SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________ to______________________.
Commission file number 0-15087
HEARTLAND EXPRESS, INC.
(Exact name of registrant as specified in its charter)
Nevada 93-0926999
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
901 North Kansas Avenue, North Liberty, Iowa 52317
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 319-626-3600
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act:
Common stock, $0.01 par value The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES [X] NO [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 of Section 15(d) of the Act. YES [ ] NO [X]
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 or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). Large
accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
The aggregate market value of voting common stock held by non-affiliates of the
registrant as of June 30, 2007 was $944.4 million. As of January 31, 2008 there
were 96,157,633 shares of the Company's common stock ($0.01 par value)
outstanding.
Portions of the Proxy Statement for the annual shareholders' meeting to be held
on May 8, 2008 are incorporated by reference in Part III of this report.
TABLE OF CONTENTS
Page
Part I
Item 1. Business 1
Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 9
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for the Registrant's Common Equity,
Related Stockholder Matters, and Issuer
Purchases of Equity Securities 10
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
Item 9A. Controls and Procedures 21
Item 9B. Other Information 24
Part III
Item 10. Directors, Executive Officers, and Corporate Governance 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 24
Item 13. Certain Relationships and Related Transactions,
and Director Independence 24
Item 14. Principal Accounting Fees and Services 24
Part IV
Item 15. Exhibits, Financial Statement Schedule 25
Signatures 27
FORWARD LOOKING STATEMENTS
This Annual Report contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements may be identified by their use of terms or phrases
such as "expects," "estimates," "projects," "believes," "anticipates,"
"intends," and similar terms and phrases. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be predicted
or quantified, which could cause future events and actual results to differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements. Readers should review and consider the factors
discussed in "Risk Factors" of this Annual Report on Form 10-K, along with
various disclosures in our press releases, stockholder reports, and other
filings with the Securities and Exchange Commission. We disclaim any obligation
to update or revise any forward-looking statements to reflect actual results or
changes in the factors affecting the forward-looking information.
PART I
ITEM 1. BUSINESS
General
Heartland Express, Inc. ("Heartland" or the "Company") is a short-to-medium
haul truckload carrier with corporate headquarters in North Liberty, Iowa and
operating regional terminal locations in eight states outside of Iowa. The
Company provides regional dry van truckload services from its eight regional
operating centers plus its corporate headquarters. The Company transports
freight for major shippers and generally earns revenue based on the number of
miles per load delivered. The Company's primary traffic lanes are between
customer locations east of the Rocky Mountains. In the second quarter of 2005,
the Company expanded to the Western United States with the opening of a terminal
in Phoenix, Arizona. The keys to maintaining a high level of service are the
availability of late-model equipment and experienced drivers. 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 twenty-one years from 1986 to 2007, Heartland
has grown to $591.9 million in revenue from $21.6 million and net income has
increased to $76.2 million from $3.0 million. Much of this growth has been
attributable to expanding service for existing customers, acquiring new
customers, and continued expansion of the Company's operating regions. More
information regarding the Company's revenues and profits for the past three
years can be found in our "Consolidated Statements of Income" that is included
in this report.
In addition to internal growth, Heartland has completed five acquisitions
since 1987 with the most recent in 2002. In June 2002, the Company purchased the
business and trucking assets of Chester, Virginia based truckload carrier Great
Coastal Express. These five acquisitions have enabled Heartland to solidify its
position within existing regions, expand into new operating regions, and to
pursue new customer relationships in new markets. The Company will continue to
evaluate acquisition candidates that meet its financial and operating
objectives.
Heartland Express, Inc. is a holding company incorporated in Nevada, which
owns all of the stock of Heartland Express Inc. of Iowa, Heartland Express
Services, Inc., Heartland Express Maintenance Services, Inc., and A & M Express,
Inc. The Company operates as one reportable operating segment.
Operations
Heartland's operations department focuses on the successful execution of
customer expectations and providing consistent opportunity for the fleet of
employee drivers and independent contractors, while maximizing equipment
utilization. These objectives require a combined effort of marketing, regional
operations managers, and fleet management.
The Company's operations department is responsible for maintaining the
continuity between the customer's needs and Heartland's ability to meet those
needs by communicating customer's expectations to the fleet management group.
They are charged with development of customer relationships, ensuring service
standards, coordinating proper freight-to-capacity balancing, trailer asset
management, and daily tactical decisions pertaining to matching the customer
demand with the appropriate capacity within geographical service areas. They
assign orders to drivers based on well-defined criteria, such as driver safety
and United States Department of Transportation (the "DOT") compliance, customer
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needs and service requirements, equipment utilization, driver time at home,
operational efficiency, and equipment maintenance needs.
Fleet management employees are responsible for driver management and
development. Additionally, they maximize the capacity that is available to the
organization to meet the service needs of the Company's customers. Their
responsibilities include meeting the needs of the drivers within the standards
that have been set by the organization and communicating the requirements of the
customers to the drivers on each order to ensure successful execution.
Serving the short-to-medium haul market (512-mile average length of haul in
2007) permits the Company to use primarily single, rather than team drivers and
dispatch most loads directly from origin to destination without an intermediate
equipment change other than for driver scheduling purposes.
Heartland also operates eight specialized regional distribution operations
in Atlanta, Georgia; Carlisle, Pennsylvania; Columbus, Ohio; Jacksonville,
Florida; Kingsport, Tennessee; Chester, Virginia; Olive Branch, Mississippi; and
Phoenix, Arizona in addition to operations at our corporate headquarters. 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.
Personnel at the regional locations manage these operations, and the
Company uses a centralized computer network and regular communication to achieve
company-wide load coordination.
The Company emphasizes customer satisfaction through on-time performance,
dependable late-model equipment, and consistent equipment availability to meet
the volume requirements of its large customers. The Company also maintains a
high trailer to tractor ratio, which facilitates the positioning of trailers at
customer locations for convenient loading and unloading. This minimizes waiting
time, which increases tractor utilization and promotes driver retention.
Customers and Marketing
The Company targets customers in its operating area with multiple,
time-sensitive shipments, including those utilizing "just-in-time" manufacturing
and inventory management. In seeking these customers, Heartland has positioned
itself as a provider of premium service at compensatory rates, rather than
competing solely on the basis of price. Freight transported for the most part is
non-perishable and predominantly does not require driver handling. We believe
Heartland's reputation for quality service, reliable equipment, and equipment
availability makes it a core carrier for many of its customers.
Heartland seeks to transport freight that will complement traffic in its
existing service areas and remain consistent with the Company's focus on
short-to-medium haul and regional distribution markets. Management believes that
building lane density in the Company's primary traffic lanes will minimize empty
miles and enhance driver "home time."
The Company's 25, 10, and 5 largest customers accounted for 69%, 50%, and
36% of revenue, respectively, in 2007. The Company's primary customers include
retailers and manufacturers. The distribution of customers is not significantly
different from the previous year. One customer accounted for 13% of revenue in
2007 which was also not significantly different from the previous year. No other
customer accounted for as much as ten percent of revenue.
Seasonality
The nature of the Company's primary traffic (appliances, automotive parts,
consumer products, paper products, packaged foodstuffs, and retail goods) causes
it to be distributed with relative uniformity throughout the year. However,
seasonal variations during and after the winter holiday season have historically
resulted in reduced shipments by several industries. In addition, the Company's
operating expenses historically have been higher during the winter months due to
increased operating costs and higher fuel consumption in colder weather.
Drivers, Independent Contractors, and Other Employees
Heartland relies on its workforce in achieving its business objectives. As
of December 31, 2007, Heartland employed 3,291 persons. The Company also
contracted with independent contractors to provide and operate tractors.
Independent contractors own their own tractors and are responsible for all
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associated expenses, including financing costs, fuel, maintenance, insurance,
and highway use taxes. The Company historically has operated a combined fleet of
company and independent contractor tractors.
Management's strategy for both employee drivers and independent contractors
is to (1) hire only safe and experienced drivers; (2) promote retention with an
industry leading compensation package, 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 by regularly scheduling them to their homes. All drivers are
generally compensated on the basis of miles driven including empty miles. This
provides an incentive for the Company to minimize empty miles and at the same
time does not penalize drivers for in efficiencies of operations that are beyond
their control.
Heartland is not a party to a collective bargaining agreement. Management
believes that the Company has good relationships with its employees.
Revenue Equipment
Heartland's management believes that operating high-quality, efficient
equipment is an important part of providing excellent service to customers. All
tractors are equipped with satellite-based mobile communication systems. This
technology allows for efficient communication with our drivers to accommodate
the needs of our customers. A uniform fleet of tractors and trailers are
utilized to minimize maintenance costs and to standardize the Company's
maintenance program. In June 2004, the Company began the replacement of its
entire tractor fleet with trucks manufactured by Navistar International
Corporation. At December 31, 2007, primarily all the Company's tractors are
manufactured by Navistar International Corporation. Primarily all of the
Company's trailers are manufactured by Wabash National Corporation. The Company
operates the majority of its tractors while under warranty to minimize repair
and maintenance cost and reduce service interruptions caused by breakdowns. In
addition, the Company's preventive maintenance program is designed to minimize
equipment downtime, facilitate customer service, and enhance trade value when
equipment is replaced. Factors considered when purchasing new equipment include
fuel economy, price, technology, warranty terms, manufacturer support, driver
comfort, and resale value. Owner-operator tractors are periodically inspected by
the Company for compliance with operational and safety requirements of the
Company and the DOT.
Effective October 1, 2002, the Environmental Protection Agency (the "EPA")
implemented engine requirements designed to reduce emissions. These requirements
have been/will be implemented in multiple phases starting in 2002 and require
progressively more restrictive emission requirements through 2010. Beginning in
January 2007, all newly manufactured truck engines must comply with a new set of
more restrictive engine emission requirements. Compliance with the new emission
standards have resulted in a significant increase in the cost of new tractors,
lower fuel efficiency, and higher maintenance costs. Prior to the new engine
emission requirements that became effective January 1, 2007, the Company
completed a fleet upgrade of tractors with pre-January 2007 engine requirements.
As of December 31, 2007, 100% of the Company's tractor fleet continues to be
models with pre-January 2007 engine requirements. Beginning in 2010 a new set of
more restrictive engine emission requirements will become effective. The
inability to recover tractor cost increases, as a result of new engine emission
requirements, with rate increases or cost reduction efforts could adversely
affect the Company's results of operations.
Fuel
The Company purchases over-the-road fuel through a network of approximately
22 fuel stops throughout the United States at which the Company has negotiated
price discounts. In addition, bulk fuel sites are maintained at the nine Company
regional operating centers, including its corporate headquarters, plus two
service terminal locations in order to take advantage of volume pricing. Both
above ground and underground storage tanks are utilized at the bulk fuel sites.
Exposure to environmental clean up costs is minimized by periodic inspection and
monitoring of the tanks.
Increases in fuel prices can have an adverse effect on the results of
operations. The Company has fuel surcharge agreements with most customers
enabling the pass through of long-term price increases. Operating income during
the fourth quarter of 2007 was negatively impacted approximately $4.6 million
due to an increase in fuel prices. Fuel costs did not have a material effect on
operating income during the fourth quarter of 2006. Fuel consumed by empty and
out-of-route miles and by truck engine idling time is not recoverable.
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Competition
The truckload industry is highly competitive and fragmented with thousands
of carriers of varying sizes. The Company competes with other truckload
carriers; primarily those serving the regional, short-to-medium haul market.
Logistics providers, railroads, less-than-truckload carriers, and private fleets
provide additional competition but to a lesser extent. The industry is highly
competitive based primarily upon freight rates, service, and equipment
availability. The Company competes effectively by providing high-quality service
and meeting the equipment needs of targeted shippers. In addition, there is a
strong competition within the industry for hiring of drivers and independent
contractors.
Safety and Risk Management
We are committed to promoting and maintaining a safe operation. Our safety
program is designed to minimize accidents and to conduct our business within
governmental safety regulations. The Company hires only safe and experienced
drivers. We communicate safety issues with drivers on a regular basis and
emphasize safety through equipment specifications and regularly scheduled
maintenance intervals. Our drivers are compensated and recognized for the
achievement of a safe driving record.
The primary risks associated with our business include cargo loss and
physical damage, personal injury, property damage, and workers' compensation
claims. The Company self-insures a portion of the exposure related to all of the
aforementioned risks. Insurance coverage, including self-insurance retention
levels, is evaluated on an annual basis. The Company actively participates in
the settlement of each claim incurred.
The Company self-insures auto liability (personal injury and property
damage) claims up to $1.0 million per occurrence. In addition, the Company is
responsible for the first $2.0 million in the aggregate for all claims in excess
of $1.0 million and below $2.0 million. Liabilities in excess of these amounts
and up to $50.0 million per occurrence are covered through insurance policies.
The Company retains any liability in excess of $50.0 million. Catastrophic
physical damage coverage is carried to protect against natural disasters. The
Company self-insures workers' compensation claims up to $1.0 million per
occurrence. The Company increased the retention amount from $500,000 to $1.0
million effective April 1, 2005. All liabilities in excess of $1.0 million are
covered through insurance policies. In addition, primary and excess coverage is
maintained for employee medical and hospitalization expenses.
Regulation
The Company is a common and contract motor carrier regulated by the DOT and
various state and local agencies. The DOT generally governs matters such as
safety requirements, registration to engage in motor carrier operations,
insurance requirements, and periodic financial reporting. The Company currently
has a satisfactory DOT safety rating, which is the highest available rating. A
conditional or unsatisfactory DOT safety rating could have an adverse effect on
the Company, as some of the Company's contracts with customers require a
satisfactory rating. Such matters as weight and dimensions of equipment are also
subject to federal, state, and international regulations.
In response to the recent decision by the D.C. Circuit Court of Appeals
vacating two key provisions of the existing hours of service rules, the Federal
Motor Carrier Safety Administration (the "FMCSA") of the U.S. Department of
Transportation issued an Interim Final Rule ("IFR") on December 17, 2007 which
became effective on December 27, 2007. The FMCSA stated that the IFR,
temporarily reinstates those two provisions while the agency gathers public
comment on its actions. The two rules discussed are the 11 hour driving rule,
and the 34 hour restart to the 70 hour rule. Shortly after the IFR was
published, an activist group petitioned the court to again vacate the rules. On
January 24, 2008 the Court denied the petition to vacate the rules. Accordingly,
the IFR remains in effect until a final rule is issued, though additional
challenges to the IFR are still possible.
We may also become subject to new or more restrictive regulations relating
to matters such as fuel emissions and ergonomics. Our company drivers and
independent contractors also must comply with the safety and fitness regulations
promulgated by the DOT, including those relating to drug and alcohol testing.
Additional changes in the laws and regulations governing our industry could
affect the economics of the industry by requiring changes in operating practices
or by influencing the demand for, and the costs of providing, services to
shippers.
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. These laws and regulations include the
management of underground fuel storage tanks, the transportation of hazardous
materials, the discharge of pollutants into the air and surface and underground
4
waters, and the disposal of hazardous waste. The Company transports an
insignificant number of hazardous material shipments. Management believes that
its operations are in compliance with current laws and regulations and does not
know of any existing condition that would cause compliance with applicable
environmental regulations to have a material effect on the Company's capital
expenditures, earnings and competitive position. In the event the Company should
fail to comply with applicable regulations, the Company could be subject to
substantial fines or penalties and to civil or criminal liability.
Available Information
The Company files its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, Definitive Proxy Statements and periodic Current Reports on Form 8-K
with the Securities and Exchange Commission (the "SEC"). The public may read and
copy any material filed by the Company with the SEC at the SEC's Public
Reference Room at 450 Fifth Street NW, Washington, DC 20549. The public may
obtain information from the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Definitive Proxy Statements, Current Reports on Form 8-K and other information
filed with the SEC are available to the public over the Internet at the SEC's
website at http://www.sec.gov and through a hyperlink on the Company's Internet
website, at http://www.heartlandexpress.com. Information on the Company's
website is not incorporated by reference into this annual report on Form 10-K.
ITEM 1A. RISK FACTORS
Our future results may be affected by a number of factors over which we
have little or no control. The following issues, uncertainties, and risks, among
others, should be considered in evaluating our business and growth outlook.
Our business is subject to general economic and business factors that are
largely out of our control.
Our business is dependent on a number of factors that may have a materially
adverse effect on our results of operations, many of which are beyond our
control. The most significant of these factors are recessionary economic cycles,
changes in customers' inventory levels, excess tractor or trailer capacity in
comparison with shipping demand, and downturns in customers' business cycles.
Economic conditions, particularly in market segments and industries where we
have a significant concentration of customers and in regions of the country
where we have a significant amount of business, that decrease shipping demand or
increase the supply of tractors and trailers can exert downward pressure on
rates or equipment utilization, thereby decreasing asset productivity. Adverse
economic conditions also may harm our customers and their ability to pay for our
services. Customers encountering adverse economic conditions represent a greater
potential for loss, and we may be required to increase our allowance for
doubtful accounts.
We are subject to factors within the capital markets that may affect our
short-term liquidity. Primarily all of the Company's investments as of December
31, 2007 are in short-term investments in auction rate student loan educational
bonds backed by the U.S. government. The investments typically have an interest
reset provision of 35 days with contractual maturities generally greater than 20
years from the date of original issuance. All investments held by the Company
have AAA (or equivalent) ratings from recognized rating agencies. At the reset
date the Company has the option to roll the investment and reset the interest
rate or sell the investment in an auction. The Company receives the par value of
the investment plus accrued interest on the reset date if the underlying
investment is sold in an auction. There is no guarantee that when the Company
elects to participate in an auction and therefore sell investments, that a
willing buyer will purchase the security and therefore the Company receive cash
upon the election to sell. Upon an unsuccessful auction, the interest rate of
the underlying investment is reset to a default maximum interest rate as stated
in the prospectus of the underlying security. Until a subsequent auction is
successful or the underlying security is called by the issuer, the Company will
be required to hold the underlying investment until maturity. The Company only
holds senior positions of underlying securities. The Company does not invest in
asset backed securities and does not have direct securitized sub-prime mortgage
loans exposure or loans to, commitments in, or investments in sub-prime lenders.
Should the Company have a need to liquidate any of these investments, the
Company may be required to discount these securities for liquidity but the
Company currently does not have this liquidity requirement. If current
conditions in the credit and capital markets continue, we may be required to
recognize impairments and/or reclassify these investments from short-term to
long-term investments.
5
We are also subject to increases in costs that are outside of our control
that could materially reduce our profitability if we are unable to increase our
rates sufficiently. Such cost increases include, but are not limited to,
declines in the resale value of used equipment, increases in interest rates,
fuel prices, taxes, tolls, license and registration fees, insurance costs, and
cost of revenue equipment, and healthcare for our employees. We could be
affected by strikes or other work stoppages at customer, port, border, or other
shipping locations.
