<PAGE>
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 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from To
Commission file number 0-15087
HEARTLAND EXPRESS, INC.
(Exact name of registrant as specified in its charter)
Nevada 93-0926999
(State or Other Jurisdiction of Incorporation)(I.R.S. Employer Identification
No.)
2777 Heartland Drive
Coralville, Iowa 52241
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 319-645-2728
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act: $0.10 Par Value
Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the shares of the registrant's $0.10 par value
common stock held by non-affiliates of the registrant as of March 1, 1996 was
$253,649,187 (based upon $24.75 per share being the average of the closing
bid and asked price on that date as reported by NASDAQ). In making this
calculation the issuer has assumed, without admitting for any purpose, that
all executive officers and directors of the registrant, and no other persons,
are affiliates.
The number of shares outstanding of the Registrant's common stock as of March
1, 1996 was 20,000,000.
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 1996 annual meeting
of stockholders that will be filed no later than April 30, 1996.
<PAGE>
Cross Reference Index
The following cross reference index indicates the document and location of
the information contained herein and incorporated by reference into the Form
10-K.
Document and Location
Part I
Item 1 Business Page 3 herein
Item 2 Properties Page 5 herein
Item 3 Legal Proceedings Page 5 herein
Item 4 Submission of Matters to a Vote of
Stockholders Page 5 herein
Part II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters Page 6 herein
Item 6 Selected Financial Data Page 7 herein
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations Pages 8-11 herein
Item 8 Financial Statements and Supplementary
Data Pages 17-27 herein
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure Page 11 herein
Part III
Item 10 Directors and Executive Officers of the
Registrant Pages 2 to 4, 5 of Proxy Statement
Item 11 Executive Compensation Pages 5 and 6 of Proxy Statement
Item 12 Security Ownership of Certain
Beneficial Owners and Management Page 7 of Proxy Statement
Item 13 Certain Relationships and Related
Transactions Pages 4 and 7 of Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K Pages 12 and 13 herein
<PAGE>
PART I
ITEM 1. BUSINESS
General
Heartland Express, Inc. ("Heartland" or the "Company") is a
short-to-medium haul truckload carrier based near Iowa City, Iowa. The
Company provides nationwide transportation service to major shippers, using
late-model tractors and a uniform fleet of 53-foot aluminum plate dry vans.
The Company's primary traffic lanes are between customer locations east of
the Rocky Mountains, with selected service to the West. Management believes
that the Company's service standards and equipment accessibility have made it
a core carrier to many of its major customers.
Heartland was founded by Russell A. Gerdin in 1978 and became publicly
traded in November 1986. Over the ten years from 1986 to 1995, Heartland has
grown to $191.5 million revenue from $21.6 million and net income has
increased to $20.6 million from $3.0 million. Much of this growth has been
attributable to expanding service for existing customers and acquiring new
customers. In addition, in March 1994, the Company engaged in a merger by
which truckload carrier Munson Transportation, Inc. and two related entities
(collectively, "Munson Transportation") became subsidiaries. Munson
Transportation had generated approximately $116 million in revenue during
1993, while serving customers primarily in Midwest, Northeast, and Western
states. Munson Transportation had been unprofitable, and during 1994 and the
first half of 1995 management eliminated duplicate and undesirable
operations, integrated administrative and operational functions, and upgraded
Munson Transportation's older fleet of tractors and trailers. All of the
Company's operations and administrative functions are now unified at its Iowa
City headquarters.
Heartland Express, Inc. is a holding company incorporated in Nevada,
which owns, directly or indirectly, all of the stock of Heartland Express,
Inc. of Iowa, Heartland Equipment, Inc., Munson Transportation, Inc., Munson
Transport Services, Inc., Munson Equipment, Inc., and Heartland Monmouth
Warehouse Corporation.
Operations
Heartland's operations department focuses on serving customer needs and
maximizing equipment utilization. The Company divides its operating area
into geographic regions and appoints a regional dispatcher for each region.
Regional dispatchers communicate with customers and drivers to coordinate
equipment resources with inbound and outbound load demand. Dispatchers are
responsible for monitoring the timeliness of all pickups and deliveries
within their regions. Frequent driver contact enable dispatchers to closely
monitor equipment and load positions to ensure proper performance. Serving
the short to medium haul market (625-mile average length of haul in 1995)
permits the Company to use primarily single, rather than team drivers and
dispatch most trailers directly from origin to destination without
intermediate equipment change other than for driver scheduling purposes.
Heartland also operates four specialized regional distribution
operations for major customers near St. Louis, Missouri; Atlanta, Georgia;
Columbus, Ohio; and Iowa City, Iowa. These short-haul operations concentrate
on freight movements generally within a 400-mile radius of the regional
terminal, and are designed to meet the needs of significant customers in
those regions. These operations are handled by dispatchers at the regional
locations, and the Company uses a centralized computer network and regular
communication to achieve system-wide load coordination.
The Company emphasizes customer satisfaction through on-time
performance, dependable late-model equipment, and consistent equipment
availability to serve large customers' volume requirements. The Company also
maintains a high trailer to tractor ratio, which facilitates the stationing
of trailers at customer locations for convenient loading and unloading. This
minimizes waiting time, which increases tractor utilization and assists with
driver retention.
Customers and Marketing
The Company targets customers in its operating area that require
multiple, time-sensitive shipments, including those employing "just-in-time"
manufacturing and inventory management. In seeking these customers,
Heartland has positioned itself as a provider of premium service at
compensatory rates, rather than competing solely on the basis of price.
Heartland's reputation for quality service, reliable equipment and equipment
availability makes it a core carrier to many of its customers.
Heartland's sales personnel seek to expand business with existing
customers and establish service with new customers by emphasizing premium
service, regularly monitoring customer needs and the Company's performance,
and coordinating customer requirements with operations personnel. Management
believes that the Company's uniform fleet of 53-foot, aluminum plate, dry van
<PAGE>
trailers offers a marketing advantage because of these trailers' 11% greater
capacity than 48-foot trailers. In addition, the standardized fleet permits
customers to know load dimensions in advance of all shipments, rather than
preparing different loads for trailers of varying lengths.
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 75%, 62%,
and 48% of revenue, respectively, in 1995. Major customers of the Company
represent the consumer appliances, food products, and automotive industries.
The distribution of customers is not significantly different from the
previous year. Sears Logistics Services and Kellogg Company accounted for
14.8% and 10.9% of revenue respectively in 1995. 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, 1995, Heartland employed 1,021
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, licenses, insurance, and taxes. The Company historically has
operated a balanced fleet of company and independent contractor tractors.
Management believes that a balanced fleet complements 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
incentives 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 and its
employees have never attempted to organize a union. Management believes that
the Company has good relationships with its employees and independent
contractors.
Revenue Equipment
Heartland's management believes that operating high-quality, efficient
equipment is an important part of providing excellent service to customers.
The Company's policy is to operate its tractors while under warranty to
minimize repair and maintenance cost and reduce service interruptions caused
by breakdowns. The average age of company tractors at year end was 17
months, and all tractors remained covered by manufacturers' warranties. The
average age of company trailers at year end was 30 months.
Management believes that the Company's uniform fleet of 53-foot aluminum
plate trailers provides the Company a competitive advantage in the market.
