-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JsTR757bINce1Psu9e/YmXPyKnETR0LSia6cQ9eNg4U8RSgzamtmsH4ElOz4a839 UJgfb53f4L33zkb3aAJ9Aw== 0000799233-02-000010.txt : 20020415 0000799233-02-000010.hdr.sgml : 20020415 ACCESSION NUMBER: 0000799233-02-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEARTLAND EXPRESS INC CENTRAL INDEX KEY: 0000799233 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 930926999 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15087 FILM NUMBER: 02588291 BUSINESS ADDRESS: STREET 1: 2777 HEARTLAND DR CITY: CORALVILLE STATE: IA ZIP: 52241 BUSINESS PHONE: 3196452728 MAIL ADDRESS: STREET 2: 2777 HEARTLAND DRIVE CITY: CORALVILLE STATE: LA ZIP: 52241 10-K 1 tenk123101.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________________To_______________________. Commission file number 0-15087 HEARTLAND EXPRESS, INC. (Exact name of registrant as specified in its charter) Nevada 93-0926999 (State or Other Jurisdiction (I.R.S. Employer of Incorporation) Identification No.) 2777 Heartland Drive Coralville, Iowa 52241 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 319-545-2728 Securities Registered Pursuant to section 12(b) of the Act: None Securities Registered Pursuant to section 12(g) of the Act: $0.01 Par Value Common Stock Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the registrant's definitive proxy statement incorporated by reference in Part III of this Form 10-K. [ X ] The aggregate market value of the shares of the registrant's $0.01 par value common stock held by non-affiliates of the registrant as of March 14, 2002 was $661,273,655 (based upon $22.18 per share being the average of the closing bid and asked price on that date as reported by NASDAQ). In making this calculation the issuer has assumed, without admitting for any purpose, that all executive officers and directors of the registrant, and no other persons, are affiliates. The number of shares outstanding of the Registrant's common stock as March 14, 2002 was 50,000,000. DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III, Items 10, 11, 12, and 13 of this Report is incorporated by reference from the registrant's definitive proxy statement for the 2002 annual meeting of stockholders that will be filed no later than April 26, 2002. 1 Cross Reference Index The following cross-reference index indicates that document and location of the information contained herein and incorporated by reference into the Form 10-K. Document and Location Part I Item 1 Business Page 3-5 herein Item 2 Properties Page 5 herein Item 3 Legal Proceedings Page 5 herein Item 4 Submission of Matters to a Vote of Securities Holders Page 6 herein Part II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters Page 6 herein Item 6 Selected Financial Data Page 7 herein Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Page 8-12 herein Item 7A Quantitative and Qualitative Disclosures about Market Risk Page 12 herein Item 8 Financial Statements and Supplementary Data Page 12 and 16-26 herein Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Page 12 herein Part III Item 10 Directors and Executive Officers of the Registrant Pages 3 and 4 of Proxy Statement Item 11 Executive Compensation Pages 8-10 of Proxy Statement Item 12 Security Ownership of Certain Beneficial Owners and Management Page 11 of Proxy Statement Item 13 Certain Relationships and Related Transactions Page 7 of Proxy Statement Part IV Item 14 Exhibits, Financial Statements and Financial Statement Schedule, and Reports on Form 8-K Pages 13 and 14 herein This report contains "forward-looking statements." These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Factors That May Affect Future Results" for additional information and factors to be considered concerning forward-looking statements. 2 PART I ITEM 1. BUSINESS General Heartland Express, Inc. ("Heartland" or the "Company") is a short-to-medium haul truckload carrier based near Iowa City, Iowa. The Company provides nationwide transportation service to major shippers, using late-model equipment and a combined fleet of company-owned and owner-operator tractors. The Company's primary traffic lanes are between customer locations east of the Rocky Mountains, with selected service to the West. Management believes that the Company's service standards and equipment accessibility have made it a core carrier to many of its major customers. Heartland was founded by Russell A. Gerdin in 1978 and became publicly traded in November 1986. Over the fifteen years from 1986 to 2001, Heartland has grown to $294.6 million in revenue from $21.6 million and net income has increased to $37.7 million from $3.0 million. Much of this growth has been attributable to expanding service for existing customers, acquiring new customers, and continued expansion of the Company's operating regions. In addition to internal growth, Heartland has completed four acquisitions since 1987 with the most recent in July, 1997. These acquisitions have enabled Heartland to solidify its position within existing regions, expand its customer base in the East and Northeast United States, and to pursue new customer relationships in new markets. Heartland Express, Inc. is a holding company incorporated in Nevada, which owns, directly or indirectly, all of the stock of Heartland Express Inc. of Iowa, Heartland Equipment, Inc., and A & M Express, Inc. Operations Heartland's operations department focuses on the successful execution of customer expectations and providing consistent opportunity for the fleet of employee drivers and independent contractors, while maximizing equipment utilization. These objectives require a combined effort of marketing, regional operations managers, and fleet management. The Company's regional operations managers are responsible for maintaining the continuity between the customer's needs and Heartland's ability to meet those needs by communicating customer's expectations to the fleet management group. They are charged with development of customer relationships, ensuring service standards, coordinating proper freight-to-capacity balancing, trailer asset management, and daily tactical decisions pertaining to matching the Company's freight with the appropriate capacity within geographical service areas. They assign orders to drivers based on well-defined criteria, such as driver safety and DOT compliance, customer needs and service requirements, equipment utilization, driver time at home, operational efficiency, and equipment maintenance needs. Fleet management employees are charged with the management and development of their fleets of drivers. Additionally, they maximize the capacity that is available to the organization to meet the service needs of the Company's customers. Their responsibilities include meeting the needs of the drivers within the standards that have been set by the organization and communicating the requirements of the customers to the drivers on each order to ensure successful execution. Serving the short-to-medium haul market (539-mile average length of haul in 2001) permits the Company to use primarily single, rather than team drivers and dispatch most trailers directly from origin to destination without an intermediate equipment change other than for driver scheduling purposes. Heartland also operates six specialized regional distribution operations near Atlanta, Georgia; Carlisle, Pennsylvania; Columbus, Ohio; Decatur, Illinois; Jacksonville, Florida; and Kingsport, Tennessee. These short-haul operations concentrate on freight movements generally within a 400-mile radius of the regional terminal, and are designed to meet the needs of significant customers in those regions. Dispatchers at the regional locations handle these operations, and the Company uses a centralized computer network and regular communication to achieve system-wide load coordination. 3 The Company emphasizes customer satisfaction through on-time performance, dependable late-model equipment, and consistent equipment availability to serve large customers' volume requirements. The Company also maintains a high trailer to tractor ratio, which facilitates the stationing of trailers at customer locations for convenient loading and unloading. This minimizes waiting time, which increases tractor utilization and assists with driver retention. Customers and Marketing The Company targets customers in its operating area that require multiple, time-sensitive shipments, including those employing "just-in-time" manufacturing and inventory management. In seeking these customers, Heartland has positioned itself as a provider of premium service at compensatory rates, rather than competing solely on the basis of price. Freight transported for the most part is non-perishable and predominantly does not require driver handling. We believe Heartland's reputation for quality service, reliable equipment, and equipment availability makes it a core carrier to many of its customers. Heartland seeks to transport freight that will complement traffic in its existing service areas and remain consistent with the Company's focus on short-to-medium haul and regional distribution markets. Management believes that building additional service in the Company's primary traffic lanes will assist in controlling empty miles and enhancing driver "home time." The Company's 25, 10, and 5 largest customers accounted for 67%, 49%, and 38% of revenue, respectively, in 2001. The Company's primary customers include retailers and manufacturers. The distribution of customers is not significantly different from the previous year. Sears Logistics Services accounted for 15% of revenue in 2001. No other customer accounted for as much as ten percent of revenue. Drivers, Independent Contractors, and Other Personnel Heartland's workforce is an essential ingredient in achieving its business objectives. As of December 31, 2001, Heartland employed 1,812 persons. The Company also contracted with independent contractors to provide and operate tractors. Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and taxes. The Company historically has operated a combined fleet of company and independent contractor tractors. Management believes that a combined fleet compliments the Company's recruiting efforts and offers greater flexibility in responding to fluctuations in shipper demand. Management's strategy for both employee and independent contractor drivers is to (1) hire the best; (2) promote retention through financial incentives, positive working conditions, and targeting freight that requires little or no handling; and (3) minimize safety problems through careful screening, mandatory drug testing, continuous training, and financial rewards for accident-free driving. Heartland also seeks to minimize turnover of its employee drivers by providing modern, comfortable equipment and of all drivers by regularly scheduling them to their homes. All drivers are compensated for empty miles as well as loaded miles. This provides an incentive for the Company to minimize empty miles and at the same time does not penalize drivers for inefficiencies of operations that are beyond their control. Heartland is not a party to a collective bargaining agreement. Management believes that the Company has good relationships with its employees. Revenue Equipment Heartland's management believes that operating high-quality, efficient equipment is an important part of providing excellent service to customers. The Company's policy is to operate its tractors while under warranty to minimize repair and maintenance cost and reduce service interruptions caused by breakdowns. In addition, the Company's preventive maintenance program is designed to minimize equipment downtime, facilitate customer service, and enhance trade value when equipment is replaced. Factors considered when purchasing new equipment include fuel economy, price, technology, warranty terms, manufacturer support, driver comfort, and resale value. 4 Competition The truckload industry is highly competitive and includes thousands of carriers, none of which dominates the market. The Company competes primarily with other truckload carriers, and to a lesser extent with railroads, intermodal service, less-than-truckload carriers, and private fleets operated by existing and potential customers. Although intermodal and rail service has improved in recent years, such service has not been a major factor in the Company's short-to-medium haul traffic lanes (539-mile average length of haul). Historically, competition has created downward pressure on the truckload industry's pricing structure. Management believes that competition for the freight targeted by the Company is based primarily upon service and efficiency and to a lesser degree upon freight rates. Regulation The Company is a common and contract motor carrier of general commodities. Historically, the Interstate Commerce Commission (the "ICC") and various state agencies regulated motor carriers' operating rights, accounting systems, mergers and acquisitions, periodic financial reporting, and other matters. In 1995 federal legislation preempted state regulation of prices, routes, and services of motor carriers and eliminated the ICC. Several ICC functions were transferred to the Department of Transportation (the "DOT"). Management does not believe that regulation by the DOT or by the states in their remaining areas of authority will have a material effect on the Company's operations. The Company's employee and independent contractor drivers also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours of service. The Company's operations are subject to various federal, state, and local environmental laws and regulations, implemented principally by the EPA and similar state regulatory agencies, governing the management of hazardous wastes, other discharge of pollutants into the air and surface and underground waters, and the disposal of certain substances. Management believes that its operations are in material compliance with current laws and regulations and does not know of any existing condition that would cause compliance with applicable environmental regulations to have a material effect on the Company's capital expenditures, earnings and competitive position. In the event the Company should fail to comply with applicable regulations, the Company could be subject to substantial fines or penalties and to civil or criminal liability. ITEM 2. PROPERTIES Heartland's headquarters is located adjacent to Interstate 80, near Iowa City, Iowa. The facilities include five acres of land, two office buildings of approximately 25,000 square feet combined and a storage building, all leased from the Company's president and principal stockholder. Company-owned facilities at this location include three tractor and trailer maintenance garages totaling approximately 26,500 square feet, and a safety and service complex adjacent to Heartland's corporate offices. The adjacent facility provides the Company with six acres of additional trailer parking space, a drive-through inspection bay, an automatic truck wash facility, and 6,000 square feet of office space and driver facilities. The Company also owns a motel located adjacent to its corporate offices, which functions as a motel and driver training center. The Company owns regional facilities in Ft. Smith, Arkansas; O'Fallon, Missouri; Atlanta, Georgia; Columbus, Ohio; Jacksonville, Florida; and Kingsport, Tennessee. The Company is leasing facilities in Carlisle, Pennsylvania; and Decatur, Illinois. A facility in Dubois, Pennsylvania is being leased to an unrelated third party. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The Company believes that adverse results in these cases, whether individual or in the aggregate, would not have a material effect upon the Company's financial position or results of operations. 5 On January 7, 2002, the Owner-Operator Independent Drivers Association, Inc. served a lawsuit against the Company in the United State District Court for the Southern District of Iowa. The lawsuit seeks class action status on behalf of the Company's owner-operators since 1996. Among other things, the lawsuit alleges that the Company failed to adequately inform the owner-operators of certain deductions from their settlement statements in violation of Department of Transportation regulations and that the Company's standard contract with owner-operators violates those regulations. The lawsuit seeks unspecified damages and an injunction to prevent owner-operators from hauling for the Company until alleged contractual deficiencies are corrected. The Company intends to defend the lawsuit vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS During the fourth quarter of 2001, no matters were submitted to a vote of securities holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock The Company's common stock has been traded on the NASDAQ National Market under the symbol HTLD, since November 5, 1986, the date of the Company's initial public offering. The following table sets forth for the calendar period indicated the range of high and low price quotations for the Company's common stock as reported by NASDAQ from January 1, 2000 to December 31, 2001. The prices have been restated to reflect the stock splits made on May 31, 2001 and February 19, 2002. Period High Low Calendar Year 2001 1st Quarter $ 13.95 $ 10.97 2nd Quarter 15.09 11.67 3rd Quarter 19.31 13.25 4th Quarter 19.60 14.04 Calendar Year 2000 1st Quarter $ 8.18 $ 6.41 2nd Quarter 9.83 7.04 3rd Quarter 9.48 7.99 4th Quarter 12.56 8.02 The prices reported reflect interdealer quotations without retail mark-ups, markdowns or commissions, and may not represent actual transactions. As of March 14, 2002 the Company had 197 stockholders of record of its common stock. However, the Company estimates that it has a significantly greater number of stockholders because a substantial number of the Company's shares are held of record by brokers or dealers for their customers in street names. Dividend Policy The Company has never declared and paid a cash dividend. It is the current intention of the Company's Board of Directors to retain earnings to finance the growth of the Company's business. Future payments of cash dividends will depend upon the financial condition, results of operations and capital requirements of the Company, as well as other factors deemed relevant by the Board of Directors. 6 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below reflect the consolidated financial position and results of operations of Heartland Express, Inc., and its subsidiaries. The selected consolidated financial data are derived from the Company's consolidated financial statements. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and notes thereto included elsewhere herein.