In addition, we cannot predict the effects on the economy or consumer
confidence of actual or threatened armed conflicts or terrorist attacks, efforts
to combat terrorism, military action against a foreign state or group located in
a foreign state, or heightened security requirements. Enhanced security measures
could impair our operating efficiency and productivity and result in higher
operating costs.
Our growth may not continue at historic rates.
Historically, we have experienced significant and rapid growth in revenue
and profits. There can be no assurance that our business will continue to grow
in a similar fashion in the future or that we can effectively adapt our
management, administrative, and operational systems to respond to any future
growth. Further, there can be no assurance that our operating margins will not
be adversely affected by future changes in and expansion of our business or by
changes in economic conditions.
Increased prices, reduced productivity, and restricted availability of new
revenue equipment may adversely affect our earnings and cash flows.
We have experienced higher prices for new tractors over the past few years,
partially as a result of government regulations applicable to newly manufactured
tractors and diesel engines, in addition to higher commodity prices and better
pricing power among equipment manufacturers. More restrictive Environmental
Protection Agency, or EPA, emissions standards that began in 2002 with
additional new requirements for 2007 have required vendors to introduce new
engines. Additional EPA mandated emission standards will become effective for
newly manufactured trucks beginning in January 2010. Our business could be
harmed if we are unable to continue to obtain an adequate supply of new tractors
and trailers. At December 31, 2007, 100% of our tractor fleet was comprised of
tractors with pre-2007 engines that meet EPA-mandated clean air standards. We
expect to continue to pay increased prices for equipment. Furthermore, when we
do decide to purchase tractors with post-2007 engines, such engines are expected
to reduce equipment productivity and lower fuel mileage, thereby, increasing our
operating expenses.
In addition, a decreased demand for used revenue equipment could adversely
affect our business and operating results. We rely on the sale and trade-in of
used revenue equipment to offset the cost of new revenue equipment. The demand
for used revenue equipment is currently stable. However, a reversal of this
trend could result in lower market values. This would increase our capital
expenditures for new revenue equipment, decrease our gains on sale of revenue
equipment, or increase our maintenance costs if management decides to extend the
use of revenue equipment in a depressed market.
If fuel prices increase significantly, our results of operations could be
adversely affected.
We are subject to risk with respect to purchases of fuel. Prices and
availability of petroleum products are subject to political, economic, and
market factors that are generally outside our control. Political events in the
Middle East, Venezuela, and elsewhere, as well as hurricanes and other
weather-related events, may cause the price of fuel to increase. Because our
operations are dependent upon diesel fuel, significant increases in diesel fuel
costs could materially and adversely affect our results of operations and
financial condition if we are unable to pass increased costs on to customers
through rate increases or fuel surcharges. Historically, we have sought to
recover a portion of short-term increases in fuel prices from customers through
fuel surcharges. Fuel surcharges that can be collected do not always fully
offset the increase in the cost of diesel fuel. To the extent we are not
successful in these negotiations our results of operations may be adversely
affected.
Difficulty in driver and independent contractor recruitment and retention may
have a materially adverse effect on our business.
Difficulty in attracting or retaining qualified drivers, including
independent contractors, could have a materially adverse effect on our growth
and profitability. Our independent contractors are responsible for paying for
their own equipment, fuel, and other operating costs, and significant increases
6
in these costs could cause them to seek higher compensation from us or seek
other opportunities within or outside the trucking industry. In addition,
competition for drivers, which is always intense, continues to increase. If a
shortage of drivers should continue, or if we were unable to continue to attract
and contract with independent contractors, we could be forced to limit our
growth, experience an increase in the number of our tractors without drivers,
which would lower our profitability, or be required to further adjust our driver
compensation package. We have increased our driver compensation on several
occasions recently. While no additional pay increases are planned for 2008,
increases in driver compensation could adversely affect our profitability if not
offset by a corresponding increase in rates.
We operate in a highly regulated industry, and increased costs of compliance
with, or liability for violation of, existing or future regulations could have a
materially adverse effect on our business.
Our operations are regulated and licensed by various U.S. agencies. Our
company drivers and independent contractors also must comply with the safety and
fitness regulations of the United States Department of Transportation, including
those relating to drug and alcohol testing and hours-of-service. Such matters as
weight and equipment dimensions are also subject to U.S. regulations. We also
may become subject to new or more restrictive regulations relating to fuel
emissions, drivers' hours-of-service, ergonomics, or other matters affecting
safety or operating methods. Other agencies, such as the EPA and the Department
of Homeland Security (the "DHS"), also regulate our equipment, operations, and
drivers. Future laws and regulations may be more stringent and require changes
in our operating practices, influence the demand for transportation services, or
require us to incur significant additional costs. Higher costs incurred by us,
or by our suppliers who pass the costs onto us through higher prices, could
adversely affect our results of operations.
The DOT, through the Federal Motor Carrier Safety Administration Act,
imposes safety and fitness regulations on us and our drivers. The FMCSA has
proposed a rule that may require companies with a history of serious
hours-of-service violations to install electronic on-board recorders (EOBR) in
all of their commercial vehicles. This installation would be for a minimum of
two years. On January 30, 2008, The Company completed a full FMSCA compliance
review which found no evidence of any serious violations thereby maintaining its
Satisfactory Safety Rating. The FMCSA is currently studying rules relating to
braking distance and on-board data recorders that could result in new rules
being proposed. We are unable to predict the effects, if any such proposed rules
may have on the Company.
In the aftermath of the September 11, 2001 terrorist attacks, federal,
state, and municipal authorities have implemented and continue to implement
various security measures, including checkpoints and travel restrictions on
large trucks. The Transportation Security Administration (the "TSA") of the DHS
has adopted regulations that require determination by the TSA that each driver
who applies for or renews his or her license for carrying hazardous materials is
not a security threat. This could reduce the pool of qualified drivers, which
could require us to increase driver compensation, limit our fleet growth, or let
trucks sit idle. These regulations also could complicate the matching of
available equipment with hazardous material shipments, thereby increasing our
response time on customer orders and our non-revenue miles. As a result, it is
possible we may fail to meet the needs of our customers or may incur increased
expenses to do so. These security measures could negatively impact our operating
results.
Some states and municipalities have begun to restrict the locations and
amount of time where diesel-powered tractors, such as ours, may idle, in order
to reduce exhaust emissions. These restrictions could force us to alter our
drivers' behavior, purchase on-board power units that do not require the engine
to idle, or face a decrease in productivity.
Our operations are subject to various environmental laws and regulations, the
violation of which could result in substantial fines or penalties.
In addition to direct regulation by the DOT and other agencies, we are
subject to various environmental laws and regulations dealing with the handling
of hazardous materials, underground fuel storage tanks, and discharge and
retention of storm-water. We operate in industrial areas, where truck terminals
and other industrial facilities are located, and where groundwater or other
forms of environmental contamination have occurred. Our operations involve the
risks of fuel spillage or seepage, environmental damage, and hazardous waste
disposal, among others. We also maintain bulk fuel storage and fuel islands at
the majority of our facilities.
If we are involved in a spill or other accident involving hazardous
substances, or if we are found to be in violation of applicable laws or
regulations, it could have a materially adverse effect on our business and
operating results. If we should fail to comply with applicable environmental
regulations, we could be subject to substantial fines or penalties and to civil
and criminal liability.
7
Our business also is subject to the effects of new tractor engine design
requirements implemented by the EPA such as those that became effective October
1, 2002, and additional EPA emission requirements that became effective in
January 2007 which are discussed above under "Risk Factors - Increased prices,
reduced productivity and restricted availability of new revenue equipment may
materially and adversely affect our earnings and cash flows." Additional changes
in the laws and regulations governing or impacting our industry could affect the
economics of the industry by requiring changes in operating practices or by
influencing the demand for, and the costs of providing, services to shippers.
We may not make acquisitions in the future, or if we do, we may not be
successful in integrating the acquired company, either of which could have a
materially adverse effect on our business.
Historically, acquisitions have been a part of our growth. There is no
assurance that we will be successful in identifying, negotiating, or
consummating any future acquisitions. If we fail to make any future
acquisitions, our growth rate could be materially and adversely affected. Any
acquisitions we undertake could involve the dilutive issuance of equity
securities and/or incurring indebtedness. In addition, acquisitions involve
numerous risks, including difficulties in assimilating the acquired company's
operations, the diversion of our management's attention from other business
concerns, risks of entering into markets in which we have had no or only limited
direct experience, and the potential loss of customers, key employees, and
drivers of the acquired company, all of which could have a materially adverse
effect on our business and operating results. If we make acquisitions in the
future, we cannot guarantee that we will be able to successfully integrate the
acquired companies or assets into our business.
If we are unable to retain our key employees or find, develop, and retain
service center managers, our business, financial condition, and results of
operations could be adversely affected.
We are highly dependent upon the services of several executive officers and
key management employees. The loss of any of their services could have a
short-term, negative impact on our operations and profitability. We must
continue to develop and retain a core group of managers if we are to realize our
goal of expanding our operations and continuing our growth. Failing to develop
and retain a core group of managers could have a materially adverse effect on
our business. The Company has developed a structured business plan and
procedures to prevent a long-term effect on future profitability due to the loss
of key management employees.
We are highly dependent on a few major customers, the loss of one or more of
which could have a materially adverse effect on our business.
A significant portion of our revenue is generated from several major
customers. For the year ended December 31, 2007, our top 25 customers, based on
revenue, accounted for approximately 69% of our revenue. This was not
significantly different than the previous year. A reduction in or termination of
our services by one or more of our major customers could have a materially
adverse effect on our business and operating results.
Seasonality and the impact of weather affect our operations and profitability.
Our tractor productivity decreases during the winter season because
inclement weather impedes operations, and some shippers reduce their shipments
after the winter holiday season. Revenue can also be affected by bad weather and
holidays, since revenue is directly related to available working days of
shippers. At the same time, operating expenses increase and fuel efficiency
declines because of engine idling and harsh weather which creates higher
accident frequency, increased claims, and more equipment repairs. We can also
suffer short-term impacts from weather-related events such as hurricanes,
blizzards, ice storms, and floods that could harm our results or make our
results more volatile.
Ongoing insurance and claims expenses could significantly reduce our earnings.
Our future insurance and claims expense might exceed historical levels,
which could reduce our earnings. We self-insure for a portion of our claims
exposure resulting from workers' compensation, auto liability, general
liability, cargo and property damage claims, as well as employees' health
insurance. We also are responsible for our legal expenses relating to such
claims. We reserve currently for anticipated losses and related expenses. We
periodically evaluate and adjust our claims reserves to reflect our experience.
However, ultimate results may differ from our estimates, which could result in
losses over our reserved amounts.
8
We maintain insurance above the amounts for which we self-insure with
licensed insurance carriers. Although we believe the aggregate insurance limits
should be sufficient to cover reasonably expected claims, it is possible that
one or more claims could exceed our aggregate coverage limits. Insurance
carriers have raised premiums for many businesses, including trucking companies.
As a result, our insurance and claims expense could increase, or we could raise
our self-insured retention when our policies are renewed. If these expenses
increase, or if we experience a claim in excess of our coverage limits, or we
experience a claim for which coverage is not provided, results of our operations
and financial condition could be materially and adversely affected.
We are dependent on computer and communications systems, and a systems failure
could cause a significant disruption to our business.
Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware systems and infra structure. We currently
use a centralized computer network and regular communication to achieve
system-wide load coordination. Our operations and those of our technology and
communications service providers are vulnerable to interruption by fire,
earthquake, power loss, telecommunications failure, terrorist attacks, Internet
failures, computer viruses, and other events beyond our control. In the event of
a significant system failure, our business could experience significant
disruption.
We operate in a highly regulated industry and changes in regulations could have
a materially adverse effect on our business.
Our operations are regulated and licensed by various government agencies,
including the DOT. The DOT, through the Federal Motor Carrier Safety
Administration, or FMCSA, imposes safety and fitness regulations on us and our
drivers. New rules that limit driver hours-of-service were adopted effective
January 4, 2004, and then modified effective October 1, 2005 (the "2005 Rules").
On July 24, 2007, a federal appeals court vacated portions of the 2005 Rules.
Two of the key portions that were vacated include the expansion of the driving
day from 10 hours to 11 hours, and the "34-hour restart," which allows drivers
to restart calculations of the weekly on-duty time limits after the driver has
at least 34 consecutive hours off duty. The court indicated that, in addition to
other reasons, it vacated these two portions of the 2005 Rules because FMCSA
failed to provide adequate data supporting its decision to increase the driving
day and provide for the 34-hour restart. Following a request by FMCSA for a
12-month extension of the vacated rules, the court, in an order filed on
September 28, 2007, granted a 90-day stay of the mandate and directed that
issuance of its ruling be withheld until December 27, 2007, to allow FMSCA time
to prepare its response. On December 17, 2007, FMCSA submitted the IFR, which
became effective December 27, 2007. The IFR retains the 11 hour driving day and
the 34-hour restart, but provides greater statistical support and analysis
regarding the increased driving time and the 34-hour restart. On January 23,
2008, a federal court denied an advocacy group's request that it prevent FMCSA
from implementing the IFR. Accordingly, the IFR remains in effect; though,
challenges to the IFR are still possible. FMCSA is currently taking comments on
the IFR, which are due no later than February 15, 2008, and expects to publish a
final rule later in 2008. As advocacy groups may continue to challenge the IFR,
a court's decision to strike down the IFR could have varying effects, as
reducing driving time to 10 hours daily may reduce productivity in some lanes,
while eliminating the 34-hour restart could enhance productivity in certain
instances. As a result, such a ruling could decrease productivity and cause some
loss of efficiency, as drivers and shippers may need to be retrained, computer
programming may require modifications, additional drivers may need to be
employed or engaged, additional equipment may need to be acquired, and some
shipping lanes may need to be reconfigured. We are also unable to predict the
effect of any new rules that might be proposed, but any such proposed rules
could increase costs in our industry or decrease productivity.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Heartland's headquarters are located in North Liberty, Iowa which is
located on Interstate 380 near the intersection of Interstates 380 and 80. This
represents a centralized location along the Cedar Rapids/Iowa City business
corridor. Prior to July 2007, Heartland's headquarters were located adjacent to
Interstate 80, near Iowa City, Iowa. The new headquarters was funded with
proceeds from the sale of the previous headquarters location, sales of
company-owed facilities in Columbus, Ohio, and Dubois, Pennsylvania, and cash
flows from operations. The following table provides information regarding the
Company's facilities and/or offices:
9
-------------------------- -------- ------ -------- ----------------
Company Location Office Shop Fuel Owned or Leased
-------------------------- -------- ------ -------- ----------------
North Liberty, Iowa (1) Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Ft. Smith, Arkansas No Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
O'Fallon, Missouri No Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Atlanta, Georgia Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Columbus, Ohio Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Jacksonville, Florida Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Kingsport, Tennessee Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Olive Branch, Mississippi Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Chester, Virginia Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Carlisle, Pennsylvania Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
Phoenix, Arizona (2) Yes Yes Yes Owned
-------------------------- -------- ------ -------- ----------------
(1) The Company moved into its new corporate headquarters in July 2007. Prior to
July 2007 the Company headquarters located in Iowa City, Iowa and was located on
owned and leased property.
(2) The Company leased a facility in Phoenix, Arizona for a portion of 2007. In
2005, the Company acquired fourteen acres of land in Phoenix, Arizona for the
construction of a new regional operating facility. Construction began in 2006
and was completed in the second quarter of 2007. Construction was financed by
cash flows from operations. The leased facilities did not include fuel
facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary, routine litigation and administrative
proceedings incidental to its business. These proceedings primarily involve
claims for personal injury, property damage, and workers' compensation incurred
in connection with the transportation of freight. The Company maintains
insurance to cover liabilities arising from the transportation of freight for
amounts in excess of certain self-insured retentions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2007, no matters were submitted to a vote of
security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
The Company's common stock trades on the NASDAQ Global Select Market under
the symbol HTLD. The following table sets forth, for the calendar periods
indicated, the range of high and low price quotations for the Company's common
stock as reported by the NASDAQ Global Select Market and the Company's dividends
declared per common share from January 1, 2006 to December 31, 2007. The prices
and dividends declared have been restated to reflect a four-for-three stock
split on May 15, 2006.
Dividends Declared
Period High Low per Common Share
Calendar Year 2007
1st Quarter $ 17.81 $ 15.14 $.020
2nd Quarter 18.92 15.36 2.02
3rd Quarter 17.46 14.11 .020
4th Quarter 15.80 12.98 .020
Calendar Year 2006
1st Quarter $ 18.75 $ 14.55 $.015
2nd Quarter 19.59 15.73 .020
3rd Quarter 18.51 14.10 .020
4th Quarter 17.71 14.79 .020
10
On January 31, 2008, the last reported sale price of our common stock on
the NASDAQ Global Select Market was $16.25 per share.
The prices reported reflect interdealer quotations without retail mark-ups,
markdowns or commissions, and may not represent actual transactions. As of
February 1, 2008, the Company had 193 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 of record
are held by brokers or dealers for their customers in street names.
Dividend Policy
During the third quarter of 2003, the Company announced the implementation
of a quarterly cash dividend program. The Company has declared and paid
quarterly dividends for the past eighteen consecutive quarters. On March 9,
2007, the Board of Directors announced a quarterly dividend of $0.02 per common
share, approximately $2.0 million, which was paid on April 2, 2007 to
shareholders of record at the close of business on March 22, 2007. On May 14,
2007 the Company announced that, in addition to the quarterly dividend of $0.02
per common share, the Company would pay a special dividend of $2.00 per common
share, or approximately $196.5 million, to shareholders of record on May 24,
2007. On September 7, 2007 the Board of Directors, declared a regular quarterly
dividend of $0.02 per common share, or approximately $1.9 million, payable
October 2, 2007, and on January 3, 2008, the Company paid a quarterly dividend
of approximately $1.9 million at the rate of $0.02 per common share to
shareholders of record at the close of business on December 21, 2007. The
Company does not currently intend to discontinue the quarterly cash dividend
program. However, 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.
Stock Split
On April 20, 2006, the Board of Directors approved a four-for-three stock
split, affected in the form of a 33 percent stock dividend. The stock split
occurred on May 15, 2006, to shareholders of record as of May 5, 2006. This
stock split increased the number of outstanding shares to 98.4 million from 73.8
million. The number of common shares issued and outstanding and all per share
amounts have been adjusted to reflect the stock split for all periods presented.
Stock Repurchase
In September 2001, the Board of Directors approved the repurchase of up to
15.4 million shares, adjusted for stock splits, of Heartland Express, Inc.
common stock in open market or negotiated transactions using available cash,
cash equivalents, and short term investments. During the years ended December
31, 2007 and 2006, approximately 1.3 million and 0.2 million shares were
repurchased, respectively, in the open market and pursuant to the
above-referenced plan, a trade plan under Rule 10b5-1, for $19.4 million and
$2.5 million, respectively, at an approximate weighted average price of $14.86
and $14.41 per share, respectively, and the shares were retired. The cost of
such shares purchased and retired in excess of their par value in the amount of
approximately of $19.4 million and $2.5 million during the years ended December
31, 2007 and 2006 was charged to retained earnings. The authorization to
repurchase remains open at December 31, 2007 and has no expiration date but may
be suspended or discontinued at any time without prior notice. Approximately
12.3 million shares remain authorized for repurchase under the Board of
Director's approval.
