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, 2007 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, 2007, there were 98,251,889 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 as of
March 31, 2007 and December 31, 2006 1-2
Consolidated Statements of Income
for the Three Months Ended March 31, 2007 and 2006 3
Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 2007 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2007 and 2006 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, December 31,
2007 2006
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents ................... $ 11,417,039 $ 8,458,882
Short-term investments ...................... 353,689,572 322,829,306
Trade receivables, net of allowance
for doubtful accounts of $775,000 ......... 45,504,423 43,499,482
Prepaid tires and tubes ..................... 4,582,010 5,075,566
Other prepaid expenses ...................... 6,811,936 1,635,077
Deferred income taxes ....................... 28,614,000 29,177,000
------------ ------------
Total current assets ............... 450,618,980 410,675,313
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements .................. 10,017,251 12,016,344
Buildings ................................... 18,938,832 18,849,412
Furniture and fixtures ...................... 1,113,565 1,113,565
Shop and service equipment .................. 2,817,027 2,838,934
Revenue equipment ........................... 311,846,053 309,505,597
------------ ------------
344,732,728 344,323,852
Less accumulated depreciation ............... 104,987,360 96,293,111
------------ ------------
Property and equipment, net ................. 239,745,368 248,030,741
------------ ------------
GOODWILL ........................................ 4,814,597 4,814,597
OTHER ASSETS .................................... 5,528,998 5,549,061
------------ ------------
$700,707,943 $669,069,712
============ ============
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,
2007 2006
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 15,887,364 $ 15,075,647
Compensation and benefits .............. 14,128,288 15,028,378
Income taxes payable ................... 8,836,953 21,418,610
Insurance accruals ..................... 57,107,383 56,651,853
Other accruals ......................... 8,076,648 8,248,415
------------ ------------
Total current liabilities ........... 104,036,636 116,422,903
------------ ------------
LONG-TERM LIABILITIES
Income taxes payable ................... 35,913,580 --
Deferred income taxes .................. 49,881,000 57,623,000
------------ ------------
Total long-term liabilities ......... 85,794,580 57,623,000
------------ ------------
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: 98,251,889 shares ...... 982,519 982,519
Additional paid-in capital ............. 438,701 376,029
Retained earnings ...................... 509,455,507 493,665,261
------------ ------------
510,876,727 495,023,809
------------ ------------
$700,707,943 $669,069,712
============ ============
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,
2007 2006
------------- -------------
OPERATING REVENUE ........................... $ 143,429,027 $ 134,999,299
------------- -------------
OPERATING EXPENSES:
Salaries, wages, and benefits ............ $ 48,013,729 $ 46,370,582
Rent and purchased transportation ........ 5,221,764 6,199,672
Fuel ..................................... 36,813,297 32,961,018
Operations and maintenance ............... 3,204,050 2,946,733
Operating taxes and licenses ............. 2,280,358 2,067,167
Insurance and claims ..................... 5,589,831 4,086,849
Communications and utilities ............. 855,918 952,339
Depreciation ............................. 11,703,756 10,177,659
Other operating expenses ................. 4,125,123 4,197,629
Gain on disposal of property and equipment (5,666,241) (3,059,237)
------------- -------------
112,141,585 106,900,411
------------- -------------
Operating income ............... 31,287,442 28,098,888
Interest income .......................... 3,316,063 2,505,947
------------- -------------
Income before income taxes ............ 34,603,505 30,604,835
Income taxes ............................. 12,050,204 10,864,684
------------- -------------
Net income ............................ $ 22,553,301 $ 19,740,151
============= =============
Earnings per share ................... $ 0.23 $ 0.20
============= =============
Weighted average shares outstanding ...... 98,251,889 98,428,589
============= =============
Dividends declared per share .............. $ 0.020 $ 0.015
============= =============
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
Stock, Paid-In Retained
Common Capital Earnings Total
--------- --------- ------------ ------------
Balance, December 31, 2006 $ 982,519 $ 376,029 $ 493,665,261 $ 495,023,809
Adoption of FIN 48 ....... -- -- (4,798,017) (4,798,017)
Net income ............... -- -- 22,553,301 22,553,301
Dividends on common stock,
$0.02 per share ........ -- -- (1,965,038) (1,965,038)
Amortization of unearned
compensation ........... -- 62,672 -- 62,672
------------- ------------- ------------- -------------
Balance, March 31, 2007 .. $ 982,519 $ 438,701 $ 509,455,507 $ 510,876,727
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
2007 2006
----------- -----------
OPERATING ACTIVITIES
Net income ....................................... $22,553,301 $19,740,151
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization ................. 11,708,756 10,182,660
