UNITED STATES
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, 2006 Commission File No. 0-15087
HEARTLAND EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 93-0926999
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2777 Heartland Drive, Coralville, Iowa 52241
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (319) 545-2728
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). Large
accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No {X}
At March 31, 2006, there were 73,821,500 shares of the Company's $.01 par value
common stock outstanding.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
March 31, 2006 and
December 31, 2005 1-2
Consolidated Statements of Income
for the Three Months
Ended March 31, 2006 and 2005 3
Consolidated Statements of Stockholders' Equity
For the Three Months
Ended March 31, 2006
Consolidated Statements of Cash Flows 4
for the Three Months Ended
March 31, 2006 and 2005 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, December 31,
2006 2005
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents .......... $ 5,942,323 $ 5,366,929
Short-term investments ............. 315,781,320 282,255,377
Trade receivables, net of allowance
for doubtful accounts of $775,000 .. 41,340,251 42,860,411
Prepaid tires and tubes ............ 3,847,890 3,998,430
Other prepaid expenses ............. 3,467,847 304,667
Deferred income taxes .............. 29,258,000 28,721,000
------------ ------------
Total current assets ........... 399,637,631 363,506,814
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements ......... 11,893,135 10,643,135
Buildings .......................... 16,925,821 16,925,821
Furniture and fixtures ............. 1,042,131 1,042,131
Shop and service equipment ......... 2,632,750 2,620,031
Revenue equipment .................. 255,666,568 250,479,838
------------ ------------
288,160,405 281,710,956
Less accumulated depreciation ...... 88,008,975 81,204,416
------------ ------------
Property and equipment, net ........ 200,151,430 200,506,540
------------ ------------
GOODWILL ............................... 4,814,597 4,814,597
OTHER ASSETS ........................... 4,657,344 4,679,974
------------ ------------
$609,261,002 $573,507,925
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2006 2005
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 15,388,124 $ 10,572,525
Compensation and benefits .............. 13,521,323 12,629,831
Income taxes payable ................... 19,079,773 8,064,947
Insurance accruals ..................... 54,183,611 53,631,471
Other accruals ......................... 7,587,570 7,345,499
------------- ------------
Total current liabilities .......... 109,760,401 92,244,273
------------- ------------
DEFERRED INCOME TAXES ...................... 47,891,000 48,012,000
------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred, $.01 par value; authorized
5,000,000 share; none issued ....... -- --
Common, $.01 par value; authorized
395,000,000 shares; issued and
outstanding: 73,821,500 ............ 738,215 738,215
Additional paid-in capital ............. 94,228 --
Retained earnings ...................... 450,777,158 432,952,138
------------- ------------
451,609,601 433,690,353
Less unearned compensation ............. -- (438,701)
------------- ------------
451,609,601 433,251,652
------------- ------------
$ 609,261,002 $ 573,507,925
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
March 31,
2006 2005
OPERATING REVENUE ........................... $ 134,999,299 $ 118,677,472
------------- -------------
OPERATING EXPENSES:
Salaries, wages, and benefits ............ $ 46,370,582 $ 42,716,841
Rent and purchased transportation ........ 6,199,672 7,712,212
Fuel ..................................... 32,961,018 25,561,638
Operations and maintenance ............... 2,946,733 2,572,310
Operating taxes and licenses ............. 2,067,167 2,075,290
Insurance and claims ..................... 4,086,849 2,832,265
Communications and utilities ............. 952,339 698,877
Depreciation ............................. 10,177,659 8,388,684
Other operating expenses ................. 4,197,629 4,234,394
Gain on disposal of property and equipment (3,059,237) (181,342)
------------- -------------
106,900,411 96,611,169
------------- -------------
Operating income ............... 28,098,888 22,066,303
Interest income .......................... 2,505,947 1,335,225
------------- -------------
Income before income taxes ............ 30,604,835 23,401,528
Income taxes ............................. 10,864,684 8,307,543
------------- -------------
Net income ............................ $ 19,740,151 $ 15,093,985
============= =============
Earnings per share ................... $ 0.27 $ 0.20
============= =============
Weighted average shares outstanding ...... 73,821,500 75,000,000
============= =============
Dividends declared per share .............. $ 0.02 $ 0.02
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Capital Additional Unearned
