UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 2008 Commission File No. 0-15087
-------------- --------
HEARTLAND EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 93-0926999
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
901 North Kansas Avenue, North Liberty, Iowa 52317
-------------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (319) 626-3600
---------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. (See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). Large
accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No {X}
At March 31, 2008, there were 96,157,633 shares of the Company's $.01 par value
common stock outstanding.
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2008 1
(Unaudited) and December 31, 2007
Consolidated Statements of Income 2
for the Three Months Ended March 31, 2008 and 2007
(Unaudited)
Consolidated Statement of Stockholders' Equity 3
for the Three Months Ended March 31, 2008 (Unaudited)
Consolidated Statements of Cash Flows 4
for the Three Months Ended March 31, 2008 and 2007
(Unaudited)
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, December 31,
ASSETS 2008 2007
--------- -----------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents ......................... $ 15,838 $ 7,960
Short-term investments ............................ 315 186,944
Trade receivables, net of
allowance for doubtful
accounts of $789 at March 31, 2008
and $775 at December 31, 2007 ................... 44,309 44,359
Prepaid tires ..................................... 4,247 4,764
Other current assets .............................. 7,246 3,391
Income tax receivable ............................. -- 57
Deferred income taxes ............................. 32,127 30,443
--------- ---------
Total current assets ..................... 104,082 277,918
--------- ---------
PROPERTY AND EQUIPMENT
Land and land improvements ........................ 17,264 17,264
Buildings ......................................... 25,413 25,413
Furniture and fixtures ............................ 2,190 2,220
Shop and service equipment ........................ 4,680 4,685
Revenue equipment ................................. 317,523 320,776
--------- ---------
367,070 370,358
Less accumulated depreciation ..................... 140,852 132,545
--------- ---------
Property and equipment, net ....................... 226,218 237,813
--------- ---------
LONG-TERM INVESTMENTS ................................ 186,606 --
GOODWILL ............................................. 4,815 4,815
OTHER ASSETS ......................................... 5,682 5,748
--------- ---------
$ 527,403 $ 526,294
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities .......... $ 13,700 $ 13,073
Compensation & benefits ........................... 15,258 14,699
Income taxes payable .............................. 9,346 --
Insurance accruals ................................ 61,600 60,882
Other accruals .................................... 7,147 6,718
--------- ---------
Total current liabilities ................ 107,051 95,372
--------- ---------
LONG-TERM LIABILITIES
Income taxes payable .............................. 36,685 37,593
Deferred income taxes ............................. 50,592 50,570
--------- ---------
Total long-term liabilities .............. 87,277 88,163
--------- ---------
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 96,158 in 2008 and 96,949 in 2007 ... 962 970
Additional paid-in capital ........................ 439 439
Accumulated other comprehensive loss .............. (11,801) --
Retained earnings ................................. 343,475 341,350
--------- ---------
333,075 342,759
--------- ---------
$ 527,403 $ 526,294
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
1
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Three months ended
March 31,
2008 2007
--------- ---------
OPERATING REVENUE .................................... $ 149,049 $ 143,429
--------- ---------
OPERATING EXPENSES:
Salaries, wages and benefits ...................... $ 48,592 $ 48,014
Rent and purchased transportation ................. 5,106 5,222
Fuel .............................................. 50,499 36,813
Operations and maintenance ........................ 3,963 3,204
Operating taxes and licenses ...................... 2,243 2,280
Insurance and claims .............................. 3,782 5,590
Communications and utilities ...................... 1,005 856
Depreciation ...................................... 10,412 11,704
Other operating expenses .......................... 4,332 4,125
Gain on disposal of property and equipment......... (644) (5,666)
--------- ---------
129,290 112,142
--------- ---------
Operating income ......................... 19,759 31,287
Interest income ...................................... 2,863 3,316
--------- ---------
Income before income taxes ........................... 22,622 34,603
Federal and state income taxes ....................... 7,959 12,050
--------- ---------
Net Income ........................................... $ 14,663 $ 22,553
========= =========
Earnings per share ................................... $ 0.15 $ 0.23
========= =========
Weighted average shares outstanding .................. 96,215 98,252
========= =========
Dividends declared per share ......................... $ 0.020 $ 0.020
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
(unaudited)
Accumu
-lated
Other
Capital Additional Compre-
Stock, Paid-In Retained hensive
Common Capital Earnings Loss Total
--------- --------- --------- --------- ---------
Balance, January 1, 2008 $ 970 $ 439 $ 341,350 - $ 342,759
Comprehensive income:
Net income - - 14,663 - 14,663
Change in unrealized
loss on available-for-sale
securities, net of tax - - - (11,801) (11,801)
---------
Total comprehensive income 2,862
Dividends on common stock,
$0.020 per share - - (1,924) - (1,924)
Stock repurchase (8) - (10,614) - (10,622)
--------- --------- --------- --------- ---------
Balance, March 31, 2008 $ 962 $ 439 $ 343,475 $ (11,801) $ 333,075
========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended
March 31,
2008 2007
--------- ---------
OPERATING ACTIVITIES
Net income $ 14,663 $ 22,553
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,412 11,709
Deferred income taxes (1,408) 1,634
Amortization of share based compensation - 63
Gain on disposal of property and equipment (644) (5,666)
Changes in certain working capital items:
Trade receivables 50 (2,005)
Prepaid expenses and other current assets (3,338) (5,193)
Accounts payable, accrued liabilities,
and accrued expenses 2,485 783
Accrued income taxes 8,495 9,721
--------- ---------
Net cash provided by operating activities 30,715 33,599
--------- ---------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 1,827 8,403
Purchases of property and equipment, net of trades (136) (6,823)
Net purchases of investments (12,032) (30,272)
Change in other assets 66 15
--------- ---------
Net cash used in investing activities (10,275) (28,677)
--------- ---------
FINANCING ACTIVITIES
Cash dividend (1,940) (1,964)
Stock repurchase (10,622) -
--------- ---------
Net cash used in financing activities (12,562) (1,964)
--------- ---------
Net increase in cash and cash equivalents 7,878 2,958
CASH AND CASH EQUIVALENTS
Beginning of period 7,960 8,459
--------- ---------
End of period $ 15,838 $ 11,417
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Income taxes, net $ 872 $ 695
Noncash investing activities:
Purchased property and equipment
in accounts payable $ 323 $ 1,882
Common stock dividends declared
in accounts payable $ 1,939 $ 1,979
The accompanying notes are an integral part of these consolidated financial
statements
4
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Heartland
Express, Inc. and subsidiaries (the "Company") have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management, all normal, recurring adjustments
considered necessary for a fair presentation have been included. The financial
statements should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2007 included in the Annual Report on
Form 10-K of the Company filed with the Securities and Exchange Commission.