Deferred income taxes ......................... 1,634,000 (658,000)
Amortization of unearned compensation ......... 62,672 94,228
Gain on disposal of property and equipment .... (5,666,241) (3,059,237)
Changes in certain working capital items:
Trade receivables .......................... (2,004,941) 1,520,160
Prepaid expenses ........................... (4,604,990) (2,341,839)
Accounts payable, accrued
liabilities and other accruals...... 783,213 3,187,857
Accrued income taxes ....................... 9,720,906 11,014,826
----------- -----------
Net cash provided by operating activities ..... 34,186,676 39,680,806
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of property
and equipment .............................. 8,402,691 465,875
Purchases of property and equipment,
net of trades .............................. (6,821,652) (4,587,572)
Net purchases of municipal bonds .............. (30,860,266) (33,525,943)
Change in other assets ........................ 15,062 17,629
----------- -----------
Net cash used in investing activities ......... (29,264,165) (37,630,011)
----------- -----------
FINANCING ACTIVITIES, cash dividend ................. (1,964,354) (1,475,401)
----------- -----------
Net increase in cash and cash equivalents ..... 2,958,157 575,394
CASH AND CASH EQUIVALENTS
Beginning of period ........................... 8,458,882 5,366,929
----------- -----------
End of period ................................. $11,417,039 $ 5,942,323
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ................................. $ 695,298 $ 507,858
Non-cash investing activities:
Fair value of revenue equipment traded ....... $ -- $ 6,316,600
Purchased revenue equipment in accounts payable $ 1,882,000 $ 2,709,875
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 U.S. 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 U.S. 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, 2006 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 $5.5
million at March 31, 2007 and December 31, 2006 are included in other assets.
The restricted funds represent those required for self-insurance purposes and
designated funds represent those 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 ("SFAS") 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 income for the three months ended March 31,
2007 was not effected by gains related to the trade of revenue equipment. First
quarter 2006 was 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 period. 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 principal shareholder transferred 181,500 of his own
shares establishing a restricted stock plan on behalf of key employees. The
shares generally 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 was amortized over
a five year period as compensation expense. Compensation expense of $62,672 for
the three month period ended March 31, 2007 and $94,228 for the same period of
2006 is recorded in salaries, wages, and benefits on the consolidated statement
of income. As of March 31, 2007, all unearned compensation cost related to the
restricted stock granted was fully amortized. All unvested shares are included
in the Company's 98.3 million outstanding shares.
A summary of the Company's non-vested restricted stock as of March 31,
2007, and changes during the three months ended March 31, 2007 is presented in
the table below:
Grant-date
Shares Fair Value
------ ----------
Non-vested stock outstanding at January 1, 2007 34,200 $ 11.00
Granted - -
Vested (32,900) 11.00
Forfeited - -
------ ----------
Non-vested stock outstanding at March 31, 2007 1,300 $ 11.00
====== ==========
The fair value of the shares vested was $526,715 and $560,289 for the three
months ended March 31, 2007 and 2006, 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.
7
SFAS No. 123(R) also requires entities to estimate the number of forfeitures
expected to occur and record expense based upon the 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.
Note 9. Income Taxes
In July 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (FIN48).
The Company was required to adopt the provisions of FIN 48, effective January 1,
2007. This interpretation was issued to clarify the accounting for uncertainty
in income taxes recognized in the financial statements by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.
The Company recognized additional tax liabilities of $4.8 million with a
corresponding reduction to beginning retained earnings as of January 1, 2007 as
a result of the adoption of FIN 48. The total amount of gross unrecognized tax
benefits was $35.6 million as of January 1, 2007, the date of adoption. At March
31, 2007, the Company had a total of $35.9 million in gross unrecognized tax
benefits. Of this amount, $26.8 million represents the amount of unrecognized
tax benefits that, if recognized, would impact our effective tax rate. These
unrecognized tax benefits relate to the state income tax filing position for the
Company's corporate subsidiaries. The Company does not expect the aggregate
amount of unrecognized tax benefits to change significantly within the next
twelve months. The Company cannot reasonably estimate when the unrecognized tax
benefits will be realized. The total amount of accrued interest and penalties
for such unrecognized tax benefits was $10.4 million as of January 1, 2007, the
date of adoption. Interest and penalties related to income taxes are classified
as income tax expense in our financial statements.
