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| HTLD > SEC Filings for HTLD > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
Forward Looking Statements
Except for certain historical information contained herein, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, assumptions and uncertainties which are difficult to predict. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, or other financial items; any statements of plans, strategies, and objectives of management for future operations; any statements concerning proposed new strategies or developments; any statements regarding future economic conditions or performance; any statements of belief and any statement of assumptions underlying any of the foregoing. Words such as "believe," "may," "could," "expects," "anticipates," and "likely," and variations of these words or similar expressions, are intended to identify such forward-looking statements. The Company's actual results could differ materially from those discussed in the section entitled "Factors That May Affect Future Results," included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Company's Annual report on Form 10-K, which is by this reference incorporated herein. The Company does not assume, and specifically disclaims, any obligation to update any forward-looking statements contained in this Quarterly report.
Overview
Heartland Express, Inc. is a short-to-medium haul truckload carrier. The Company transports freight for major shippers and generally earns revenue based on the number of miles per load delivered. The Company operated eleven regional operating divisions that provided regional dry van truckload services from nine regional operating centers in addition to its corporate headquarters during the quarter ended June 30, 2009. The Company's eleven regional operating divisions, not including operations at the corporate headquarters, accounted for 72.6% and 73.4% of operating revenues for the second quarter of 2009 and 2008, respectively, and 72.9% and 73.5% of operating revenues for the six month period ended June 30, 2009 and 2008, respectively. The Company's newest regional operating center near Dallas, Texas opened in early January 2009. The Company takes pride in the quality of the service that it provides to its customers. The keys to maintaining a high level of service are the availability of late-model equipment and experienced drivers.
Operating efficiencies and cost controls are achieved through equipment utilization, operating a fleet of late model equipment, maintaining an industry leading driver to non-driver employee ratio, and the effective management of fixed and variable operating costs. Fuel prices soared to historical highs through the first half of 2008 and declined throughout the second half of 2008. The trend in the decline of fuel prices continued in the first quarter of 2009 and remained relatively stable throughout the quarter ended June 30, 2009 with a slight increase late in the quarter. The industry experienced soft freight demand throughout 2008 which has continued to weaken during 2009. This continues to put downward pressure on freight rates. In addition, the decline in fuel prices from highs in 2008 has resulted in a decline in fuel surcharge revenues, which were lower during the second quarter of 2009. The industry continues to fight excess capacity in the market along with declining freight volumes due to the current economic downturn. During 2008, the Company initiated strategies to effectively manage fuel costs. These initiatives included encouraging fueling at terminal locations rather than over-the-road purchases to take advantage of bulk fuel purchases when cost effective to do so, reduction of tractor idle time, and controlling out-of-route miles. Fuel expense was reduced approximately $35.4 million for the current quarter compared to the same quarter of prior year and $61.3 million year to date mainly due to reduced price of fuel and lower volumes due to lower miles driven as well as the initiatives previously mentioned. At June 30, 2009, the Company's tractor fleet had an average age of 2.2 years while the trailer fleet had an average age of 5.1 years compared to 2.5 years average age of tractor fleet and 4.3 years average age of trailer fleet a year ago. The Company's average age of the tractor fleet is expected to continue to decrease throughout the remainder of 2009 as the Company continues with the current fleet
upgrade campaign. The Company continues to focus on growing internally by providing quality service to targeted customers with a high density of freight in the Company's regional operating areas. In addition to the development of its regional operating centers, the Company has made five acquisitions since 1987. Future growth is dependent upon several factors including the level of economic growth and the related customer demand, the available capacity in the trucking industry, potential acquisition opportunities, and the availability of experienced drivers.
The Company ended the second quarter of 2009 with operating revenues of $117.0 million, including fuel surcharges, net income of $17.6 million, and earnings per share of $0.19 on average outstanding shares of 90.7 million. The Company posted an 81.4% operating ratio (operating expenses as a percentage of operating revenues) and a 15.1% net margin (net income as a percentage of operating revenues). The Company ended the quarter with cash, cash equivalents, short-term and long-term investments of $205.0 million and a debt-free balance sheet. The Company had total assets of $543.0 million at June 30, 2009. The Company achieved a return on assets of 12.9% and a return on equity of 20.2% for the twelve months ended June 30, 2009, compared to the twelve months ended June 30, 2008, which were 12.5% and 19.3%, respectively. The Company's cash flow from operations for the first six months of 2009 of $45.3 million represented a 3.0% increase from the same period of 2008 mainly due to a $4.5 million increase in net income adjusted for non-cash items offset by a decrease in cash flows from working capital items which were attributable to trade receivable cash collections, timing of certain accounts payable and accrued expense items, and income tax accrual reductions. The Company's cash flow from operations was 19.5% of operating revenues for the six months ended June 30, 2009 compared to 14.0% for the same period in 2008.