These trailers offer (1) added load efficiency because of an inside width of
101.25 inches compared with conventional inside width of 98 inches; (2) a
10-year estimated life compared with the 7-year life of conventional
trailers; (3) reduced trailer damage and the associated maintenance cost; and
(4) 11% more shipping capacity than conventional 48-foot units, which remain
prevalent in the industry.
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 (625-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 lessor degree upon freight rates.
<PAGE>
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"), but the lack of implementing regulations prevents the Company
from determining the full impact of this action. 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.
ITEM 2. FACILITIES AND PROPERTIES
Heartland's headquarters is located adjacent to Interstate 80, near
Iowa City, Iowa. The facilities include five acres of land, two office
buildings of approximately 25,000 square feet combined and a storage
building, all leased from the Company's president and principal stockholder.
Company-owned facilities at this location include three tractor and trailer
maintenance garages totaling approximately 26,500 square feet, and a
safety and service complex adjacent to Heartland's corporate offices. The
adjacent facility provides the Company with six acres of additional trailer
parking space, a drive-through inspection bay, an automatic truck wash
facility, and 6,000 square feet of office space and driver facilities. The
Company also owns a motel located adjacent to its corporate offices, which
functions as a motel and driver recruiting and driver training center.
The Company has regional facilities in Ft. Smith, Arkansas; O'Fallon,
Missouri; Forest Park, Georgia; Columbus, Ohio; Du Bois, Pennsylvania;
Monmouth, Illinois; Woodville, Ohio; and Lincoln, Illinois. The facility in
Lincoln, Illinois is leased to an unrelated third party. The Company closed
the facilities in Woodville and Monmouth during 1994 and 1995 and is
attempting to dispose of such facilities.
ITEM 3. LEGAL PROCEEDINGS AND INSURANCE
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred
in the transportation of freight. The Company believes that adverse results
in these cases, whether individual or in the aggregate, would not have a
material effect upon the Company's financial position or results of
operations. Heartland maintains insurance covering public liability,
property damage, workers compensation, cargo loss or damage, fire, general
liability and other risks, with a $500,000 self insured retention ("SIR") for
liability arising from personal injury and property damage claims and a
$350,000 SIR for workers' compensation. Liability insurance coverage has
been established with aggregate limits of $20,000,000 per occurrence. During
1994 the company was granted self insured status by the ICC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
During the fourth quarter of 1995, no matters were submitted to a vote
of securities holders.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock has been traded on the NASDAQ National Market
under the symbol HTLD, since November 5, 1986, the date of the Company's
initial public offering. During December 1995 the Company effected a stock
dividend that increased the number of shares outstanding from 13,016,600 to
20,000,000. The following table sets forth for the calendar period indicated
the range of and low bid quotations for the Company's common stock as
reported by NASDAQ from January 1, 1994 to December 31, 1995. All quotations
have been adjusted to give effect to the stock dividend.
Period High Low
Calendar Year 1995
1st Quarter $19.20 $17.44
2nd Quarter 18.40 15.84
3rd Quarter 21.28 16.64
4th Quarter 21.00 17.28
Calendar Year 1994
1st Quarter $23.92 $15.78
2nd Quarter 23.27 19.20
3rd Quarter 23.43 18.06
4th Quarter 20.18 17.57
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual
transactions. As of February 23, 1996 the Company had 262 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.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below reflect the
consolidated financial position and results of operations of Heartland
Express, Inc., and its subsidiaries. The selected consolidated financial
data are derived from the Company's consolidated financial statements, which
have been restated for years prior to 1995 to reflect the merger of Munson
Transportation in a transaction accounted for as a pooling of interests.
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes thereto included elsewhere
herein.
Year Ended December 31,
(in thousands, except share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenue $191,507 $224,248 $236,017 $205,214 $178,435
Operating expenses:
Salaries, wages, and
benefits $40,715 $56,440 $63,551 $56,792 $50,795
Rent and purchased
transportation 64,043 57,799 51,478 35,759 27,109
Operations and
maintenance 21,035 35,557 45,370 42,377 42,234
Taxes and licenses 5,246 7,347 7,790 6,606 5,760
Insurance and claims 7,967 11,872 10,969 13,196 8,284
Communication and
utilities 2,562 2,618 3,077 2,696 2,368
Depreciation 15,066 20,061 22,818 20,705 18,542
Other operating
expenses 3,745 5,468 8,301 7,564 7,134
(Gain) on sale of
fixed assets (27) (149) (360) (944) (713)
Merger consummation and
integration costs -- 3,494 -- -- --
--------- --------- --------- --------- ---------
$160,352 $200,507 $212,994 $184,751 $161,513
--------- --------- --------- --------- ---------
Operating income $31,155 $23,741 $23,023 $20,463 $16,922
Interest income/
(expense), net 1,524 (1,930) (4,747) (4,829) (4,722)
--------- --------- --------- --------- ---------
Income before income
taxes and cumulative
effect of change in
accounting for income
taxes $32,679 $21,811 $18,276 $15,634 $12,200
Federal and state
income taxes 12,094 8,808 8,028 6,220 5,078
Deferred income taxes
- merger -- 2,926 -- -- --
Cumulative effect of
change in method of
accounting for
income taxes -- -- 700 -- --
--------- --------- --------- --------- --------
Net income $20,585 $10,077 $10,948 $9,414 $7,122
========= ========= ========= ========= =========
Average shares
outstanding 20,024 20,026 20,026 20,026 20,026
========= ========= ========= ========= =========
Net income per share $1.03 $0.50 $0.55 $0.47 $0.36
========= ========= ========= ========= =========
Balance sheet data:
Working capital $40,780 $2,542 $(11,084) $140 $1,203
========= ========= ========= ========= =========
Total assets $158,146 $136,393 $168,934 $150,217 $134,983
========= ========= ========= ========= =========
Stockholders' equity $98,636 $78,050 $67,974 $57,030 $48,006
========= ========= ========= ========= =========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
In 1993, prior to the merger with Munson Transportation, the Company
generated $116.0 million in revenue and $14.0 million in net income. The
1994 merger with Munson Transportation was accounted for as a pooling of
interests; accordingly, the Company's financial statements for preceding
years were restated as if the companies had been operated on a combined
basis. As restated, the Company's 1993 revenue and net income were $236.0
million and $10.9 million, respectively. During 1994 and 1995, the Company
discontinued its less profitable routes and operations and focused on
improving operating efficiency. The Company also replaced all older tractors
and trailers, repaid $55.3 million in debt, and built cash and cash
equivalents to $46.2 million at December 31, 1995. The Company's $191.5
million revenue for 1995 represents a 65.1% increase over premerger revenue
in 1993(18.9% decrease from restated revenue). Net income of $20.6 million
for 1995 represents a 47.1% increase over premerger 1993 net income(88.0%
increase from restated net income).