Year Ended December 31, (in thousands, except per share data) 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Income Statement Data: Operating revenue ................ $ 294,617 $ 274,827 $ 261,004 $ 263,489 $ 262,504 --------- --------- --------- --------- --------- Operating expenses: Salaries, wages, and benefits .... 87,643 73,847 60,258 51,995 49,535 Rent and purchased transportation 65,912 75,191 90,337 100,089 101,169 Operations and maintenance ....... 47,903 42,651 30,167 26,072 27,739 Taxes and licenses ............... 6,189 5,952 5,935 6,150 6,049 Insurance and claims ............. 7,619 6,706 5,742 6,810 10,404 Communications and utilities ..... 2,903 2,952 2,629 2,684 2,681 Depreciation ..................... 17,001 16,285 16,216 18,108 16,752 Other operating expenses ......... 6,814 6,505 5,941 5,872 5,048 (Gain) loss on disposal of fixed assets..................... 14 (1,512) (928) (332) (59) --------- --------- --------- --------- --------- 241,998 228,577 216,297 217,448 219,318 --------- --------- --------- --------- --------- Operating income............... 52,619 46,250 44,707 46,041 43,186 Interest income, net ............. 4,435 5,726 5,953 4,896 3,782 --------- --------- --------- --------- --------- Income before income taxes ......... 57,054 51,976 50,660 50,937 46,968 Income taxes ....................... 19,398 17,672 17,536 17,828 16,895 --------- --------- --------- --------- --------- Net income ......................... $ 37,656 $ 34,304 $ 33,124 $ 33,109 $ 30,073 ========= ========= ========= ========= ========= Basic weighted average shares outstanding ........................ 50,000 50,342 57,871 59,133 59,133 ========= ========= ========= ========= ========= Basic earnings per share ........... $ 0.75 $ 0.68 $ 0.57 $ 0.56 $ 0.51 ========= ========= ========= ========= ========= Balance sheet data: Net working capital ................ $ 147,904 $ 118,506 $ 111,675 $ 127,989 $ 82,170 Total assets........................ 314,238 268,055 246,494 256,828 225,467 Stockholders' equity................ 232,789 195,134 174,840 186,848 153,739
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Significant Accounting Policies In the opinion of management, the accounting policies that generally have the most significant impact on the financial position or the results of operations include: revenue recognition, claims and insurance accruals, and depreciation and capitalization of assets. These accounting policies, and others, are described in further detail in the Notes to Consolidated Financial Statements. General The following table sets forth the percentage relationship of expense items to operating revenue for the periods indicated.
Year Ended December 31, ---------------------------- 2001 2000 1999 ------ ------ ------ Operating revenue .............................. 100.0% 100.0% 100.0% ------ ------ ------ Operating expenses: Salaries, wages, and benefits ............... 29.7% 26.9% 23.1% Rent and purchased transportation ........... 22.4 27.4 34.6 Operations and maintenance .................. 16.2 15.5 11.6 Taxes and licenses .......................... 2.1 2.2 2.3 Insurance and claims ........................ 2.6 2.4 2.2 Communications and utilities ................ 1.0 1.1 1.0 Depreciation ................................ 5.8 5.9 6.2 Other operating expenses .................... 2.3 2.4 2.2 (Gain) loss on disposal of fixed assets...... 0.0 (0.6) (0.4) ------ ------ ------ Total operating expenses .................... 82.1% 83.2% 82.9% ------ ------ ------ Operating income.......................... 17.9% 16.8% 17.1% Interest income ................................ 1.5 2.1 2.3 ------ ------ ------ Income before income taxes .................. 19.4% 18.9% 19.4% Federal and state income taxes ................. 6.6 6.4 6.7 ------ ------ ------ Net income .................................. 12.8% 12.5% 12.7% ====== ====== ======
Results of Operations Year Ended December 31, 2001 Compared With Year Ended December 31, 2000 Operating revenue increased $19.8 million (7.2%), to $294.6 million in 2001 from $274.8 million in 2000, as a result of the Company's expansion of the customer base as well as increased volume from existing customers. Operating revenue for both periods was also positively impacted by fuel surcharges assessed to the customer base. Salaries, wages, and benefits increased $13.8 million (18.7%), to $87.6 million in 2001 from $73.8 million in 2000. As a percentage of revenue, salaries, wages, and benefits increased to 29.7% in 2001 from 26.9% in 2000. These increases are the result of increased reliance on employee drivers and a corresponding decrease in miles driven by independent contractors. The increase in employee driver miles was attributable to internal growth in the company tractor fleet. During 2001, employee drivers accounted for 68% and independent contractors 32% of the total fleet miles, compared with 60% and 40%, respectively, in 2000. 8 Rent and purchased transportation decreased $9.3 million (12.3%), to $65.9 million in 2001 from $75.2 million in 2000. As a percentage of revenue, rent and purchased transportation decreased to 22.4% in 2001 from 27.4% in 2000. This reflected the Company's decreased reliance upon independent contractors. Rent and purchased transportation for both periods includes amounts paid to independent contractors for fuel surcharge. Operations and maintenance increased $5.2 million (12.3%) to $47.9 million in 2001 from $42.7 million in 2000. As a percentage of revenue, operations and maintenance increased to 16.2% in 2001 from 15.5% in 2000. This increase is attributable to increased reliance on the Company owned fleet. Insurance and claims increased $0.9 million (13.6%), to $7.6 million in 2001 from $6.7 million in 2000. As a percentage of revenue, insurance and claims increased to 2.6% in 2001 from 2.4% in 2000. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. Depreciation increased $0.7 million (4.4%), to $17.0 million in 2001 from $16.3 million in 2000 primarily due to an increase in the number of Company-owned tractors. As a percentage of revenue, depreciation decreased to 5.8% in 2001 from 5.9% in 2000. Other operating expenses increased $0.3 million (4.8%), to $6.8 million in 2001 from $6.5 million in 2000 due to an increase in total fleet miles. As a percentage of revenue, other operating expenses decreased to 2.3% in 2001 from 2.4% in 2000. Other operating expenses consists of pallet cost, driver recruiting expenses, and administrative costs. Primarily as a result of the foregoing, the Company's operating ratio decreased to 82.1% in 2001 compared with 83.2% in 2000. Interest income decreased $1.3 million (22.5%), to $4.4 million in 2001 from $5.7 million in 2000 due to lower interest rates. The Company had $161.1 million in cash, cash equivalents, and investments at December 31, 2001 compared with $128.0 million at December 31, 2000. Interest income earned is primarily exempt from federal taxes and therefore earned at a lower pre-tax rate. The Company's effective tax rate was 34.0% in 2001 and 34.0% in 2000. As a result of the foregoing, net income increased to $37.7 million in 2001 from $34.3 million in 2000. The net income for the 2000 period was impacted by the gain from the sale of fixed assets, primarily real estate. Year Ended December 31, 2000 Compared With Year Ended December 31, 1999 Operating revenue increased $13.8 million (5.3%), to $274.8 million in 2000 from $261.0 million in 1999, as a result of the Company's expansion of the customer base as well as increased volume from existing customers. Operating revenue was also positively impacted by fuel surcharges assessed to the