The federal statute of limitations remains open for the years 2004 and
forward. Tax years 1996 and forward are subject to audit by state tax
authorities depending on the tax code of each state.
Note 10. 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, 2007 to acquire new revenue
equipment for approximately $34.8 million in 2007. These commitments are
expected to be financed from existing cash and short-term investment balances
and cash flows from operations and trade-in of existing equipment.
The Company announced on March 9, 2007 that our Board of Directors declared
a regular quarterly dividend of $.02 per common share, payable on April 2, 2007,
to stockholders of record on March 22, 2007.
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 real estate and from existing
cash and short-term investment balances and cash flows from operations. Total
expenditures for the new building are expected to range from between $12.0
million to $15.0 million. Construction is expected to be completed in the second
quarter of 2007. No depreciation expense has been recognized to date.
Note 11. Related Party Transactions
The Company previously leased two office buildings and a storage building
from its CEO under a lease that provided for monthly rentals of $27,618 plus the
8
payment of all property taxes, insurance and maintenance. In the opinion of
management, the rates paid were comparable to those that could be negotiated
with a third party. The buildings were sold in February 2007 to an unrelated
third party and the related party lease was canceled. Rent is being paid to the
unrelated third party and will continue until the new corporate headquarters is
occupied.
Rent expense paid to the Company's CEO totaled $35,509 during the three
months ended March 31, 2007 and $82,854 for the 2006 period. As discussed above,
the Company is currently constructing a new corporate headquarters which is
expected to be ready for occupancy in 2007. The current lease will be canceled
upon the occupancy of the new corporate headquarters and shop facility.
Note 12. Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".
This Statement defines fair value, establishes a framework for measuring fair
value in U.S. generally accepted accounting principles, and expands disclosures
about fair value measurements. The provisions of SFAS No. 157 are effective as
of the beginning of the first fiscal year that begins after November 15, 2007.
As of March 31, 2007, management believes that SFAS No. 157 will have no effect
on the financial position, results of operations, and cash flows of the Company.
In February 2007, the FASB issued SFAS No. 159. "The Fair Value Option for
Financial Assets and Financial Liabilities--including an amendment of FASB
Statement No. 115". This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The fair value
option established by this Statement permits all entities to choose to measure
eligible items at fair value at specified election dates. A business entity
shall report unrealized gains and losses for which the fair value option has
been elected in earnings at each subsequent reporting date. The fair value
option: 1) may be applied instrument by Instrument, 2) is irrevocable (unless a
new election date occurs), and 3) is applied only to entire instruments and not
portions of instruments. The provisions of SFAS No. 159 are effective as of the
beginning of the first fiscal year that begins after November 15, 2007. As of
March 31, 2007, management believes that SFAS No. 159 will have no effect on the
financial position, results of operations, and cash flows of the Company.
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
9
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 63.1%
of the first quarter 2007 operating revenues. 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, 2007, the Company's tractor
fleet had an average age of 1.5 years while the trailer fleet had an average age
of 3.3 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 2007 with operating revenues of
$143.4 million, including fuel surcharges, net income of $22.6 million, and
earnings per share of $0.23 on average outstanding shares of 98.3 million. The
Company posted a 78.2% operating ratio (operating expenses as a percentage of
operating revenues) and a 15.7% net margin. The Company ended the quarter with
cash, cash equivalents, and short-term investments of $365.1 million and a
debt-free balance sheet. The Company had total assets of $700.7 million at March
31, 2007. The Company achieved a return on assets of 13.7% and a return on
equity of 18.7% for the twelve months ended March 31, 2007, both improvements
over the twelve months ended March 31, 2006 which were 13.2% and 17.9%,
respectively. The Company's cash flow from operations for the first three months
of $34.2 million represented a 13.8% decrease from the same period of 2006. The
Company's cash flow from operations was 23.8% of operating revenues for the
quarter ended March 31, 2007.
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 has increased driver pay in the past three
consecutive years, 2004 through 2006. Effective October 2, 2004, the Company
began paying all drivers an incremental amount for miles driven in the upper
Northeastern United States. The Company does not plan a driver pay increase for
2007.