Interim results of operations are not necessarily indicative of the results to
be expected for the full year or any other interim periods. There were no
changes to the Company's significant accounting policies during the quarter
other than the adoption of Statement of Financial Accounting Standards No. 157,
"Fair Value Measurements" ("SFAS 157").
Note 2. Use of Estimates
The preparation of the consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note 3. Segment Information
The Company has ten regional operating divisions in addition to our
corporate headquarters; however, it has determined that it has one reportable
segment. All of the divisions are managed based on similar economic
characteristics. Each of the regional operating divisions provides short-to
medium-haul truckload carrier services of general commodities to a similar class
of customers. In addition, each division exhibits similar financial performance,
including average revenue per mile and operating ratio. As a result of the
foregoing, the Company has determined that it is appropriate to aggregate its
operating divisions into one reportable segment, consistent with the guidance in
Statement of Financial Accounting Standards ("SFAS") No. 131. Accordingly, the
Company has not presented separate financial information for each of its
operating divisions as the Company's consolidated financial statements present
its one reportable segment.
Note 4. Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications did not have any effect on the
Company's financial position, operating income, net income or cash flows for the
period ended March 31, 2007. In the consolidated balance sheet as of March 31,
2008, the Company classified accrued interest on auction rate securities as
other current assets. The Company previously presented accrued interest on
auction rate securities as a component of short-term investments. In the
consolidated balance sheet as of December 31, 2007, the Company reclassified
$1.7 million of accrued interest from short-term investments to other current
assets. In the consolidated statement of cash flows for the period ended March
31, 2007, the Company reclassified $0.6 million from investing activities, net
purchases of investments to operating activities, changes in other current
assets.
Note 5. Adoption of SFAS 157
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS 157. SFAS 157 became effective for the Company on January 1, 2008. SFAS No.
157 defines fair value, specifies a hierarchy of valuation techniques based on
whether the inputs to those valuation techniques are observable or unobservable,
and enhances disclosures about fair value measurements. Observable inputs are
5
inputs that reflect market data obtained from sources independent of the Company
and unobservable inputs are inputs based on the Company's own assumptions based
on best information available in the circumstances. The two sources of these
inputs are used in applying the following fair value hierarchy:
o Level 1 - quoted prices in active markets for identical assets or
liabilities.
o Level 2 - quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or
liabilities in markets that are not active; modeling with inputs
that have observable inputs (i.e. interest rates observable at
commonly quoted intervals.
o Level 3 - valuation is generated from model-based techniques that
use significant assumptions not observable in the market.
Under SFAS 157, the Company must value assets and liabilities at the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value
measurements for assets and liabilities where there exists limited or no
observable market data and, therefore, are based primarily upon our own
estimates (with input from our external services providers), are calculated
based on our assessment of current market and economic conditions. Therefore,
the results cannot be determined with precision and may not be realized in an
actual sale or immediate settlement of the asset or liability. Additionally,
there may be inherent weaknesses in any calculation technique, and changes in
the underlying assumptions used, including discount rates and estimates of
future cash flows, that could significantly affect the results of current or
future values.
See Note 7 for further discussion of the impact of SFAS 157 for the period ended
March 31, 2008. The adoption of SFAS 157 did not have any impact on income from
operations, net income, and related earnings per share for the period ended
March 31, 2008.
Note 6. Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less. Restricted and designated cash and
short-term investments totaling $5.7 million at March 31, 2008 and December 31,
2007 are included in other assets. The restricted funds represent those required
by state agencies for self-insurance purposes and designated funds that are
earmarked for a specific purpose and not for general business use.
Note 7. Investments
The Company's investments are primarily in the form of tax free, auction
rate student loan educational bonds backed by the U.S. government and are
classified as available for sale. The investments typically have an interest
reset provision of 35 days with contractual maturities that range from 6 to 39
years as of March 31, 2008. 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. Primarily all investments
have AAA (or equivalent) ratings from recognized rating agencies as of March 31,
2008. There were not any gains or losses on sales of investments in the auction
process prior to auction failures.
During the quarter ended March 31, 2008 the Company began experiencing
failures in the auction process of auction rate securities held by the Company.