customer base. Salaries, wages, and benefits increased $13.5 million (22.5%), to $73.8 million in 2000 from $60.3 million in 1999. As a percentage of revenue, salaries, wages, and benefits increased to 26.9% in 2000 from 23.1% in 1999. These increases are the result of increased reliance on employee drivers and a corresponding decrease in miles driven by independent contractors. In addition, the Company has increased employee driver pay four times since September 1, 1998. The increase in employee driver miles was attributable to internal growth in the company tractor fleet. During 2000, employee drivers accounted for 60% and independent contractors 40% of the total fleet miles, compared with 51% and 49%, respectively, in 1999. Rent and purchased transportation decreased $15.1 million (16.8%), to $75.2 million in 2000 from $90.3 million in 1999. As a percentage of revenue, rent and purchased transportation decreased to 27.4% in 2000 from 34.6% in 1999. This reflected the Company's decreased reliance upon independent contractors. In addition, an increased industry demand for independent contractors has negated the Company's previous competitive advantage. 9 Operations and maintenance increased $12.5 million (41.4%), to $42.7 million in 2000 from $30.2 million in 1999. As a percentage of revenue, operations and maintenance increased to 15.5% in 2000 from 11.6% in 1999. This increase is attributable to an increase in fuel prices and increased reliance on the Company owned fleet. Taxes and licenses increased $0.1 million (0.3%), to $6.0 million in 2000 from $5.9 million in 1999. As a percentage of revenue, taxes and licenses decreased to 2.2% in 2000 from 2.3% in 1999. Insurance and claims increased $1.0 million (16.8%), to $6.7 million in 2000 from $5.7 million in 1999. As a percentage of revenue, insurance and claims increased to 2.4% in 2000 from 2.2% in 1999. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. Communications and utilities increased $0.4 million (12.3%), to $3.0 million in 2000 from $2.6 million in 1999. As a percentage of revenue, communications and utilities increased to 1.1% in 2000 from 1.0% in 1999. Depreciation increased $0.1 million (0.4%), to $16.3 million in 2000 from $16.2 million in 1999. As a percentage of revenue, depreciation decreased to 5.9% in 2000 from 6.2% in 1999. The decrease resulted from the increase in the number of trailers in the Company's fleet becoming fully depreciated. Other operating expenses increased $0.6 million (9.5%), to $6.5 million in 2000 from $5.9 million in 1999. As a percentage of revenue, other operating expenses increased to 2.4% in 2000 from 2.3% in 1999. Other operating expenses consists of pallet cost, driver recruiting expenses, goodwill, and administrative costs. Primarily as a result of the foregoing, the Company's operating ratio increased to 83.2% in 2000 compared with 82.9% in 1999. Interest income decreased $0.3 million (3.8%), to $5.7 million in 2000 from $6.0 million in 1999. The Company had $128.0 million in cash, cash equivalents, and investments at December 31, 2000 compared with $126.7 million at December 31, 1999. Interest income earned is primarily exempt from federal taxes and therefore earned at a lower pre-tax rate. The Company's effective tax rate was 34.0% in 2000 and 34.6% in 1999. As a result of the foregoing, net income increased to $34.3 million in 2000 from $33.1 million in 1999. The net income for both periods was impacted by the gain from the sale of fixed assets, primarily real estate. Liquidity and Capital Resources The growth of the Company's business requires significant investments in new revenue equipment. Historically the Company has been debt-free, financing revenue equipment through cash flow from operations. The Company also obtains tractor capacity by utilizing independent contractors, who provide a tractor and bear all associated operating and financing expenses. Cash and cash equivalents and investments increased to $161.1 million as of December 31, 2001 from $128.0 million at December 31, 2000. The Company's policy is to purchase only high quality liquid investments. Cash equivalents and investments primarily consist of fixed rate municipal demand bonds and municipal demand bond funds. Net cash provided by operations was $61.2 million in 2001, $49.9 million in 2000, and $45.6 million in 1999. The primary source of funds in 2001 was net income of $37.7 million increased by non-cash adjustments, including depreciation and amortization of $17.8 million. Trade receivables increased to $25.7 million as of December 31, 2001 from $24.9 million as of December 31, 2000 primarily due to a 4.6% increase in fourth quarter operating revenue. Cash paid for income taxes decreased to $14.3 million in 2001 from $16.5 million in 2000. Lower income taxes on a cash basis are primarily due to increased interest income exempt from federal taxes. 10 Insurance accruals increased to $36.4 million as of December 31, 2001 from $35.7 million as of December 31, 2000. The Company's insurance program for liability, physical damage and cargo damage involves self-insurance retention for the first $500,000 per claim. The Company's insurance program for workers' compensation involves self-insurance retention for the first $300,000 per claim. Claims in excess of the risk retention are covered by insurance in amounts which management considers adequate. The Company accrues the estimated cost of the self-insured portion of the pending claims. These accruals are estimated based on management's evaluation of the nature and severity of individual claims. If adjustments to previously established accruals are required, such amounts are included in operating expenses. Net investing activities consumed $68.5 million in 2001, $34.1 million in 2000, and $17.7 million in 1999. The primary use of cash in 2001 other than the investment in certain bonds mentioned above, was $29.1 million for capital expenditures, including revenue equipment. The Company expects to finance future growth in its company-owned fleet primarily through cash flow from operations and cash equivalents currently on hand. Net cash used in financing activities was none in 2001, $14.0 million in 2000, and $45.1 million in 1999. The 2000 and 1999 financing activity was comprised solely of the repurchase of approximately 4.6 million shares of the Company's common stock. The Company has one customer who accounted for more than 10% of the Company's revenue for the year ended December 31, 2001. As disclosed in footnote two to the financial statements, historically a small number of customers generate a substantial percentage of revenue. In 2001, the Company's largest customer generated approximately 15% of operating revenue. The loss of a major customer could negatively impact the Company. Any negative impact would be mitigated by two factors: (1) the strong overall financial position of the Company (no long-term debt at December 31, 2001 and $161.1 million in cash, cash equivalents, and investments) and (2) the flexibility inherent in having a substantial percentage of fleet miles being generated by independent contractors who provide their own tractors. Based on the Company's strong financial position (current ratio of 3.4 and no debt), management foresees no significant barriers to obtaining sufficient financing, if necessary, to continue with growth plans. Inflation and Fuel Cost Most of the Company's operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the past three years, the most significant effects of inflation have been on revenue equipment prices and the compensation paid to the drivers. Innovations in equipment technology and comfort have