter of 2001 compared with 81.4% during the first quarter of 2000. Net income decreased $0.2 million (2.3%), to $8.9 million during the first quarter of 2001 from $9.1 million during the first quarter of 2000. The operating ratio and net income for the first quarter of 2000 was positively impacted by a $1.5 million gain on sale of fixed assets, primarily real estate. 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, 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. The Company's primary sources of liquidity at March 31, 2001, were funds provided by cash flows from operating activities. The Company believes its sources of liquidity are adequate to meet its current and projected needs. 8
The Company expects to finance future growth in its company-owned fleet through cash flow from operations and cash equivalents currently on hand. Based on the Company's strong financial position (current ratio of 3.0 and no debt), management foresees no barrier to obtaining outside financing, if necessary, to continue with its growth plans. During the three months ended March 31, 2001, the Company generated net cash flow from operations of $11.6 million. Net cash used in investing and financing activities included $6.9 million for capital expenditures, primarily revenue equipment. Working capital at March 31, 2001 was $124.1 million, including $132.8 million in cash, cash equivalents, and investments. These investments generated $1.3 million in interest income (primarily tax-exempt) during the three months ended March 31, 2001. The Company's policy is to purchase only investment quality, highly liquid investments. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company purchases only high quality, liquid investments. Primarily all investments as of March 31, 2001 have an original maturity of three months of less. The Company holds all investments to maturity and therefore, is exposed to minimal market risk related to its cash equivalents. The Company has no debt outstanding as of March 31, 2001 and therefore, has no market risk related to debt. The Company does not engage in fuel hedging with financial instruments. 9
PART II OTHER INFORMATION Item 1. Legal proceedings Not applicable Item 2. Changes in securities Not applicable Item 3. Defaults upon senior securities Not applicable Item 4. Submission of matters to a vote of security holders Not applicable Item 5. Other information Not applicable Item 6. Exhibits and reports on Form 8-K No Form 8-K filings during the first quarter of 2001. Page of Method of Exhibit No. Document Filing 3.1 Articles of Incorporation Incorporated by Reference to the Company's registration statement on Form S-1, Registration No.33- 8165, effective November 5, 1986. 3.2 Bylaws Incorporated by Reference to the Company's registration statement on form S-1, Registration No. 33- 8165, effective November 5, 1986. 3.3 Certificate of Amendment Incorporated by To Articles of Incorporation Reference to the Company's form 10-QA, for the quarter ended June 30, 1997, dated March 26, 1998. 10
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. 4.3 Certificate of Amendment Incorporated by to Articles of Incorporation Reference to the Company's form 10-QA, for the quarter ended June 30, 1997, dated March 26, 1998. 9.1 Voting Trust Agreement dated Incorporated by June 6, 1997 among the Gerdin Reference to the Educational Trusts and Larry Company's Form 10-K Crouse voting trustee. For the year ended December 31, 1997. Commission file no. 0-15087. 10.1 Business Property Lease Incorporated by between Russell A. Gerdin Reference to the as Lessor and the Company Company's Form 10-Q as Lessee, regarding the for the quarter ended Company's headquarters at September 30, 2000. 2777 Heartland Drive, Commission file no. Coralville, Iowa 52241 0-15087. 10.2 Form of Independent Incorporated by Contractor Operating Reference to the Agreement between the Company's Form 10-K Company and its for the year ended independent contractor December 31, 1993. providers of tractors Commission file no. 0-15087. 10.3 Description of Key Incorporated by Management Deferred Reference to the Incentive Compensation Company's Form 10-K Arrangement for the year ended December 31, 1993. Commission file no. 0-15087. 11
21 Subsidiaries of the Incorporated by Registrant Reference to the Company's Form 10-K for the year ended December 31, 2000. Commission file no. 0-15087. 27 Financial Data Schedule Filed herewith. 12
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. HEARTLAND EXPRESS, INC. BY: /s/ John P. Cosaert JOHN P. COSAERT Vice-President Finance and Treasurer 13