The Company has been recognized as one of the Forbes magazine's "200 Best
Small Companies in America" fifteen times in the past twenty years and for the
past five consecutive years. The Company has paid cash dividends over the past
fourteen consecutive quarters. The Company became publicly traded in November,
1986 and is traded on the NASDAQ National Market under the symbol HTLD.
10
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,
2007 2006
------------ ------------
Operating revenue 100.0% 100.0%
----------- ------------
Operating expenses:
Salaries, wages, and benefits 33.5% 34.4%
Rent and purchased transportation 3.6 4.6
Fuel 25.7 24.5
Operations and maintenance 2.2 2.2
Operating taxes and licenses 1.6 1.5
Insurance and claims 3.9 3.0
Communications and utilities 0.6 0.7
Depreciation 8.2 7.5
Other operating expenses 2.9 3.1
Gain on disposal of property and equipment (4.0) (2.3)
----------- ------------
Total operating expenses 78.2% 79.2%
----------- ------------
Operating income 21.8% 20.8%
Interest income 2.3 1.9
----------- ------------
Income before income taxes 24.1% 22.7%
Federal and state income taxes 8.4 8.1
----------- ------------
Net income 15.7% 14.6%
=========== ============
The following is a discussion of the results of operations of the three
month period ended March 31, 2007 compared with the same period in 2006.
Three Months Ended March 2007 and 2006
Operating revenue increased $8.4 million (6.2%), to $143.4 million in the
first quarter of 2007 from $135.0 million in the first quarter of 2006. The
increase in revenue resulted from the Company's expansion of its fleet and
improved freight rates. Operating revenue for both periods was positively
impacted by fuel surcharges assessed to customers. Fuel surcharge revenue
increased $.7 million, (4.2%) to $18.1 million in the first quarter of 2007 from
$17.4 million in the first quarter of 2006.
Salaries, wages, and benefits increased $1.6 million (3.5%), to $48.0
million in the first quarter of 2007 from $46.4 million in the first quarter of
2006. 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 driver pay increases. The Company increased driver pay by $0.01 per
mile in January 2006 for all drivers maintaining a valid hazardous materials
endorsement on their commercial driver's license and implemented quarterly pay
increases in 2006 for selected operating divisions. These increases to driver
compensation resulted in a cost increase of approximately $0.9 million in the
first quarter of 2007. During the first quarter of 2007, employee drivers
accounted for 95% and independent contractors for 5% of the total fleet miles,
compared with 93% and 7%, respectively, in the first quarter of 2006. Workers'
compensation expense decreased $0.4 million (33.4%) to $0.8 million in the
quarter ended March 31, 2007 from $1.2 million in for the same period in 2006
due to a decrease in frequency and severity of claims.
11
Health insurance expense decreased $0.8 million (33.2%) to $1.5 million in the
first quarter of 2007 from $2.3 million in first quarter of 2006 due to a
decrease in frequency and severity of claims.
Rent and purchased transportation decreased $1.0 million (15.8%), to $5.2
million in the first quarter of 2007 from $6.2 million in the first quarter of
2006. 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. In
the first quarter of 2006, the Company increased the independent contractor base
mileage pay by $0.01 per mile for all independent contractors maintaining a
hazardous materials endorsement on their commercial driver's license, and an
additional $0.01 per mile per quarter in 2006 beginning on April 1, 2006.
Fuel increased $3.8 million (11.7%), to $36.8 million for the three months
ended March 31, 2007 from $33.0 million for the same period of 2006. 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 5.3% in first quarter of 2007 compared to 2006. Fuel cost
per mile, net of fuel surcharge, increased 10.7% in the first quarter of 2007
compared to 2006. The Company's first quarter fuel cost per gallon increased
slightly by 0.9% in 2007 compared to 2006.
Operations and maintenance increased $0.3 million (8.7%), to $3.2 million
in the first quarter of 2007 from $2.9 million in the first quarter of 2006 due
to an increase in preventative maintenance and parts replacement.
Insurance and claims increased $1.5 million (36.8%), to $5.6 million in the
first quarter of 2007 from $4.1 million in the first quarter of 2006 due to an
increase in the frequency and severity of claims.