resulted in higher tractor prices, and there has been an industry-wide increase in wages paid to attract and retain qualified drivers. The Company historically has limited the effects of inflation through increases in freight rates and certain cost control efforts. In addition to inflation, fluctuations in fuel prices can affect profitability. Most of the Company's contracts with customers contain fuel surcharge provisions. Although the Company historically has been able to pass through most long-term increases in fuel prices and operating taxes to customers in the form of surcharges and higher rates, shorter-term increases are not fully recovered. Seasonality The nature of the Company's primary traffic (appliances, automotive parts, paper products, retail goods, and packaged foodstuffs) causes it to be distributed with relative uniformity throughout the year. However, earnings have historically been affected adversely during the fourth quarter as a result of reduced shipments by customers during the winter holiday season. In addition, the Company's operating expenses historically have been higher during the winter months due to increased operating costs in colder weather and higher fuel consumption due to increased engine idling. Recent Pronouncements In the third quarter of 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets, that will be adopted by the Company on January 1, 2002. SFAS No. 142 requires that upon adoption and at least annually, the Company assess goodwill impairment by applying a fair value based test. With the adoption of SFAS No. 142, goodwill will no longer be subject to amortization resulting in a decrease in annualized operating expenses of $778,116. The Company is in the process of determining the impact of this new statement to the net book value for goodwill of $414,597 at December 31, 2001. 11 Also, in the third quarter, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. SFAS No. 144 addresses financial accounting and reporting for impairment or disposal of long-lived assets, superceding FASB Statement 121, Accounting for the Impairment of Long-lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. SFAS No. 143 and SFAS No. 144 are effective for the Company as of January 1, 2003 and 2002, respectively. At present, the Company is currently assessing, but has not yet determined, the complete impact the adoption of SFAS No. 143 will have on its financial position and results of operations. The Company does not expect the adoption of SFAS No. 144 to have any impact on its financial position and results of operations. Factors That May Affect Future Results A number of factors over which the Company has little or no control may affect the Company's future results. Without limitation, these factors include economic factors such as recessions, downturns in customers' business cycles, surplus inventories, inflation, and fuel price increases; fluctuations in the resale value of the Company's used revenue equipment; the availability and compensation of qualified drivers; the identification of acquisition targets and the ability to negotiate, finance, and integrate acquired companies. Readers should review and consider the various disclosures made by the Company in its press releases, stockholders reports, and public filings, as well as the factors explained herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company purchases only high quality liquid investments. Primarily all investments as of December 31, 2001 have an original maturity of three months or less. The Company holds all investments to maturity and therefore, is exposed to minimal market risk related to its cash equivalents and investments. The Company has no debt outstanding as of December 31, 2001 and therefore, has no market risk related to debt. As of December 30, 2001, the Company has no derivative financial instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's audited financial statements, including its consolidated balance sheets and consolidated statements of operations, cash flows, and stockholders' equity, and notes related thereto, are contained at pages 17 to 26 of this report. Selected quarterly data is contained at page 26. Such information is incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information respecting executive officers, directors, and director nominee, set forth under the caption "Election of Directors-Information Concerning Executive Officers and Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on pages 3 and 4 and 10 of the registrant's proxy statement relating to its 2002 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission in accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934 (the "Proxy Statement"), is incorporated by reference. With the exception of the foregoing information and other information specifically incorporated by reference into this Form 10-K report, the Proxy Statement is not being filed as a part hereof. 12 ITEM 11. EXECUTIVE COMPENSATION The information respecting executive compensation set forth under the caption "Executive Compensation" on pages 8 and 9 of the Proxy Statement is incorporated herein by reference; provided, however, that the "Board of Directors' Report on Executive Compensation" is not incorporated by reference here. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information respecting security ownership of certain beneficial owners and management included under the caption "Principal Stockholders and Stockholdings of Management" on page 11 of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information respecting certain relationships and transactions of management set forth under the captions "Board of Directors Interlocks and Insider Participation / Certain Transactions and Relationships" on page 7 of the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) 1. Financial Statements and Schedules The Company's audited financial statements are set forth on the following pages of this report: Page Report of Independent Public Accountants ................................ 16 Consolidated Balance Sheets ............................................. 17 Consolidated Statements of Operations ................................... 18 Consolidated Statements of Stockholders' Equity ......................... 19 Consolidated Statements of Cash Flows ................................... 20 Notes to Consolidated Financial Statements .............................. 21-26 (a) 2. Financial Statement Schedule Page Valuation and Qualifying Accounts and Reserves .......................... 26 (a) 3. Exhibits required by Item 601 of Regulation S-K are listed below. (b) Reports on Form 8-K The Company filed a report on Form 8-K on May 10, 2001 reporting the five-for-four stock split effected as a 25% stock dividend paid on May 31, 2001 to the stockholders of record of the Company's common stock on May 21, 2001. The Company filed a report on Form 8-K on September 18, 2001 reporting a stock repurchase program. (c) Exhibits Exhibit No. Document Page of Method of Filing 3.1 Articles of Incorporation Incorporated by reference to the Company's registration statement on Form S-1, Registration No. 33-8165, effective November 5, 1986. 13 3.2 Bylaws Incorporated by reference to the Company's registration statement on Form S-1, Registration No. 33-8165, effective November 5, 1986. 3.3 Certificate of Amendment to Incorporated by reference to the Articles of Incorporation Company's Form 10-QA, for the quarter ended June 30, 1997, dated March 26, 1998. 4.1 Articles of Incorporation Incorporated by reference to the Company's registration statement on Form S-1, Registration No.33-8165, effective November 5, 1986. 