Results of Operations:
The following table sets forth the percentage relationship of expense items to
operating revenue for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
------ ------ ------ ------
Operating revenue 100.0% 100.0% 100.0% 100.0%
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Operating expenses:
Salaries, wages, and benefits 36.7% 29.5% 37.5% 31.0%
Rent and purchased transportation 2.4 3.1 2.5 3.3
Fuel 21.4 36.8 21.4 35.4
Operations and maintenance 3.7 2.6 3.6 2.7
Operating taxes and licenses 2.1 1.4 2.0 1.5
Insurance and claims 4.0 4.3 3.5 3.4
Communications and utilities 0.8 0.6 0.8 0.6
Depreciation 11.3 6.5 10.8 6.7
Other operating expenses 2.7 2.5 2.8 2.7
Gain on disposal of property
and equipment (3.6) - (2.5) (0.2)
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Total operating expenses 81.4% 87.3% 82.4% 87.0%
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Operating income 18.6% 12.7% 17.6% 13.0%
Interest income 0.5 1.4 0.6 1.6
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Income before income taxes 19.0% 14.1% 18.2% 14.6%
Federal and state income taxes 4.0 3.6 4.5 4.4
------ ------ ------ ------
Net income 15.1% 10.5% 13.7% 10.2%
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The following is a discussion of the results of operations of the three and six month period ended June 30, 2009 compared with the same period in 2008.
Three Months Ended June 2009 and 2008
Operating revenue decreased $47.6 million (28.9%), to $117.0 million in the second quarter of 2009 from $164.6 million in the second quarter of 2008. The decrease in revenue resulted from a decrease in fuel surcharge revenue of $26.4 million to $12.0 million, further reduced by a decrease in line haul revenue of approximately $21.2 million. The decrease in fuel surcharge revenue was a direct result of a decrease in average fuel costs during the period as further explained below. Fuel surcharge revenue was $38.4 million in the second quarter of 2008. The decrease in line haul revenue was directly attributable to a reduction in fleet miles, $19.5 million, as a direct result of an overall decline in market demand for freight, further reduced by line haul rates and other line haul related revenues, $1.7 million.
Salaries, wages, and benefits decreased $5.7 million (11.7%), to $42.9 million in the second quarter of 2009 from $48.6 million in the second quarter of 2008. The decrease in salaries, wages and benefits was the direct result of decreases of company driver wages due to a decrease in total fleet miles as a direct result of an overall decline in market demand for freight. Other net compensation did not materially change. The mix of the number of employee drivers to independent contractors remained unchanged at a mix of 96% company drivers and 4% independent contractors during the quarters ended June 30, 2009 and 2008.
Rent and purchased transportation decreased $2.3 million (45.1%), to $2.8 million in the second quarter of 2009 from $5.1 million in the second quarter of 2008. Rent and purchased transportation for both periods includes amounts paid to independent contractors under the Company's fuel stability program. The decrease reflects the decrease in miles driven by independent contractors ($0.8 million) and a decrease of amounts paid under the Company's fuel stability program ($1.2 million) due to decreases in fuel prices. Other equipment rental expenses decreased $0.3 million.
Fuel decreased $35.4 million (58.5%), to $25.1 million for the three months ended June 30, 2009 from $60.5 million for the same period of 2008. The decrease is the result of decreased fuel prices, decreased miles driven, and an increase in fuel economy as result of newer tractor fleet as well as our idle reduction initiatives. The Company's fuel cost per mile per company-owned tractor mile decreased 51.0% in second quarter of 2009 compared to 2008. Fuel cost per mile, net of fuel surcharge, decreased 33.1% in the second quarter of 2009 compared to 2008. The Company's second quarter fuel cost per gallon, $2.10 per gallon, decreased by 50.1% in 2009 compared to the same period of 2008, $4.21 per gallon. Fuel expense during the quarter ended June 30, 2009 was net of the benefit of the Company's fuel hedging efforts based on gains of $0.6 million for settlements received on fuel derivative contracts.