The following table sets forth the percentage relationship of expense
items to operating revenue for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
------- ------- -------
Operating expenses:
Salaries, wages, and benefits 21.2% 25.2% 26.9%
Rent and purchased transportation 33.4 25.8 21.8
Operations and maintenance 11.0 15.8 19.2
Taxes and licenses 2.7 3.3 3.3
Insurance and claims 4.2 5.3 4.7
Communications and utilities 1.3 1.2 1.3
Depreciation 7.9 8.9 9.7
Other operating expenses 2.0 2.4 3.5
(Gain) on sale of fixed assets -- (0.1) (0.2)
Merger consummation and integration
costs -- 1.6 --
------- ------- -------
Total operating expenses 83.7% 89.4% 90.2%
------- ------- -------
Operating income 16.3% 10.6% 9.8%
Interest income/(expense) 0.8 (0.9) (2.0)
------- ------- -------
Income before income taxes 17.1% 9.7% 7.8%
Federal and state income taxes 6.4 3.9 3.4
Deferred income tax - Merger -- 1.3 --
Cumulative effect of accounting change 0.0 0.0 (0.2)
------- ------- -------
Net income 10.7% 4.5% 4.6%
======= ======= =======
</TABLE>
Results of Operations
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Operating revenue decreased 14.6% to $191.5 million in 1995 from
$224.2 million in 1994, as a result of management's decision to curtail
service for customers that did not meet the Company's operating strategy.
Salaries, wages, and benefits decreased to 21.2% of revenue in 1995 from
25.2% in 1994, as a result of a reduction in the percentage of employee
drivers operating the Company's tractor fleet and a corresponding increase in
the percentage of the fleet being provided by independent contractors.
During 1995, employee drivers accounted for 51% and independent contractors
49% of the total fleet miles, compared with 62% and 38%, respectively, in
1994. The decrease was also attributable to a reduction in the number of
non-driver personnel due to the consolidation of facilities and a reduction
in health and workers' compensation claims due to fewer and less severe
claims. Rent and purchased transportation increased to 33.4% of revenue in
1995 from 25.8% in 1994, reflecting the Company's increased reliance upon
independent contractors.
<PAGE>
Operations and maintenance decreased to 11.0% of revenue in 1995 from
15.8% in 1994, as a result of lower repair and maintenance costs and greater
fuel efficiency attributable to the replacement of older equipment with new
tractors and 53-foot aluminum plate trailers. The decrease is also
attributable to efficiencies attained from the consolidation of maintenance
facilities. These costs also improved due to decreased service to selected
customers that did not meet the Company's operating strategy, which reduced
the use of toll highways. Such expenses are also affected by the increase in
percentage of Company's fleet being operated by independent contractors, who
pay their own maintenance, repair and fuel costs.
Taxes and licenses decreased to 2.7% of revenue in 1995 from 3.3% in
1994, as a result of a reduction in the number of miles operated in those
states with a higher tax cost structure.
Insurance and claims decreased to 4.2% of revenue in 1995 from 5.3% in
1994, as a result of management's decision to increase driver compensation to
attract more experienced drivers. This decision resulted in fewer and less
severe claims. In addition, managements decision in 1994 to cease using
student drivers who typically experience a higher accident frequency, was
effective for the entire year in 1995.
Communications and utilities increased slightly to 1.3% of revenue in
1995 from 1.2% in 1994, as a result of the Company positioning for an
expanding fleet and the cost of maintaining communications with its current
fleet. The Company completed the process of equipping its Company owned
fleet with satellite-based tracking and communications systems in
1995.
Depreciation decreased to 7.9% of revenue in 1995 from 8.9% in 1994, as
a result of the decreasing percentage of Company tractors in the fleet in
favor of tractors owned by independent contractors.
Other operating expenses decreased to 2.0% of revenue in 1995 from 2.4%
in 1994, due to efficiencies gained from the consolidation of operations and
decreased service to selected customers that required the use of palleted
freight.
Primarily as a result of the foregoing, the Company's operating ratio
improved to 83.7% in 1995 from 89.4% in 1994 (87.8% excluding merger and
integration costs).
Interest income (net) was $1.5 million in 1995 compared with interest
expense (net) of $1.9 million in 1994. At December 31, 1995, the Company had
repaid all long-term debt with the exception of approximately $700,000 in
capitalized leases which expire in 1996 and carry prepayment penalties. Such
long-term debt was offset by $50.7 million in cash, cash equivalents, and
municipal bonds at December 31, 1995.
The Company's effective tax rate decreased to 37% in 1995 from 54% in
1994. This decrease was primarily attributable to the merger with Munson
Transportation in 1994. In 1994 the Company recorded a $2.9 million deferred
tax charge (because Munson was an "S" corporation and did not have to record
deferred taxes), losses attributable to Munson Transportation prior to the
merger on March 21, 1994, and $2.0 million in merger costs that were not
deductible.
As a result of the foregoing, net income improved to 10.7% of revenue in
1995 from 4.5% in 1994.
Year Ended December 31, 1994 Compared With Year Ended December 31, 1993
Operating revenue decreased 5.2% to $224.2 million in 1994 from
$236.0 million in 1993, as a result of management's decision to close the
Company's unprofitable temperature-controlled, flatbed, and brokerage
operations and selectively curtail service for customers that did not meet
the Company's operating strategy. This decrease was offset by a 16.7%
increase in revenue per tractor per week.
Salaries, wages, and benefits decreased to 25.2% of revenue in 1994 from
26.9% in 1993, as a result of (I) a substantial reduction in the number of
maintenance personnel throughout 1994 as the company upgraded its tractor and
trailer fleet with new equipment; and (ii) a reduction in the percentage of
employee drivers operating the Company's tractor fleet and a corresponding
increase in the percentage of the fleet being provided and operated by
independent contractors. The decrease was partially offset by a 11% increase
in the rate per mile paid to company drivers, which was intended to attract
and retain experienced drivers. During 1994, employee drivers accounted for
62% and independent contractors 38% of the total fleet miles, compared with
70% and 30% in 1993. Rent and purchased transportation increased to 25.8% of
revenue in 1994 from 21.8% in 1993 reflecting the Company's increased
reliance upon independent contractors.
<PAGE>
Operations and maintenance decreased to 15.8% of revenue in 1994 from
19.2% in 1993, as a result of lower repair and maintenance costs and greater
fuel efficiency attributable to the replacement of the majority of its older
equipment with new tractors and 53' aluminum plate trailers. Such expenses
also were affected by the increase in percentage of the Company's fleet being
operated by independent contractors, who pay their own maintenance, repair,
and fuel costs.
Taxes and licenses remained constant at 3.3% of revenue in each period.
Insurance and claims increased to 5.3% of revenue in 1994 from 4.7% in
1993, as a result of increased accident frequency and upward revision to
certain claim estimates. Management has addressed the claim level by
increasing driver compensation with the intent of attracting more experience
drivers and by eliminating the Company's reliance upon student drivers.
Communications and utilities decreased slightly to 1.2% of revenue in
1994 from 1.3% in 1993, as a result of temporarily downsizing the portion of
its fleet which uses satellite communications units, while disposing of the
older tractors operated by Munson Transportation.
Depreciation decreased to 8.9% of revenue in 1994 from 9.7% in 1993, as
a result of decreasing the percentage of company tractors in the fleet in
favor of tractors owned by independent contractors.
Other operating expenses decreased to 2.4% of revenue in 1994 from 3.5%
in 1993, primarily as a result of eliminating service to customers requiring
pallets.