Stock, Paid-In Retained Compen-
Common Capital Earnings sation Total
--------- --------- ------------ ---------- ------------
Balance, December 31, 2005 ............... $ 738,215 $ -- $432,952,138 $ (438,701) $433,251,652
Net income ............................... -- -- 19,740,151 -- 19,740,151
Dividends on common stock, $0.02 per share -- -- (1,476,430) -- (1,476,430)
Reclassification of unearned compensation -- -- (438,701) 438,701 --
Amortization of unearned compensation .... -- 94,228 -- -- 94,228
--------- --------- ------------ ---------- ------------
Balance, March 31, 2006 .................. $ 738,215 $ 94,228 $450,777,158 $ -- $451,609,601
========= ========= ============ ========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
2006 2005
------------ -------------
OPERATING ACTIVITIES
Net income ................................... $ 19,740,151 $ 15,093,985
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization ............ 10,182,660 8,393,685
Deferred income taxes .................... (658,000) (2,745,000)
Amortization of unearned compensation .... 94,228 95,107
Gain on disposal of property and equipment (3,059,237) (181,342)
Changes in certain working capital items:
Trade receivables .................... 1,520,160 (1,180,864)
Prepaid expenses ..................... (2,341,839) (2,542,660)
Accounts payable, accrued liabilities
and other accruals.................. 3,187,857 6,093,226
Accrued income taxes ................. 11,014,826 9,848,372
------------ ------------
Net cash provided by operating activities 39,680,806 32,874,509
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment . 465,875 421,000
Purchases of property and equipment,
net of trades ............................ (4,587,572) (2,012,417)
Net purchases of municipal bonds ............. (33,525,943) (30,456,261)
Change in other assets ....................... 17,629 55,128
------------ ------------
Net cash used in investing activities ........ (37,630,011) (31,992,550)
------------ ------------
FINANCING ACTIVITIES, cash dividend ............ (1,475,401) (1,498,432)
------------ ------------
Net increase (decrease) in cash and
cash equivalents ......................... 575,394 (616,473)
CASH AND CASH EQUIVALENTS
Beginning of period .......................... 5,366,929 1,610,543
------------ ------------
End of period ................................ $ 5,942,323 $ 994,070
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ............................. $ 507,858 $ 1,204,171
Noncash investing activities:
Book value of revenue equipment traded ... $ 3,330,305 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
5
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, 2005 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 U. S. 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 3. Segment Information
The Company has ten 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. Restricted and designated cash and short-term investments totaling $4.6
million at March 31, 2006 and $4.7 million at December 31, 2005 are included in
other assets. The restricted funds represent those required for self-insurance
purpose and designated funds that are earmarked for a specific purpose not for
general business use.
Note 5. Short-term Investments
The Company investments are primarily in the form of tax free municipal
bonds with interest reset provisions or short-term municipal bonds. The
investments typically have a put option of 28 or 35 days. At the reset date the
Company has the option to roll the investment over or sell. The Company receives
the par value of the investment on the reset date if sold. The cost approximates
fair value due to the nature of the investment. Therefore, accumulated other
6
comprehensive income (loss) has not been recognized as a separate component of
stockholders' equity. Investment income received is generally exempt from
federal income taxes.
Note 6. Property, Equipment, and Depreciation
Property and equipment are stated at cost, while maintenance and repairs
are charged to operations as incurred.
Effective July 1, 2005 gains from the trade of revenue equipment are being
recognized in operating income in compliance with Statement of Financial
Accounting Standards No. 153, "Accounting for Non-monetary Transactions". Prior
to July 1, 2005 gains from the trade-in of revenue equipment were deferred and
presented as a reduction of the depreciable basis of new revenue equipment.
Operating results for the quarter were favorably impacted by $2.7 million from
gains on the trade-in of revenue equipment, net of the associated increase in
depreciation expense as a result of the higher depreciable basis of traded
revenue equipment acquired since July 1, 2005.
Note 7. Earnings Per Share:
Earnings per share are based upon the weighted average common shares
outstanding during each year. Heartland Express has no common stock equivalents;
therefore, diluted earnings per share are equal to basic earnings per share.