11
Shares repurchased during the three month quarter period ended December 31,
2007 are as follows:
(d) Maximum
number
(c)Total number of of shares that
shares purchased may yet be
(a)Total (b)Average as part of purchased under
number price publicly the plans or
of shares paid announced plans programs
Period Purchased per share or programs (in millions)
-------------------- --------- --------- ---------------- ---------------
October 1, 2007 -
October 31, 2007 - - - 12.3
November 1, 2007 -
November 30, 2007 7,600 $ 12.99 7,600 12.3
December 1, 2007 -
December 31, 2007 - - - 12.3
--------- ---------------
7,600 7,600
========= ===============
Share Based Compensation
On March 7, 2002, the Company's chief executive officer transferred 181,500
of his own shares establishing a restricted stock plan on behalf of key
employees. The shares vested over a five year period or upon death or disability
of the recipient. The shares were valued at the March 7, 2002 market value of
approximately $2.0 million. The market value of $2.0 million was amortized over
a five year period as compensation expense. Compensation expense of $0.1
million, $0.4 million, and $0.4 million for the years ended December 31, 2007,
2006, and 2005, respectively, is recorded in salaries, wages, and benefits on
the consolidated statement of income. All unvested shares are included in the
Company's 96.9 million outstanding shares as of December 31, 2007. As of
December 31, 2007 there are no securities authorized for issuance under equity
compensation plans.
A summary of the Company's non-vested restricted stock as of December 31,
2007 and 2006, and changes during the twelve months ended December 31, 2007 and
2006 is presented in the table below:
Grant-date
Shares Fair Value
---------- -----------
Non-vested stock outstanding at January 1, 2006 68,200 $ 11.00
Granted - -
Vested (34,000) 11.00
Forfeited - -
---------- -----------
Non-vested stock outstanding at December 31, 2006 34,200 11.00
---------- -----------
Non-vested stock outstanding at January 1, 2007 34,200 11.00
Granted - -
Vested (34,000) 11.00
Forfeited - -
---------- -----------
Non-vested stock outstanding at December 31, 2007 200 $ 11.00
========== ===========
The fair value of the shares vested was $544,020, $578,245 and $549,201 for the
twelve months ended December 31, 2007, 2006 and 2005, respectively.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based
Payment," ("SFAS No. 123(R)") a revision of SFAS No. 123, which addresses the
accounting for share-based payment transactions. SFAS No. 123(R) eliminates the
ability to account for employee share-based compensation transactions using APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and generally
requires instead that such transactions be accounted and recognized in the
consolidated statement of income based on their fair value. SFAS No. 123(R) also
requires entities to estimate the number of forfeitures expected to occur and
record expense based upon the number of awards expected to vest. The Company
implemented SFAS No. 123(R) on January 1, 2006. The unamortized portion of
unearned compensation was reclassified to retained earnings upon implementation.
12
The amortization of unearned compensation was recorded as additional paid-in
capital effective January 1, 2006 through December 31, 2007. The implementation
of SFAS No. 123(R) had no effect on the Company's results of operations for the
years ended December 31, 2007 and 2006.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below is derived from
the Company's consolidated financial statements. The information set forth below
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 in Item 8 of this Form 10-K.
Year Ended December 31,
(in thousands, except per share data)
2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
Statements of Income Data:
Operating revenue $591,893 $571,919 $523,792 $457,086 $405,116
-------- -------- -------- -------- --------
Operating expenses:
Salaries, wages, and benefits (3) 196,303 189,179 174,180 157,505 141,293
Rent and purchased transportation 21,421 24,388 29,635 36,757 49,988
Fuel 164,285 146,240 123,558 83,263 62,218
Operations and maintenance 12,314 12,647 14,955 12,939 13,298
Operating taxes and licenses 9,454 9,143 8,968 8,996 8,403
Insurance and claims (3) 18,110 16,621 17,938 16,545 2,187
Communications and utilities 3,857 3,721 3,554 3,669 3,605
Depreciation (2) 48,478 47,351 38,228 29,628 26,534
Other operating expenses 17,380 17,356 16,697 14,401 12,539
Gain on disposal of property
and equipment (2) (10,159) (18,144) (8,032) (175) (46)
-------- -------- -------- -------- --------
481,443 448,502 419,681 363,528 320,019
-------- -------- -------- -------- --------
Operating income(2) 110,450 123,417 104,111 93,558 85,097
Interest income 10,285 11,732 7,373 3,071 2,046
-------- -------- -------- -------- --------
Income before income taxes 120,735 135,149 111,484 96,629 87,143
Federal and state income taxes 44,565 47,978 39,578 34,183 29,922
-------- -------- -------- -------- --------
Net income (2) $ 76,170 $ 87,171 $ 71,906 $ 62,446 $ 57,221
======== ======== ======== ======== ========
Weighted average shares
outstanding (1) 97,735 98,359 99,125 100,000 100,000
======== ======== ======== ======== ========
Earnings per share (1) (2) $ 0.78 $ 0.89 $ 0.73 $ 0.62 $ 0.57
======== ======== ======== ======== ========
Dividends declared per share (1) $ 2.080 $ 0.075 $ 0.060 $ 0.050 $ 0.020
======== ======== ======== ======== ========
Balance Sheet data:
Net working capital $182,546 $294,252 $271,263 $242,472 $186,648
Total assets 526,294 669,070 573,508 517,012 448,407
Stockholders' equity 342,759 495,024 433,252 389,343 331,516
The Company had no long-term debt during any of the five years presented.
(1) Periods 2003 through 2005 reflect the four-for-three stock split of May 15,
2006.
(2) Effective July 1, 2005, the Company adopted SFAS No. 153, "Exchanges of
Non-monetary Assets--An Amendment of Accounting Principles Board Opinion No. 29,
Accounting for Non-monetary Transactions" ("SFAS 153"). The prospective
application of SFAS 153 after June 30, 2005 resulted in the immediate
recognition of gains from the trade-in of revenue equipment rather than
reduction in the cost of the new revenue equipment. The recognition of gains
from trade-in of revenue equipment is offset over the equipment life by
increased depreciation expense. For the twelve month periods of 2007 and 2006,
and the six month period of 2005, gains resulting from the adoption of SFAS 153
were $1.9 million, $17.6 million and $6.5 million, respectively.
(3) The Company increased the amount accrued for workers' compensation by $2.9
million and decreased the amount accrued for accident liability claims by $11.2
million during the 2003 period as a result of actuarial studies.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Heartland Express, Inc. is a short-to-medium haul truckload carrier. The
Company transports freight for major shippers and generally earns revenue based
on the number of miles per load delivered. The Company provides regional dry van
truckload services from eight regional operating centers plus its corporate
headquarters. The Company's eight regional operating centers, not including
operations at the corporate headquarters, accounted for 64.5% and 62.6% of the
2007 and 2006 operating revenues. The Company takes pride in the quality of the
service that it provides to its customers. The keys to maintaining a high level
of service are the availability of late-model equipment and experienced drivers.
Operating efficiencies and cost controls are achieved through equipment
utilization, operating a fleet of late model equipment, maintaining an industry
leading driver to non-driver employee ratio, and the effective management of
fixed and variable operating costs. At December 31, 2007, the Company's tractor
fleet had an average age of 2.1 years while the trailer fleet had an average age
of 3.8 years. The Company has grown internally by providing quality service to
targeted customers with a high density of freight in the Company's regional
operating areas. In addition to the development of its regional operating
centers, the Company has made five acquisitions since 1987. Future growth is
dependent upon several factors including the level of economic growth and the
related customer demand, the available capacity in the trucking industry,
potential of acquisition opportunities, and the availability of experienced
drivers.
The Company ended the year with operating revenues of $591.9 million,
including fuel surcharges, net income of $76.2 million, and earnings per share
of $0.78 on average outstanding shares of 97.7 million. The Company posted an
81.3% operating ratio (operating expenses as a percentage of operating revenues)
and a 12.9% net margin (net income as a percentage of operating revenues). The
Company ended the year with cash, cash equivalents, and short-term investments
of $196.6 million and a debt-free balance sheet. The Company has total assets of
$526.3 million at December 31, 2007. The Company achieved a return on assets of
12.7% and a return on equity of 18.2%. The Company's cash flow from operations
for the year of $119.6 million was 20.2% of operating revenues.
The years ended December 31, 2007 and 2006 and six-month period from July 1
to December 31, 2005 periods have been favorably impacted by gains on the
trade-in of revenue equipment. Prior to the implementation of SFAS No. 153 on
July 1, 2005, the gains related to trade-in of revenue producing equipment was
deferred as a reduction of the basis of the new equipment. For the years ended
December 31, 2007, 2006 and 2005, gains from the trade-in of revenue equipment
were $1.9 million, $17.6 million and $6.5 million, respectively. Also during
2007 the Company recorded gains of approximately $6.8 million related to sales
of real estate and the remaining gains during 2007 related to sales of equipment
that did not involve trades.
The decline in the demand for freight services and an overcapacity of
trucks has negatively impacted the operating results of 2007. The soft freight
demand has resulted in downward pressures on freight and fuel surcharge rates
and has resulted in higher empty miles and lower equipment utilization. Fuel
expense, net of fuel surcharge recoveries, increased 18% to $81.9 million during
the year ended December 31, 2007 compared to $69.5 million for the year ended
December 31, 2006.
The Company hires only experienced drivers with safe driving records. In
order to attract and retain experienced drivers who understand the importance of
customer service, the Company increased pay for all drivers by $0.03 per mile
during both the first quarters of 2004 and 2005. Effective October 2, 2004, the
Company began paying all drivers an incremental amount for miles driven in the
upper Northeastern United States. In 2006, the Company implemented additional
pay increases for drivers in selected operations groups and a fleet-wide
incentive for all drivers maintaining a valid hazardous materials endorsement on
their commercial driver's license. The Company has solidified its position as an
industry leader in driver compensation with these aforementioned increases.
14
The Company has been recognized as one of the Forbes magazine's "200 Best
Small Companies in America" sixteen times in the past twenty-one years and for
the past six consecutive years. The Company has paid cash dividends over the
past eighteen consecutive quarters, including a special dividend of $196.5
million in May, 2007. The Company became publicly traded in November, 1986 and
is traded on the NASDAQ National Market under the symbol HTLD.
Results of Operations
The following table sets forth the percentage relationships of expense
items to total operating revenue for the years indicated.
Year Ended December 31,
-----------------------------
2007 2006 2005
------- ------- -------
Operating revenue 100.0% 100.0% 100.0%
------- ------- -------
Operating expenses:
Salaries, wages, and benefits 33.2% 33.1% 33.3%
Rent and purchased transportation 3.6 4.3 5.7
Fuel 27.8 25.6 23.6
Operations and maintenance 2.1 2.2 2.9
Operating taxes and license 1.6 1.6 1.7
Insurance and claims 3.1 2.9 3.4
Communications and utilities 0.7 0.7 0.7
Depreciation 8.2 8.3 7.3
Other operating expenses 2.9 3.0 3.2
Gain on disposal of property and equipment (1.7) (3.2) (1.5)
------- ------- -------
81.3% 78.4% 80.1%
------- ------- -------
Operating income 18.7% 21.6% 19.9%
Interest income 1.7 2.1 1.4
------- ------- -------
Income before income taxes 20.4% 23.6% 21.3%
Income taxes 7.5 8.4 7.6
------- ------- -------
Net income 12.9% 15.2% 13.7%
======= ======= =======
Year Ended December 31, 2007 Compared With Year Ended December 31, 2006
Operating revenue increased $20.0 million (3.5%), to $591.9 million for the
year ended December 31, 2007 from $571.9 million in the 2006 period. The
increase in revenue resulted from the Company's expansion of its fleet,
increased freight miles, and improved freight rates. Operating revenue for both
periods was positively impacted by fuel surcharges assessed to customers. Fuel
surcharge revenue increased $5.2 million, (6.4%) to $86.6 million for the year
ended December 31, 2007 from $81.4 million in the compared 2006 period.
Salaries, wages, and benefits increased $7.1 million (3.8%), to $196.3
million for the year ended December 31, 2007 from $189.2 million in the 2006
period. These increases were the result of increased reliance on employee
drivers due to a decrease in the number of independent contractors utilized by
the Company and driver pay increases. The Company increased driver pay by $0.01
per mile in January 2006 for all drivers maintaining a valid hazardous materials
endorsement on their commercial driver's license and implemented quarterly pay
increases in 2006 for selected operating divisions. The cumulative impact of the
quarterly increases to driver compensation in 2006 resulted in a cost increase
of approximately $1.8 million for the year ended December 31, 2007.During the
year ended December 31, 2007, employee drivers accounted for 95% and independent
contractors for 5% of the total fleet miles, compared with 94% and 6%,
respectively, for 2006. Additional miles in 2007 by company drivers accounted
for approximately $4.0 million increase in wages over 2006. Workers'
compensation expense increased $2.3 million (53.6%) to $6.5 million for the year
ended December 31, 2007 from $4.2 million in for the same period in 2006 due to
an increase in frequency and severity of claims. Health insurance expense
decreased $1.4 million (16.2%) to $7.1 million for the year ended December 31,
2007 from $8.5 million in the same period of 2006 due to a decrease in frequency
and severity of claims. The remaining increase was the result of non-driver
payroll increases.
Rent and purchased transportation decreased $3.0 million (12.2%), to $21.4
million for the year ended December 31, 2007 from $24.4 million in the compared
15
period of 2006. This reflects the Company's decreased reliance upon independent
contractors. Rent and purchased transportation for both periods includes amounts
paid to independent contractors under the Company's fuel stability program. In
the first quarter of 2006, the Company increased the independent contractor base
mileage pay by $0.01 per mile for all independent contractors maintaining a
hazardous materials endorsement on their commercial driver's license, and an
additional $0.01 per mile per quarter in 2006 beginning on April 1, 2006. These
base mileage pay increases of approximately $0.3 million in 2007 were offset by
a decrease attributable to fewer miles driven by independent contractors.
Fuel increased $18.0 million (12.3%), to $164.3 million for the year ended
December 31, 2007 from $146.2 million for the same period of 2006. The increase
is the result of an increase in fuel cost per gallon, an increased reliance on
company-owned tractors, and a decrease in fuel economy associated with certain
EPA mandated clean air engine requirements on tractor models acquired during
2006. The Company's fuel cost per company-owned tractor mile increased 9.3%
during 2007 compared to 2006. Fuel cost per mile, net of fuel surcharge,
increased 14.7% in 2007 compared to 2006. The Company's fuel cost per gallon
increased 7.2% in 2007 and average miles per gallon decreased 2.2% compared to
2006.
Operations and maintenance decreased $0.3 million (2.6%), to $12.3 million
for the year ended December 31, 2007 from $12.6 million for the compared 2006
period due to an increase in preventative maintenance and parts replacement.
Operating taxes and licenses increased $0.3 million (3.4), to $9.5 million
for the year ended December 31, 2007 from $9.1 million in the compared 2006
period due an increase in the property taxes associated with new facilities in
Phoenix, Arizona and North Liberty, Iowa and an increase in fuel taxes paid.
Insurance and claims increased $1.5 million (9.0%), to $18.1 million for
the year ended December 31, 2007 from $16.6 million in the same period of 2006
due to an increase in the frequency of larger claims and development increases
on existing liability claims.
Depreciation increased $1.1 million (2.4%), to $48.5 million during the
year ended December 31, 2007 from $47.4 million in the compared 2006 period.
This increase is attributable to the growth of our company-owned tractor and
trailer fleet, and an increased cost of new tractors and trailers relative to
the costs of those units being replaced. Our tractor and trailer fleet have
grown approximately 3.4% and 5.7% respectively in comparison to the same period
in 2006. This contributed to a $0.6 million increase in revenue equipment
depreciation during 2007. Also, higher depreciation on new corporate
headquarters facilities and new Phoenix terminal contributed to an increase of
$0.5 million in other property and equipment depreciation.
Other operating expenses were essentially unchanged during the year ended
December 31, 2007 compared to the same period of 2006. Other operating expenses
consists of costs incurred for advertising expense, freight handling, highway
tolls, driver recruiting expenses, and administrative costs.
Gain on the disposal of property and equipment decreased $8.0 million
(44.0%), to $10.2 million during the year ended December 31, 2007 from $18.1
million in the same period of 2006. The decline is attributable to an 87%
decrease in the total number of tractors and trailers traded during the 2007
period compared to the same period of 2006. A tractor fleet upgrade was
completed in December 2006. During 2007 the Company sold real estate in
Columbus, Ohio, Coralville, Iowa, and Dubois, Pennsylvania recording total gains
of approximately $6.8 million. The proceeds received from these sales were used
in the financing of the new corporate headquarters.
Interest income decreased $1.4 million (12.3%), to $10.3 million during the
year ended December 31, 2007 from $11.7 million in the same period of 2006
because of the decrease in cash, cash equivalents, and investments associated
with the payment of the special dividend in May 2007 offset by improved rate of
return on cash, cash equivalents, and short-term investments.
The Company's effective tax rate was 36.9% and 35.5%, respectively, for the
years ended December 31, 2007 and 2006. The increase is primarily attributable
to a higher effective state rate as a result of the adoption of FASB
Interpretation No. 48 ("FIN 48") effective January 1, 2007.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 81.3% during the year ended
December 31, 2007 compared with 78.4% during the year ended December 31, 2006.
Net income decreased $11.0 million (12.6%), to $76.2 million for the year ended
December 31, 2007 from $87.2 million during the compared 2006 period as a result
of the net effects discussed above.
16
Year Ended December 31, 2006 Compared With Year Ended December 31, 2005
Operating revenue increased $48.1 million (9.2%), to $571.9 million in 2006
from $523.8 million in 2005, as a result of the Company's expansion of its fleet
and customer base as well as improved freight rates. Operating revenue for both
periods was positively impacted by fuel surcharges assessed to the customer
base. Fuel surcharge revenue increased $21.7 million, (36.3%) to $81.4 million
in 2006 from $59.7 million reported in 2005.
Salaries, wages, and benefits increased $15.0 million (8.6%), to $189.2
million in 2006 from $174.2 million in 2005. These increases were the result of
increased reliance on employee drivers due to a decrease in the number of
independent contractors utilized by the Company and a driver pay increase. The
Company increased driver pay by $0.01 per mile in January 2006 for all drivers
maintaining a valid hazardous materials endorsement on their commercial driver's
license and implemented quarterly pay increases for selected operating
divisions. These increases to driver compensation resulted in a cost increase of
approximately $5.6 million in 2006. During 2006, employee drivers accounted for
94% and independent contractors 6% of the total fleet miles, compared with 92%
and 8%, respectively, in 2005. Workers' compensation expense increased $0.6
million (18.0%) to $4.2 million in 2006 from $3.6 million in 2005 due to an
increase in frequency and severity of claims. Health insurance expense increased
$0.8 million (10.3%) to $8.5 million in 2006 from $7.7 million in 2005 due to an
increase in frequency and severity of claims and increased reliance on employee
drivers.