Merger consummation and integration costs of $3.5 million associated
with the merger of Munson Transportation and the cost of closing duplicate
facilities accounted for 1.6% of revenue in 1994. These expenses consisted
primarily of changes in reserve estimates for liability and workers'
compensation claims, conforming accounting policies, accounting and legal
expenses, severance pay, and writing down the value of the Monmouth, Illinois
terminal.
Primarily as a result of the foregoing, the Company's operating ratio
improved to 89.4% during 1994 (87.8% excluding merger and integration costs)
from 90.2% in 1993.
Interest expense (net) decreased to .9% of revenue ($1.9 million) in
1994 from 2.0% ($4.7 million) in 1993, as a result of the Company's repaying
approximately $56.0 million of debt and capital lease obligations associated
with its revenue equipment. The Company's long term debt was $1.2 million at
December 31, 1994, compared with $56.9 million at December 31, 1993.
The Company's effective income tax rate increased to 54% in 1994 from
44% in 1993. This increase was almost entirely related to the merger with
Munson Transportation. The Company recorded a $2.9 million one-time charge
during the first quarter of 1994 to recognize a deferred income tax
obligation representing temporary differences in the basis of assets and
liabilities for financial reporting and tax purposes. The Company was
required to record the charge following the merger of Munson Transportation,
which had previously been a "S" corporation, and as such had not recorded
such obligations. Other items which increased the 1994 effective tax rate
included nondeductible losses of Munson Transportation prior to the merger on
March 21, 1994 and certain nondeductible merger-related expenses.
As a result of the foregoing, net income decreased to 4.5% of revenue in
1994 from 4.6% in 1993.
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. On a
consolidated basis, net cash provided by operations was $38.1 million in
1995, $42.6 million in 1994, and $38.1 million in 1993. The Company also
obtains tractors by utilizing independent contractors, who provide a tractor
and bear all associated operating and financing expenses.
Since the March 21, 1994 merger with Munson Transportation, the Company
has significantly improved its financial position by reducing long-term debt
to approximately $700,000 at December 31, 1995 from $56.9 million at December
31, 1993. Working capital (deficit) improved to $40.8 million at December
31, 1995 from ($11.1 million) at December 31, 1993.
<PAGE>
Net cash used in investment and financing activities were $2.1 million
in 1995, $42.0 million in 1994, and $35.7 million in 1993. During 1995 and
1994, the Company primarily financed its revenue equipment additions by
trading excess equipment that resulted from the merger with Munson
Transportation. The Company has placed orders for approximately $12.7
million in revenue equipment (net of trades) during 1996. The Company
expects to finance future growth in its company-owned fleet primarily through
cash flow from operations.
Pending Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard no. 121, "Accounting for the Impairment of Long-Lived
Assets" in 1995. This new pronouncement is required to be adopted in 1996
and outlines criteria for evaluating long-lived assets when certain
conditions occur that may indicate an impairment problem. Management does
not anticipate the adoption of this new standard will significantly effect
the Company.
Inflation
Inflation can be expected to have an impact on the Company's operating
costs. The effect of inflation has been minimal since 1988. However, a
prolonged period of inflation would adversely affect the Company's results of
operations unless freight rates could be increased proportionately.
Seasonality
The nature of the Company's primary traffic (appliances, automotive
parts, paper products, electrical equipment, and packaged foodstuffs) causes
it to be distributed with relative uniformity throughout the year. However,
operating costs and earnings have historically been affected adversely during
the fourth quarter by inclement weather conditions that reduce efficiencies.
These cost increases include the effect of higher fuel prices that are
generally experienced during the fourth quarter and repairs typically
scheduled during idle time experienced during the holiday seasons, thus
increasing maintenance costs during this period.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of income, cash flows, and
stockholders' equity, and notes related thereto, are contained at pages 15 to
27 of this report. Such information is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 12 and 22, 1994, the registrant filed Forms 8-K to report the
resignation of McGladrey & Pullen LLP and engagement of Arthur Andersen LLP
as its independent auditors. As stated in such Forms 8-K, the change of
auditors did not involve any disagreement on accounting issues or financial
disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information respecting executive officers, directors, and nominees of
the Company is set forth under the caption "Information Concerning Executive
Officers, Directors, and Nominees" in the registrant's proxy statement
relating to its 1996 Annual Meeting of Stockholders, incorporated by
reference into this form 10-K Report, 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"). With the exception
of the foregoing information and other information specifically incorporated
by reference into this form 10-K report, the Proxy Statement is not being
filed as a part hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information respecting executive compensation is set forth under the
caption "Executive Compensation" in the Proxy Statement and incorporated
herein by reference; provided, however, that the "Compensation Committee
Report on Executive Compensation" and the "Stock Price Performance Graph"
contained in the Proxy Statement are not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information respecting security ownership of certain beneficial owners
and management is included under the caption "Principal Stockholders and
Stock Holdings of Management" in the Proxy Statement, incorporated herein by
reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Board of Directors Interlocks and
Insider Participation" on page 4 and "Certain Transactions and Relationships"
on page 7 of the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements and Schedules
The Company's audited financial statements are set forth on the
following pages of this report:
Page
Reports of Independent Public Accountants..............................15-16
Consolidated Balance Sheet...............................................17
Consolidated Statements of Income........................................18
Consolidated Statements of Stockholders' Equity..........................19
Consolidated Statements of Cash Flow.....................................20
Notes to Consolidated Financial Statements.............................21-26
(a) 2. Financial Statement Schedule
Page
Valuation and Qualifying Accounts and Reserves...........................27
(a) 3. Exhibits required by Item 601 of Regulation S-K are listed below.
(b) Reports on Form 8-K
The Company did not file a Form 8-K during the last quarter of 1995.
(c) Exhibits
Exhibit No. Document Page of Method of Filing
2 Amended and Restated Merger Agreement Incorporated by reference to the
and Plan of Reorganization Company's Form 8-K filed April 2,
1994.
3.1 Articles of Incorporation Incorporated by reference to the
Company's registration statement
on Form S-1, Registration No.
33-8165, effective November 5,
1986.
3.2 Bylaws Incorporated by reference to the
Company's registration statement
on Form S-1, Registration No.
33-8165, effective November 5,
1986.
4.1 Articles of Incorporation Incorporated by reference to the
Company's registration statement
on Form S-1, Registration No.
33-8165, effective November 5,
1986.
4.2 Bylaws Incorporated by reference to the
Company's registration statement
on Form S-1, Registration No.
33-8165, effective November 5,
1986.
10.1 Business Property Lease between
Russell A. Gerdin as Lessor and
the Company as Lessee, regarding
the Company's headquarters at 2777
Heartland Drive, Coralville, Iowa
52241 Page 28-30, filed herewith.
<PAGE>
10.2 Form of Independent Contractor Incorporated by reference to the
Operating Agreement between the Company's Form 10-K for the year
Company and its independent Ended December 31, 1993.
contractor providers of tractors
10.3 Description of Key Management Incorporated by reference to the
Deferred Incentive Compensation Company's Form 10-K for the year
Arrangement Ended December 31, 1993
10.4 Employment Agreement of Incorporated by reference to the
Courtney J. Munson Company's Form 10-K for the year
ended December 31, 1994.
21 Subsidiaries of the Registrant Incorporated by reference to the
Company's Form 10-K for the year
ended December 31, 1994.