Note 8. Share Based Compensation
On March 7, 2002, the Company president transferred 136,125 of his own
shares establishing a restricted stock plan on behalf of key employees. The
shares vest over a five year period or upon death or disability of the
recipient. The shares were valued at the March 7, 2002 market value of
approximately $2.0 million. The market value of $2.0 million is being amortized
over a five year period as compensation expense. Compensation expense of $94,228
and $95,107 for the three month periods ended March 31, 2006 and 2005 is
recorded in salaries, wages, and benefits on the consolidated statement of
income. As of March 31, 2006, there was $344,473 of unearned compensation cost
related to the restricted stock granted. This cost will be recognized over the
next two years. All unvested shares are included in the Company's 73.8 million
outstanding shares.
A summary of the Company's non-vested restricted stock as of March 31,
2006, and changes during the three months ended March 31, 2006 is presented in
the table below:
Grant-date
Shares Fair Value
-------- ----------
Non-vested stock outstanding at January 1, 2006 51,150 $ 14.66
Granted - -
Vested (24,675) 14.66
Forfeited - -
------- --------
Non-vested stock outstanding at March 31, 2006 26,475 $ 14.66
======= ========
The fair value of the shares vested awards was $560,289 and $530,075 for the
three months ended March 31, 2006 and 2005, respectively.
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 consolidated statement of income
based on their fair value. SFAS No. 123(R) also requires entities to estimate
the number of forfeitures expected to occur and record expense based upon the
7
number of awards expected to vest. The Company implemented SFAS No. 123(R) on
January 1, 2006. The unamortized portion of unearned compensation was
reclassified to retained earnings upon implementation. The amortization of
unearned compensation is being recorded as additional paid-in capital effective
January 1, 2006. The implementation of SFAS No. 123(R) had no effect on the
Company's results of operations for the three months ended March 31, 2006.
Note 9. Commitments and Contingencies
The Company is party to ordinary, routine litigation and administrative
proceedings incidental to its business. In the opinion of management, the
Company's potential exposure under pending legal proceedings is adequately
provided for in the accompanying consolidated financial statements.
The Company had commitments at March 31, 2006 to acquire new revenue
equipment for approximately $50.3 million in 2006. These commitments are
expected to be financed from existing cash and investment balances and cash
flows from operations.
The Company announced on March 10, 2006 that our Board of Directors
declared a regular quarterly dividend of $.02 per common share, payable on April
3, 2006, to stockholders of record on March 23, 2006.
The Company announced on September 22, 2005 the planned construction of a
new corporate headquarters and an adjacent shop facility. These new facilities
will be funded with the proceeds from the sale of the current corporate
headquarters. Construction is expected to be completed in the spring of 2007.
Note 10. 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 $27,618 plus the
payment of all property taxes, insurance and maintenance. The lease was renewed
for a five year term on June 1, 2005 increasing the monthly rental from $24,969
to $27,618. In the opinion of management, the rates paid are comparable to those
that could be negotiated with a third party.
Rent expense paid to the Company's president totaled $82,854 and $74,906
for the three months ended March 31, 2006 and 2005, respectively. In 2005, the
Company announced the construction of a new corporate headquarters which is
expected to be ready for occupancy in 2007. The lease will be canceled upon the
occupancy of the new corporate headquarters and shop facility.
During the quarter ended March 31, 2006, the Company purchased 16.7 acres
of land in North Liberty from the Company's president for $1,250,000. The
purchase price was based on the fair market value that could be obtained from an
unrelated third party on an arm's length basis. The transaction was approved by
the Board of Directors.
Note 11. Reclassifications
Certain reclassifications have been made to the prior period financial
statements to conform to the March 31, 2006 presentation.
Note 12. Subsequent Event
The Company's board of directors approved a four-for-three stock split
payable in the form of a 33 percent stock dividend. The stock dividend will be
paid on May 15, 2006 to stockholders of record as of May 5, 2006. The Company's
issued and outstanding shares of common stock will increase from 73.8 million to
98.4 million upon effect of the stock dividend.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Except for certain historical information contained herein, this Quarterly
Report on Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks, assumptions and uncertainties which are difficult to predict. All
statements, other than statements of historical fact, are statements that could
be deemed forward-looking statements, including any projections of earnings,
revenues, or other financial items; any statements of plans, strategies, and
objectives of management for future operations; any statements concerning
proposed new strategies or developments; any statements regarding future
economic conditions or performance; any statements of belief and any statement
of assumptions underlying any of the foregoing. Words such as "believe," "may,"
"could," "expects," "anticipates," and "likely," and variations of these words
or similar expressions, are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed in the section entitled "Factors That May Affect Future Results,"
included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" set forth in the Company's Annual report on Form 10-K,
which is by this reference incorporated herein. The Company does not assume, and
specifically disclaims, any obligation to update any forward-looking statements
contained in this Quarterly report.