As of March 31, 2008, all of the Company's auction rate security investments
were associated with unsuccessful auctions. Based on the unsuccessful auctions
that began during the quarter and continued to exist at March 31, 2008, the
Company reclassified these investments to long-term investments as of March 31,
2008. Investment income received is generally exempt from federal income taxes
and is accrued as earned. Accrued interest income is included in other current
assets in the consolidated balance sheet.
The Company was required to estimate the fair market value of the auction
rate security investments in accordance with accounting regulations of SFAS 157,
"Fair Value Measurements" which became effective for the Company as of January
1, 2008. Fair market value represents an estimate of what the Company could have
sold the investments for in an orderly transaction with a third party as of the
March 31, 2008 measurement date although it is not the intent of the Company to
sell such securities at discounted pricing. Previously, the fair market value of
such investments was the recorded amortized cost due to the short-term nature of
these investments and recurring auction process, therefore until auction
failures began, the fair market value of these investments were calculated using
6
Level 1 observable inputs per SFAS 157 and fair market value was deemed to be
amortized cost. Based on auction failures beginning in mid-February 2008 on
auction rate student loan securities and other similar auction rate securities
and continued failures through the measurement date, there were not any
observable inputs for identical or similar securities as of the March 31, 2008
measurement date. Estimated fair market value of all auction rate security
investments as of March 31, 2008 was calculated using unobservable inputs, Level
3 inputs, as defined by SFAS 157. The fair market value of these investments as
of the March 31, 2008 measurement date could not be determined with precision
based on lack of observable market data and could significantly change in future
measurement periods. There were no unrealized gains (losses) recorded upon the
adoption of SFAS 157 as of January 1, 2008 and all the unrealized losses as of
March 31, 2008 relates to the Company's investment in auction rate student loan
educational bonds.
The estimated fair market value of the underlying investments as of March
31, 2008 had declined below amortized cost of the investments, as a result of
liquidity issues in the auction rate markets. With the assistance of the
Company's financial advisors, fair market values of the student loan auction
rate securities were estimated using an income approach to project cash flows of
the underlying collateral of the trust issuing the debt securities considering
the estimated average life of the underlying student loans that are the
collateral to the trusts, principal outstanding and payout formulas. These
underlying cash flows were discounted using interest rates consistent with
instruments of similar quality and duration with an adjustment for a higher
required yield for lack of liquidity in the market for these auction rate
securities. The Company obtained an understanding of assumptions in models used
by third party financial institutions to estimate fair market value. As a result
of the fair value measurements, the Company recognized an unrealized loss and
reduction to investments, of $12.1 million. There was not any unrealized loss on
investments as of December 31, 2007. The unrealized loss was recorded as an
adjustment to other comprehensive loss, $11.8 million net of tax. The Company
believes the unrealized loss is a temporary decline in fair market value. Based
on the Company's financial operating results, operating cash flows and debt free
balance sheet, the Company has the ability and intent to hold such securities
until recovery of the unrealized loss. As the Company has the intent and ability
to hold these investments until recovery, there was not any other than temporary
impairment recorded on these investments during the period ended March 31, 2008.
Management will monitor its investments and ongoing market conditions in future
periods to assess impairments considered to be other than temporary. Should
estimated fair market value remain below cost for an extended period of time or
the fair market value decrease significantly from current fair market value, the
Company may be required to record an impairment of these investments at which
point the impairment would be required to be recorded in the consolidated
statement of operations.
The table below presents a reconciliation for all assets and liabilities
measured at fair value on a recurring basis using significant unobservable
inputs (Level 3) during the quarter ended March 31, 2008.
Available-for-sale
Level 3 Fair Value Measurements debt securities (1)
(in thousands)
Balance, December 31, 2007 $ -
Purchases, sales, issuances, and settlements 12,023
Transfers in to/out of Level 3 186,427
Total gains or losses (realized/unrealized):
Included in earnings -
Included in other comprehensive loss (12,056)
-------------
Balance, March 31, 2008 $ 186,394
=============
(1) Available-for-sale auction rate debt securities had observable market
inputs as of December 31, 2007 due to successful auctions. Based on unsuccessful
auctions during the quarter ended March 31, 2008 the fair value of these
securities was changed to modeling techniques, as described previously, using
unobservable market inputs.
7
The amortized cost and fair value of investments at March 31, 2008 and
December 31, 2007 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 2008: (in thousands)
Current:
Municipal bonds $ 315 - - $ 315
Long-term
Municipal bonds 212 - - 212
Auction rate student loan
educational bonds 198,450 - 12,056 186,394
--------- ------------ --------- ----------
$ 198,662 - $ 12,056 $ 186,606
========= ============ ========= ==========
December 31, 2007:
Current:
Municipal bonds $ 517 - - $ 517
Auction rate student loan
educational bonds 186,427 - - 186,427
--------- ------------ --------- ----------
$ 186,944 - - $ 186,944
========= ============ ========= ==========
Note 8. Property, Equipment, and Depreciation
Property and equipment are stated at cost, while maintenance and repairs
are charged to operations as incurred. 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.
Note 9. Earnings Per Share:
Earnings per share are based upon the weighted average common shares
outstanding during each period. The Company has no common stock equivalents;
therefore, diluted earnings per share are equal to basic earnings per share.
Note 10. Dividends
On March 11, 2008, the Company's Board of Directors declared a regular
quarterly dividend of $0.02 per common share, approximately $1.9 million,
payable April 2, 2008 to shareholders of record at the close of business on
March 20, 2008. On April 2, 2008, the Company paid the $1.9 million dividend
declared during the first quarter of 2008.