<PAGE>
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 14, 1996 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
Russell A. Gerdin Chief Executive Officer(Principal
Executive Officer), Secretary March 14, 1996
/s/ John P. Cosaert Vice President of Finance
John P. Cosaert (Principal Financial Officer and
Principal Accounting Officer) and
Treasurer March 14, 1996
/s/ Earl H. Scudder, Jr. Director March 14, 1996
Earl H. Scudder, Jr.
/s/ Richard O. Jacobson Director March 14, 1996
Richard O. Jacobson
/s/ Michael J. Gerdin Director March 14, 1996
Michael J. Gerdin
/s/ Benjamin J. Allen Director March 14, 1996
Benjamin J. Allen
<PAGE>
<AUDITOR>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Heartland Express, Inc.
Coralville, Iowa
We have audited the accompanying consolidated balance sheets of
Heartland Express, Inc. (a Nevada corporation) as of December 31, 1995 and
1994, and the related statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Heartland
Express, Inc., as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. The amounts on the schedule
for 1995 and 1994 have been subjected to the auditing procedures applied in
our audits of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
February 2, 1996
<PAGE>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Heartland Express, Inc.
Coralville, Iowa
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows for the year ended December 31, 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Heartland Express, Inc. and subsidiaries for the year ended December
31, 1993, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for the
purposes of complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. The amounts on
this schedule for 1993 have been subjected to the auditing procedures applied
in our audit of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
MCGLADREY & PULLEN, LLP
Iowa City, Iowa
January 27, 1994
</AUDITOR>
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $46,162,143 $9,964,894
Trade receivables, less allowance
of $402,812 in each year 18,035,002 17,443,434
Prepaid tires 2,322,826 2,278,573
Municipal bonds (Note 1) 4,519,461 2,856,558
Deferred income taxes (Note 4) 11,377,000 10,933,000
Other current assets 481,761 658,864
-------------- --------------
Total current assets $82,898,193 $44,135,323
-------------- --------------
PROPERTY AND EQUIPMENT
Land and land improvements $2,463,010 $2,463,010
Buildings 7,299,415 7,098,843
Furniture and fixtures 1,656,094 3,319,817
Shop and service equipment 1,092,107 1,741,363
Revenue equipment 97,642,433 119,040,938
-------------- --------------
$110,153,059 $133,663,971
Less accumulated depreciation
and amortization 36,459,541 42,848,820
-------------- --------------
Property and equipment, net $73,693,518 $90,815,151
-------------- --------------
OTHER ASSETS $1,554,660 $1,442,124
-------------- --------------
$158,146,371 $136,392,598
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $705,437 $450,531
Accounts payable and accrued liabilities 7,388,330 6,589,124
Compensation and benefits 3,349,995 3,668,149
Income taxes payable 1,678,814 2,865,902
Insurance accruals (Note 6) 26,684,440 25,663,103
Other accruals 2,310,679 2,356,150
-------------- --------------
Total current liabilities $42,117,695 $41,592,959
LONG-TERM DEBT (Note 9) - 705,437
DEFERRED INCOME TAXES (Note 4) 17,393,000 16,044,000
-------------- --------------
$59,510,695 $58,342,396
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Capital Stock (Note 7):
Preferred, $.10 par value;
authorized 5,000,000 shares; none issued $- $-
Common, $.10 par value;
authorized 35,000,000 shares; issued and
outstanding 20,000,000 and 13,016,600 shares,
respectively 2,000,000 1,301,660
Additional paid-in capital 5,609,124 5,606,510
Retained earnings 91,026,552 71,142,032
-------------- --------------
$98,635,676 $78,050,202
-------------- --------------
$158,146,371 $136,392,598
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
(Note 2)
<S> <C> <C> <C>
Operating revenue $191,506,741 $224,248,262 $236,017,207
-------------- -------------- --------------
Operating expenses:
Salaries, wages, and benefits 40,714,787 56,440,576 63,550,723
Rent and purchased
transportation 64,043,296 57,798,842 51,478,405
Operations and maintenance 21,035,067 35,557,349 45,369,795
Taxes and licenses 5,246,427 7,346,520 7,789,664
Insurance and claims 7,966,760 11,872,541 10,969,014
Communications and utilities 2,562,142 2,618,541 3,076,677
Depreciation 15,065,539 20,060,652 22,817,924
Other operating expenses 3,745,381 5,468,369 8,301,640
(Gain) on sale of fixed assets (27,134) (149,900) (359,858)
Merger consummation and
integration costs (Note 2) - 3,493,774 -
-------------- -------------- --------------
$160,352,265 $200,507,264 $212,993,984
Operating income $31,154,476 $23,740,998 $23,023,223
Interest income 1,609,572 255,143 600,813
Interest expense (85,173) (2,185,491) (5,348,175)
-------------- -------------- --------------
Income before income taxes
and cumulative effect of change
in accounting for income taxes $32,678,875 $21,810,650 $18,275,861
Federal and state income taxes 12,093,401 8,808,442 8,028,056
Deferred income tax charge for
change in tax status (Note 4) - 2,925,600 -
-------------- -------------- --------------
Income tax expense $12,093,401 $11,734,042 $8,028,056
-------------- -------------- --------------
Income before cumulative effect
of change in accounting for
income taxes $20,585,474 $10,076,608 $10,247,805
Cumulative effect of changes in
method of accounting for income
taxes (Note 4) - - 700,000
-------------- -------------- --------------
Net income $20,585,474 $10,076,608 $10,947,805
Earnings per common share(Note 1)
Income before cumulative effect
of accounting change $1.03 $0.50 $0.51
Cumulative effect of
accounting change - - 0.04
-------------- -------------- --------------
Net income $1.03 $0.50 $0.55
============== ============== ==============
<CAPTION>
Unaudited pro forma information (1994 and 1993 only):
Pro forma income tax adjustment to reduce expense as if
the combined company was a "C" corporation for the
<S> <C> <C> <C>
entire period (Note 4) $(3,304,126) $(1,083,056)
Pro forma income tax expense 8,429,916 6,945,000
-------------- --------------
Pro forma net income $13,380,734 $12,030,861
============== ==============
Pro forma net income per common
share $0.67 $0.60
============== ==============
Weighted average shares
outstanding 20,023,962 20,026,140 20,026,140
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Capital Additional
Stock, Paid-in Retained
Common Capital Earnings Total
<S> <C> <C> <C> <C>
Balance, December 31,
1992 (Note 2) $1,041,328 $5,606,510 $50,377,951 $57,025,789
Net income - - 10,947,805 10,947,805
5 for 4 stock split 260,332 - (260,332) -
------------ ------------ ------------- -------------
Balance, December 31,
1993 (Note 2) 1,301,660 5,606,510 61,065,424 67,973,594
Net income - - 10,076,608 10,076,608
------------ ------------ ------------- -------------
Balance, December 31,
1994 (Note 2) 1,301,660 5,606,510 71,142,032 78,050,202
1.54 for 1.00 stock
split (Note 7) 700,954 - (700,954) -
Shares retired (2,614) 2,614 - -
Net income - - 20,585,474 20,585,474
Balance, December 31, ------------ ------------ ------------- -------------
1995 $2,000,000 $5,609,124 $91,026,552 $98,635,676
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES (Note 2)
Net Income $20,585,474 $10,076,608 $10,947,805
Adjustments to reconcile to
net cash provided by operating
activities:
Depreciation and amortization 15,902,128 20,070,652 22,877,924
Deferred income taxes 905,000 (239,647) 229,647
Gain on sale of fixed assets (27,134) (149,900) (359,858)
Changes in certain working
capital items:
Trade receivables (591,568) 2,160,961 (1,570,961)
Other current assets 316,568 1,426,903 (65,260)
Prepaid and other 2,339,937 922,776 397,404