4.2 Bylaws Incorporated by reference to the Company's registration statement on Form S-1, Registration No. 33-8165, effective November 5, 1986. 4.3 Certificate of Amendment to Incorporated by reference to the Articles of Incorporation Company's Form 10-QA, for the quarter ended June 30, 1997, dated March 26, 1998. 9.1 Voting Trust Agreement dated Incorporated by reference to the June 6, 1997 between Larry Company's Form 10-K for the year Crouse as trustee under the ended December 31, 1997. Commission Gerdin Educational Trusts and file no. 0-15087. Larry Crouse voting trustee. 10.1 Business Property Lease Incorporated by reference to the between Russell A. Gerdin Company's Form 10-Q for the quarter as Lessor and the Company ended September, 30, 2000. as Lessee, regarding the Commission file no. 0-15087. Company's headquarters at 2777 Heartland Drive, Coralville, Iowa 52241 10.2 Form of Independent Contractor Incorporated by reference to the Operating Agreement between Company's Form 10-K for the year the Company and its independent ended December 31, 1993. Commission contractor providers of file no. 0-15087. tractors 10.3 Description of Key Management Incorporated by reference to the Deferred Incentive Compensation Company'sForm 10-K for the year Arrangement ended December 31, 1993. Commission file no. 0-15087. 21 Subsidiaries of the Registrant Incorporated by reference to the Company's Form 10-K for the year ended December 31, 2000. Commission file no. 0-15087. 27 Financial Data Schedule Filed herewith. ITEM 99. REPORTING REQUIREMENTS FOR ARTHUR ANDERSEN LLP - AUDITED COMPANIES Arthur Andersen, LLP ("Andersen") has represented to us that the audit of Heartland Express, Inc. for the year ended December 31, 2001, was subject to Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards and that there was appropriate continuity of Andersen personnel working on audits and availability of national office consultation. The availability of personnel at foreign affiliates of Andersen is not relevant to this engagement. 14 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. HEARTLAND EXPRESS, INC. Date: March 26, 2002 By: /s/ Russell A. Gerdin Russell A. Gerdin President and Secretary Pursuant to the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Russell A. Gerdin Chairman, President and Chief Russell A. Gerdin Executive Officer (Principal Executive Officer), Secretary March 26, 2002 /s/ John P. Cosaert Vice President of Finance John P. Cosaert (Principal Financial Officer and Principal Accounting Officer) and Treasurer March 26, 2002 /s/ Richard O. Jacobson Director Richard O.Jacobson March 26, 2002 /s/ Michael J. Gerdin Director Michael J. Gerdin March 26, 2002 /s/ Benjamin J. Allen Director Benjamin J. Allen March 26, 2002 /s/ Lawrence D. Crouse Director Lawrence D. Crouse March 26, 2002 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Heartland Express, Inc.: We have audited the accompanying consolidated balance sheets of Heartland Express, Inc. (a Nevada corporation) and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Heartland Express, Inc. and Subsidiaries, as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Kansas City, Missouri January 13, 2002 (except with respect to the matter discussed in Note 6, as to which the date is January 28, 2002) 16 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, --------------------------- ASSETS 2001 2000 ------------ ------------ CURRENT ASSETS Cash and cash equivalents ..................... $120,794,142 $128,027,076 Investments ................................... 40,281,980 -- Trade receivables, less allowance: $402,812 in both 2001 and 2000 ................ 25,700,435 24,954,681 Prepaid tires and tubes ....................... 4,077,276 3,780,644 Deferred income taxes ......................... 17,358,000 16,846,000 Other current assets .......................... 144,890 328,273 ------------ ------------ Total current assets ....................... 208,356,723 173,936,674 ------------ ------------ PROPERTY AND EQUIPMENT Land and land improvements .................... 4,402,820 3,237,875 Buildings ..................................... 8,532,621 8,532,621 Furniture and fixtures ........................ 1,300,848 2,604,400 Shop and service equipment .................... 1,453,755 1,459,862 Revenue equipment ............................. 133,902,094 129,572,317 ------------ ------------ 149,592,138 145,407,075 Less accumulated depreciation ................. 47,473,283 56,329,103 ------------ ------------ Property and equipment, net ................... 102,118,855 89,077,972 ------------ ------------ OTHER ASSETS ..................................... 3,762,832 5,040,358 ------------ ------------ $314,238,410 $268,055,004 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities ...... $ 7,073,957 $ 6,712,053 Compensation and benefits ..................... 6,383,984 5,132,589 Income taxes payable .......................... 6,693,398 4,618,882 Insurance accruals ............................ 36,443,348 35,657,944 Other accruals ................................ 3,858,496 3,308,925 ------------ ------------ Total current liabilities .................. 60,453,183 55,430,393 ------------ ------------ DEFERRED INCOME TAXES ............................ 20,996,000 17,491,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, par value $.01; authorized 5,000,000 shares; none issued ................. -- -- Common stock, par value $.01; authorized 395,000,000 shares; issued and outstanding: 50,000,000 in both 2001 and 2000 (Note 6) ................................. 500,000 253,666 Additional paid-in capital .................... 6,608,170 6,608,170 Retained earnings ............................. 225,681,057 188,271,775 ------------ ------------ 232,789,227 195,133,611 ------------ ------------ $314,238,410 $268,055,004 ============ ============ The accompanying notes are an integral part of these financial statements.
17 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ---------------------------------------------- 2001 2000 1999 ------------- ------------- ------------- Operating revenue .............. $ 294,617,263 $ 274,827,551 $ 261,004,122 ------------- ------------- ------------- Operating expenses: Salaries, wages, and benefits 87,643,187 73,846,541 60,258,431 Rent and purchased transportation ............ 65,911,825 75,190,893 90,337,083 Operations and maintenance .. 47,903,499 42,650,757 30,167,446 Taxes and licenses .......... 6,188,628 5,952,448 5,934,644 Insurance and claims ........ 7,618,919 6,706,247 5,742,167 Communications and utilities 2,902,496 2,952,394 2,628,494 Depreciation ................ 17,000,927 16,284,550 16,215,587 Other operating expenses .... 6,814,399 6,505,174 5,941,411 (Gain) loss on disposal of fixed assets .............. 14,442 (1,511,587) (927,548) ------------- ------------- ------------- 241,998,322 228,577,417 216,297,715 ------------- ------------- ------------- Operating income ............ 52,618,941 46,250,134 44,706,407 Interest income ................ 4,434,914 5,725,551 5,952,741 ------------- ------------- ------------- Income before income taxes .. 57,053,855 51,975,685 50,659,148 Income taxes ................... 19,398,239 17,671,725 17,535,710 ------------- ------------- ------------- Net income .................. $ 37,655,616 $ 34,303,960 $ 33,123,438 ============= ============= ============= Basic earnings per share ....... $ 0.75 $ 0.68 $ 0.57 ============= ============= ============= Basic weighted average shares outstanding .................. 50,000,000 50,341,771 57,871,465 ============= ============= ============= The accompanying notes are an integral part of these financial statements.