Insurance and claims decreased $2.4 million (34.3%), to $4.6 million in the second quarter of 2009 from $7.0 million in the second quarter of 2008 due to a decrease in the number of occurrences and severity of larger claims.
Depreciation increased $2.5 million (23.4%), to $13.2 million during the second quarter of 2009 from $10.7 million in the second quarter of 2008. The increase is mainly attributable to an increase in tractor purchases for the twelve month periods leading up to and including the quarter ended June 30, 2009. As tractors are depreciated using the declining balance method, depreciation expense declines in years subsequent to the first year after initial purchase. Tractors purchased prior to January 1, 2009 are depreciated using the 125% declining balance method. Tractors purchased subsequent to January 1, 2009 are being depreciated using the 150% declining balance method, which increased tractor depreciation $0.3 million during the quarter ended June 30, 2009 compared to the same period of 2008. During the second half of 2008 and the first six months of 2009 the Company has placed in service 1,036 new tractors which have a higher base cost than previous tractors purchased and are in the first year of depreciation. Tractor depreciation increased $2.5 million to $9.8 million in the quarter ended June 30, 2009 from $7.3 million in the quarter ended June 30, 2008. The increase in tractor depreciation was offset by a decrease of $0.1 million in trailer depreciation for the three months ended June 30, 2009 compared to the same period of 2008. The decrease in trailer depreciation was the direct result of a portion of our trailer fleet being depreciated to the estimated salvage value of the respective trailers.
Other operating expenses decreased $0.9 million (22.0%), to $3.2 million in the second quarter of 2009 from $4.1 million in the second quarter of 2008. Other
operating expenses consists of costs incurred for advertising expense, freight handling, highway tolls, driver recruiting expenses, and administrative costs which have decreased mainly due to lower load counts, driver miles and less driver recruiting.
The Company recorded a gain on the disposal of property and equipment of $4.2 million during the second quarter of 2009 as compared to a minimal loss in the second quarter of 2008. There were no tractor trades during the quarter ended June 30, 2008.
Interest income decreased $1.6 million (72.7%) in the second quarter of 2009 compared to the 2008 period. The decrease is mainly the result of lower average returns due to the decline in interest rates applicable to short and long-term investments which the Company saw throughout 2008 and continued into 2009 as well as lower average balances of investments due to partial calls received on ARS.
The Company's effective tax rate was 20.9% and 25.6%, respectively, in the three months ended June 30, 2009 and 2008. The decrease in the effective tax rate for the three and six month periods ending June 30, 2009 is primarily attributable to a favorable income tax expense adjustment as a result of the application of FASB Interpretation No. 48 ("FIN 48"), as discussed above, on less taxable income during the current year compared to the same period of 2008.
As a result of the foregoing, the Company's operating ratio (operating expenses as a percentage of operating revenue) was 81.4% during the second quarter of 2009 compared with 87.3% during the second quarter of 2008. Net income increased $0.4 million (2.3%), to $17.6 million during the second quarter of 2009 from $17.2 million during the second quarter of 2008.
Six Months Ended June 2009 and 2008
Operating revenue decreased $81.6 million (26.0%), to $232.0 million in the six months ending June 30, 2009 from $313.6 million in the 2008 period. The decrease in revenue resulted from a decrease in fuel surcharge revenue of $42.8 million to $23.4 million, further reduced by a decrease in line haul revenue of approximately $38.8 million. The decrease in fuel surcharge revenue was a direct result of a decrease in average fuel costs during the period as further explained below. Fuel surcharge revenue was $66.2 million for the six months ended June 30, 2008. The decrease in line haul revenue was directly attributable to a reduction in fleet miles, $36.1 million, as a direct result of an overall decline in market demand for freight, further reduced by line haul rates and other line haul related revenues, $2.7 million.
Salaries, wages, and benefits decreased $10.2 million (10.5%), to $87.0 million in the six months ended June 30, 2009 from $97.2 million in the 2008 period. The decrease in salaries, wages and benefits was the direct result of decreases of company driver wages due to a decrease in total fleet miles as a direct result of an overall decline in market demand for freight. Other net compensation did not materially change. The mix of the number of employee drivers to independent contractors remained unchanged at a mix of 96% company drivers and 4% independent contractors during the periods ended June 30, 2009 and 2008.