Accounts payable and
accrued expenses (135,813) 6,514,997 6,192,242
Accrued income taxes (1,187,088) 1,819,598 (556,000)
Net cash provided by operating -------------- -------------- --------------
activities $38,107,504 $42,602,948 $38,092,943
-------------- -------------- --------------
INVESTING ACTIVITIES
Proceeds from sale of property
and equipment $47,085 $1,855,436 $5,468,752
Purchase of property and
equipment (382,181) (3,689,806) (27,985,558)
Purchase of municipal bonds (1,662,903) (22,633) (14,146,196)
Municipal bond maturities - 15,638,571 5,687,895
Other 538,275 311,330 386,479
-------------- -------------- --------------
Net cash provided by (used in)
investment activities $(1,459,724) $14,092,898 $(30,588,628)
-------------- -------------- --------------
FINANCING ACTIVITIES
Net (repayments) borrowing on
revolving credit agreements $- $(718,430) $718,430
Proceeds from related party
borrowing - 9,772,141 -
Repayment of related party
borrowing - (9,772,141) -
Proceeds from long-term notes
payable - 588,664 17,759,210
Principal payments on
long-term notes (450,531) (55,992,837) (23,626,361)
-------------- -------------- --------------
Net cash (used in) financing
activities $(450,531) $(56,122,603) $(5,148,721)
Net increase in cash and -------------- -------------- --------------
cash equivalents $36,197,249 $573,243 $2,355,594
CASH AND CASH EQUIVALENTS
Beginning of year $9,964,894 $9,391,651 $7,036,057
-------------- -------------- --------------
End of year $46,162,143 $9,964,894 $9,391,651
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $85,174 $2,164,519 $5,417,699
Income taxes $12,372,064 $10,196,059 $7,629,105
Noncash investing activities:
Book value of revenue equipment
traded $23,572,701 $17,550,774 $6,713,685
Revenue equipment capital lease $- $- $5,475,682
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business And Significant Accounting Policies
Nature of Business:
Heartland Express, Inc., (the "Company") is a short-to-medium-haul,
irregular route, truckload carrier of general commodities. The Company's
primary traffic lanes are between customer locations east of the Rocky
Mountains, with selected service to the West.
Significant Accounting Policies:
Principles of Consolidation:
The accompanying consolidated financial statements include the parent
company, Heartland Express, Inc., and its subsidiaries, all of which are
wholly owned. All material intercompany items and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents:
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less.
Municipal Bonds and Bond Funds:
Municipal bonds are stated at amortized cost which approximates market
primarily because the bonds mature in one year or less. Historically, the
Company has held these investments to maturity.
Revenue and Expense Recognition:
Operating revenues are recognized on the date the freight is delivered
and expenses are recognized as incurred.
Property and Equipment:
Property and equipment are stated at cost. At the time of trade-in, the
cost of new equipment is recorded at an amount equal to the net book value
of the traded equipment plus cash paid. Depreciation is computed by
straight-line method for all assets other than tractors, which are
depreciated by the 125% declining balance method. Trailers are
depreciated to a 30% salvage value. Lives of the assets are as follows:
Years
Land improvements and buildings 5-30
Furniture and fixtures 3-7
Shop and service equipment 3-7
Revenue equipment 5-7
Tires and Tubes:
The cost of tires and tubes on new vehicles is carried as a prepayment
and amortized over the estimated tire life.
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Earnings Per Common Share:
Earnings per share is determined using the weighted average shares
outstanding for each period presented. Earnings per share were restated
for the stock splits and due to the merger with Munson Transportation
(Note 2).
Reclassifications:
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the current year presentation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Note 2. Heartland/Munson Merger
Effective March 21, 1994, Heartland consummated a merger with Munson
Transportation, Inc., and two affiliated companies (collectively referred to
as "Munson"). Prior to the merger, Munson had been a truckload carrier
offering service primarily in the Midwest and Northeast states. Pursuant to
the Amended and Restated Merger Agreement and Plan of Reorganization dated
February 18, 1994, Heartland issued 490,671 shares of its common stock in
exchange for all of the stock of Munson. The transaction costs associated
with the merger (consisting primarily of legal and accounting fees) and the
expenses of integrating the operations of the two companies (consisting
primarily of changes in reserve estimates for liability and workers'
compensation claims and other combination costs) resulted in nonrecurring
charge of $1,978,600 which was recorded in the first quarter of 1994. During
the fourth quarter of 1994, management decided to consolidate certain
duplicate activities. As a result of this decision, the headquarters
facility used by Munson in Monmouth, Illinois was closed. The transaction
costs associated with the elimination of this duplicate facility (consisting
primarily of a write down of the facility and severance pay for the
terminated employees) resulted in a nonrecurring charge of $1,515,774 which
was recorded in the fourth quarter of 1994.
The merger has been accounted for as a pooling of interests.
Accordingly, the accompanying consolidated financial statements have been
retroactively restated for all periods presented to include the results of
operations, financial position and cash flows of the merged entities. In
addition, the accompanying consolidated financial statements reflect certain
adjustments to conform the accounting policies of the combined companies.
The largest adjustment related to conforming depreciation methods. Munson
had used straight-line method to depreciate tractors and changed to an
accelerated method which has historically been used by Heartland.
Note 3. Concentrations of Credit Risk and Major Customers
The Company's major customers represent the consumer appliances, food
products and automotive industries. Credit is usually granted to customers
on an unsecured basis. The Company has not experienced significant
collection problems with respect to trade receivables.
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Operating revenue from the following major customers approximated:
CUSTOMER 1995 1994 1993
1 $28,000,000 $34,000,000 $30,000,000
2 -- 23,000,000 24,000,000
3 21,000,000 -- --
Revenue from customer 2 did not exceed 10% of total gross revenues in
1995 and revenues from customer 3 did not exceed 10% of total gross revenues
in either 1994 or 1993.
The Company's five largest customers accounted for 48%, 43%, and 37% of
revenues for the years ended December 31, 1995, 1994, and 1993, respectively.
Note 4. Income Taxes
Deferred income taxes are determined based upon the differences between
the financial reporting and tax basis of the Company's assets and
liabilities. Deferred taxes are provided at the enacted tax rates to be in
effect when the differences reverse. Prior to 1993, deferred taxes were
recorded using tax rates in effect in the year in which the deferrals were
made.
The cumulative effect of this change, totaling $700,000, has been
reflected in the consolidated statement of income in 1993.
Prior to the merger with Heartland, Munson had been an "S" corporation.
"S" corporations do not typically record income tax liabilities since these
generally represent personal obligations of the stockholders. The change in
Munson's tax status, which resulted from the merger, required a deferred
income tax obligation of $2,925,600 to be recorded in the first quarter of
1994.