Rent and purchased transportation decreased $5.2 million (17.7%), to $24.4
million in 2006 from $29.6 million in 2005. This reflected the Company's
decreased reliance upon independent contractors. Rent and purchased
transportation for both periods includes amounts paid to independent contractors
for fuel stabilization. The Company increased the base mileage rate for
independent contractors by $0.03 per mile in the first quarter of 2005 for the
second consecutive year. In the first quarter of 2006, the Company increased the
independent contractor base mileage pay by $0.01 per mile for all independent
contractors maintaining a hazardous materials endorsement on their commercial
driver's license, and an additional $0.01 per mile per quarter beginning on
April 1, 2006.
Fuel increased $22.7 million (18.4%), to $146.3 million in 2006 from $123.6
million in 2005. The increase is the result of increased fuel prices and an
increased reliance on company-owned tractors. The Company's fuel cost per
company-owned tractor mile increased 13.8% in 2006 compared to 2005. Fuel cost
per mile, net of fuel surcharge, decreased 2.3% in 2006 compared to 2005. The
Company's fuel cost per gallon increased 11.7% in 2006 compared to 2005
primarily due to continued instability in the Middle East and concerns over
domestic inventory levels.
Operations and maintenance decreased $2.3 million (15.4%), to $12.6 million
in 2006 from $14.9 million in 2005. The decrease is primarily attributed to the
improved average age of the revenue equipment in our fleet. The average age of
our tractor fleet is 1.2 years while the average age of the trailer fleet is 3.1
years. In 2005, the average age of tractors was 1.5 years with trailers
averaging 3.2 years.
Insurance and claims decreased $1.3 million (7.3%), to $16.6 million in
2006 from $17.9 million in 2005 due to a decrease in the frequency and severity
of claims.
Depreciation increased $9.1 million (23.9%), to $47.3 million in 2006 from
$38.2 million in 2005. This increase is attributable to the growth of our
company-owned tractor and trailer fleet, an increased cost of new tractors
primarily associated with the EPA-mandated clean air engines, a fleet upgrade
during 2006, and the implementation of SFAS No. 153. New tractors have a higher
cost than the models being replaced due to EPA-mandated clean air standards. As
of December 31, 2006, 100% of the Company's tractor fleet had the EPA clean air
engine compared to 68.6% at December 31, 2005. For the year ended December 31,
2006, as a result of SFAS No. 153, approximately $2.8 million of additional
depreciation was recognized due to a higher depreciable basis of revenue
equipment acquired through trade-ins. For the same period of 2005, the
additional depreciation attributable to SFAS No. 153 was $369,000. In future
periods, we expect depreciation will increase as we continue to upgrade our
fleet in compliance with EPA-mandated engine changes and due to the impact of
SFAS No. 153.
Other operating expenses increased $0.7 million (4.0%), to $17.4 million in
2006 from $16.7 million in 2005. Other operating expenses consist of costs
incurred for advertising expense, freight handling, highway tolls, driver
recruiting expenses, and administrative costs.
17
Gain on the disposal of property and equipment increased $10.1 million
(125.9%), to $18.1 million in 2006 from $8.0 million in the 2005 period. The
2006 period includes $17.6 million from gains on trade-ins of revenue equipment
which are recognized under SFAS No. 153 compared to $6.5 million for the same
period of 2005. Prior to the implementation of SFAS No 153, gains from trade-ins
of revenue equipment were deferred as a reduction of the basis of the new
equipment. Management does not believe gains in the future will be at similar
levels realized in the 2006 period.
Interest income increased $4.3 million (59.1%), to $11.7 million in 2006
from $7.4 million in 2005. The increase is the result of higher average balances
of cash, cash equivalents, and short-term investments and higher yields than
2005.
The Company's effective tax rate was 35.5% for 2006 and 2005, respectively.
Income taxes have been provided for at the statutory federal and state rates,
adjusted for certain permanent differences between financial statement income
and income for tax reporting.
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 78.4% during the year ended
December 31, 2006 compared with 80.1% for 2005. Net income increased $15.3
million (21.2%), to $87.2 million for the year ended December 31, 2006 from
$71.9 million for the year ended December 31, 2005.
Inflation and Fuel Cost
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operations. During the past
three years, the most significant effects of inflation have been on revenue
equipment prices and the compensation paid to the drivers. Innovations in
equipment technology, EPA mandated new engine emission requirements on tractor
engines manufacturered after January 1, 2007, and comfort have resulted in
higher tractor prices, and there has been an industry-wide increase in wages
paid to attract and retain qualified drivers. The Company historically has
limited the effects of inflation through increases in freight rates and certain
cost control efforts. In addition to inflation, fluctuations in fuel prices can
affect profitability. Most of the Company's contracts with customers contain
fuel surcharge provisions. Although the Company historically has been able to
pass through most long-term increases in fuel prices and operating taxes to
customers in the form of surcharges and higher rates, shorter-term increases are
not fully recovered.
Fuel prices have remained high throughout 2005, 2006, and 2007, thus
increasing our cost of operations. In addition to the increased fuel costs, the
reduced fuel efficiency of the new EPA engines has put additional pressure on
profitability due to increased fuel consumption. Competitive conditions in the
transportation industry, such as lower demand for transportation services, could
affect the Company's ability to obtain rate increases or fuel surcharges.
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. 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 year ended December 31, 2007, was
net cash provided by operating activities of $119.6 million compared to $128.1
million in 2006 due primarily to net income (excluding noncash depreciation,
deferred tax and amortization of unearned compensation, and gains on disposal of
equipment) being approximately $6.8 million lower in 2007 compared to 2006 and a
decrease in operating assets and liabilities decrease of approximately $1.7
million. The net decrease in cash provided by operating assets and liabilities
was primarily the result of changes in insurance accruals and accrued
compensation. Cash flow from operating activities was 20.2% of operating
revenues in 2007 compared with 22.4% in 2006.
Capital expenditures for property and equipment, net of trade-ins, totaled
$43.6 million for 2007 compared to $76.1 million during 2006. We currently
expect capital expenditures for property and equipment, net of trades in 2008,
to be comparable to capital expenditures for property and equipment, net of
trades in 2007. Total expenditures for the new corporate headquarters, including
furniture and fixtures, and shop facility in North Liberty, Iowa and Phoenix
facility were approximately $19.7 million during 2007.
The Company paid cash dividends of $204.3 million in 2007 compared to $6.9
million in 2006. The Company paid a one-time special dividend of $196.5 million
18
during the second quarter of 2007. The Company declared a $1.9 million cash
dividend in December 2007, included in accounts payable and accrued liabilities
at December 31, 2007, which was paid on January 3, 2008.
The Company paid income taxes of $41.6 million in 2007 which was
essentially unchanged compared to $41.3 million paid in 2006.
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
December 31, 2007 and has no expiration date. During the year ended December 31,
2007, approximately 1.3 million shares of the Company's common stock were
repurchased for approximately $19.4 million at approximately $14.86 per share.
This compares to approximately 0.2 million shares of the Company's common
repurchased for $2.5 million at approximately $14.41 per share during the year
ended December 31, 2006. The repurchased shares were subsequently retired. At
December 31, 2007, the Company has approximately 12.3 million shares remaining
under the current Board of Director repurchase authorization. Future purchases
are dependent upon market conditions.
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 flow provided by operations and from existing cash, cash
equivalents, and short-term investments. The Company ended the year with $196.6
million in cash, cash equivalents, and short-term investments and no debt. Net
working capital for the year ended December 31, 2007 decreased by $111.7 million
over 2006. The most significant transaction causing the decrease was the sale of
short-term investments of approximately $134.2 million to fund the special
dividend payment of $196.5 million discussed above. Working capital was
positively impacted by the $21.4 million reduction in current tax liabilities
due to the adoption of FIN 48. Based on the Company's strong financial position,
management believes outside financing could be obtained, if necessary, to fund
capital expenditures.
Primarily all of the Company's investments as of December 31, 2007 are in
short-term investments in auction rate student loan educational bonds backed by
the U.S. government. The investments typically have an interest reset provision
of 35 days with contractual maturities generally greater than 20 years from the
date of original issuance. All investments held by the Company have AAA (or
equivalent) ratings from recognized rating agencies. At the reset date the
Company has the option to roll the investment and reset the interest rate or
sell the investment in an auction. The Company receives the par value of the
investment plus accrued interest on the reset date if the underlying investment
is sold in an auction. There is no guarantee that when the Company elects to
participate in an auction and therefore sell investments, that a willing buyer
will purchase the security and therefore the Company receive cash upon the
election to sell. The Company has not historically experienced any failures in
auctions of such investments when it has elected to sell an investment, but has
experienced unsuccessful auctions during February 2008 (as discussed in the
footnotes to the financials). Upon an unsuccessful auction, the interest rate of
the underlying investment is reset to a default maximum interest rate as stated
in the prospectus of the underlying security. Until a subsequent auction is
successful or the underlying security is called by the issuer, the Company will
be required to hold the underlying investment until maturity. The Company only
holds senior positions of underlying securities. The Company does not invest in
asset backed securities and does not have direct securitized sub-prime mortgage
loans exposure or loans to, commitments in, or investments in sub-prime lenders.
Should the Company have a need to liquidate any of these investments, the
Company may be required to discount these securities for liquidity, but the
Company currently does not have this liquidity requirement. Based on historical
and current operating cash flows, the Company does not currently anticipate a
requirement to liquidate underlying investments at discounted pricing. If
current conditions in the credit and capital markets continue, we may be
required to recognize impairments and/or reclassify these investments from
short-term to long-term investments. Further, the Company may be required to
seek alternative financing arrangements.
Off-Balance Sheet Transactions
The Company's liquidity is not materially affected by off-balance sheet
transactions.
Contractual Obligations and Commercial Commitments
As of December 31, 2007 the Company did not have any purchase obligations,
significant operating lease obligations, capital lease obligations or
outstanding long-term debt obligations.
19
At December 31, 2007, the Company had a total of $25.7 million in gross
unrecognized tax benefits. Of this amount, $16.7 million represents the amount
of unrecognized tax benefits that, if recognized, would impact our effective tax
rate. These unrecognized tax benefits relate to the state income tax filing
position for the Company's corporate subsidiaries. The total amount of accrued
interest and penalties for such unrecognized tax benefits was $14.9 million as
of December 31, 2007. Interest and penalties related to income taxes are
classified as income tax expense in our consolidated financial statements. The
federal statute of limitations remains open for the years 2004 and forward. Tax
years 1997 and forward are subject to audit by state tax authorities depending
on the tax code of each state.
A number of years may elapse before an uncertain tax position is audited
and ultimately settled. It is difficult to predict the ultimate outcome or the
timing of resolution for uncertain tax positions. It is reasonably possible that
the amount of unrecognized tax benefits could significantly increase or decrease
within the next twelve months. These changes could result from the expiration of
the statute of limitations, examinations or other unforeseen circumstances. As
of December 31, 2007, the Company did not have any ongoing examinations or
outstanding litigation related to tax matters. At this time, management's best
estimate of the reasonably possible change in the amount of unrecognized tax
benefits to be a decrease of approximately $2.5 to $3.5 million mainly due to
the expiration of certain statute of limitations.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.
The Company's management routinely makes judgments and estimates about the
effect of matters that are inherently uncertain. As the number of variables and
assumptions affecting the probable future resolution of the uncertainties
increase, these judgments become even more subjective and complex. The Company
has identified certain accounting policies, described below, that are the most
important to the portrayal of the Company's current financial condition and
results of operations.
The most significant accounting policies and estimates that affect the financial
statements include the following:
* Revenue is recognized when freight is delivered.
* Selections of estimated useful lives and salvage values for purposes
of depreciating tractors and trailers. Depreciable lives of tractors
and trailers are 5 and 7 years, respectively. Estimates of salvage
value are based upon the expected market values of equipment at the
end of the expected useful life.
* Management estimates accruals for the self-insured portion of pending
accident liability, workers' compensation, physical damage and cargo
damage claims. These accruals are based upon individual case
estimates, including reserve development, and estimates of
incurred-but-not-reported losses based upon past experience.
* Management judgment is required to determine the provision for income
taxes and to determine whether deferred income taxes will be realized.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the
temporary differences are expected to be recovered or settled. A
valuation allowance is required to be established for the amount of
deferred income tax assets that are determined not to be realizable. A
valuation allowance for deferred income tax assets has not been
established due to the profitability of the Company's business.
Further, management judgment is required in the accounting for
uncertainty in income taxes recognized in the financial statements
based on recognition threshold and measurement attributes for the
financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return.
Management periodically re-evaluates these estimates as events and
circumstances change. These factors may significantly impact the Company's
results of operations from period-to-period.
New Accounting Pronouncements
See Note 1 of the consolidated financial statements for a full description
of recent accounting pronouncements and the respective dates of adoption and
effects on results of operations and financial position.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Primarily all of the Company's investments as of December 31, 2007 are in
short-term investments in auction rate student loan educational bonds backed by
the U.S. government. The investments typically have an interest reset provision
of 35 days with contractual maturities generally greater than 20 years from the
date of original issuance. All investments held by the Company have AAA (or
equivalent) ratings from a recognized rating agency. At the reset date the
Company has the option to roll the investment and reset the interest rate or
sell the investment in an auction. The Company receives the par value of the
investment plus accrued interest on the reset date if the underlying investment
is sold in an auction. There is no guarantee that when the Company elects to
participate in an auction and therefore sell investments, that a willing buyer
will purchase the security and therefore the Company receive cash upon the
election to sell. The Company has not historically experienced any failures in
auctions of such investments when it has elected to sell an investment but has
experienced unsuccessful auctions during February 2008 (as discussed in the
footnotes to the financials). Upon an unsuccessful auction, the interest rate of
the underlying investment is reset to a default maximum interest rate as stated
in the prospectus of the underlying security. Until a subsequent auction is
successful or the underlying security is called by the issuer, the Company will
be required to hold the underlying investment until maturity. The Company only
holds senior positions of underlying securities. The Company does not invest in
asset backed securities and does not have direct securitized sub prime mortgage
loans exposure or loans to, commitments in, or investments in sub prime lenders.
Should the Company have a need to liquidate any of these investments, the
Company may be required to discount these securities for liquidity but the
Company currently does not have this liquidity requirement. Based on historical
and current operating cash flows, the Company does not currently anticipate a
requirement to liquidate underlying investments at discounted pricing. If
current conditions in the credit and capital markets continue, we may be
required to recognize impairments and/or reclassify these investments from
short-term to long-term investments.
Assuming we maintain our short term investment balance consistent with
balances as of December 31, 2007, $188.6 million, and if market rates of
interest on our short term investments decreased by 100 basis points, the
estimated reduction in annual interest income would be approximately $1.9
million.
The Company has no debt outstanding as of December 31, 2007 and therefore,
has no market risk related to debt.
Volatile fuel prices will continue to impact us significantly. Based on the
Company's historical experience, the Company is not able to pass through to
customers 100% of fuel price increases. For the year ended December 31, 2007 and
2006, fuel expense, net of fuel surcharge, was $81.9 million and $69.5 million
or 20.5% and 18.7%, respectively, of the Company's total operating expenses, net
of fuel surcharge. A significant increase in fuel costs, or a shortage of diesel
fuel, could materially and adversely affect our results of operations. In
February 2007, the Board of Directors authorized the Company to begin hedging
activities related to commodity fuels. In the event of hedging activities, the
Company will implement the provisions of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and contract with an unrelated third party
to transact the hedge. It is expected any such transactions will be accounted
for on a mark-to-market with changes reflected in the statement of income as a
component of fuel costs. As of December 31, 2007, the Company has no derivative
financial instruments to reduce its exposure to diesel fuel price fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of KPMG LLP, the Company's independent registered public
accounting firm, financial statements of the Company and its consolidated
subsidiaries and the notes thereto, and the financial statement schedule are
included beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures - The Company has
established disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to the officers who certify the Company's financial reports and to
other members of senior management and the Board of Directors.
21
Based on their evaluation as of December 31, 2007, the principal executive
officer and principal financial officer of the Company have concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) are effective to ensure that the information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms.
Management's Annual Report on Internal Control Over Financial Reporting-
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission as of December
31, 2007. Based on our evaluation under the framework in "Internal Control -
Integrated Framework", our management concluded that our internal control over
financial reporting was effective as of December 31, 2007. The Company's
auditor, KPMG LLP, an independent registered public accounting firm, has issued
an audit report on the effectiveness of the Company's internal control over
financial reporting which is included in this filing.
Changes in Internal Control Over Financial Reporting - There were no
changes in our internal control over financial reporting that occurred during
the quarter ended December 31, 2007, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
22
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Heartland Express, Inc.:
We have audited Heartland Express, Inc. and subsidiaries' (the "Company")
internal control over financial reporting as of December 31, 2007, based on
criteria established in "Internal Control--Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's
Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exits, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, Heartland Express, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2007, based on criteria established in "Internal
Control--Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Heartland Express, Inc. and subsidiaries as of December 31, 2007 and 2006, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2007,
and our report dated February 28, 2008 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Des Moines, Iowa
February 28, 2008
23
ITEM 9B. OTHER INFORMATION
NONE
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by Item 10 of Part III, with the exception of the
Code of Ethics discussed below, is incorporated herein by reference to the
Company's Proxy Statement for the annual shareholders' meeting to be held on May
8, 2008 (the "Proxy Statement").
Code of Ethics
The Company has adopted a code of ethics known as the "Code of Business
Conduct and Ethics" that applies to the Company's employees including the
principal executive officer, principal financial officer, and controller. In
addition, the Company has adopted a code of ethics known as "Code of Ethics for
Senior Financial Officers". The Company makes these codes available on its
website at www.heartlandexpress.com (and in print to any shareholder who
requests them).
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III is incorporated herein by
reference to the Company's Proxy Statement and is included within the Proxy
Statement under the heading Compensation Discussion and Analysis.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Part III is incorporated herein by
reference to the Proxy Statement and is included within the Proxy Statement
under the heading Security Ownership of Principal Stockholders and Management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 of Part III is incorporated herein by
reference to the Proxy Statement and is included within the Proxy Statement
under the headings Certain Relationships and Related Transactions and Corporate
Governance and Board of Directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 of Part III is incorporated herein by
reference to the Proxy Statement and is included within the Proxy Statement
under the heading Relationship with Independent Registered Public Accounting
Firm.
24
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements and Schedules.