Rent and purchased transportation decreased $4.6 million (44.7%), to $5.7 million in the first six months of 2009 from $10.3 million in the compared period of 2008. Rent and purchased transportation for both periods includes amounts paid to independent contractors under the Company's fuel stability program. The decrease reflects the decrease in miles driven by independent contractors ($1.9 million) and a decrease of amounts paid under the Company's fuel stability program ($2.2 million) due to decreases in fuel prices. Other equipment rental expenses decreased $0.5 million.
Fuel decreased $61.4 million (55.3%), to $49.6 million for the six months ended June 30, 2009 from $111.0 million for the same period of 2008. The decrease is the net result of decreased fuel prices ($45.5 million) and a decrease in miles driven and idle reduction initiatives ($15.9 million). The Company's fuel cost per company-owned tractor mile decreased 47.8% in first six months of 2009 compared to the same period of 2008. Fuel cost per mile, net of fuel surcharge, decreased 34.1% in the first six months of 2009 compared to the same period of 2008. The Company's fuel cost per gallon for the first six months of 2009, $2.04 per gallon, decreased by 46.3% in 2009 compared to the same period of 2008,
$3.80 per gallon. Fuel expense during the six months ended June 30, 2009 was net of the benefit of the Company's fuel hedging efforts based on gains of $0.6 million for settlements received on fuel derivative contracts.
Insurance and claims decreased $2.7 million (25.0%), to $8.1 million in the second quarter of 2009 from $10.8 million in the second quarter of 2008 due to a decrease in the number of occurrences and severity of larger claims.
Depreciation increased $3.9 million (18.5%), to $25.0 million during the six months ended June 30, 2009 from $21.1 million in the six months ended June 30, 2008. The increase is mainly attributable to an increase in tractor purchases for the twelve month periods leading up to and including the quarter ended June 30, 2009. As tractors are depreciated using the declining balance method, depreciation expense declines in years subsequent to the first year after initial purchase. Tractors purchased prior to January 1, 2009 are depreciated using the 125% declining balance method. Tractors purchased subsequent to January 1, 2009 are being depreciated using the 150% declining balance method, which increased tractor depreciation $0.3 million during the six months ended June 30, 2009 compared to the same period of 2008. During the second half of 2008 and the first six months of 2009 the Company has placed in service 1,036 new tractors which have a higher base cost than previous tractors purchased and are in the first year of depreciation. Tractor depreciation increased $4.0 million to $18.2 million in the six months ended June 30, 2009 from $14.2 million in the same period of 2008. The increase in tractor depreciation was offset by a decrease of $0.3 million in trailer depreciation for six months ended June 30, 2009 compared to the same period of 2008. The decrease in trailer depreciation was the direct result of a portion of our trailer fleet being depreciated to the estimated salvage value of the respective trailers. Other depreciation increased $0.2 million.
Other operating expenses decreased $1.9 million (22.4%), to $6.6 million during the six months ended June 30, 2009 from $8.5 million in the same period of 2008. Other operating expenses consists of costs incurred for advertising expense, freight handling, highway tolls, driver recruiting expenses, and administrative costs which have decreased mainly due to lower load counts, driver miles and less driver recruiting.
Gain on the disposal of property and equipment increased $5.3 million, to $5.9 million during the six months ended June 30, 2009 from $0.6 million in the same period of 2008. The gain increase is mainly attributable to an increase in the number of tractors traded or sold during the 2009 period compared to the 2008 period.
Interest income decreased $3.7 million (72.5%), to $1.4 million in the six months ended June 30, 2009 from $5.1 million in the same period of 2008. The decrease is mainly the result of lower average returns due to the decline in interest rates applicable to short and long-term investments which the Company saw throughout 2008, and continued into 2009 as well as lower average balances of investments due to partial calls received on ARS.
The Company's effective tax rate was 24.7% and 30.3% for the six months ended June 30, 2009. The decrease in the effective tax rate for the three and six month periods ending June 30, 2009 is primarily attributable to a favorable income tax expense adjustment as a result of the application of FASB Interpretation No. 48 ("FIN 48"), as discussed above, on less taxable income during the current year compared to the same period of 2008.
As a result of the foregoing, the Company's operating ratio (operating expenses as a percentage of operating revenue) was 82.4% during the first six months of 2009 compared with 87.0% during the first six months of 2008. Net income decreased $0.1 million to $31.8 million during the first six months of 2009 from $31.9 million during the compared 2008 period.