Future payment of cash dividends and the amount of such dividends will
depend upon financial conditions, results of operations, cash requirements, tax
treatment, and certain corporate law requirements, as well as factors deemed
relevant by our Board of Directors.
Note 11. Income Taxes
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-An
Interpretation of FASB Statement No. 109 ("FIN48"). Beginning with the adoption
of FIN 48, 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. The Company records interest and
penalties related to unrecognized tax benefits in income tax expense.
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
8
benefits was $25.2 million as of January 1, 2007, the date of adoption and $25.7
million at December 31, 2007. At March 31, 2008, the Company had a total of
$24.6 million in gross unrecognized tax benefits. Of this amount, $16.0 million
represents the amount of unrecognized tax benefits that, if recognized, would
impact our effective tax rate. Unrecognized tax benefits were reduced by
approximately $1.1 million during the period ended March 31, 2008 due to the
expiration of certain statutes of limitation. There were no additional tax
accruals for uncertain tax positions recorded during the quarter ended March 31,
2008. The total amount of accrued interest and penalties for such unrecognized
tax benefits was $15.1 million at March 31, 2008 and $14.9 million at December
31, 2007. Net interest and penalties included in income tax expense for the
period ended March 31, 2008 was approximately $0.2 million and was not material
for the same period of 2007. These unrecognized tax benefits relate to risks
associated with state income tax filing positions for the Company's corporate
subsidiaries.
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 March 31, 2008, 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 $2.8 to $3.8 million mainly due to
the expiration of certain statute of limitations.
The federal statute of limitations remains open for the years 2005 and
forward. Tax years 1998 and forward are subject to audit by state tax
authorities depending on the tax code of each state.
Note 12. Share Repurchases
In September 2001, the Board of Directors of the Company authorized a
program to repurchase 15.4 million shares, as adjusted for stock splits after
the approval, of the Company's common stock in open market or negotiated
transactions using available cash, cash equivalents, and investments. The
authorization to repurchase remains open at March 31, 2008 and has no expiration
date. The repurchase program may be suspended or discontinued at any time
without prior notice.
The Company repurchased the following shares of common stock under the
above-described repurchase plan:
Three Months Ended March 31,
----------------------------
2007 2007
---------- ----------
Shares of Common Stock Repurchased (in Millions) 0.8 -
Value of stock repurchased (in Millions) $ 10.6 $ -
Note 13. Commitments and Contingencies
The Company is party to ordinary, routine litigation and administrative
proceedings incidental to its business. In the opinion of management, the
Company's potential exposure under pending legal proceedings is adequately
provided for in the accompanying consolidated financial statements.
Note 14. 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 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 $0.02 and $0.06 million for the quarter ended March 31, 2008 and
9
2007. 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 March 31, 2008.
Note 15. Accounting Pronouncements
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 became effective for the Company January 1, 2008. The adoption did
not effect 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
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.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Except for certain historical information contained herein, this Quarterly
Report on Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks, assumptions and uncertainties which are difficult to predict. All
statements, other than statements of historical fact, are statements that could
be deemed forward-looking statements, including any projections of earnings,
revenues, or other financial items; any statements of plans, strategies, and
objectives of management for future operations; any statements concerning
proposed new strategies or developments; any statements regarding future
economic conditions or performance; any statements of belief and any statement
of assumptions underlying any of the foregoing. Words such as "believe," "may,"
"could," "expects," "anticipates," and "likely," and variations of these words
or similar expressions, are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed in the section entitled "Factors That May Affect Future Results,"
included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" set forth in the Company's Annual report on Form 10-K,
which is by this reference incorporated herein. The Company does not assume, and
specifically disclaims, any obligation to update any forward-looking statements
contained in this Quarterly report.
Overview
Heartland Express, Inc. is a short-to-medium haul truckload carrier. The
Company transports freight for major shippers and generally earns revenue based
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 73.7% and 72.9% of the
2008 and 2007 operating revenues. The Company takes pride in the quality of the
service that it provides to its customers. The keys to maintaining a high level
of service are the availability of late-model equipment and experienced drivers.
Operating efficiencies and cost controls are achieved through equipment
utilization, operating a fleet of late model equipment, maintaining an industry
leading driver to non-driver employee ratio, and the effective management of
fixed and variable operating costs. At March 31, 2008, the Company's tractor
fleet had an average age of 2.3 years while the trailer fleet had an average age
of 4.1 years. The Company has grown internally by providing quality service to
targeted customers with a high density of freight in the Company's regional
operating areas. In addition to the development of its regional operating
centers, the Company has made five acquisitions since 1987. Future growth is
dependent upon several factors including the level of economic growth and the
related customer demand, the available capacity in the trucking industry,
potential of acquisition opportunities, and the availability of experienced
drivers.
The Company ended the first quarter of 2008 with operating revenues of
$149.0 million, including fuel surcharges, net income of $14.7 million, and
earnings per share of $0.15 on average outstanding shares of 96.2 million. The
Company posted an 86.7% operating ratio (operating expenses as a percentage of
operating revenues) and a 9.8% net margin (net income as a percentage of
operating revenues). The Company ended the quarter with cash, cash equivalents,
short-term and long-term investments of $202.8 million and a debt-free balance
sheet. The Company had total assets of $527.4 million at March 31, 2008. The
Company achieved a return on assets of 11.1% and a return on equity of 16.2% for
the twelve months ended March 31, 2008, compared to the twelve months ended
March 31, 2007 which were 13.7% and 18.7%, respectively. The Company's cash flow
from operations for the first three months of 2008 of $30.7 million represented
a 8.5% decrease from the same period of 2007 mainly due to a decrease in net
income adjusted for gains on disposal of property and equipment. The Company's
cash flow from operations was 20.6% of operating revenues for the quarter ended
March 31, 2008 compared to 23.4% for the same period in 2007.