Depreciation increased $1.5 million (15.0%), to $11.7 million during the
first quarter of 2007 from $10.2 million in the first quarter of 2006. 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 continued impact 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, 2007, 100.0% of the Company's tractor fleet
had the EPA clean air engine compared to 71.3% at March 31, 2006. For the
quarter ended March 31, 2007, depreciation expense increased $0.8 million due to
a higher depreciable basis of revenue equipment acquired through trade-ins as a
result of SFAS No. 153. For the same period of 2006, the additional depreciation
attributable to SFAS No. 153 was $0.4 million. 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 continued impact of SFAS No.
153.
Other operating expenses decreased $0.1 million (1.7%), to $4.1 million in
the first quarter of 2007 from $4.2 million in the first quarter of 2006. 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 $2.6 million
(85.2%), to $5.7 million during the first quarter of 2007 from $3.1 million in
the first quarter of 2006. The first quarter 2007 gain is primarily attributable
to the sale of an idle facility in Columbus, Ohio and the sale of the current
corporate headquarters facility in Coralville, Iowa. The proceeds received from
these sales will be used in the financing the new corporate headquarters. In the
first quarter 2006, $3.0 million of gains on trade-ins of revenue equipment were
recognized under SFAS No. 153.
Interest income increased $.8 million (32.3%), to $3.3 million in the first
quarter of 2007 from $2.5 million in the same period of 2006. The increase is
the result of higher average balances of cash, cash equivalents, and short-term
investments and higher yields than the same period in 2006.
The Company's effective tax rate was 34.8% and 35.5%, respectively, in the
first quarter of 2007 and 2006.
12
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 78.2% during the first
quarter of 2007 compared with 79.2% during the first quarter of 2006. Net income
increased $2.8 million (14.3%), to $22.6 million during the first quarter of
2007 from $19.7 million during the first quarter of 2006.
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, 2007,
was net cash provided by operating activities of $34.2 million compared to $39.7
million in the corresponding 2006 period primarily attributable to changes in
working capital.
Capital expenditures for property and equipment, primarily revenue
equipment net of trade-ins, totaled $6.8 million for the first three months of
2007 compared to $4.6 million for the same period in 2006. The Company
anticipates new tractor and trailer purchases, net of trades, totaling
approximately $39.5 million in 2007. In addition, the Company began construction
of a new facility in Phoenix, Arizona in 2006. This facility is expected to be
completed in the second quarter of 2007 with additional capital expenditures of
approximately $0.7 million. These projected capital expenditures will be funded
by cash flows from operations. Total expenditures for the new corporate
headquarters and shop facility in North Liberty, Iowa are expected to be
approximately $12.0 million to $15.0 million. Construction is expected to be
completed in the second quarter of 2007.
The Company paid cash dividends of $2.0 million and $1.5 million during the
first three months of 2007 and 2006, respectively. The Company began paying cash
dividends in the third quarter of 2003 and has paid a quarterly dividend for
fourteen consecutive quarters. The Company declared a $2.0 million cash dividend
in March 2007, payable on April 2, 2007.
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
$365.1 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, 2006, 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.
13
o Difficulty in driver and independent contractor recruitment and
retention may have a materially adverse effect on our business.
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, 2007 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, 2007 and therefore,
had no market risk related to debt.
As of March 31, 2007, 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. In
February 2007, the Board of Directors authorized the Company to begin hedging
activities related to commodity fuels. In the event of hedging activities, the
Company will implement the provisions of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and contract with an unrelated third party
to transact the hedge.
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.
14
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 25, 2007, announcing the
Company's financial results for the quarter ended December
31, 2006.
2. Report on Form 8-K, dated March 9, 2007, announcing the
declaration of a quarterly cash dividend.
No other information is required to be filed under Part II of the form.
15
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 9, 2007 BY: /S/ John P Cosaert
------------------
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and
Treasurer
(principal accounting and
financial officer)
16
Exhibit No. 31.1
Certification
I, Russell A. Gerdin, Chairman 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 9, 2007 By:/s/ Russell A. Gerdin
---------------------
Russell A. Gerdin
Chairman and Chief Executive Officer
17
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 9, 2007 By: /s/ John P. Cosaert
--------------------
John P. Cosaert
Executive Vice President-Finance
Chief Financial Officer and
Treasurer
(principal accounting and
financial officer)
18
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, 2007 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 9, 2007 By: /s/ Russell A. Gerdin
---------------------
Russell A. Gerdin
Chairman 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,
2007 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 9, 2007 By: /s/ John P. Cosaert
---------------------
John P. Cosaert
Executive Vice President
and Chief Financial Officer
19