The pro forma income tax expense (unaudited) presented on the
accompanying consolidated statements of income reflects the estimated amount
of income tax that would have been recorded if Heartland and Munson has been
combined for each of the years presented.
Deferred tax assets and liabilities, as determined under FASB Statement
No. 109, as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax liabilities, related to property and
equipment $17,393,000 $16,044,000
============ ============
Deferred income tax assets:
Allowance for doubtful accounts $153,000 $161,000
Accrued expense 1,344,000 1,075,000
Insurance accruals 9,835,000 9,598,000
Other 45,000 99,000
------------ ------------
Gross deferred income tax assets $11,377,000 $10,933,000
============ ============
</TABLE>
<PAGE>
The income tax provision is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current income taxes:
Federal $10,792,272 $10,486,640 $6,746,307
State 396,129 1,487,049 354,749
-------------- ------------- ------------
$11,188,401 $11,973,689 $7,101,056
-------------- ------------- ------------
Deferred income taxes:
Federal $873,000 $(215,647) $850,000
State 32,000 (24,000) 77,000
-------------- ------------- ------------
$905,000 $(239,647) $927,000
-------------- ------------- ------------
Total $12,093,401 $11,734,042 $8,028,056
============== ============= ============
</TABLE>
The income tax provision differs from the amount determined by applying
the U.S. federal tax rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal tax at statutory rate (35%) $11,437,606 $7,633,728 $6,396,551
Non-deductible losses - 527,820 1,307,242
Change in tax status, Munson - 2,925,600 -
Non-deductible merger expenses - 432,600 -
State taxes, net of federal benefit 340,000 397,500 277,420
Non-taxable interest income (441,000) (88,000) (178,786)
Change in tax rates - - 116,000
Other 756,795 (95,206) 109,629
-------------- ------------- ------------
$12,093,401 $11,734,042 $8,028,056
============== ============= ============
</TABLE>
Note 5. Related Party Transactions
The Company leases two office buildings and a storage building from its
president under a lease which provides for monthly rentals of $23,500 plus
the payment of all property taxes, insurance and maintenance. The lease
expires May 31, 2000 and contains a five year renewal option.
The total minimum rental commitment under the building lease is as
follows:
Year ending December 31:
1996 $282,000
1997 282,000
1998 282,000
1999 282,000
2000 117,500
-------------
$1,245,500
=============
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
Rent expense to the Company's president totaled $239,500, $180,000, and
$122,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
Rentals paid were increased in September, 1993 and June, 1995 as a result of
additional buildings being added to the lease agreement. The Company also
maintains cash accounts with a bank owned by the Company's president.
Notes receivable from related parties approximated $340,000 at December
31, 1995 and 1994. The interest rate for this note is 7%. This note was
entirely repaid in January, 1996.
Note 6. Accident and Workers' Compensation Claims
Accident and workers' compensation claims include the estimated
settlements, settlement expenses and an allowance for claims incurred but not
yet reported for property damage, personal injury and public liability losses
from vehicle accidents and cargo losses as well as workers' compensation
claims for amounts not covered by insurance.
Accrued claims are determined based on estimates of the ultimate cost of
settling reported and unreported claims, including expected settlement
expenses. Since the reported liability is an estimate, the ultimate
liability may be more or less than reported.
Under an agreement with its insurance underwriter, the Company acts as a
self-insurer for liability up to $500,000 for any single occurrence involving
cargo, personal injury or property damage. Liability in excess of this
amount is assumed by the underwriter.
Under an agreement with its insurance underwriter, the Company acts as a
self-insurer for workers' compensation liability up to a maximum liability of
$350,000 per claim. Liability in excess of this amount is assumed by the
underwriter. The State of Iowa has required the Company to deposit $700,000
into a trust fund as part of the self-insurance program. This deposit has
been classified with other long-term assets on the balance sheet. In
addition, the Company has provided its insurance carriers with letters of
credit for approximately $7.6 million in connection with its liability and
workers' compensation insurance arrangements.
Various claims and legal actions are pending against the Company. In
management's opinion, the resolution of these matters will not materially
impact the Company's financial condition or results of operations.
Note 7. Stockholders' Equity
On October 26, 1995, the Company's Board of Directors approved a 1.54
for 1.0 split of the Company's common stock effected in the form of a 54%
stock dividend for stockholders of record as of November 20, 1995. A total
of 7,009,540 common shares were issued. The stated par value of each share
was not changed from $.10. All share and per share amounts have been
restated to retroactively reflect the stock split.
Note 8. Profit Sharing Plan and Retirement Plan
The Company has a profit sharing plan with 401(k) plan features whereby
the Company may make contributions to the plan at its discretion. Individual
employees may make voluntary contributions to the plan. Contributions
totaled $434,000, $512,000 and $589,000 for the years ended December 31,
1995, 1994, and 1993, respectively. The Munson Transportation defined
contribution retirement plan was terminated in December 1994.
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 9. Long-Term Debt
Long-term debt and capital lease obligations at December 31, 1995 and
1994 include the following:
December 31,
1995 1994
Capital lease obligations on revenue equipment,
discounted at rates of 7.9% to 13.2%, due in
monthly installments through 1996 $705,437 $1,155,968
Less current maturities 705,437 450,531
------------ ------------
Long-term portion $- $705,437
============ ============
The face value of the long-term debt is not materially different than
the fair market value of the debt at December 31, 1995 and 1994. Revenue
equipment has been pledged as collateral for the revenue equipment
obligations. The Company is subject to certain restrictive covenants related
to its capital lease agreements. At December 31, 1995 the Company was not in
violation of any covenants.
Note 10. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Operating revenue $47,583 $46,974 $47,528 $49,422
Operating income 7,026 7,940 8,531 7,657
Net income 4,587 5,226 5,646 5,126
Earnings per common share 0.23 0.26 0.28 0.26
Year ended December 31, 1994
Operating revenue $61,381 $59,303 $53,879 $49,685
Operating income(a) 3,903 7,191 7,362 5,285
Net income (loss) (1,695) 4,284 4,449 3,039
Earnings (loss) per common
share (0.08) 0.21 0.22 0.15
Unaudited pro forma information
Pro forma income tax expense $1,260 $- $- $-
Pro forma net income 1,609 - - -
Pro forma earnings per common
share 0.08 - - -
<FN>
(a) Merger consummation and integration costs of $1,978,,000 and $1,515,000
were charged to income in the first and fourth quarters of 1994,
respectively.
</FN>
</TABLE>
<PAGE>
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Charge to
Balance At Cost Balance
Beginning And Other At End
Description of Period Expense Accounts Deductions Of Period
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts, year ended
December 31, 1995 $402,812 $7,428 - $7,428 $402,812
========== ========== ======== ========== ==========
Allowance for doubtful
accounts, year ended
December 31, 1994 $573,629 $331,237 - $502,054 $402,812
========== ========== ======== ========== ==========
Allowance for doubtful
accounts, year ended
December 31, 1993 $520,000 $261,516 - $207,887 $573,629
========== ========== ======== ========== ==========
</TABLE>
<PAGE>
Exhibit 99
AMENDED AND RESTATED LEASE AGREEMENT
THIS AGREEMENT, effective as of December 1, 1995, amends and restates
the Lease Agreement by and between Russell A. Gerdin, a resident of Iowa
("Lessor") and Heartland Express, Inc. of Iowa, a Iowa corporation ("Lessee")
dated June 1, 1995.