Overview
Heartland Express, Inc. is a short-to-medium haul truckload carrier. The
Company transports freight for major shippers and generally earns revenue based
on the number of miles per load delivered. The Company provides regional dry van
truckload services from eight regional operating centers plus its corporate
headquarters. The Company's eight regional operating centers accounted for 63.4%
of the first quarter 2006 operating revenues. The Company expanded to the
Western United States in the second quarter of 2005 with the opening of a
regional operating center in Phoenix, Arizona. 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 the availability of late-model equipment
and experienced drivers.
Operating efficiencies and cost controls are achieved through equipment
utilization, operating a fleet of late model equipment, maintaining an industry
leading driver to non-driver employee ratio, and the effective management of
fixed and variable operating costs. At March 31, 2006, the Company's tractor
fleet had an average age of 1.6 years while the trailer fleet had an average age
of 3.2 years. The Company has grown internally by providing quality service to
targeted customers with a high density of freight in the Company's regional
operating areas. In addition to the development of its regional operating
centers, the Company has made five acquisitions since 1987. Future growth is
dependent upon several factors including the level of economic growth and the
related customer demand, the available capacity in the trucking industry,
potential of acquisition opportunities, and the availability of experienced
drivers.
The Company ended the first quarter of 2006 with operating revenues of
$135.0 million, including fuel surcharges, net income of $19.7 million, and
earnings per share of $0.27 on average outstanding shares of 73.8 million. The
Company posted a 79.2% operating ratio (operating expenses as a percentage of
operating revenues) and a 14.6% net margin. The Company ended the quarter with
cash, cash equivalents, and short-term investments of $321.7 million and a
debt-free balance sheet. The Company had total assets of $609.3 million at March
31, 2006. The Company achieved a return on assets of 13.2% and a return on
equity of 17.9%, both improvements over the first quarter of 2005. The Company's
cash flow from operations for the quarter of $39.7 million represented a 20.7%
increase over the first quarter of 2005.
The Company hires only experienced drivers with safe driving records. In
order to attract and retain experienced drivers who understand the importance of
customer service, the Company increased pay for all drivers in the past three
consecutive years including an increase in 2006. Effective October 2, 2004, the
Company began paying all drivers an incremental amount for miles driven in the
9
upper Northeastern United States. The Company has solidified its position as an
industry leader in driver compensation with these aforementioned increases. The
driver pay increases in 2006 are for selected regional operations including a
fleet-wide incentive to maintain a hazardous materials endorsement on their
commercial driver's license.
The Company has been recognized as one of the Forbes magazine's "200 Best
Small Companies in America" fourteen times in the past nineteen years and for
the past four consecutive years including 2005. The Company has paid cash
dividends over the past eleven consecutive quarters. The Company became publicly
traded in November, 1986 and is traded on the NASDAQ National Market under the
symbol HTLD.
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,
2006 2005
-------- --------
Operating revenue 100.0% 100.0%
-------- --------
Operating expenses:
Salaries, wages, and benefits 34.4% 36.0%
Rent and purchased transportation 4.6 6.5
Fuel 24.5 21.5
Operations and maintenance 2.2 2.2
Other taxes and licenses 1.5 1.7
Insurance and claims 3.0 2.4
Communications and utilities 0.7 0.6
Depreciation 7.5 7.1
Other operating expenses 3.1 3.6
Gain on disposal of property and equipment (2.3) (0.2)
-------- --------
Total operating expenses 79.2% 81.4%
-------- --------
Operating income 20.8% 18.6%
Interest income 1.9 1.1
-------- --------
Income before income taxes 22.7% 19.7%
Federal and state income taxes 8.1 7.0
-------- --------
Net income 14.6% 12.7%
======== ========
The following is a discussion of the results of operations of the quarter
ended March 31, 2006 compared with the same period in 2005 and the changes in
financial condition through the first quarter of 2006.