Report of Independent Registered Public Accounting Firm . . . . . . . F-1
Consolidated Balance Sheets - December 31, 2007 and 2006 . . . . . . . F-2
Consolidated Statements of Income - Years ended
December 31, 2007, 2006 and 2005 . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 2007, 2006 and 2005 . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows - Years ended
December 31, 2007, 2006 and 2005 . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-6
2. Financial Statements Schedule
Valuation and Qualifying Accounts and Reserves- Years
ended December 31, 2007, 2006 and 2005 . . . . . . . . . . . . . . . S-1
Schedules not listed have been omitted because they are not applicable or
are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits - The exhibits required by Item 601 of Regulation S-K are
listed at paragraph (b) below.
(b) Exhibits. The following exhibits are filed with this form 10-K or
incorporated herein by reference to the document set forth next to the
exhibit listed below:
EXHIBIT INDEX
Exhibit No. Document Method of Filing
---------- -------- ----------------
3.1 Articles of Incorporation Incorporated by reference
to the Company's
Registration statement on
Form S-1,Registration No.
33-8165, effective
November 5, 1986.
3.2 Amended and Restated Bylaws Filed herewith
3.3 Certificate of Amendment to Incorporated by reference
Articles of Incorporation to the Company's
Form 10-QA, or the quarter
ended June 30, 1997, dated
March 20, 1998.
4.1 Articles of Incorporation Incorporated by reference
to the Company's
Registration statement on
Form S-1, Registration No.
33-8165, effective
November 5, 1986.
4.2 Amended and Restated Bylaws Filed herewith
25
4.3 Certificate of Amendment to Incorporated by reference
Articles of Incorporation to the Company's
Form 10-QA,for the quarter
ended June 30, 1997, dated
March 20, 1998.
9.1 Voting Trust Agreement dated Incorporated by reference
June 6, 1997 between Larry to the Company's Form 10-K
Crouse, as trustee under for the year ended
the Gerdin Educational Trusts, December 31,1997.
and Larry Crouse, voting trustee. Commission file no.0-15087
9.2 Voting Trust Agreement dated July Filed herewith.
10, 2007 between Lawrence D. Crouse,
as the voting trustee for certain
Grantor Retained Annuity Trusts
established by Russell A. Gerdin
and Ann S. Gerdin ("GRATS"), and Mr.
and Mrs. Gerdin, the trustees
for certain GRATS.
10.2 Restricted Stock Agreement Incorporated by reference
to the Company's
Form 10-K for the year
ended December 31, 2002.
Commission file no.0-15087
10.3 Nonqualified Deferred Incorporated by reference
Compensation Plan to the Company's Form 10-K
for the year ended
December 31, 2006.
Commission file no.0-15087
21 Subsidiaries of the Registrant Filed herewith.
31.1 Certification of Chief Executive Filed herewith.
Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
31.2 Certification of Chief Financial Filed herewith.
Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities
Exchange Act, as amended.
32 Certification of Chief Executive Filed herewith.
Officer and Chief Financial Officer
Pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
26
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: February 28, 2008 By: /s/ Russell A. Gerdin
---------------------
Russell A. Gerdin
Chief Executive Officer
(Principal executive officer)
By: /s/ John P. Cosaert
-------------------
John P. Cosaert
Executive Vice
President of Finance
and Chief Financial Officer
(Principal accounting and
financial officer)
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 and Chief Executive
--------------------- Officer
Russell A. Gerdin (Principal executive officer) February 28, 2008
/s/ Michael J. Gerdin President and Director
---------------------
Michael J. Gerdin February 28, 2008
/s/ John P. Cosaert Executive Vice President
------------------- of Finance, Chief Financial
John P. Cosaert Officer, and Treasurer
(Principal accounting and
financial officer) February 28, 2008
/s/ Richard O. Jacobson Director
-----------------------
Richard O. Jacobson February 28, 2008
/s/ Benjamin J. Allen Director
-----------------------
Benjamin J. Allen February 28, 2008
/s/ Lawrence D. Crouse Director
-----------------------
Lawrence D. Crouse February 28, 2008
/s/ James G. Pratt Director
-----------------------
James G. Pratt February 28, 2008
27
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Heartland Express, Inc.:
We have audited the accompanying consolidated balance sheets of Heartland
Express, Inc. and subsidiaries (the Company) as of December 31, 2007 and 2006,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2007. In connection with our audits of the consolidated financial statements, we
also have audited financial statement schedule II (as listed in Part IV, Item
15(a) (2) herein). These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Heartland Express,
Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes", as of January 1, 2007. As
discussed in Note 2 to the consolidated financial statements, the Company
changed its method of quantifying errors in 2006. In addition, as discussed in
Note 1 to the consolidated financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 153, "Exchanges of
Nonmonetary Assets--an amendment of APB Opinion No. 29", on July 1, 2005.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company's internal control over
financial reporting as of December 31, 2007, based on criteria established in
"Internal Control--Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February
28, 2008, expressed an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
/s/ KPMG LLP
Des Moines, Iowa
February 28, 2008
F-1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31, December 31,
ASSETS 2007 2006
CURRENT ASSETS
Cash and cash equivalents $ 7,960 $ 8,459
Short-term investments 188,643 322,829
Trade receivables, net of
allowance for doubtful
accounts of $775 at
December 31, 2007 and 2006 44,359 43,499
Prepaid tires 4,764 5,076
Other prepaid expenses 1,692 1,635
Income tax receivable 57 -
Deferred income taxes 30,443 29,177
------------ -------------
Total current assets $ 277,918 $ 410,675
------------ -------------
PROPERTY AND EQUIPMENT
Land and land improvements 17,264 12,016
Buildings 25,413 18,849
Furniture & fixtures 2,220 1,114
Shop & service equipment 4,685 2,839
Revenue equipment 320,776 309,506
------------ -------------
370,358 344,324
Less accumulated depreciation 132,545 96,293
------------ -------------
Property and equipment, net $ 237,813 $ 248,031
------------ -------------
GOODWILL 4,815 4,815
OTHER ASSETS 5,748 5,549
------------ -------------
$ 526,294 $ 669,070
============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 13,073 $ 15,076
Compensation & benefits 14,699 15,028
Income taxes payable - 21,419
Insurance accruals 60,882 56,652
Other accruals 6,718 8,248
------------ -------------
Total current liabilities $ 95,372 $ 116,423
------------ -------------
LONG-TERM LIABILITIES
Income taxes payable $ 37,593 -
Deferred income taxes 50,570 $ 57,623
------------ -------------
Total long-term liabilities $ 88,163 $ 57,623
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01;
authorized 5,000 shares; none issued - -
Capital stock; common, $.01 par value;
authorized 395,000 shares; issued and
outstanding 96,949 in 2007
and 98,252 in 2006 $ 970 $ 983
Additional paid-in capital 439 376
Retained earnings 341,350 493,665
------------ -------------
$ 342,759 $ 495,024
------------ -------------
$ 526,294 $ 669,070
============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Years Ended December 31,
-------------------------------------
2007 2006 2005
--------- --------- ---------
OPERATING REVENUE $ 591,893 $ 571,919 $ 523,792
--------- --------- ---------
OPERATING EXPENSES:
Salaries, wages, benefits $ 196,303 $ 189,179 $ 174,180
Rent and purchased transportation 21,421 24,388 29,635
Fuel 164,285 146,240 123,558
Operations and maintenance 12,314 12,647 14,955
Operating taxes and licenses 9,454 9,143 8,968
Insurance and claims 18,110 16,621 17,938
Communications and utilities 3,857 3,721 3,554
Depreciation 48,478 47,351 38,228
Other operating expenses 17,380 17,356 16,697
Gain on disposal of property
& equipment (10,159) (18,144) (8,032)
--------- --------- ---------
481,443 448,502 419,681
--------- --------- ---------
Operating income 110,450 123,417 104,111
Interest income 10,285 11,732 7,373
--------- --------- ---------
Income before income taxes 120,735 135,149 111,484
Federal and state income taxes 44,565 47,978 39,578
--------- --------- ---------
Net Income $ 76,170 $ 87,171 $ 71,906
========= ========= =========
Earnings per share $ 0.78 $ 0.89 $ 0.73
========= ========= =========
Weighted average shares outstanding 97,735 98,359 99,125
========= ========= =========
Dividends declared per share $ 2.080 $ 0.075 $ 0.060
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
Capital Additional Unearned
Stock, Paid-In Retained Compen-
Common Capital Earnings sation Total
----------- ------------ ---------- ----------- ---------
Balance, January 1, 2005 $ 751 $ 8,511 $ 380,906 $ (824) $ 389,344
Net income - - 71,906 - 71,906
Dividends on common stock, $0.060
per share - - (5,941) - (5,941)
Stock purchase (12) (8,493) (13,914) - (22,419)
Forfeiture of stock awards - (18) (4) 22 -
Amortization of share based
compensation - - - 363 363
----------- ------------ ---------- ----------- ---------
Balance, December 31, 2005 739 - 432,953 (439) 433,253
Net income - - 87,171 - 87,171
Impact of adopting SAB 108 - - (15,854) - (15,854)
Dividends on common stock, $0.075
per share - - (7,375) - (7,375)
Stock split 246 - (246) - -
Stock repurchase (2) - (2,545) - (2,547)
Reclassification of share based
compensation - - (439) 439 -
Amortization of share based
compensation - 376 - - 376
----------- ------------ ---------- ----------- ---------
Balance, December 31, 2006 983 376 493,665 - 495,024
Net income - - 76,170 - 76,170
Impact of adopting FIN 48 - - (4,798) - (4,798)
Dividends on common stock, $2.08 per
share - - (204,312) - (204,312)
Stock repurchase (13) - (19,375) - (19,388)
Amortization of share based
compensation - 63 - - 63
----------- ------------ ---------- ----------- ---------
Balance, December 31, 2007 $ 970 $ 439 $ 341,350 $ - $ 342,759
=========== ============ ========== =========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
---------------------------------------
2007 2006 2005
--------- --------- ---------
OPERATING ACTIVITIES
Net income $ 76,170 $ 87,171 $ 71,906
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 48,486 47,371 38,248
Deferred income taxes 494 5,101 (2,630)
Amortization of share based
compensation 63 376 363
Gain on disposal of property
and equipment (10,159) (18,144) (8,032)
Changes in certain working
capital items:
Trade receivables (860) (639) (5,758)
Prepaid expenses 166 (2,325) (611)
Accounts payable, accrued
liabilities, and accrued expenses 2,731 7,609 11,308
Accrued income taxes 2,506 1,554 146
--------- --------- ---------
Net cash provided by
operating activities 119,597 128,074 104,940
--------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sale of property
and equipment 13,228 1,966 2,310
Purchases of property and equipment,
net of trades (43,579) (76,056) (49,154)
Net sale (purchases) of municipal bonds 134,186 (40,574) (25,528)
Change in other assets (207) (889) (433)
--------- --------- ---------
Net cash provided by (used in)
investing activities 103,628 (115,553) (72,805)
--------- --------- ---------
FINANCING ACTIVITIES
Cash dividend (204,336) (6,882) (5,960)
Stock repurchase (19,388) (2,547) (22,419)
--------- --------- ---------
Net cash used in financing
activities (223,724) (9,429) (28,379)
--------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (499) 3,092 3,756
CASH AND CASH EQUIVALENTS
Beginning of year 8,459 5,367 1,611
--------- --------- ---------
End of year $ 7,960 $ 8,459 $ 5,367
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes, net $ 41,564 $ 41,323 $ 42,062
Noncash investing activities:
Fair value of revenue equipment
traded $ 6,429 45,669 $ 41,866
Purchased property and equipment
in accounts payable at year end 459 2,638 68
Common stock dividends declared
in accounts payable at year end 1,954 1,978 1,48
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Nature of Business:
Heartland Express, Inc., (the "Company") is a short-to-medium-haul
truckload carrier of general commodities. The Company provides nationwide
transportation service to major shippers, using late-model equipment and a
combined fleet of company-owned and owner-operator tractors. The Company's
primary traffic lanes are between customer locations east of the Rocky
Mountains. In 2005, the Company expanded to the Western United States with the
opening of a terminal in Phoenix, Arizona. The Company operates the business as
one reportable segment.
Principles of Consolidation:
The accompanying consolidated financial statements include the parent
company, Heartland Express, Inc., and its subsidiaries, all of which are wholly
owned. All material intercompany items and transactions have been eliminated in
consolidation.
Use of Estimates:
The preparation of the consolidated financial statements in conformity with
U.S. generally accepted accounting principles ("GAAP") requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash equivalents are short-term, highly liquid investments with
insignificant interest rate risk and original maturities of three months or
less. Restricted and designated cash and short-term investments totaling $5.7
million in 2007 and $5.5 million in 2006 are classified as other assets. The
restricted funds represent those required by state agencies for self-insurance
purpose and designated funds that are earmarked for a specific purpose not for
general business use.
Short-term Investments:
The Company's investments are primarily in the form of tax free short-term
auction rate educational bonds backed by the U.S. government. The investments
typically have an interest reset provision of 35 days. At the reset date the
Company has the option to roll the investment and reset the interest rate or
sell the investment in an auction. The Company receives the par value of the
investment plus accrued interest on the reset date if the underlying investment
is sold. All investments have AAA (or equivalent) rating from recognized rating
agencies. These investments are reported at amortized cost and reviewed for
impairment as deemed necessary. Investment income received is generally exempt
from federal income taxes and accrued as earned.
Trade Receivables and Allowance for Doubtful Accounts:
Revenue is recognized when freight is delivered creating a credit sale and
an accounts receivable. Credit terms for customer accounts are typically on a
net 30 day basis. The Company uses a percentage of aged receivable method in
determining the allowance for bad debts. The Company reviews the adequacy of its
allowance for doubtful accounts on a monthly basis. The Company is aggressive in
its collection efforts resulting in a low number of write-offs annually.
Conditions that would lead an account to be considered uncollectible include;
customers filing bankruptcy and the exhaustion of all practical collection
efforts. The Company will use the necessary legal recourse to recover as much of
the receivable as is practical under the law.
F-6
Property, Equipment, and Depreciation:
Property and equipment are reported at cost, net of accumulated
depreciation, while maintenance and repairs are charged to operations as
incurred. Tires are capitalized separately from revenue equipment and are
amortized over two years.
Effective July 1, 2005, gains from the trade of revenue equipment are being
recognized in operating income in compliance with Statement of Financial
Accounting Standards ("SFAS") No. 153, "Accounting for Non-monetary
Transactions". Prior to July 1, 2005, gains from the trade-in of revenue
equipment were deferred and presented as a reduction of the depreciable basis of
new revenue equipment. Operating income for the years ended December 31, 2007,
2006 and 2005 were favorably impacted by $1.9 million, $17.6 million and $6.5
million, respectively, from gains on the trade-in of revenue equipment. SFAS No.
153 was adopted prospectively July 1, 2005, thus trade-ins that occurred prior
to July 1, 2005 did not impact gain on sale.
Depreciation for financial statement purposes is computed by the
straight-line method for all assets other than tractors. Tractors are
depreciated by the 125% declining balance method. Tractors are depreciated to
salvage values of $15,000 while trailers are depreciated to salvage values of
$4,000.
Lives of the assets are as follows:
Years
Land improvements and building 3-30
Furniture and fixtures 3-5
Shop & service equipment 3-10
Revenue equipment 5-7
Advertising Costs:
The Company expenses all advertising costs as incurred. Advertising costs
are included in other operating expenses in the consolidated statements of
income. Advertising expense was $2.3 million, $3.0 million and $3.4 million for
the years ended December 31, 2007, 2006 and 2005.
Goodwill:
Goodwill is tested at least annually for impairment by applying a fair
value based analysis in accordance with the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets". Management determined that no impairment
charge was required for the years ended December 31, 2007, 2006 and 2005.
Workers' Compensation and Accident Costs:
Insurance accruals reflect the estimated cost for auto liability, cargo
loss and damage, bodily injury and property damage (BI/PD), and workers'
compensation claims, including estimated loss and loss adjustment expenses
incurred but not reported, not covered by insurance. The cost of cargo and BI/PD
insurance and claims are included in insurance and claims expense, while the
costs of workers' compensation insurance and claims are included in salaries,
wages, and benefits in the consolidated statements of income.
Revenue and Expense Recognition:
Revenue, drivers' wages and other direct operating expenses are recognized
when freight is delivered. Sales taxes and other taxes collected from customers
and remitted to the government are recorded on a net basis. Fuel surcharge
revenue charged to customers is included in operating revenue.
Earnings per Share:
Earnings per share are based upon the weighted average common shares
outstanding during each year. The Company has no common stock equivalents;
therefore, diluted earnings per share are equal to basic earnings per share. All
earnings per share data presented reflect the four-for-three stock split on May
15, 2006.
F-7
Share-Based Compensation:
The Company recorded share-based compensation arrangements in accordance
with SFAS No. 123 (revised 2004), "Share-Based Payment." This standard requires
that share-based transactions be accounted for and recognized in the statement
of income based on their fair value. At December 31, 2006, the Company had one
share-based compensation program, which is further detailed in Note 7. That
program expired in March of 2007 and, at this date, the Company does not plan
any additional share-based programs.
Impairment of Long-Lived Assets:
The Company periodically evaluates property and equipment for impairment
upon the occurrence of events or changes in circumstances that indicate the
carrying amount of assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset
group to future net undiscounted cash flows expected to be generated by the
group. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount over which the carrying amount of the
assets exceeds the fair value of the assets. There were no impairment charges
recognized during the years ended December 31, 2007, 2006, and 2005.
Income Taxes:
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amount of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Beginning with the adoption of Financial Accounting Standards Board
("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
(FIN 48) as of January 1, 2007, the Company recognizes the effect of income tax
positions only if those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount that is
greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs. Prior to the
adoption of FIN 48, the Company recognized the effect of income tax positions
only if such positions were probable of being sustained. The Company records
interest and penalties related to unrecognized tax benefits in income tax
expense.
New Accounting Pronouncements:
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No.
157 defines fair value, establishes a framework for the measurement of fair
value, and enhances disclosures about fair value measurements. SFAS No. 157 does
not require any new fair value measures. SFAS No. 157 is effective for fair
value measures already required or permitted by other standards for fiscal years
beginning after November 15, 2007. The Company is required to adopt SFAS No. 157
beginning on January 1, 2008. SFAS No. 157 is required to be applied
prospectively, except for certain financial instruments. Any transition
adjustment will be recognized as an adjustment to opening retained earnings in
the year of adoption. In November 2007, the FASB proposed a one-year deferral of
SFAS No. 157's fair-value measurement requirements for nonfinancial assets and
liabilities that are not required or permitted to be measured at fair value on a
recurring basis. As of December 31, 2007, management believes that SFAS No. 157
will have no effect on the financial position, results of operations, and cash
flows of the Company.
In 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities" ("SFAS No. 159"), which provides the Company
the option to measure many financial instruments and certain other items at fair
value that are not currently required or permitted to be measured at fair value.
SFAS No. 159 is effective for the Company January 1, 2008. Management believes
that SFAS No. 159 will have no effect on the financial position, results of
operations, and cash flows of the Company.