The decline in the demand for freight services and an overcapacity of trucks has
negatively impacted the operating results for the three months ended March 31,
2008. The soft freight demand has resulted in downward pressures on freight and
fuel surcharge rates and has resulted in lower equipment utilization. Fuel
expense, net of fuel surcharge recoveries, increased 23.0% during the three
month period ended March 31, 2008 compared to the 2007 three month period.
11
Results of Operations:
The following table sets forth the percentage relationship of expense items
to operating revenue for the periods indicated.
Three Months Ended
March 31,
2008 2007
---------- ----------
Operating revenue 100.0% 100.0%
---------- ----------
Operating expenses:
Salaries, wages, and benefits 32.6% 33.5%
Rent and purchased transportation 3.4 3.6
Fuel 33.9 25.7
Operations and maintenance 2.7 2.2
Operating taxes and licenses 1.5 1.6
Insurance and claims 2.5 3.9
Communications and utilities 0.7 0.6
Depreciation 7.0 8.2
Other operating expenses 2.9 2.9
Gain on disposal of property and equipment (0.4) (4.0)
---------- ----------
Total operating expenses 86.7% 78.2%
---------- ----------
Operating income 13.3% 21.8%
Interest income 1.9 2.3
---------- ----------
Income before income taxes 15.2% 24.1%
Federal and state income taxes 5.3 8.4
---------- ----------
Net income 9.8% 15.7%
========== ==========
The following is a discussion of the results of operations of the three
month period ended March 31, 2008 compared with the same period in 2007.
Three Months Ended March 2008 and 2007
Operating revenue increased $5.6 million (3.9%), to $149.0 million in the
first quarter of 2008 from $143.4 million in the first quarter of 2007. The
increase in operating revenue resulted from an increase in fuel surcharge
revenue of $9.7 million to $27.8 million, offset by a decrease in line haul
revenue of approximately $4.1. The increase in fuel surcharge revenue was a
direct result of an increase in fuel costs during the period. Fuel surcharge
revenue was $18.1 million in the first quarter of 2007. The decrease in line
haul revenue was primarily due to a reduction in fleet miles as a direct result
of an overall decline in market demand for freight.
Salaries, wages, and benefits increased $0.6 million (1.2%), to $48.6
million in the first quarter of 2008 from $48.0 million in the first quarter of
2007. The increase in salaries, wages and benefits was the net result of a
decrease of approximately $1.1 million of company driver wages and $0.2 million
other benefits, offset with increases of $0.3 million in non-driver payroll,
$1.3 million in workers' compensation, and $0.3 million in health insurance
expense. Driver wages decreased $1.1 million (3.0%), due to a decrease in total
fleet miles as a direct result of an overall decline in market demand for
freight. The mix of the number of employee drivers to independent contractors
remained consistent with the same period of 2007 at 95% company drivers and 5%
independent contractors based on total fleet miles. The increase in workers'
compensation expense of $1.3 million to $2.1 million in the quarter ended March
31, 2008 from $0.8 million in for the same period in 2007 was due to an increase
in frequency and severity of claims. Health insurance expense increased $0.2
million (16.4%) to $1.7 million in the first quarter of 2008 from $1.5 million
in first quarter of 2007 due to an increase in frequency and severity of claims.
Rent and purchased transportation decreased $0.1 million (2.2%), to $5.1
million in the first quarter of 2008 from $5.2 million in the first quarter of
2007. Rent and purchased transportation for both periods includes amounts paid
to independent contractors under the Company's fuel stability program. Purchased
transportation increased approximately $0.5 million during the quarter ended
March 31, 2008 compared to the quarter ended March 31, 2007 due to an increase
12
in the Company's fuel stability program which was offset by an approximately
$0.5 million decrease in purchased transportation due to a reduction in miles
driven. Rent expenses decreased approximately $0.1 million during the quarter
ended March 31, 2008 compared to the quarter ended March 31, 2007 as a result of
the completed construction of Company headquarter facilities and Phoenix
terminal during second quarter of 2007. Both of these facilities were previously
rented properties.
Fuel increased $13.7 million (37.2%), to $50.5 million for the three months
ended March 31, 2008 from $36.8 million for the same period of 2007. The
increase is the net result of increased fuel prices, a decrease in miles driven,
and a decrease in fuel economy associated with the EPA-mandated clean air
engines requirements on tractor models acquired during 2006. The Company's fuel
cost per company-owned tractor mile increased 41.2% in first quarter of 2008
compared to 2007. Fuel cost per mile, net of fuel surcharge, increased 26.8% in
the first quarter of 2008 compared to 2007. The Company's first quarter fuel
cost per gallon increased by 41.5% in 2008 compared to 2007.
Operations and maintenance increased $0.8 million (23.7%), to $4.0 million
in the first quarter of 2008 from $3.2 million in the first quarter of 2007 due
to an increase in preventative maintenance and parts replacement largely due to
more adverse weather conditions during the first quarter of 2008 compared to the
same period of 2007 as well as increased aging of equipment.