Operating revenue increased $16.3 million (13.8%), to $135.0 million in the
first quarter of 2006 from $118.7 million in the first quarter of 2005. The
increase in revenue resulted from the Company's expansion of its fleet, improved
freight rates, and improved utilization of fleet capacity. Operating revenue for
both periods was positively impacted by fuel surcharges assessed to customers.
Fuel surcharge revenue increased $6.8 million to $16.9 million in the first
quarter of 2006 from $10.1 million in the first quarter of 2005.
Salaries, wages, and benefits increased $3.7 million (8.6%), to $46.4
million in the first quarter of 2006 from $42.7 million in the first quarter of
2005. These increases were 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 2006, employee
drivers accounted for 93% and independent contractors 7% of the total fleet
miles, compared with 90% and 10%, respectively, in the first quarter of 2005.
10
The Company implemented an increase in driver pay during the first quarter of
2006. All drivers maintaining a valid hazardous materials endorsement on their
commercial driver's license received a $0.01 per mile increase in January 2006.
Additional increases were given to drivers in selected regional operations.
Workers' compensation expense decreased $0.2 million (15.4%) to $1.1 million in
the quarter ended March 31, 2006 from $1.3 million in for the same period in
2005 due to a decrease in frequency and severity of claims. Health insurance
expense increased $0.3 million (15.0%) to $2.3 million in the first quarter of
2006 from $2.0 million in first quarter of 2005 due to an increase in frequency
and severity of claims and increased reliance on employee drivers.
Rent and purchased transportation decreased $1.5 million (19.6%), to $6.2
million in the first quarter of 2006 from $7.7 million in the first quarter of
2005. 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 $.01 per mile
in the first quarter of 2006 for all independent contractors maintaining a
hazardous materials endorsement on their commercial driver's license.
Fuel increased $7.4 million (28.9%) to $33.0 million in 2006 from $25.6
million in 2005. The increase is the result of increased fuel prices, an
increased reliance on company-owned tractors, and a decrease in fuel economy
associated with the EPA-mandated clean air engines. The Company's fuel cost per
company-owned tractor mile increased 22.1% in first quarter of 2006 compared to
2005. Fuel cost per mile, net of fuel surcharge, decreased 1.6% in the first
quarter of 2006 compared to 2005. The Company's fuel cost per gallon increased
21.6% in 2006 compared to 2005. In the quarter ended March 31, 2006, tractors
with the EPA-mandated clean air engine accounted for 70.0% of the miles
generated by the company-owned fleet compared to 32.5% of the company-owned
fleet in the 2005 period. Fuel economy for tractors with EPA-mandated clean air
engines decreased 5.4%.
Operations and maintenance increased $0.4 million (14.6%) to $2.9 million
in the first quarter of 2006 from $2.5 million in the first quarter of 2005. The
increase is primarily attributable to the growth of the company-owned tractor
and trailer fleets and the associated costs to maintain revenue equipment.
Insurance and claims increased $1.3 million (44.3%), to $4.1 million in the
first quarter of 2006 from $2.8 million in the first quarter of 2005 due to an
increase in the frequency and severity of claims.
Depreciation increased $1.8 million (21.3%), to $10.2 million during the
first quarter of 2006 from $8.4 million in the first quarter of 2005. This
increase is attributable to the growth of our company-owned tractor and trailer
fleet, an increased cost of new tractors primarily associated with the
EPA-mandated clean air engines, and the implementation of SFAS No. 153. New
tractors have a higher cost than the models being replaced due to EPA-mandated
clean air standards. As of March 31, 2006, 71.3% of the Company's tractor fleet
had the EPA clean air engine compared to 34.1% at March 31, 2005. For the
quarter ended March 31, 2006, implementation of SFAS No. 153 resulted in
approximately $0.4 million of additional depreciation as a result of higher
depreciable basis of revenue equipment acquired through trade-ins. In future
periods, we expect depreciation will increase as we continue to upgrade our
fleet in compliance with EPA-mandated engine changes and due to the impact of
SFAS No. 153.
Other operating expenses were flat at $4.2 million in the first quarter of
2006 and 2005. Other operating expenses consists of costs incurred for
advertising expense, freight handling, highway tolls, driver recruiting
expenses, and administrative costs.
Gain on the disposal of property and equipment increased $2.9 million
(1587.0%) to $3.1 million during the first quarter of 2006 from $0.2 million in
the first quarter of 2005. For 2006, $3.0 million represents gains on trade-ins
of revenue equipment which are recognized currently under of SFAS No. 153. These
gains were previously deferred as a reduction of the depreciable basis of new
revenue equipment.