In December 2007, the FASB issued SFAS No. 141R, "Business Combinations"
("SFAS 141R") and SFAS Statement No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment to ARB No. 51" ("SFAS 160")
(collectively, "the Statements"). The Statements require most identifiable
assets, liabilities, noncontrolling interests, and goodwill acquired in a
business combination to be recorded at "full fair value" and require
noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions
with noncontrolling interest holders. The Statements are effective for periods.
F-8
beginning on or after December 15, 2008, and earlier adoption is prohibited.
SFAS 141R will be applied to business combinations occurring after the effective
date. SFAS 160 will be applied prospectively to all noncontrolling interests,
including any that arose before the effective date. The Company is currently
evaluating the impact of adopting the Statements on its results of operations
and financial position.
2. Adopted Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), a revision of SFAS No. 123, "Accounting for Stock Based
Compensation". SFAS 123R eliminates the ability to account for employee
share-based compensation transactions using APB Opinion No. 25, "Accounting for
Stock Issued to Employees", and generally requires instead that such
transactions be accounted for and recognized in the statement of income based on
their fair value. SFAS 123R also requires entities to estimate the number of
forfeitures expected to occur and record expense based upon the number of awards
expected to vest. The Company implemented SFAS No. 123R on January 1, 2006. The
unamortized portion of unearned compensation was reclassified to retained
earnings upon adoption. The amortization of unearned compensation is being
recorded as additional paid-in capital effective January 1, 2006. All remaining
unearned compensation was amortized as of December 31, 2007. The implementation
of SFAS No. 123R had no effect on the Company's results of operations for the
twelve months ended December 31, 2007 and 2006.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108), to address
diversity in practice in quantifying financial statement misstatements. SAB 108
requires an entity to quantify misstatements using a balance sheet and income
statement approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant quantitative and
qualitative factors. SAB 108 was effective as of the beginning of the Company's
2006 fiscal year, allowing a one-time transitional cumulative effect adjustment
to retained earnings as of January 1, 2006 for errors that were not previously
deemed material, but are material under the guidance in SAB 108. The Company
adopted the provisions of SAB No. 108 and recorded a $15.9 million cumulative
adjustment to the January 1, 2006 retained earnings for a previously unrecorded
state income tax exposure liability and related deferred tax liability. The
amount recorded pertains to potential state income tax liabilities for the years
1996 through 2005 and the impact on deferred tax liabilities for those same
years. These errors were considered immaterial under the Company's previous
method of evaluating misstatements.
In June 2006, the FASB issued FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" (an interpretation of FASB Statement No. 109) ("FIN
48"), which is effective for fiscal years beginning after December 15, 2006.
This interpretation was issued to clarify the accounting for uncertainty in
income taxes recognized in the financial statements by prescribing a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The
Company recorded a cumulative adjustment of approximately $4.8 million to
decrease the January 1, 2007 retained earnings upon adoption as allowed under
the interpretation's transition provisions.
3. Concentrations of Credit Risk and Major Customers
The Company's major customers represent the consumer goods, appliances,
food products and automotive industries. Credit is granted to customers on an
unsecured basis. The Company's five largest customers accounted for 36% of total
gross revenues for the year ended December 31, 2007 and 35% and 32% for the
years ended December 31, 2006 and 2005 respectively. Operating revenue from one
customer exceeded 10% of total gross revenues in 2007, 2006, and 2005. Annual
revenues for this customer were $77.1 million, $79.5 million, and $66.2 million,
for the years ended December 31, 2007, 2006, and 2005, respectively.
F-9
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 measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Deferred tax assets and liabilities as of December 31 are as follows:
2007 2006
--------- ---------
(in thousands)
Long-term deferred income tax
liabilities, net
Property and equipment $ 59,557 $ 57,623
Indirect tax benefits of FIN48 tax accruals (8,987) -
--------- ---------
$ 50,570 $ 57,623
--------- ---------
Current deferred income tax assets,
net:
Allowance for doubtful accounts $ 305 $ 306
Accrued expenses 6,548 6,691
Insurance accruals 23,941 22,351
Other (351) (171)
--------- ---------
$ 30,443 $ 29,177
========= =========
The Company has not recorded a valuation allowance. In management's
opinion, it is more likely than not that the Company will be able to utilize its
deferred tax assets in future periods as a result of the Company's history of
profitability, taxable income and reversal of deferred tax liabilities.
The income tax provision is as follows:
2007 2006 2005
--------- --------- ---------
Current income taxes: (in thousands)
Federal $ 37,800 $ 35,821 $ 37,709
State 6,271 7,056 4,499
--------- --------- ---------
44,071 42,877 42,208
--------- --------- ---------
Deferred income taxes:
Federal (746) 4,758 (1,825)
State 1,240 343 (805)
--------- --------- ---------
494 5,101 (2,630)
--------- --------- ---------
Total $ 44,565 $ 47,978 $ 39,578
========= ========= =========
The income tax provision differs from the amount determined by applying the
U.S. federal tax rate as follows:
2007 2006 2005
--------- --------- ---------
(in thousands)
Federal tax at statutory rate (35%) $ 42,257 $ 47,302 $ 39,019
State taxes, net of federal benefit 5,515 4,809 2,401
Non-taxable interest income (3,451) (4,039) (2,540)
Other 244 (94) 698
--------- --------- ---------
$ 44,565 $ 47,978 $ 39,578
========= ========= =========
F-10
As stated in Note 2 above, the Company adopted SAB 108 by recording a $15.9
million cumulative adjustment to retained earnings during the year ended
December 31, 2006. The Company adjusted retained earnings due to a previously
unrecorded state income tax exposure liability of $11.8 million and related
increase in the deferred tax liability of $4.1 million.
In July 2006, the FASB issued FIN 48. The Company adopted the provisions of
FIN 48, effective January 1, 2007. This interpretation was issued to clarify the
accounting for uncertainty in income taxes recognized in the financial
statements by prescribing a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return.
The Company recognized additional tax liabilities of $4.8 million with a
corresponding reduction to beginning retained earnings as of January 1, 2007 as
a result of the adoption of FIN 48. The total amount of gross unrecognized tax
benefits was $25.2 million as of January 1, 2007, the date of adoption. At
December 31, 2007, the Company had a total of $25.7 million in gross
unrecognized tax benefits. Of this amount, $16.7 million represents the amount
of unrecognized tax benefits that, if recognized, would impact our effective tax
rate. These unrecognized tax benefits relate to risks associated with state
income tax filing positions for the Company's corporate subsidiaries.
A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
(in thousands)
Balance at January 1, 2007 $ 25,180
Additions based on tax positions related
to current year 3,320
Additions for tax positions of prior years -
Reductions for tax positions of prior years -
Reductions due to lapse of applicable statute
of limitations (2,824)
Settlements -
-----------
Balance at December 31, 2007 $ 25,676
===========
The total amount of accrued interest and penalties for such unrecognized
tax benefits was $13.1 million as of January 1, 2007, the date of adoption, and
was $14.9 million at December 31, 2007 and is included in income taxes payable.
Interest and penalties related to unrecognized tax benefits are classified as
income tax expense in our consolidated statements of income and was $1.8 million
for the year ended December 31, 2007. Management's estimate of the range of the
reasonably possible change in the amount of unrecognized tax benefits is a
decrease of $2.5 to $3.5 million during the next 12 months mainly due to the
expiration of certain statute of limitations. The Company does not currently
anticipate any significant increases in unrecognized tax benefits within the
next 12 months. The federal statute of limitations remains open for the years
2004 and forward. Tax years 1997 and forward are subject to audit by state tax
authorities depending on the tax code of each state.
5. Related Party Transactions
Prior to moving into the new corporate headquarters in July 2007, the
Company leased two office buildings and a storage building from its chief
executive officer under a lease which provided for monthly rentals of
approximately $0.03 million plus the payment of all property taxes, insurance
and maintenance, which are reported in the Company's consolidated financial
statements. The lease was renewed for a five year term on June 1, 2005
increasing the monthly rental from approximately $0.025 million to approximately
$0.03 million. The lease was terminated in July 2007 with no penalties for early
termination. The Company currently rents storage space from its chief executive
officer on a month-to-month lease, which provides monthly rentals that are not
significant. In the opinion of management, the rates paid are comparable to
those that could be negotiated with a third party.
Rent expense paid to the Company's chief executive officer totaled
approximately $0.2 million, $0.3 million and $0.3 million for the years ended
December 31, 2007, 2006 and 2005 respectively. Rent expense is included in rent
and purchased transportation per the consolidated statements of income. There
were not any amounts due and not paid under these leases as of December 31,
2007.
F-11
During the first quarter of 2006, the Company purchased 16.7 acres of land
in North Liberty from the Company's chief executive officer for $1.25 million.
The purchase price was based on the fair market value that could be obtained
from an unrelated third party on an arm's length basis. The transaction
was approved by the Board of Directors.
The Company acquired a new corporate headquarters and shop facility from
its CEO on July 12, 2007 for $15.4 million. This amount represents the actual
cost of the facilities. This transaction was consummated to facilitate a
like-kind exchange for the benefit of the Company and was approved by the Board
of Directors.
6. Accident and Workers' Compensation Insurance Liabilities
The Company acts as a self-insurer for auto liability involving property
damage, personal injury, or cargo up to $1.0 million for any individual claim.
In addition, the Company is responsible for $2.0 million in the aggregate for
all claims in excess of $1.0 million and below $2.0 million. Liabilities in
excess of these amounts are assumed by an insurance company up to $50.0 million.
The Company increased the retention amount from $0.5 million to $1.0 million for
each claim effective April 1, 2003.
The Company acts as a self-insurer for workers' compensation liability up
to $1.0 million for any individual claim. The Company increased the retention
amount from $0.5 million to $1.0 million effective April 1, 2005. Liabilities in
excess of this amount are assumed by an insurance company. The State of Iowa has
required the Company to deposit $0.7 million into a trust fund as part of the
self-insurance program. This deposit has been classified in other assets on the
consolidated balance sheet. In addition, the Company has provided its insurance
carriers with letters of credit of approximately $2.5 million in connection with
its liability and workers' compensation insurance arrangements. There were no
outstanding balances due on the letters of credit at December 31, 2007 or 2006.
Accident and workers' compensation accruals include the estimated
settlements, settlement expenses and an estimate 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.
Accident and workers' compensation accruals are based upon individual case
estimates, including reserve development, and estimates of
incurred-but-not-reported losses based upon past experience. Since the reported
liability is an estimate, the ultimate liability may be more or less than
reported. If adjustments to previously established accruals are required, such
amounts are included in operating expenses in the current period.
7. Stockholders' Equity
On April 20, 2006, the Board of Directors approved a four-for-three stock
split, affected in the form of a 33 percent stock dividend. The stock split
occurred on May 15, 2006, to shareholders of record as of May 5, 2006. This
stock split increased the number of outstanding shares to 98.4 million from 73.8
million. The number of common shares issued and outstanding and all per share
amounts reflect the stock split for all periods presented.
In September, 2001, the Board of Directors of the Company authorized a
program to repurchase 15.4 million shares, adjusted for stock splits after the
approval, of the Company's Common Stock in open market or negotiated
transactions using available cash and cash equivalents. In 2007, 2006 and 2005,
respectively, 1.3 million, 0.2 million, and 1.2 million shares were repurchased
in the open market and pursuant to a trade plan under Rule 10b5-1, and retired.
The authorization to repurchase remains open at December 31, 2007 and has no
expiration date. Approximately 12.3 million shares remain authorized for
repurchase under the Board of Director's approval.
On March 7, 2002, the principal stockholder awarded approximately 0.2
million shares of his common stock to key employees of the Company. These shares
had a fair market value of $11.00 per share on the date of the award. The shares
vested over a five-year period subject to restrictions on transferability and to
forfeiture in the event of termination of employment. Any forfeited shares were
returned to the principal stockholder. The fair market value of these shares,
approximately $2.0 million on the date of the award, was treated as a
contribution of capital and was amortized on a straight-line basis over the five
year vesting period as compensation expense. Compensation expense of
approximately $0.1 million, $0.4 million, and $0.4 million, was recognized for
the years ended December 31, 2007, 2006, and 2005, respectively. The original
value of forfeited shares is treated as a reduction of additional paid in
capital and unearned compensation in the consolidated statements of
shareholders' equity. There were no shares forfeited during the years ended
December 31, 2007 and 2006. There were 2,000 shares forfeited in 2005 and no
shares forfeited in 2004.
F-12
In addition to quarterly dividends declared during 2007, the Company
announced a one-time special dividend of $2.00 per common share, approximately
$196.5 million, paid May 30, 2007 to stockholders of record on May 24, 2007.
8. Profit Sharing Plan and Retirement Plan
The Company has a retirement savings plan (the "Plan") for substantially
all employees who have completed one year of service and are 19 years of age or
older. Employees may make 401(k) contributions subject to Internal Revenue Code
limitations. The Plan provides for a discretionary profit sharing contribution
to non-driver employees and a matching contribution of a discretionary
percentage to driver employees. Company contributions totaled approximately
$1.4, million, $1.4 million, and $1.1 million, for the years ended December 31,
2007, 2006, and 2005, respectively.
9. Commitments and Contingencies
The Company is a party to ordinary, routine litigation and administrative
proceedings incidental to its business. In the opinion of management, the
Company's potential exposure under pending legal proceedings is adequately
provided for in the accompanying consolidated financial statements.
10. Quarterly Financial Information (Unaudited)
First Second Third Fourth
--------- --------- --------- ---------
(In Thousands, Except Per Share Data)
Year ended December 31, 2007
Operating revenue $ 143,429 $ 149,103 $ 146,575 $ 152,786
Operating income 31,288 28,070 26,509 24,583
Income before income taxes 34,604 30,976 28,250 26,905
Net income 22,553 19,841 17,145 16,631
Earnings per share 0.23 0.20 0.18 0.17
Year ended December 31, 2006
Operating revenue $ 134,999 $ 143,059 $ 147,057 $ 146,804
Operating income 28,099 35,499 32,534 27,284
Income before income taxes 30,605 38,406 35,675 30,462
Net income 19,740 24,772 23,011 19,648
Earnings per share (1) 0.20 0.25 0.23 0.20
(1) The above earnings per share data reflect the May 15, 2006
four-for-three stock split.
11. Subsequent Events
On January 3, 2008, the Company paid the $1.9 million dividend declared
during the fourth quarter of 2007.
Subsequent to December 31, 2007, the Company has repurchased approximately
0.8 million shares of common stock for an aggregate purchase price of
approximately $10.6 million. As a result of the stock repurchase, retained
earnings was decreased approximately $10.6 million subsequent to December 31,
2007.
During February 2008, the Company experienced approximately $110 million in
unsuccessful auctions of short-term investments. The Company will be required to
hold such investments until a successful auction occurs or the underlying
securities are called by the issuer. Management believes that current amounts of
cash and cash equivalents along with cash flows from operations are sufficient
to meet the Company's short term cash flow requirements which would not require
the sale of such short-term investments at discounted pricing. The Company will
continue to explore other financing alternatives to meet cash flow requirements
although no requirement currently exists.
F-13
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In Thousands, Except Per Share Data)
Column A Column B Column C Column D Column E
----------------------------------------------------------------------------------------------
Charges To
-------------------
Balance At Cost Balance
Beginning And Other At End
Description of Period Expense Accounts Deductions of Period
----------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended December 31, 2007 $ 775 $ 44 $ - $ 44 $ 775
Year ended December 31, 2006 775 221 - 221 775
Year ended December 31, 2005 775 84 - 84 775
S-1
Exhibit No. 3.2
AMENDED AND RESTATED BYLAWS
OF
HEARTLAND EXPRESS, INC.
ARTICLE I
OFFICES
Section 1. Principal Office.
In the State of Nevada the principal office of the Corporation shall be at
One East First Street, Reno, Washoe County, Nevada 89501.
Section 2. Additional Offices.
The Corporation may also have offices at such other places, both within and
without the State of Nevada as the Board of Directors may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place.
A meeting of stockholders for any purpose may be held at such time and
place, within or without the State of Nevada, as the Board of Directors may fix
from time to time and as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual Meeting.
Annual meetings of stockholders, commencing with the year 1987, shall be
held at any time within six (6) months after the fiscal year end and at such
place, date and time as shall, from time to time, be designated by the Board of
Directors and stated in the notice of the meeting. At such annual meeting, the
stockholders shall elect by a plurality vote a Board of Directors and transact
such other business as may properly be brought before the meeting.
Section 3. Special Meetings.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Articles of Incorporation, may be
called by the President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors, or at the request in
writing of the stockholders owning not less than twenty percent (20%) of the
entire capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meeting.
Notices of meetings shall be in writing and signed by the President or Vice
President, or the Secretary, or an assistant secretary, or by such other person
or persons as the Directors shall designate. Such notice shall state the purpose
or purposes for which the meeting is called and the time when, and the place,
which may be within or without this state, where it is to be held. A copy of
such notice shall be either delivered personally to or shall be mailed, postage
prepaid, to each stockholder of record entitled to vote at such meeting not less
than ten (10) nor more than sixty (60) days before such meeting. If mailed, it
shall be directed to a shareholder at his address as it appears on the records
of the Corporation and upon such mailing of any such notice, the service thereof
shall be complete, and the time of the notice shall begin to run from the date
upon which such notice is deposited in the mail for transmission to such
shareholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association or partnership. In the
event of the transfer of stock after delivery or mailing of the notice of or
prior to the holding of the meeting, it shall not be necessary to deliver or
mail notice of the meeting to the transferee.
Section 5. Purpose of Special Meeting.
Business transacted at any special meeting of stockholders shall be limited
to the purposes stated in the notice.
Section 6. Quorum; Adjournments.
The holders of forty percent (40%) of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or the Articles of
Incorporation. When a quorum is present or represented at any meeting, the vote
of a majority of the shares present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which by express provision of the statutes or the Articles of Incorporation a
different vote is required in which case such express provision shall govern and
control the decision of such question. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 7. Proxies.
At any meeting of the stockholders, any stockholder may be represented and
vote by proxy or proxies appointed by an instrument in writing. In the event any
such instrument in writing shall designate two or more persons to act as
proxies, a majority of such persons present at the meeting, or, if only one
shall be present, than that one shall have and may exercise all the powers
conferred by such written instrument upon all of the persons so designated
unless the instrument shall otherwise provide. No such proxy shall be valid
after the expiration of six months from the date of its execution, unless
coupled with an interest, or unless the person executing it specifies therein
the length of time for which it is to continue in force, which in no case shall
exceed seven years from the date of its execution. Subject to the above, any
proxy duly executed is not revoked and continues in full force and effect until
an instrument revoking it or a duly executed proxy bearing a later date is filed
with the Secretary of the Corporation.
Section 8. Action by Consent.