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, funding revenue equipment purchases with cash flow provided by operations, which was the case during 2008 and the six months ended June 30, 2009 with the purchase of 1,036 new tractors and 400 new trailers that were acquired during the third and fourth quarters of 2008 and the first and second quarters of 2009. The Company expects to purchase more tractors during the third and fourth quarters of 2009 to complete the current tractor upgrade campaign of 1,600 new tractor deliveries during 2009. The Company also obtains tractor capacity by utilizing independent contractors, who provide a tractor and bear all associated operating and financing expenses. The Company's primary source of liquidity for the six months
ended June 30, 2009, was net cash provided by operating activities of $45.3 million compared to $44.0 million in 2008. This was primarily a result of net income (excluding non-cash depreciation, deferred tax, and gains on disposal of equipment) being approximately $4.5 million higher in 2009 compared to 2008 offset by a decrease in cash flow generated by operating assets and liabilities of approximately $3.2 million. The net decrease in cash provided by operating assets and liabilities for the first six months of 2009 compared to the same period of 2008 was primarily the result of reductions in accounts receivable balances due to collections offset by reductions in accounts payable and accrued expenses. The increase in accident claims during the six month period ending June 30, 2008 did not recur in the six month period ending June 30, 2009. Additionally there were reductions in accrued income taxes mainly due to uncertain tax position accrual changes and certain net income taxes paid during the quarter. Cash flow from operating activities was 19.5% of operating revenues in 2009 compared with 14.0% in 2008.
Capital expenditures for property and equipment, net of trade-ins, totaled $25.5 million for the six months ended June 30, 2009 compared to $0.1 million during the same period of 2008. Investing cash flows during the first six months of 2009 were mainly attributable to the Company's tractor fleet upgrade program. There were not any significant capital expenditures during the first six months of 2008. The Company received $10.9 million in cash during the six month period ended June 30, 2009 related to partial calls of ARS compared to $10.9 million net investment in ARS's prior to auction failures in February 2008. The increase in proceeds from sale of property and equipment was directly related to cash received under the Company's tractor fleet upgrade program.
The Company paid $1.8 million in dividends during the first six months of 2009 compared to cash dividends of $3.9 million paid in six month period ended June 30, 2008. The dividend declared in the fourth quarter 2008 was paid in the fourth quarter of 2008 where as the dividend declared in the fourth quarter of 2007 was paid in the first quarter of 2008. The Company declared a $1.8 million cash dividend in June 2009, included in accounts payable and accrued liabilities at June 30, 2009, which was paid on July 2, 2009.
In September, 2001, the Board of Directors of the Company authorized a program to repurchase 15.4 million shares, adjusted for stock splits, of the Company's Common Stock in open market or negotiated transactions using available cash and cash equivalents. The authorization to repurchase remains open at June 30, 2009 and has no expiration date. During the six months ended June 30, 2009, approximately 3.5 million shares of the Company's common stock were repurchased for approximately $45.4 million at approximately $12.81 per share. The repurchased shares were subsequently retired. There were approximately 0.8 million shares repurchased for $10.6 million at approximately $13.40 per share during the six month period ended June 30, 2008. At June 30, 2009, the Company has approximately 6.5 million shares remaining under the current Board of Director repurchase authorization. Future purchases are dependent upon market conditions.
The Company paid income taxes, net, of $14.8 million in 2009 which was $4.5 million lower than income taxes paid during the same period in 2008 of $19.3 million. The decrease is mainly driven by lower estimated federal income tax payments based on expected taxable income for the year ending December 31, 2009.
Management believes the Company has adequate liquidity to meet its current and projected needs. Management believes the Company will continue to have significant capital requirements over the long-term which are expected to be funded from cash flows provided by operations and from existing cash, cash equivalents and investments. The Company's balance sheet remains debt free. The Company ended the quarter with $205.0 million in cash, cash equivalents and investments a decrease of $23.0 million from December 31, 2008. This decrease was mainly driven by stock repurchases and purchases of equipment totaling $70.8 million, net of cash flows provided by operating activities.
The Company's investments are primarily in the form of tax free, auction rate student loan educational bonds backed by the U.S. government and are classified as available-for-sale. As of June 30, 2009 and December 31, 2008, all of the . . .
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