11
Interest income increased $1.2 million (87.7%), to $2.5 million in the
first quarter of 2006 from $1.3 million in the same period of 2005. The increase
is the result of higher average balances of cash, cash equivalents, and
short-term investments and higher yields than 2005.
The Company's effective tax rate was 35.5% in the first quarter of 2006 and
2005.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 79.2% during the first
quarter of 2006 compared with 81.4% during the first quarter of 2005. Net income
increased $4.6 million (30.8%), to $19.7 million during the first quarter of
2006 from $15.1 million during the first quarter of 2005.
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, 2006,
was net cash provided by operating activities of $39.7 million compared to $32.9
million in the corresponding 2005 period.
Capital expenditures for property and equipment, primarily revenue
equipment net of trade-ins, totaled $4.6 million for the first three months of
2006 compared to $2.0 million for the same period in 2005. The Company
anticipates new tractor and trailer purchases, net of trades, totaling
approximately $57.3 million in 2006. In addition, the Company may buy additional
tractors prior to phase two of the federally mandated engine emissions standards
that will become effective in January 2007. In addition, the Company expects to
begin construction of a new facility in Phoenix, Arizona during the second
quarter of 2006.
The Company paid cash dividends of $1.5 million in the first quarter 2006
and 2005. The Company began paying cash dividends in the third quarter of 2003.
The Company declared a $1.5 million cash dividend in March 2006, payable on
April 3, 2006.
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 short-term investments. The Company ended the quarter with
$321.7 million in cash, cash equivalents, and short-term 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.
Off-Balance Sheet Transactions
The Company's liquidity is not materially affected by off-balance sheet
transactions.
Risk Factors
You should refer to Item 1A of our annual report (Form 10-K) for the year
ended December 31, 2005, under the caption "Risk Factors" for specific details
on the following factors that are not within the control of the Company and
could affect our financial results.
o Our business is subject to general economic and business factors that
are largely out of our control.
o Our growth may not continue at historic rates.
o Increased prices, reduced productivity, and restricted availability of
new revenue equipment may adversely affect our earnings and cash flow.
o If fuel prices increase significantly, our results of operations could
be adversely affected.
o Difficulty in driver and independent contractor recruitment and
retention may have a materially adverse effect on our business.
12
o We operate in a highly regulated industry, and increased costs of
compliance with, or liability for violation of, existing regulations
could have a materially adverse effect on our business.
o Our operations are subject to various environmental laws and
regulations, the violations of which could result in substantial fines
or penalties.
o We may not make acquisitions in the future, or if we do, we may not be
successful in integrating the acquired company, either of which could
have a materially adverse effect on our business.
o If we are unable to retain our key employees or find, develop, and
retain service center managers, our business, financial condition, and
results of operations could be adversely affected.
o We are highly dependent on a few major customers, the loss of one or
more of which could have a materially adverse effect on our business.
o Seasonality and the impact of weather affect our operations
profitability.
o Ongoing insurance and claims expenses could significantly reduce our
earnings.
o We are dependent on computer and communications systems, and a systems
failure could cause a significant disruption to our business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company purchases only high quality, liquid investments. Primarily all
investments as of March 31, 2006 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 had no debt outstanding as of March 31, 2006 and therefore, had
no market risk related to debt.
As of March 31, 2006, the Company did not have any long-term fuel purchase
contracts, and had not entered into any other hedging arrangements, that protect
against fuel price increases. Volatile fuel prices will continue to impact us
significantly. A significant increase in fuel costs, or a shortage of diesel
fuel, could materially and adversely affect our results of operations.
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.
13
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
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 19, 2006, announcing the
Company's financial results for the quarter ended December
31, 2005.
2. Report on Form 8-K, dated March 13, 2006, announcing
the declaration of a quarterly cash dividend.
No other information is required to be filed under Part II of the form.
14
SIGNATURE
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, 2006 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. 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, 2006 By: /s/ Russell A. Gerdin
Russell A. Gerdin
Chairman, President and
Chief Executive Officer
16
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, 2006 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance
Chief Financial Officer and
Treasurer
(principal accounting and
financial officer)
17
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, 2006 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, 2006 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,
2006 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, 2006 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President
and Chief Financial Officer
18