Any action, except election of directors, which may be taken by a vote of
the stockholders at a meeting, may be taken without a meeting if authorized by
the written consent of stockholders holding at least a majority of the voting
power, unless the provisions of the statutes or the Articles of Incorporation
require a greater proportion of voting power to authorize such action in which
case such greater proportion of written consents shall be required.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure.
The business of the Corporation shall be managed by its Board of Directors,
which may exercise all powers of the Corporation and perform all lawful acts and
thing which are not by law, the Articles of Incorporation or these Bylaws
directed or required to be exercised or performed by the stockholders. Within
the limits specified in this Section 1, the minimum number of directors shall be
one until such time as there is more than one stockholder and upon such event
the minimum number of directors shall be three. In the sole discretion of the
Board of Directors, the number of directors may from time to time be increased
or decreased; provided the number of directors shall not be decreased to less
than three unless there are then less than three stockholders in which event the
number of directors may be reduced to the number of then stockholders. The
directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 2 of this Article, and each director elected shall hold
office until his successor is elected and shall qualify. Directors need not be
stockholders.
Section 2. Vacancies.
If any vacancies occur in the Board of Directors, or if any new
directorships are created, they may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Each director so chosen shall hold office until the next annual meeting of
stockholders and until his successor is duly elected and shall qualify. If there
are no directors in office, any officer or stockholder may call a special
meeting of stockholders in accordance with the provisions of the Articles of
Incorporation or these Bylaws, at which meeting such vacancies shall be filled.
Section 3. Removal; Resignation.
(a) Except as otherwise provided by law or the Articles of Incorporation,
any director, directors or the entire Board of Directors may be
removed, with or without cause, by the vote or written consent of
stockholders representing not less than two-thirds of the issued and
outstanding capital stock entitled to voting power.
b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, the President or the
Secretary of the Corporation. Unless otherwise specified in such
written notice, a resignation shall take effort upon delivery thereof
to the Board of Directors or the designated officer. It shall not be
necessary for a resignation to be accepted before it becomes
effective.
Section 4. Place of Meetings.
The Board of Directors may hold meetings, both regular and special, either
within or without the State of Nevada.
Section 5. Annual Meeting.
The annual meeting of each newly elected Board of Directors shall be held
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present.
Section 6. Regular Meetings.
Additional regular meetings of the Board of Directors may be held without
notice, at such time and place as may from time to time be determined by the
Board of Directors.
Section 7. Special Meetings.
Special meetings of the Board of Directors may be called by the President
or Secretary on the written request of two directors on at least 2 days' notice
to each director, if such notice is delivered personally or sent by telegram, or
on at least 3 days' notice if sent by mail. Special meetings shall be called by
the President or Secretary in like manner and on like notice on the written
request of one-half or more of the number of directors then in office. Any such
notice need not state the purpose or purposes of such meeting except as provided
in Article X.
Section 8. Quorum; Adjournments.
At all meetings of the Board of Directors, a majority of the directors then
in office shall constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law or the Articles of Incorporation. If a quorum is
not present at any meeting of the Board of Directors, the directors present may
adjourn the meeting, from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 9. Compensation.
Directors shall be entitled to such compensation for their services as
directors and to such reimbursement for any reasonable expenses incurred in
attending meetings as may from time to time be fixed by the Board of Directors.
The compensation of directors may be on such basis as is determined by the Board
of Directors. Any director may waive compensation for any meeting. Any director
receiving compensation under these provisions shall not be barred from serving
the Corporation in any other capacity and receiving compensation and
reimbursement for reasonable expenses for such other services.
Section 10. Action by Consent.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting if a written consent, setting forth the
action so taken, is signed by all members of the Board of Directors entitled to
vote and such written consent is filed with the minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications.
The Board of Directors may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all directors
participating in the meeting can hear each other, and participation in such
meeting shall constitute presence in person by such director at such meeting.
ARTICLE IV
COMMITTEES
Section 1. Executive Committee.
The Board of Directors, by resolution adopted by a majority of the whole
Board, may appoint an Executive Committee consisting of at least one and not
more than five directors, one of whom shall be designated as Chairman of the
Executive Committee. Each member of the Executive Committee shall continue as a
member thereof until the expiration of his term as a director, or his earlier
resignation, unless sooner removed as a member or as a director.
Section 2. Powers.
The Executive Committee shall have and may exercise those rights, powers
and authority of the Board of Directors as may from time to time be granted to
it (to the extent permitted by law) by the Board of Directors and may authorize
the seal of the Corporation, if any, to be affixed to all papers which may
require it.
Section 3. Procedure; Meetings.
The Executive Committee shall fix its own rules of procedure and shall meet
at such times and at such place or places as may be provided by such rules or as
the members of the Executive Committee shall provide. The Executive Committee
shall keep regular minutes of its meetings and deliver such minutes to the Board
of Directors. The Chairman of the Executive Committee, or, in his absence, a
member of the Executive Committee chosen by a majority of the members present,
shall preside at meetings of the Executive Committee, and another member thereof
chosen by the Executive Committee shall act as Secretary of the Executive
Committee.
Section 4. Quorum.
A majority of the Executive Committee shall constitute a quorum for the
transaction of business, and the affirmative vote of a majority of the members
of the Executive Committee shall be required for any action of the Executive
Committee; provided, however, that when an Executive Committee of one member is
authorized under the provisions of Section 1 of this Article, such one member
shall constitute a quorum.
Section 5. Other Committees.
The Board of Directors, by resolutions adopted by a majority of the whole
Board-, may appoint such other committee or committees as it shall deem
advisable and with such functions and duties as the Board of Directors shall
prescribe.
Section 6. Vacancies; Changes; Discharge.
The Board of Directors shall have the power at any time to fill vacancies
in, to change the membership of, and to discharge any committee.
Section 7. Compensation.
Members of any committee shall be entitled to such compensation for their
services as members of any such committee and to such reimbursement for any
reasonable expenses incurred in attending committee meetings as may from time to
time be fixed by the Board of Directors. Any member may waive compensation for
any meeting. Any committee member receiving compensation under these provisions
shall not be barred from serving the Corporation in any other capacity and
receiving compensation and reimbursement of reasonable expenses for such other
services.
Section 8. Action by Consent.
Any action required or permitted to be taken at any meeting of any
committee of the Board of Directors may be taken without a meeting if a written
consent to such action is signed by all members of the committee and such
written consent is filed with the minutes of its proceedings.
Section 9. Meetings by Telephone or Similar Communications.
The members of any committee designated by the Board of Directors may
participate in a meeting of such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
such meeting can hear each other and participation in such meeting shall
constitute presence in person at such meeting.
ARTICLE V
NOTICES
Section 1. Form; Delivery.
Whenever, under the provisions of law, the Articles of Incorporation or
these Bylaws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice shall be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid. As to stockholders, such notice shall
be signed by the President or a vice president, or the Secretary, or an
assistant secretary, or by such other person or persons as the Board of
Directors shall designate and such notice shall state the purpose or purposes
for which the meeting is called and the time when, and the place, which may be
within or without the State of Nevada, where it is be held. Such notices shall
be deemed to have been given at the time they are deposited in the United States
mail. Notice to a director may also be given personally or by telegram sent to
his address as it appears on the records of the Corporation.
Section 2. Waiver.
Whenever any notice is required to be given under the provisions of law,
the Articles of Incorporation or these Bylaws, a written waiver thereof, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed to be equivalent to such notice. In
addition, whenever all persons entitled to vote at any meeting, whether
directors or stockholders, consent, either by a writing on the records of the
meeting or filed with the Secretary, or by presence at such meeting, and oral
consent entered on the minutes, or by taking part in the deliberations at such
meeting without objection, the actions of such meeting shall be as valid as if
had at a meeting regularly called and noticed. At such meeting any business may
be transacted which is not excepted from the written consent or to the
consideration of which no objection for want of notice is made at that time. If
any meeting is irregular for want of notice or of such consent, provided a
quorum was present at such meeting, the proceedings of the meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties, having the right to vote at
such meeting.
ARTICLE VI
OFFICERS
Section 1. Designations.
The officers of the Corporation shall be chosen by the Board of Directors.
The Board of Directors may choose a Chairman of the Board, a President, a Vice
President or Vice Presidents, a Secretary, a Treasurer, one or more Assistant
Secretaries and/or Assistant Treasurers and other officers and agents as it
shall deem necessary or appropriate. All officers of the Corporation shall
exercise such powers and perform such duties as shall from time to time be
determined by the Board of Directors. Any number of offices may be held by the
same person, unless the Articles of Incorporation or these Bylaws otherwise
provide.
Section 2. Term of Office; Removal.
The Board of Directors at its first regular meeting after each annual
meeting of stockholders shall choose a President, a Secretary and a Treasurer.
The Board of Directors may also choose a Chairman of the Board, a Vice President
or Vice Presidents, one or more Assistant Secretaries and/or Assistant
Treasurers, and such other officers and agents as it shall deem necessary or
appropriate. Each officer of the Corporation shall hold office until his
successor is chosen and shall qualify. Any officer elected or appointed by the
Board of Directors may be removed, with or without cause, at any time by the
affirmative vote of a majority of the directors then in office. Such removal
shall not prejudice the contract rights, if any, of the person so removed. Any
vacancy occurring in any office of the Corporation may be filled for the
unexpired portion of the term by the Board of Directors.
Section 3. Compensation.
The salaries of all officers of the Corporation shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a director of the Corporation.
Section 4. The Chairman of the Board.
The Chairman of the Board, if any, shall be an officer of the Corporation
and, subject to the direction of the Board of Directors, shall perform such
executive, supervisory and management functions and duties as may be assigned to
him from time to time by the Board of Directors. He shall, if present, preside
at all meetings of stockholders and of the Board of Directors.
Section 5. The President.
(a) The President shall be the chief executive officer of the Corporation
and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs and property of the
Corporation and general supervision over its other officers and
agents. In general, he shall perform all duties incident to the office
of President and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In addition to and not in
limitation of the foregoing, the President shall be empowered to
authorize any change of the principal office or registered agent (or
both) of the Corporation in the State of Nevada.
(b) Unless otherwise prescribed by the Board of Directors, the President
shall have fully power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other
corporations in which the Corporation may hold securities. At such
meeting the President shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which
the Corporation might have possessed and exercised if it had been
present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
Section 6. The Vice President.
The Vice President, if any (or in the event there be more than one, the
Vice Presidents in the order designated, or in the absence of any designation,
in the order of their election), shall, in the absence of the President or in
the event of his disability, perform the duties and exercise the powers of the
President and shall generally assist the President and perform such other duties
and have such other powers as may from time to time be prescribed by the Board
of Directors.
Section 7. The Secretary.
The Secretary shall attend meetings of the Board of Directors and all
meetings of stockholders and record all votes and the proceedings of the
meetings in a book to be kept for that purpose and shall perform like duties for
the Executive Committee or other committees, if required. He shall give, or
cause to be given, notice of all meetings of stockholders and special meetings
of the Board of Directors, and shall perform such other duties as may from time
to time be prescribed by the Board of Directors, the Chairman of the Board or
the President, under whose supervision he shall act. He shall have custody of
the seal of the Corporation, if any, and he, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal, if any, of the Corporation and to attest the
affixing thereof by his signature.
Section 8. The Assistant Secretary.
The Assistant Secretary, if any (or in the event there be more than one,
the Assistant Secretaries in the order designated, or in the absence of any
designation, in the order of their election), shall, in the absence of the
Secretary or in the event of his disability, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 9. The Treasurer.
The Treasurer shall have the custody of the corporate funds and other
valuable effects, including securities, and shall keep fully and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in. such depositories as may from time to time be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chairman of the Board, the
President and the Board of Directors, at regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer.
The Assistant Treasurer, if any (or in the event there shall be more than
one, the Assistant Treasurers in the order designated, or in the absence of any
designation, in the order of their election), shall, in the absence of the
Treasurer or in the event of his disability, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
ARTICLE VII
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
Section 1. Affiliated Transactions.
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction or
solely because his or their votes are counted for such purpose, if:
(a) The fact of the common directorship or financial interest is disclosed
or known to the Board of Directors or committee and noted in the
minutes, and the directors or committee authorizes, approves or
ratifies the contract or transaction in good faith by a vote
sufficient for the purpose without counting the vote or votes of such
director or directors; or
(b) The fact of the common directorship or financial interest is disclosed
or known to the stockholders, and they approve or ratify the contract
or transaction in good faith by a majority vote or written consent of
stockholders holding a majority of the shares entitled to vote; the
votes of common or interested directors or officers shall be counted
in any such vote of stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified.
Section 2. Determining Quorum.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee thereof
which authorizes, approves or ratifies the contract or transaction, and if the
votes of the common or interested directors are not counted at such meeting,
then a majority of the disinterested directors may authorize, approve or ratify
the contract or transaction.
ARTICLE VIII
STOCK CERTIFICATES
Section 1. Stock Certificates; Uncertificated Shares.
(a) Where any shares of the capital stock of the Corporation are
represented by certificates, each certificate shall be signed by the
Chairman of the Board or the President and the Treasurer or an
assistant treasurer or the Secretary or an assistant secretary of the
Corporation, exhibiting the number and class (and series, if any) of
shares owned by him, and bearing the seal, if any, of the Corporation.
Such signatures and seal, if any, may be facsimile. A certificate may
be manually signed by a transfer agent or registrar other than the
Corporation or its employee and may be a facsimile. In case any
officer who has signed, or whose facsimile signature was placed on, a
certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at the
date of its issue.
(b) All stock certificates representing shares of capital stock which are
subject to restrictions on transfer or to other restrictions may have
imprinted thereon such notation to such effect as may be determined by
the Board of Directors.
(c) The Board of Directors of the Corporation may authorize the issuance
of uncertificated shares of some or all of the shares of any or all of
its classes or series. The issuance of uncertificated shares shall
have no effect on existing certificates for shares until surrendered
to the Corporation, or on the respective rights and obligations of the
stockholders. Unless otherwise provided by applicable law, the rights
and obligations of stockholders shall be identical whether or not
certificates represent their shares of stock. Within a reasonable time
after the issuance or transfer of uncertificated stock, the
Corporation shall send to the registered owner of such shares a
written statement containing the information required to be set forth
or stated on actual stock certificates as specified herein or by
applicable law. At least annually thereafter, the Corporation shall
provide to its stockholders of record, a written statement confirming
the information contained in the informational statement previously
sent pursuant to this section.
Section 2. Registration of Transfer.
Upon surrender to the Corporation or any transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer; or, in the case of
uncertificated shares, upon compliance with appropriate procedures for
transferring shares in uncertificated form, it shall be the duty of the
Corporation or its transfer agent to issue a new certificate or uncertificated
share, as applicable, to the person entitled thereto, to cancel the old
certificate, if any, and to record the transaction upon its books.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be entitled
to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends
or other distributions, to vote as such owner, and to hold liable for
calls and assessments any person who is registered on its books as the
owner of shares of its capital stock. The Corporation shall not be
bound to recognize any equitable or legal claim to or interest in such
shares on the part of any other person.
(b) If a stockholder desires that notices and/or dividends shall be sent
to a name or address other than the name or address appearing on the
stock ledger maintained by the Corporation (or by the transfer agent
or registrar, if any), such stockholder shall have the duty to notify
the Corporation (or the transfer agent or registrar, if any) in
writing, of such desire. Such written notice shall specify the
alternate name or address to be used.
Section 4. Record Date.
In order that the Corporation may determine the stockholders of record who
are entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution, or to make a determination of the stockholders of record for any
other proper purpose, the Board of Directors may, in advance, fix a date as the
record date for any such determination. Such date shall not be more than 60 nor
less than 10 days before the date of such meeting, nor more than 60 days prior
to the date of any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting taken pursuant to Section 6 of Article II; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 5. Lost, Stolen or Destroyed Certificates.
The Board of Directors may direct a new certificate to be issued in place
of any certificate theretofore issued by the Corporation which is claimed to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum, or other security in such
form, as it may direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate claimed to have been lost,
stolen or destroyed.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Dividends.
Subject to the provisions of the Articles of Incorporation, dividends upon
the outstanding capital stock of the Corporation may be declared by the Board of
Directors at any regular or special meeting, pursuant to law, and may be paid in
cash, in property or in shares of the Corporation's capital stock.
Section 2. Reserves.
The Board of Directors shall have full power, subject to the provisions of
law and the Articles of Incorporation, to determine whether any, and, if so,
what part, of the funds legally available for the payment of dividends shall be
declared as dividends and paid to the stockholders of the Corporation. The Board
of Directors, in its sole discretion, may fix a sum which may be set aside or
reserved over and above the paid-in capital of the Corporation for working
capital or as a reserve for any proper purpose, and may, from time to time,
increase, diminish or vary such fund or funds.
Section 3. Fiscal Year.
The fiscal year of the Corporation shall be as determined from time to time
by the Board of Directors.
Section 4. Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its incorporation and the words "Corporate Seal" and
"Nevada."
Section 5. Nevada Acquisition of Controlling Interest Statute.
The provisions of Sections 78.378 to 78.3793, inclusive, of the Nevada
Revised Statutes shall not apply to the Company or to an acquisition of a
controlling interest (as defined in the statute) by any existing or future
stockholders of the Company.
ARTICLE X
AMENDMENTS
The Board of Directors shall have the power to make, alter and repeal these
Bylaws, and to adopt new bylaws, by an affirmative vote of a majority of the
whole Board, provided that notice of the proposal to make, alter or repeal these
Bylaws, or to adopt new bylaws, must be included in the notice of the meeting of
the Board of Directors at which such action takes place.
Exhibit No. 9.2
GERDIN CONTROLLED CORPORATION
VOTING TRUST AGREEMENT
This Voting Trust Agreement is made and entered into this 10th day of July,
2007, by LAWRENCE D. CROUSE, Voting Trustee, RUSSELL A. GERDIN of North Liberty,
Johnson County, Iowa and ANN S. GERDIN of North Liberty, Johnson County, Iowa.
PRELIMINARY STATEMENT
Russell A. Gerdin and Ann S. Gerdin (the "Gerdins") have established, and
may from time to time in the future establish and amend grantor retained annuity
trusts ("GRATs") which may direct that under certain conditions, shares of a
Controlled Corporation should be held in the GERDIN CONTROLLED CORPORATION
VOTING TRUST. All such shares shall be held and voted by the Voting Trustee in
accordance with this VOTING TRUST AGREEMENT.
The Trustee may from time to time hold shares of a Controlled Corporation
for multiple GRATs. The shares of each Controlled Corporation shall be held and
administered separately for each GRAT.
NOW, THEREFORE, it is agreed as follows:
1. Definitions.
A. The Trust created by this Voting Trust Agreement be named the
"Gerdin Controlled Corporation Voting Trust", and may be referred
to in this Voting Trust Agreement as the "Voting Trust".