THE PARTIES AGREE:
1. Description. The Lessor hereby leases to the Lessee the following
described real estate and improvements, all located in the city of
Coralville, state of Iowa (the "Property"):
(a) Office building at 2777 Heartland Drive;
(b) Office building at 2757 Heartland Drive; and
(c) Storage building at 2757 Heartland Drive (north of Office
Building).
2. Term. The term of this Agreement shall be five (5) years from the
1st day of June 1995, to the 31st day of May 2000.
3. Rent. The Lessee shall pay to the Lessor as rent, at such address
as the Lessor may from time to time designate in writing, the sum
of $1,410,000.00 in monthly installments of $23,500.00, each
payable in advance on the first day of each month commencing on the
first day of the term of this Agreement.
4. Option to Renew Lease. The Lessee has the option to renew the
lease at the end of the term for an additional five (5) years at
the existing monthly rent plus a cost-of-living allowance.
5. Use. The Lessee shall use the Property for general office space
and storage. The Lessee will not, without the written consent of
the Lessor, use the Property for any other purpose. The Lessee
shall maintain the Property in compliance with all applicable
federal, state, and local laws, rules, regulations, and ordinances
(collectively, "Laws") including specifically Laws involving
protection of the environment and worker safety. Lessee shall
indemnify, defend, and hold Lessor harmless from and against any
violation of Law as well as any liability arising from the use of
or presence on the Property of employees, agents, invitees, or
other persons connected with Lessee.
6. Lessee's Obligations. The Lessee shall:
(a) Maintain, at Lessee's expense, the Property in good condition
and repair, including windows but excluding the other exterior
of the Property;
(b) Pay from time to time, as the utility payments shall become
due, all utility payments including water, gas, electricity,
sewer, trash removal and similar payments;
(c) Pay all real estate taxes and special assessments levied
against the Property;
(d) Maintain, at Lessee's expense, general liability coverage and
any liability coverage which Lessor may require as a result of
the particular use of the Property; and
(e) Maintain, at Lessee's expense, insurance with respect to the
Property against loss by fire, lightning, and other perils
covered by the standard all-risk endorsement, in an
amount equal to at least 100% of the full replacement value
thereof, with no deduction for depreciation, and shall
maintain, at Lessee's expense, insurance against such other
hazards and in such amounts as is customarily carried by
operators of similar properties. Lessee shall name Lessor as
an additional insured upon the policies.
7. Lessee's Improvements. The Lessee shall not make any improvements
or alterations to the Property without submitting plans and
specifications for such improvements or alterations to
the Lessor and securing the Lessor's written consent. The Lessee
shall pay all costs of such improvements and alterations, shall
provide evidence of such payment to the Lessor upon request,
and shall hold the Lessor harmless from any costs, liens or
damages. Any improvement constructed on the Property by the Lessee
shall become the property of the Lessor upon the expiration of the
term of this Agreement. Any trade fixtures installed by the Lessee
may be removed by the Lessee upon the expiration of the term of
this Agreement, but the Lessee shall repair any damage arising
from the removal of such trade fixtures.
8. Waste. The Lessee shall not commit or permit any waste of the
Property, nor any public or private nuisance on the Property, nor
any use of the Property which is contrary to any law, governmental
regulation or insurance policy affecting or covering the Property
or which may be dangerous to persons or property. The Lessor may
enter and inspect the premises at any reasonable time.
9. Assignment. The Lessee shall not assign this Agreement, nor allow
any transfer of or lien upon the Lessee's interest in this
Agreement by operation of law, nor sublet any portion of the
Property, nor permit the use of any portion of the Property by
anyone other than the Lessee and the employees, agents and business
invitees of the Lessee, without securing the written consent of
the Lessor.
10. Condemnation. If all or a substantial portion of the Property
shall be taken or condemned for any public use or purpose, so as to
render the Property unsuitable for occupancy, this Agreement shall
terminate on the date when possession shall be required for such
use, or purpose, at the option of the Lessee, and the rent shall be
prorated to the date of such termination. The award for such
taking or condemnation shall be apportioned between the Lessor and
the Lessee, and the Lessee shall be entitled to any portion of the
award made for improvements constructed on the Property.
11. Default. Each of the following acts and omissions shall constitute
a default by the Lessee and a breach of this Agreement:
(a) Voluntary or involuntary bankruptcy, assignment for benefit of
creditors, reorganization or rearrangement under the
Bankruptcy Code, receivership, dissolution or the
commencement of any action or proceeding for the dissolution
or liquidation of the Lessee whether instituted by or against
the Lessee or any other similar action or proceeding.
(b) The failure of the Lessee to pay the rent for a period of 15
days after the rent shall have become due.
(c) The failure of the Lessee to perform any other agreement to be
performed on the part of the Lessee for a period of 30 days
after written notice of such failure.
12. Remedies. Upon a default by the Lessee, the Lessor may reenter and
recover possession of the Property with or without terminating this
Agreement. If delivery of possession of the Property is refused by
the Lessee, the Lessor shall be entitled to the appointment of a
receiver for the Property by any court of competent jurisdiction,
as a matter of right, without regard to the solvency or insolvency
of the Lessee, to collect the rents and profits from the Property
and apply such rents and profits according to the orders of the
court.
13. Termination. Upon the termination of this Agreement, the Lessee
shall deliver possession of the Property to the Lessor.
14. Miscellaneous. No waiver by the Lessor of a default by the Lessee
shall be implied, and no express waiver shall be extended beyond
the default and period specified. No term or condition of this
Agreement shall be construed to have been waived by the Lessor,
unless the Lessee shall have secured such waiver from Lessor in
writing. The invalidity or unenforceability of any term or
condition of this Agreement shall not prejudice the enforceability
of any other term or condition.
15. Modification. This Agreement shall not be amended or modified,
except by a written instrument executed by both the Lessor and the
Lessee.
16. Headings. The paragraph headings of this Lease Agreement are
solely for the convenience of reference and shall not in any way
modify the terms and conditions thereof.
17. Binding Effect. This Agreement shall be binding upon the
successors in interest of the parties.
LESSOR: LESSEE:
Heartland Express, Inc. of Iowa
/s/ Russell A. Gerdin
Russell A. Gerdin By: /s/ Russell A. Gerdin
Russell A. Gerdin, President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 46,162
<SECURITIES> 0
<RECEIVABLES> 18,035
<ALLOWANCES> 403
<INVENTORY> 0
<CURRENT-ASSETS> 82,898
<PP&E> 110,153
<DEPRECIATION> 36,459
<TOTAL-ASSETS> 158,146
<CURRENT-LIABILITIES> 42,117
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 91,027
<TOTAL-LIABILITY-AND-EQUITY> 158,146
<SALES> 191,507
<TOTAL-REVENUES> 191,507
<CGS> 0
<TOTAL-COSTS> 160,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 32,679
<INCOME-TAX> 12,093
<INCOME-CONTINUING> 20,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,585
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