18 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital Additional Stock, Paid-In Retained Common Capital Earnings Total --------- ----------- ------------ ------------- Balance, December 31, 1998 $ 300,000 $ 6,608,170 $179,939,743 $186,847,913 Repurchase of common stock (35,397) (45,096,403) (45,131,800) Net income ............... -- -- 33,123,438 33,123,438 --------- ----------- ------------ ------------ Balance, December 31, 1999 264,603 6,608,170 167,966,778 174,839,551 Repurchase of common stock (10,937) -- (13,998,963) (14,009,900) Net income ............... -- -- 34,303,960 34,303,960 --------- ----------- ------------ ------------ Balance, December 31, 2000 253,666 6,608,170 188,271,775 195,133,611 Stock splits (Note 6) .... 246,334 -- (246,334) -- Net income ............... -- -- 37,655,616 37,655,616 --------- ----------- ------------ ------------ Balance, December 31, 2001 $ 500,000 $ 6,608,170 $225,681,057 $232,789,227 ========= =========== ============ ============ The accompanying notes are an integral part of these financial statements.
19 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ----------------------------------------------- 2001 2000 1999 ------------- ------------- ------------- OPERATING ACTIVITIES Net income ......................................... $ 37,655,616 $ 34,303,960 $ 33,123,438 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization ................... 17,779,043 17,217,526 17,312,033 Deferred income taxes ........................... 2,993,000 1,478,000 (467,000) (Gain) loss on disposal of fixed assets ......... 14,442 (1,511,587) (906,600) Changes in certain working capital items: Trade receivables ............................. (745,754) (1,475,973) (2,087,502) Prepaids ...................................... (296,632) (2,125,626) (851,922) Other current assets .......................... 183,383 31,199 (53,330) Accounts payable and accrued expenses ......... 1,594,686 2,349,670 (1,851,091) Accrued income taxes .......................... 2,074,516 (355,459) 1,395,840 ------------- ------------- ------------- Net cash provided by operating activities .......... 61,252,300 49,911,710 45,613,866 ------------- ------------- ------------- INVESTING ACTIVITIES Proceeds from sale of property and equipment ....... 402,113 2,163,324 1,585,623 Capital additions .................................. (29,104,777) (36,335,347) (18,613,595) Net maturities (purchases) of municipal bonds ...... (40,281,980) 500,000 (500,000) Other .............................................. 499,410 (413,767) (177,632) ------------- ------------- ------------- Net cash used in investing activities .............. (68,485,234) (34,085,790) (17,705,604) ------------- ------------- ------------- FINANCING ACTIVITIES Repurchase of common stock ......................... -- (14,009,900) (45,131,800) ------------- ------------- ------------- Net cash used in financing activities .............. -- (14,009,900) (45,131,800) ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents (7,232,934) 1,816,020 (17,223,538) CASH AND CASH EQUIVALENTS Beginning of year .................................. 128,027,076 126,211,056 143,434,594 ------------- ------------- ------------- End of year ........................................ $ 120,794,142 $ 128,027,076 $ 126,211,056 ============= ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes .................................... $ 14,330,723 $ 16,549,184 $ 16,606,870 Noncash investing activities: Book value of revenue equipment traded .......... $ 11,516,930 $ 12,202,753 $ 4,868,860 The accompanying notes are an integral part of these financial statements.
20 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Business and Significant Accounting Policies Nature of Business: Heartland Express, Inc., (the "Company") is a short-to-medium-haul, truckload carrier of general commodities. The Company provides nationwide transportation service to major shippers, using late-model equipment and a combined fleet of company-owned and owner-operator tractors. The Company's primary traffic lanes are between customer locations east of the Rocky Mountains, with selected service to the West. The Company operates the business as one reportable segment. Significant Accounting Policies: Principles of Consolidation: The accompanying consolidated financial statements include the parent company, Heartland Express, Inc., and its subsidiaries, all of which are wholly owned. All material intercompany items and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: Cash equivalents are short-term, highly liquid investments with original maturities of three months or less. Investments: Substantially all investments represent fixed rate municipal demand bonds or municipal demand bond funds with a maturity of one year or less. These investments are held to maturity and stated at amortized cost. Due to the short maturity term of these investments, amortized cost approximates fair value. Investment income received is generally exempt from federal income taxes. Revenue and Expense Recognition: Operating revenues are recognized on the date the freight is delivered and expenses are recognized as incurred. Property and Equipment: Property and equipment are stated at cost. Depreciation is computed by the straight-line method for all assets other than tractors, which are depreciated by the 125% declining balance method. For revenue equipment purchased after January 1, 2000 the trailers are depreciated with a $6,000 salvage value and the tractors with a $15,000 salvage value. Previously, trailers were depreciated to a salvage value of up to 30% based upon when they were put in service and we assumed no salvage value for tractors. 21 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lives of the assets are as follows: Years Land improvements and building 3-30 Furniture and fixtures 2-3 Shop and service equipment 3-5 Revenue equipment 5-7 Tires and Tubes: The cost of tires and tubes on new revenue equipment is carried as a prepayment and amortized over the estimated tire life of two years. Replacement tires (including recapped tires) are expensed when purchased. Goodwill: In the third quarter of 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets, that will be adopted by the Company on January 1, 2002. SFAS No. 142 requires that upon adoption and at least annually, the Company assess goodwill impairment by applying a fair value based test. With the adoption of SFAS No. 142, goodwill will no longer be subject to amortization resulting in a decrease in annualized operating expenses of $778,116. Earnings Per Share: Basic earnings per share is based upon the weighted average common shares outstanding during each year. Diluted earnings per share is based upon the weighted average common and common equivalent shares outstanding during each year. Heartland Express has no common stock equivalents; therefore, diluted earnings per share is not applicable. Note 2. Concentrations of Credit Risk and Major Customers The Company's major customers represent the consumer goods, appliances, food products and automotive industries. Credit is usually granted to customers on an unsecured basis. The Company's five largest customers accounted for 38%, 35%, and 34% of revenues for the years ended December 31, 2001, 2000, and 1999, respectively. Operating revenue from one customer exceeded 10% of total gross revenues in 2001, 2000 and 1999. Annual revenues for this customer were $45.0 million, $43.0 million, and $37.0 million for the years ended December 31, 2001, 2000, and 1999, respectively. 22 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3. Income Taxes Deferred income taxes are determined based upon the differences between the financial reporting and tax basis of the Company's assets and liabilities. Deferred taxes are provided at the enacted tax rates to be in effect when the differences reverse. Deferred tax assets and liabilities as of December 31 are as follows:
2001 2000 ------------ ------------ Deferred income tax liabilities, related to property and equipment $ 20,996,000 $ 17,491,000 ============ ============ Deferred income tax assets: Allowance for doubtful accounts $ 153,000 $ 153,000 Accrued expenses 2,262,000 2,219,000 Insurance accruals 13,562,000 13,262,000 Other 1,381,000 1,212,000 ------------ ------------ Deferred income tax assets $ 17,358,000 $ 16,846,000 ============ ============
The income tax provision is as follows:
2001 2000 1999 ------------ ------------ ------------ Current income taxes: Federal $ 15,357,642 $ 14,846,728 $ 17,008,402 State 1,047,597 1,346,997 994,308 ------------ ------------ ------------ 16,405,239 16,193,725 18,002,710 ------------ ------------ ------------ Deferred income taxes: Federal 3,027,000 1,574,000 (448,000) State (34,000) (96,000) (19,000) ------------ ------------ ------------ 2,993,000 1,478,000 (467,000) ------------ ------------ ------------ Total $ 19,398,239 $ 17,671,725 $ 17,535,710 ============ ============ ============
23 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The income tax provision differs from the amount determined by applying the U.S. federal tax rate as follows:
2001 2000 1999 ----------- ----------- ----------- Federal tax at statutory rate (35%) $19,968,849 $18,191,490 $17,730,702 State taxes, net of federal benefit 502,000 340,000 607,000 Non-taxable interest income (1,458,000) (1,725,000) (1,750,000) Other 385,390 865,235 948,008 ----------- ----------- ----------- $19,398,239 $17,671,725 $17,535,710 =========== =========== ===========
Note 4. 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 $24,969 plus the payment of all property taxes, insurance and maintenance. The lease expires May 31, 2005 and contains a five-year renewal option. In the opinion of management, the rates paid are comparable to those that could be negotiated with a third party. The total minimum rental commitment under the building lease is as follows: Year Ending December 31: 2002 $ 299,625 2003 299,625 2004 299,625 2005 124,844 ----------- $ 1,023,719 =========== Rent expense paid to the Company's president totaled $299,625 for the year ended December 31, 2001, $292,281 for the year ended December 31, 2000, and $282,000 for the year ended December 31, 1999. The Company also maintains cash accounts with a bank owned by the Company's president. Note 5. Accident and Workers' Compensation Claims The Company acts as a self-insurer for liability up to $500,000 for any single occurrence involving cargo, personal injury or property damage. Liability in excess of this amount is assumed by an insurance underwriter. The Company acts as a self-insurer for workers' compensation liability up to a maximum liability of $300,000 per claim. Liability in excess of this amount is assumed by an insurance underwriter. The State of Iowa has required the Company to deposit $700,000 into a trust fund as part of the self-insurance program. This deposit has been classified with other long-term assets on the balance sheet. In addition, the Company has provided its insurance carriers with letters of credit and deposits of approximately $4.9 million in connection with its liability and workers' compensation insurance arrangements. Deposits of $765,000 are included in Other Assets on the balance sheet. Accident and workers' compensation accruals include the estimated settlements, settlement expenses and an allowance for claims incurred but not yet reported for property damage, personal injury and public liability losses from vehicle accidents and cargo losses as well as workers' compensation claims for amounts not covered by insurance. Accrued claims are determined based on management's estimates of the nature and severity of the claim. Since the reported liability is an estimate, the ultimate liability may be more or less than reported. If adjustments to previously established accruals are required, such amounts are included in operating expenses. 24 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6. Stockholders' Equity The Company purchased 6,977,211 shares of its common stock for $45,131,800 on October 26, 1999 and 2,155,735 shares of its common stock for $14,009,900 on February 28, 2000. The shares have been reported as retired in the accompanying financial statements. On May 10, 2001 the Company's Board of Directors approved a five-for-four split of the Company's common stock effected in the form of a 25% stock dividend for stockholders of record as of May 21, 2001. A total of 6,341,549 common shares were issued in this transaction. On January 28, 2002 the Company's Board of Directors approved a two and seven tenths-for-one and seven tenths split of the Company's common stock effected in the form of a 57.7% stock dividend for stockholders of record as of February 8, 2002. A total of 18,291,869 common shares were issued in this transaction. The effect of the stock dividends have been recognized retroactively in the shareholders' equity accounts on the balance sheet as of December 31, 2001, and in all share and per share data in the accompanying consolidated financial statements, Notes to Financial Statements and supplemental data. In September, 2001, the Board of Directors of the Company authorized a program to repurchase shares of the Company's common stock with an aggregate purchase price of $5 million. No shares were purchased during 2001, and the authorization to repurchase remains open at December 31, 2001. Note 7. Profit Sharing Plan and Retirement Plan The Company has a retirement savings plan for substantially all employees who have completed one year of service. Employees may make 401(k) contributions subject to Internal Revenue Code limitations. The Company may make discretionary profit sharing and matching contributions. Company contributions totaled $497,000, $255,000, and $501,000, for the years ended December 31, 2001, 2000, and 1999, respectively. 25 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8. Commitments and Contingencies On January 7, 2002, the Owner-Operators Independent Drivers Association, Inc. served a lawsuit against the Company in the United States District Court for the Southern District of Iowa. The lawsuit alleges that the Company failed to adequately inform the owner-operators of certain deductions from their settlement statements in violation of Department of Transportation regulations and that the Company's standard contract with owner-operators violates those regulations. The lawsuit seeks unspecified damages and an injunction to prevent owner-operators from hauling for the Company until alleged contractual deficiencies are corrected. The Company intends to defend the lawsuit vigorously. In addition, various claims and legal actions, from the normal course of business, are pending against the Company. In management's opinion, the resolution of these matters will not materially impact the Company's financial condition or results of operations. Note 9. Quarterly Financial Information (Unaudited)
First Second Third Fourth --------------------------------------------- (In Thousands, Except Per Share Data) Year ended December 31, 2001 Operating revenue $ 71,923 $ 75,251 $ 73,918 $ 73,525 Operating income 12,160 13,456 12,939 14,064 Income before income taxes 13,529 14,634 13,962 14,929 Net income 8,929 9,658 9,215 9,853 Basic earnings per share 0.18 0.19 0.18 0.20 Year ended December 31, 2000 Operating revenue $ 67,190 $ 69,262 $ 68,107 $ 70,269 Operating income 12,529 12,121 11,119 10,481 Income before income taxes 13,852 13,450 12,712 11,962 Net income 9,142 8,877 8,390 7,895 Basic earnings per share 0.18 0.18 0.17 0.16
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E - --------------------------------------------------------------------------------------------------------------------- Charges To -------------------- Balance At Cost Balance Beginning And Other At End Description of Period Expense Accounts Deductions of Period - --------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: Year ended December 31, 2001 $402,812 $178,457 $ - $178,457 $402,812 Year ended December 31, 2000 402,812 251,555 - 251,555 402,812 Year ended December 31, 1999 402,812 4,147 - 4,147 402,812
26 -----END PRIVACY-ENHANCED MESSAGE-----