Operating taxes and licenses was unchanged at $2.2 million for the first
quarter of 2008 and 2007. Insurance and claims decreased $1.8 million (32.3%),
to $3.8 million in the first quarter of 2008 from $5.6 million in the first
quarter of 2007 due to decreases in the frequency and severity of claims.
Depreciation decreased $1.3 million (11.0%), to $10.4 million during the
first quarter of 2008 from $11.7 million in the first quarter of 2007. The
decrease is mainly attributable to a decrease in tractor purchases for the
twelve month periods leading up to and including the quarter ends March 31, 2008
and 2007. As tractors are depreciated using the 125% declining balance methods,
depreciation expense in years subsequent to the first year after initial
purchase, decline. Tractor depreciation decreased $2.0 million to $6.9 million
in the quarter ended March 31, 2008 from $8.9 million in the quarter ended March
31, 2007. The decline in tractor depreciation was offset by an increase of $0.3
million in trailer depreciation and $0.2 million on all other assets for the
three months ended March 31, 2008 compared to the same period of 2007. The
increase in trailer depreciation was the direct result of an increase in the
average number of trailers from period to period. The increase in assets other
than tractors and trailers was due to additional building and land improvement
depreciation associated with new facilities in North Liberty, Iowa and Phoenix,
Arizona opened during 2nd and 3rd quarters of 2007.
Other operating expenses increased $0.2 million (5.0%), to $4.3 million in
the first quarter of 2008 from $4.1 million in the first quarter of 2007. Other
operating expenses consists of costs incurred for advertising expense, freight
handling, highway tolls, driver recruiting expenses, and administrative costs.
The increase of $0.2 million was mainly due to increased costs of highway tolls
and freight handling charges.
Gain on the disposal of property and equipment decreased $5.0 million
(88.6%), to $0.6 million during the first quarter of 2008 from $5.6 million in
the first quarter of 2007. The first quarter 2007 gain was primarily
attributable to the sale of an idle facility in Columbus, Ohio and the sale of
the previous corporate headquarters facility in Coralville, Iowa. Gains from the
sale of these facilities were $4.9 million. There was no property sales during
the quarter ended March 31, 2008. Gains during the first quarter of 2008 were
mainly attributable to sales of revenue equipment.
Interest income decreased $0.4 million (13.7%), to $2.9 million in the
first quarter of 2008 from $3.3 million in the same period of 2007. The decrease
is the result of lower average balances of cash, cash equivalents, short-term
and long-term investments primarily due to the payment of a special dividend in
May 2007 of approximately $196.5 million which was primarily funded with the
sale of investments.
The Company's effective tax rate was 35.2% and 34.8%, respectively, in the
first quarter of 2008 and 2007.
13
As a result of the foregoing, the Company's operating ratio (operating
expenses as a percentage of operating revenue) was 86.7% during the first
quarter of 2008 compared with 78.2% during the first quarter of 2007. Net income
decreased $7.9 million (35.0%), to $14.7 million during the first quarter of
2008 from $22.6 million during the first quarter of 2007.
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 quarter ended March 31, 2008, was
net cash provided by operating activities of $30.7 million compared to $33.6
million in 2007. This decrease of $2.9 million is due primarily to net income
(excluding non-cash depreciation, deferred tax and amortization of unearned
compensation, and gains on disposal of equipment) being approximately $7.3
million lower in quarter ended March 31, 2008 compared to the quarter ended
March 31, 2007 offset with an increase in operating cash flows due to working
capital items of approximately $4.4 million. The net increase in cash provided
by operating assets and liabilities was primarily the result of changes in
insurance accruals and accrued compensation and timing of cash outflows for
insurance premiums as well as changes in accounts receivable from period to
period. Cash flow from operating activities was 20.6% of operating revenues in
2008 compared with 23.4% in 2007.
Capital expenditures for property and equipment, net of trade-ins, totaled
$0.1 million for the first quarter of 2008 compared to $6.8 million during the
same quarter of 2007. Capital expenditures during the first quarter of 2007
included $1.6 million for construction of buildings related to our Phoenix and
North Liberty facilities. Construction of these facilities was completed during
the second and third quarters of 2007. Capital expenditures for the first
quarter of 2007 also included $5.1 million of revenue equipment. There were not
any capital expenditures for revenue equipment or construction costs during the
first quarter of 2008.
The Company paid cash dividends of $1.9 million in quarter ended March 31,
2008 compared to $2.0 million in 2007. The Company declared a $1.9 million cash
dividend in March 2008, included in accounts payable and accrued liabilities at
March 31, 2008, which was paid on April 2, 2008.
The Company paid income taxes of $0.9 million in 2008 which was slightly
higher than income taxes paid during the same period in 2007 of $0.7 million.
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 March
31, 2008 and has no expiration date. During the quarter ended March 31, 2008,
approximately 0.8 million shares of the Company's common stock were repurchased
for approximately $10.6 million at approximately $13.40 per share. The
repurchased shares were subsequently retired. There were no share repurchases
during the same period of 2007. At March 31, 2008, the Company has approximately
11.5 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 flows provided by operations and from existing cash, cash
equivalents and investments. The Company ended the quarter with $15.8 million in
cash and cash equivalents an increase of $7.8 million from December 31, 2007.
Subsequent to auction failures of auction rate student loan securities that
began in mid-February 2008, the Company has been increasing its cash and cash
equivalents with excess cash flows from operations. This redirection of excess
net cash flows accounted for the net increase in cash and cash equivalents
during the quarter ended March 31, 2008. In addition to cash and cash
equivalents, the Company had $0.3 million in short-term investments and $186.6
million in long-term investments. The Company's balance sheet remains debt free.