B. The term "Voting Trustee" as used in this Voting Trust Agreement
shall refer initially to Lawrence D. Crouse in his capacity as
Voting Trustee of this Voting Trust, and to any other person or
entity acting as Voting Trustee, Voting Trustees or Successor
Voting Trustee. The term "Voting Trustee" may be construed in the
singular or plural, and as masculine, feminine or neuter, as the
context or circumstances may require.
C. The term "Voting Shares" shall refer to voting shares of a
Controlled Corporation, and any securities of a Controlled
Corporation that have voting rights or are convertible into or
give the right to acquire voting shares of a Controlled
Corporation, and shall include any new, substitute or additional
shares or securities with voting rights or which may be converted
to shares with voting rights.
D. The term "Controlled Corporation" shall refer to any business
entity which is a "controlled corporation" as to the Settlor of a
GRAT under Section 2036(b) of the Internal Revenue Code of 1986,
as amended.
2. Agreement. A duplicate copy of this Voting Trust Agreement, and of
every supplemental or amendatory agreement, shall be filed in the
office of the Controlled Corporation, and as otherwise required by
law. All voting trust certificates issued as hereinafter provided
shall be issued, received, and held subject to all the terms of this
Voting Trust Agreement. Every person or entity entitled to receive
voting trust certificates representing shares of capital stock of a
Controlled Corporation, and their transferees and assigns, upon
accepting the voting trust certificates issued hereunder, shall be
bound by the provisions of this Voting Trust Agreement.
3. Transfer to Voting Trustee. Each GRAT's shares of common stock of any
Controlled Corporation shall be transferred and delivered to the
Voting Trustee. All certificates for stock of any Controlled
Corporation transferred and delivered to the Voting Trustee pursuant
to this Agreement shall be surrendered by the Voting Trustee and
cancelled, and new certificates herefor shall be issued to and held by
the Voting Trustee in the name of "Lawrence D. Crouse as Voting
Trustee." Voting Trustee shall hold the Voting Shares subject to the
terms of this Voting Trust Agreement, and shall issue and deliver to
the Stockholders voting trust certificates for the shares deposited to
this Trust.
4. Voting Trust Certificates. The voting trust certificates shall be in
the following form:
Gerdin Controlled Corporation Voting Trust
Trust Certificate
No. ________ ________ Shares
Lawrence D. Crouse, Voting Trustee of the shares of (name of Controlled
Corporation), under an agreement dated ___________, 2007, having received
certain shares of the Corporation, pursuant to such agreement, which agreement
the holder hereof by accepting this certificate ratifies and adopts, hereby
certifies that the (name of GRAT) will be entitled to receive a certificate for
_________ fully paid common shares of (name of Controlled Corporation), on the
expiration of the term of the GRAT or this Voting Trust Agreement, and in the
meantime shall be entitled to receive payments equal to any cash dividends or
dividends payable in property other than voting shares of (name of Controlled
Corporation) that may be collected by the undersigned Voting Trustee upon a like
number of such shares held by it under the terms of the Voting Trust Agreement.
This certificate is transferable only on the books of the undersigned
Voting Trustee by the registered holder in person or by his duly authorized
attorney, and the holder hereof, by accepting this certificate, manifests his
consent that the undersigned Voting Trustee may treat the registered holder
hereof as the true owner for all purposes, except the delivery of share
certificates, which delivery shall not be made without the surrender hereof.
In witness whereof the Voting Trustee has executed this certificate this
____ day of ____________, 20__.
_____________________________
Lawrence D. Crouse, Voting Trustee
5. Transfer of Certificates. The voting trust certificates shall be
transferable at the Voting Trustee's principal office at 901 North
Kansas Avenue, North Liberty, Iowa 52317 (or at such other office as
the Voting Trustee may designate by an instrument signed by him and
sent by mail to the registered holders of voting trust certificates),
on the books of the Voting Trustee, by the registered owner thereof,
either in person or by attorney thereto duly authorized, upon
surrender of their voting trust certificate and execution of an
irrevocable Assignment in a form acceptable to Voting Trustee. The
Voting Trustee may treat the registered holder as owner thereof for
all purposes, but he shall not be required to deliver stock
certificates hereunder without the surrender of such voting trust
certificates.
6. Transfer or Sale of Shares. The registered holder of any Voting Trust
Certificate may, at any time, make a transfer or sale of shares
represented by the Certificate. Upon written notice of any such sale
or transfer, the Voting Trustee shall promptly deliver shares held by
this Trust in accordance with the written direction of the registered
holder. The registered holder shall be entitled to the entire proceeds
from the sale of any shares represented by the holder's Voting Trust
Certificates.
7. Termination Procedure.
(a) Upon the termination of this Agreement at any time, as
hereinafter provided, the Voting Trustee, at such time as he may
choose during the period commencing twenty (20) days before and
ending twenty (20) days after such termination, shall mail
written notice of such termination to the registered owners of
the voting trust certificates, at the addresses appearing on the
Voting Trustee's transfer books. After the date specified in any
such notice (which date shall be fixed by the Voting Trustee),
the voting trust certificates shall cease to have any effect, and
their holders shall have no further rights under this Agreement
other than to receive certificates for shares of the Controlled
Corporation's stock or other property distributable under the
terms hereof and upon the surrender of such voting trust
certificates.
(b) Within thirty (30) days after the termination of this Agreement,
the Voting Trustee shall accomplish the transfer, to the
registered holders of all voting trust certificates, of the
number of shares of the Controlled Corporation's capital stock,
represented by voting trust certificates, upon the surrender
thereof properly endorsed, such delivery to be made in each case
at the Voting Trustee's office.
8. Dividends.
(a) The holder of each voting trust certificate shall be entitled to
receive payments equal to the cash dividends, if any, received by
the Voting Trustee upon a like number and class of shares of the
Controlled Corporation's capital stock as is called for by each
such voting trust certificate. If any dividend in respect of the
stock deposited with the Voting Trustee is paid, in whole or in
part, in the Controlled Corporation's voting shares, the Voting
Trustee shall likewise hold, subject to the terms of this
Agreement, the certificates for securities which are received by
him on account of such dividend. The holder of each voting trust
certificate representing stock on which such dividend has been
paid shall be entitled to receive a voting trust certificate
issued under this Agreement for the number of shares and class of
stock received as such dividend with respect to the shares
represented by such voting trust certificate. Holders entitled to
receive the dividends described above shall be those registered
as such on the Voting Trustee's transfer books at the close of
business on the day fixed by the Controlled Corporation for the
taking of a record to determine those holders of its stock
entitled to receive such dividends.
(b) If any dividend in respect of the stock deposited with the Voting
Trustee is paid other than in cash or in voting shares of the
Controlled Corporation, then the Voting Trustee shall distribute
the same among the holders of voting trust certificates
registered as such at the close of business on the day fixed by
the Controlled Corporation for taking a record to determine the
holders of shares entitled to receive such distribution. Such
distribution shall be made to such holders of voting trust
certificates ratably, in accordance with the number of shares
represented by their respective voting trust certificates.
(c) In lieu of receiving cash dividends upon the capital stock of the
Controlled Corporation and paying the same to holders of voting
trust certificates pursuant to the provisions of this Agreement,
the Voting Trustee may instruct the Controlled Corporation in
writing to pay such dividends to the holders of the voting trust
certificates. Upon receipt of such written instructions and
acceptance by the Controlled Corporation, and until revoked by
the Voting Trustee, all liability of the Voting Trustee with
respect to such dividends shall cease. The Voting Trustee may at
any time revoke such instructions and by written notice to the
Controlled Corporation direct it to make dividend payments to the
Voting Trustee.
9. Subscription Rights. If any stock or other securities of the
Controlled Corporation are offered for subscription to the holder of
its capital stock deposited hereunder, the Voting Trustee, promptly
upon receipt of notice of such offer, shall mail a copy thereof to
each holder of the voting trust certificates. Upon receipt by the
Voting Trustee, at least five (5) days prior to the last day fixed by
the Controlled Corporation for subscription and payment, of a request
from any such registered holder of voting trust certificates to
subscribe in his behalf, accompanied with the sum of money required to
pay for such stock or securities (not in excess of the amount subject
to subscription in respect of the shares represented by the voting
trust certificate held by such certificate holder), the Voting Trustee
shall make such subscription and payment. Upon receiving from the
Controlled Corporation the certificates for shares or securities so
subscribed for, the Voting Trustee shall issue to such holder a voting
trust certificate in respect thereof if the shares or securities
received are voting shares. If, however, the shares or securities are
not voting shares, the Voting Trustee shall mail or deliver such
securities to the certificate holder in whose behalf the subscription
was made, or may instruct the Controlled Corporation to make delivery
directly to the certificate holder entitled thereto.
10. Dissolution of the Controlled Corporation. In the event of the
dissolution or total or partial liquidation of the Controlled
Corporation, whether voluntary or involuntary, the Voting Trustee
shall receive the moneys, securities, rights, or property to which the
holders of the Controlled Corporation's capital stock deposited
hereunder are entitled, and shall distribute the same among the
registered holders of voting trust certificates in proportion to their
interests, as shown by the books of the Voting Trustee. Alternatively,
the Voting Trustee may in his discretion deposit such moneys,
securities, rights, or property with any federally insured bank or
trust company doing business in Iowa City, Iowa, with authority and
instructions to distribute the same as above provided, and upon such
deposit, all further obligations or liabilities of the Voting Trustee
in respect of such moneys, securities, rights, or property so
deposited shall cease.
11. Reorganization of the Controlled Corporation. In the event of any
merger, consolidation, exchange, sale of assets, or other business
combination in which the Controlled Corporation stockholders receive
securities of another entity, then in connection with such transfer
the term "Controlled Corporation" for all purposes of this Agreement
shall be deemed to include such successor entity, and the Voting
Trustee shall receive and hold under this Agreement any of such
successor's securities having voting power of that are convertible
into or give the holder the right to acquire voting securities,
received on account of the ownership of the securities held hereunder
prior to such business combination. Voting trust certificates issued
and outstanding under this Agreement at the time of such business
combination may remain outstanding or the Voting Trustee may, in his
discretion, substitute for such voting trust certificates new voting
trust certificates in appropriate form, and the terms "stock",
"capital stock" and "securities" as used herein shall be taken to
include any securities having voting power of that are convertible
into or give the holder the right to acquire voting securities, which
may be received by the Voting Trustee in lieu of all or any part of
the Controlled Corporation's capital stock.
12. Rights of Voting Trustee.
(a) Until the actual delivery to the holders of voting trust
certificates issued hereunder of stock certificates in exchange
therefor, and until the surrender of the voting trust
certificates for cancellation, the Voting Trustee shall have the
right, subject to the provisions of this paragraph hereinafter
set forth, to exercise, in person or by his nominees or proxies,
all stockholders' voting rights and powers in respect of all
stock deposited hereunder, and to take part in or consent to any
corporate or stockholders' actions of any kind whatsoever. The
right to vote shall include the right to vote for the election of
directors, and in favor of or against any resolution or proposed
action of any character whatsoever, which may be presented at any
meeting or require the consent of the Controlled Corporation's
stockholders. Without limiting such general right, it is
understood that such action or proceeding may include, upon terms
satisfactory to the Voting Trustee or his nominees or proxies
thereto appointed by him, mortgaging, creating a security
interest in, and pledging of all or any part of the Controlled
Corporation's property, the lease or sale of all or any part of
its property, for cash, securities, or other property, and the
dissolution of the Controlled Corporation, or its consolidation,
merger, reorganization, or recapitalization.
(b) In voting the stock held by him hereunder either in person or by
his nominees or proxies, the Voting Trustee shall exercise his
best judgment to select suitable directors of the Controlled
Corporation, and shall otherwise, insofar as he may as a
stockholder of the Controlled Corporation, take such part or
action in respect to the management of its affairs as he may deem
necessary so as to be kept advised on the affairs of the
Controlled Corporation and its management. In voting upon any
matter that may come before him at any stockholders' meeting, the
Voting Trustee shall exercise like judgment. The Voting Trustee,
however, shall not be personally liable for any action taken
pursuant to his vote or any act committed or omitted to be done
under this Agreement, provided that such commission or omission
does not amount to willful misconduct on his part and that he at
all times exercises good faith in such matters.
13. Voting Trustees.
(a) The Voting Trustee (and any successor Voting Trustee) may at any
time resign by mailing to the registered holders of voting trust
certificates a written resignation, to take effect ten (10) days
thereafter or upon its prior acceptance. In the event the serving
Voting Trustee should die, resign, or for any reason become
unable to serve, then that person or entity designated by him in
writing (other than Russell A. Gerdin or Ann S. Gerdin) shall
serve as Voting Trustee hereunder. If Lawrence D. Crouse shall
fail to make such a designation or if his designation fails or
qualify, dies, resigns or otherwise becomes unable to serve, then
Richard S. Reiser shall serve as successor Voting Trustee, and if
Richard S. Reiser is for any reason unable or unwilling to serve,
then those of the Settlor's living children who are willing and
able shall serve.
(b) The rights, powers, and privileges of the Voting Trustee named
hereunder shall be possessed by the successor Voting Trustees,
with the same effect as though such successors had originally
been parties to this Agreement. The word "Voting Trustee," as
used in this Agreement, means the Voting Trustee or any successor
Voting Trustees acting hereunder, and shall include both the
single and the plural number. The words "he," "him," and "his,"
as used in this Agreement in reference to the Voting Trustee
shall mean "they," them," and "their," respectively, when more
than one Voting Trustee is acting hereunder.
14. Term.
(a) This Agreement shall continue in effect as to each GRAT until the
expiration of the term of the GRAT and the distribution of all
shares of any Controlled Corporation held by the GRAT. This
Agreement shall terminate as to all GRATS on or before December
31, 2017. The voting trust is irrevocable and shall not be
subject to amendment or modification.
(b) At any time within two (2) years prior to the time of expiration
of the term hereof as theretofore extended, the holders of all of
the voting trust certificates hereunder may, by agreement in
writing and with the Voting Trustee's written consent, extend the
duration of this Agreement for an additional period not exceeding
fifteen (15) years. In the event of such extension, the Voting
Trustee shall, prior to the time of expiration as hereinabove
provided, as originally fixed, or as theretofore extended, as the
case may be, file in any Controlled Corporation's principal
office, a copy of such extension agreement, and of the consent
thereto. Thereupon the duration of this Voting Trust Agreement
shall be extended for the period fixed by such extension
agreement, provided, however, that no such extension agreement
shall extend the term of this Agreement beyond the maximum period
then permitted by applicable law or affect the rights or
obligations of persons not parties thereto.
15. Compensation and Reimbursement of Voting Trustee. The Voting Trustee
shall serve without compensation. The Voting Trustee shall have the
right to incur and pay such reasonable expenses and charges, to employ
and pay such agents, attorneys, and counsel as he may deem necessary
and proper to effectuate this Agreement. All such expenses or charges
incurred by and due to the Voting Trustee may be deducted from the
dividends or other moneys or property received by him on the stock
deposited hereunder. Nothing herein contained shall disqualify the
Voting Trustee or successor Voting Trustees, or incapacitate him or
them from serving any Controlled Corporation or any of the
subsidiaries as officer or director, or in any other capacity, and in
any such capacity receiving compensation.
16. Notice.
(a) Unless otherwise specifically provided herein, any notice to or
communication with the holders of the voting trust certificates
hereunder shall be deemed to be sufficiently given or made if
enclosed in postpaid envelopes (regular not registered mail)
addressed to such holders at their respective addresses appearing
on the Voting Trustee's transfer books, and deposited in any post
office or post office box. The addresses of the holders of voting
trust certificates, as shown on the Voting Trustee's transfer
books, shall in all cases be deemed to be the addresses of voting
trust certificate holders for all purposes under this Agreement,
without regard to what other or different addresses the Voting
Trustee may have for any voting trust certificate holder on any
other books or records of the Voting Trustee. Every notice so
given shall be effective, whether or not received, and the date
of mailing shall be the date such notice is deemed given for all
purposes.
(b) Any notice to the Voting Trustee hereunder may be enclosed in a
postpaid envelope and sent by registered mail to the Voting
Trustee, addressed to him at such addresses as he may from time
to time furnish in writing to the Controlled Corporation, and if
no such address had been so furnished by the Voting Trustee, then
to him in care of the Controlled Corporation.
(c) All distributions of cash, securities, or other property
hereunder by the Voting Trustee to the holders of voting trust
certificates may be made, in the Voting Trustee's discretion, by
mail (regular or registered mail, as the Voting Trustee may deem
advisable), in the same manner as hereinabove provided for the
giving of notices to the holders of voting trust certificates.
17. Entire Agreement. This Agreement supersedes all prior agreements
between the parties relating to its subject matter. There are no other
understandings or agreements between them concerning the subject
matter.
18. Nonwaiver. No delay or failure by a party to exercise any right under
this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise
expressly provided herein.
19. Headings. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
21. Binding Effect. The provisions of this Agreement shall be binding upon
and inure to the benefit of each of the parties and their respective
legal representatives, successors and assigns.
IN WITNESS WHEREOF, the Voting Trustee has executed this Voting Trust
Agreement on the date and year first above written.
/s/Lawrence D. Crouse
Lawrence D. Crouse, Voting Trustee
/s/Russell A. Gerdin
Russell A. Gerdin
/s/Ann S. Gerdin
Ann S. Gerdin
Exhibit No. 21
Subsidiaries of the Registrant
State of
Incorporation
Heartland Express, Inc. Parent NV
A & M Express, Inc. Subsidiary TN
Heartland Express, Inc. of Iowa Subsidiary IA
Heartland Express Maintenance Services, Inc. Subsidiary IA
Heartland Express Services, Inc. Subsidiary IA
Exhibit No. 31.1
Certification
I, Russell A. Gerdin, Chairman and Chief Executive Officer of Heartland Express,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Heartland Express,
Inc. (the "registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
annual report based on such evaluation; and
d) Disclosed in this annual report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 28, 2008
By: /s/ Russell A. Gerdin
Russell A. Gerdin
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Exhibit No. 31.2
Certification
I, John P. Cosaert, Executive Vice President, Chief Financial Officer, and
Treasurer of Heartland Express, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Heartland Express,
Inc. (the "registrant");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
annual report based on such evaluation; and
d) Disclosed in this annual report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 28, 2008
By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Exhibit No. 32
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Russell A. Gerdin, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge, the Annual Report of Heartland Express, Inc., on Form 10-K for the
fiscal year ended December 31, 2007, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
that the information contained in such Annual Report on Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of Heartland Express, Inc.
Dated: February 28, 2008 By: /s/ Russell A. Gerdin
Russell A. Gerdin
Chairman and
Chief Executive Officer
I, John P. Cosaert, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge, the Annual Report of Heartland Express, Inc., on Form 10-K for the
fiscal year ended December 31, 2007, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
that the information contained in such Annual Report on Form 10-K fairly
presents, in all material respects, the financial condition and results of
operations of Heartland Express, Inc.
Dated: February 28, 2008 By: /s/ John P. Cosaert
John P. Cosaert
Executive Vice President-Finance
and Chief Financial Officer