As of March 31, 2008, approximately 99.9% of the Company's $186.6 million
long-term investment balance was invested in auction rate student loan
educational bonds backed by the U.S. government. The majority, (approximately
96.5% of student loan auction rate securities portfolio at cost) of the
underlying investments continue to hold AAA (or equivalent) ratings from
14
recognized rating agencies. The remaining 3.5% of the student loan auction rate
securities portfolio hold AA ratings. Beginning in mid-February 2008, the
auction rate securities began experiencing auction failures due to general
liquidity concerns. Prior to the Company experiencing unsuccessful auctions, the
auction rate security investments were classified as short-term as they were
auctioned and sold or interest rates were reset through a regular auction
process occurring at least every 35 days of the initial purchase. Due to the
current lack of liquidity in these markets, the Company's current options are to
hold the investments and continue to earn average rates of return that currently
exceed the average rates of return on other AAA rated, short-term, tax free
instruments or sell its investments at a discount. Management continues to
believe 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 and therefore has chosen to hold such investments until successful
auctions resume or the investments are called by the issuer rather than selling
the securities at discounted prices. The Company is confident it would be able
to secure financing, without selling investments at a discount, based on the
Company's current debt free balance sheet and strong operating results should
the need arise.
The Company was required to estimate the fair market value of the auction
rate security investments in accordance with accounting regulations of Statement
of Financial Accounting Standards No. 157, "Fair Value Measurements" which
became effective for the Company as of January 1, 2008. Fair market value
represents an estimate of what the Company could have sold the investments for
in an orderly transaction with a third party as of the March 31, 2008
measurement date although it is not the intent of the Company to sell such
securities at discounted pricing. Previously, the fair market value of such
investments was the recorded amortized cost due to the short-term nature of
these investments and recurring auction process, therefore until auction
failures began, the fair market value of these investments were calculated using
Level 1 observable inputs per SFAS 157 and fair market value was deemed to be
amortized cost. Based on auction failures beginning in mid-February 2008 on
auction rate student loan securities and other similar auction rate securities
and continued failures through the measurement date, there were not any
observable inputs for identical or similar securities as of the March 31, 2008
measurement date. Estimated fair market value of all auction rate security
investments as of March 31, 2008 was calculated using unobservable inputs, Level
3 inputs, as defined by SFAS 157. The fair market value of these investments as
of the March 31, 2008 measurement date could not be determined with precision
based on lack of observable market data and could significantly change in future
measurement periods. There were no unrealized gains (losses) recorded upon the
adoption of SFAS 157 as of January 1, 2008 and all the unrealized losses as of
March 31, 2008 relates to the Company's investment in auction rate student loan
educational bonds.
The estimated fair market value of the underlying investments as of March
31, 2008 had declined below amortized cost of the investments, as a result of
liquidity issues in the auction rate markets. With the assistance of the
Company's financial advisors, fair market values of the student loan auction
rate securities were estimated using an income approach to project cash flows of
the underlying collateral of the trust issuing the debt securities considering
the estimated average life of the underlying student loans that are the
collateral to the trusts, principal outstanding and payout formulas. These
underlying cash flows were discounted using interest rates consistent with
instruments of similar quality and duration with an adjustment for a higher
required yield for lack of liquidity in the market for these auction rate
securities. The Company obtained an understanding of assumptions in models used
by third party financial institutions to estimate fair market value. As a result
of the fair value measurements, the Company recognized an unrealized loss and
reduction to investments, of $12.1 million. There was not any unrealized loss on
investments as of December 31, 2007. The unrealized loss was recorded as an
adjustment to other comprehensive loss, $11.8 million net of tax. The fair
market value adjustment did not have any impact on the Company's consolidated
statement of operations for the quarter ended March 31, 2008. The Company
believes the unrealized loss is a temporary decline in fair market value. Based
on the Company's financial operating results, operating cash flows and debt free
balance sheet, the Company has the ability and intent to hold such securities
until recovery of the unrealized loss. As the Company has the intent and ability
to hold these investments until recovery, there was not any other than temporary
impairment recorded on these investments during the period ended March 31, 2008.
Management will monitor its investments and ongoing market conditions in future
periods to assess impairments considered to be other than temporary. Should
estimated fair market value remain below cost for an extended period of time,
the Company may be required to record an impairment of these investments at
which point the impairment would be required to be recorded in the consolidated
statement of operations.
Currently there is legislative pressure to provide liquidity in student
loan investments, providing liquidity to state student loan agencies, to
continue to provide financial assistance to eligible students to enable higher
educations. Further, as individual trusts that are the issuers of the auction
rate student loan debt, which the Company holds, continue to pay default rates
of interest, there is the potential that the underlying trust would seek
15
alternative financing and call the existing debt at which point the Company
would receive par value of the investment. As the Company only holds senior
positions of underlying securities, the majority of the investments are over
collateralized (i.e. the amount of underlying individual student loans owed to
the trust exceed debt issued by the trust), primarily all the investments
continue to hold AAA or equivalent ratings and the investments are guaranteed by
the U.S. government, the Company currently believes it will be able to settle
such investments at or near par with no material realized gains (losses).
Net working capital for the quarter ended March 31, 2008 decreased by
$185.5 million over 2007 largely due to a decrease in short-term investments of
$186.6 million as a result of the reclassification of $186.9 million of
short-term investments to long-term during the quarter ended March 31, 2008, as
discussed above.
Off-Balance Sheet Transactions
The Company's liquidity is not affected by off-balance sheet transactions.
Risk Factors
You should refer to Item 1A of our annual report (Form 10-K) for the year
ended December 31, 2007, under the caption "Risk Factors" for specific details
on the following factors that are not within the control of the Company and
could affect our financial results.
o Our business is subject to general economic and business factors that
are largely out of our control.
o Our growth may not continue at historic rates.
o Increased prices, reduced productivity, and restricted availability of
new revenue equipment may adversely affect our earnings and cash
flows.
o If fuel prices increase significantly, our results of operations could
be adversely affected.
o Difficulty in driver and independent contractor recruitment and
retention may have a materially adverse effect on our business.
o We operate in a highly regulated industry, and increased costs of
compliance with, or liability for violation of, existing or future
regulations could have a materially adverse effect on our business.
o Our operations are subject to various environmental laws and
regulations, the violations of which could result in substantial fines
or penalties.
o We may not make acquisitions in the future, or if we do, we may not be
successful in integrating the acquired company, either of which could
have a materially adverse effect on our business.
o If we are unable to retain our key employees or find, develop, and
retain service center managers, our business, financial condition, and
results of operations could be adversely affected.
o We are highly dependent on a few major customers, the loss of one or
more of which could have a materially adverse effect on our business.
o Seasonality and the impact of weather affect our operations
profitability.
o Ongoing insurance and claims expenses could significantly reduce our
earnings.
o We are dependent on computer and communications systems, and a systems
failure could cause a significant disruption to our business.
o We operate in a highly regulated industry and changes in regulation
could have a material adverse effect on our business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Assuming we maintain our short-term and long-term investment balance
consistent with balances as of March 31, 2008, $186.9 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 March 31, 2008 and therefore, has
no market risk related to debt.
16
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 quarter ended March 31, 2008 and
2007, fuel expense, net of fuel surcharge, was $24.1 million and $19.6 million
or 18.6% and 17.5%, 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 to reduce its exposure to diesel fuel
price fluctuations. 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 basis with changes reflected in the statement of income as a
component of fuel costs. As of March 31, 2008, the Company has no derivative
financial instruments.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operations of the Company's
disclosure controls and procedures, and as defined in Exchange Act Rule
15d-15(e). Based upon that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in enabling the Company to record, process, summarize
and report information required to be included in the Company's periodic SEC
filings within the required time period. There have been no changes in the
Company's internal controls over financial reporting that occurred during the
Company's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to ordinary, routine litigation and administrative
proceedings incidental to its business. These proceedings primarily involve
claims for personal injury, property damage, and workers' compensation
incurred in connection with the transportation of freight. The Company
maintains insurance to cover liabilities arising from the transportation of
freight for amounts in excess of certain self-insured retentions.
Item 2. Changes in Securities
Purchases of Equity Securities
(d) Maximum
(c) Total number of
of shares shares that may
purchased as yet be pur-
(a) Total (b) Average part of chased under
number of price publicly the plans
shares paid per announced plans or Programs
Period Purchased share or programs (in millions)
--------------------- ----------- ----------- --------------- ------------
January 1, 2008 -
January 31, 2008 791,600 $ 13.40 791,600 11.5
February 1, 2008 -
February 29, 2008 - - - 11.5
March 1, 2008 -
March 31, 2008 - - - 11.5
----------- -------------
Total 791,600 791,600
=========== =============
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended.
31.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended.
32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1. Report on Form 8-K, dated January 25, 2008, announcing the
Company's financial results for the quarter ended December
31, 2007.
2. Report on Form 8-K, dated March 18, 2008, announcing the
declaration of a quarterly cash dividend.
No other information is required to be filed under Part II of the form.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEARTLAND EXPRESS, INC.
Date: May 9, 2008 BY: /S/ John P Cosaert
------------------
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and Treasurer
(principal accounting and
financial officer)
19
Exhibit No. 31.1
Certification
I, Russell A. Gerdin, Chairman and Chief Executive Officer of Heartland Express,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Heartland
Express, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or cause
such disclosure controls and procedures to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's independent registered public
accounting firm and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 9, 2008 By: /s/ Russell A. Gerdin
---------------------
Russell A. Gerdin
Chairman and Chief Executive Officer
20
Exhibit No. 31.2
Certification
I, John P. Cosaert, Executive Vice President, Chief Financial Officer and
Treasurer of Heartland Express, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Heartland
Express, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) Designed such internal control over financial reporting, or cause
such disclosure controls and procedures to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's independent registered public
accounting firm and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 9, 2008 By: /s/ John P. Cosaert
---------------------
John P. Cosaert
Executive Vice President-Finance
Chief Financial Officer and
Treasurer
(principal accounting and
financial officer)
21
Exhibit No. 32
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Russell A. Gerdin, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Quarterly Report of Heartland Express, Inc., on Form 10-Q for the period ended
March 31, 2007 fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, and that information contained
in such Quarterly Report on Form 10-Q fairly presents in all material respects
the financial condition and results of operations of Heartland Express, Inc.
Dated: May 9, 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 the Quarterly
Report of Heartland Express, Inc., on Form 10-Q for the period ended March 31,
2007 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, and that information contained in
such Quarterly Report on Form 10-Q fairly presents in all material respects the
financial condition and results of operations of Heartland Express, Inc.
Dated: May 9, 2008 By: /s/ John P. Cosaert
---------------------
John P. Cosaert
Executive Vice President
and Chief Financial Officer
22