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 September 30, 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 September 30, 2008, there were 96,157,633 shares of the Company's $0.01 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
September 30, 2008 (unaudited) and December 31, 2007 1
Consolidated Statements of Income
for the Three and Nine Months Ended
September 30, 2008 and 2007 (unaudited) 2
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 2008 (unaudited) 3
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2008
and 2007 (unaudited) 4
Notes to Consolidated Financial Statements 5-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
September 30, December 31,
ASSETS 2008 2007
------------- ------------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents ...................... $ 67,820 $ 7,960
Short-term investments ......................... 545 186,944
Trade receivables, net of
allowance for doubtful
accounts of $840 at
September 30, 2008 and
$775 at December 31, 2007 .................... 47,169 44,359
Prepaid tires .................................. 5,697 4,764
Other current assets ........................... 6,058 3,391
Income tax receivable .......................... 473 57
Deferred income taxes .......................... 33,033 30,443
--------- ---------
Total current assets ................. 160,795 277,918
--------- ---------
PROPERTY AND EQUIPMENT
Land and land improvements ..................... 17,442 17,264
Buildings ...................................... 26,761 25,413
Furniture & fixtures ........................... 2,269 2,220
Shop & service equipment ....................... 4,883 4,685
Revenue equipment .............................. 326,762 320,776
--------- ---------
378,117 370,358
Less accumulated depreciation .................. 154,798 132,545
--------- ---------
Property and equipment, net .................... 223,319 237,813
--------- ---------
LONG-TERM INVESTMENTS ............................. 180,622 --
GOODWILL .......................................... 4,815 4,815
OTHER ASSETS ...................................... 5,622 5,748
--------- ---------
$ 575,173 $ 526,294
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities .................................. $ 28,712 $ 13,073
Compensation & benefits ........................ 16,254 14,699
Insurance accruals ............................. 67,061 60,882
Other accruals ................................. 7,746 6,718
--------- ---------
Total current liabilities ............ 119,773 95,372
--------- ---------
LONG-TERM LIABILITIES
Income taxes payable ........................... 35,023 37,593
Deferred income taxes .......................... 52,015 50,570
--------- ---------
Total long-term liabilities .......... 87,038 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
Retained earnings .............................. 375,584 341,350
Accumulated other comprehensive loss ........... (8,623) --
--------- ---------
Total stockholders' equity ........... 368,362 342,759
--------- ---------
$ 575,173 $ 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)
Three Months Ended Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
2008 2007 2008 2007
---- ---- ---- ----
Operating revenue ................. $ 169,935 $ 146,575 $ 483,577 $ 439,107
--------- --------- --------- ---------
Operating expenses:
Salaries, wages, and benefits ... $ 51,462 $ 48,096 $ 148,646 $ 147,060
Rent and purchased transportation 4,725 5,252 14,975 16,117
Fuel ............................ 58,393 40,747 169,386 117,257
Operations and maintenance ...... 4,051 3,253 12,367 9,957
Operating taxes and licenses .... 2,323 2,552 6,908 7,170
Insurance and claims ............ 6,443 2,826 17,237 14,104
Communications and utilities .... 856 996 2,792 2,865
Depreciation .................... 11,504 12,365 32,580 35,946
Other operating expenses ........ 4,456 4,472 12,928 13,036
Gain on disposal of property
and equipment ................. (2,899) (493) (3,533) (10,271)
--------- --------- --------- ---------
Total operating expenses ........ 141,314 120,066 414,286 353,241
--------- --------- --------- ---------
Operating income .......... 28,621 26,509 69,291 85,866
Interest income ................... 1,943 1,741 7,042 7,963
--------- --------- --------- ---------
Income before income taxes ........ 30,564 28,250 76,333 93,829
Federal and state income taxes .... 11,841 11,105 25,715 34,290
--------- --------- --------- ---------
Net income ........................ $ 18,723 $ 17,145 $ 50,618 $ 59,539
========= ========= ========= =========
Earnings per share ................ $ 0.19 $ 0.18 $ 0.53 $ 0.61
========= ========= ========= =========
Weighted average shares outstanding 96,158 97,499 96,177 97,998
========= ========= ========= =========
Dividends declared per share ...... $ 0.020 $ 0.020 $ 0.060 $ 2.065
========= ========= ========= =========
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)
Accumulated
Capital Additional Other
Stock, Paid-In Retained Comprehensive
Common Capital Earnings Loss Total
--------- --------- --------- --------- ---------
Balance, December 31, 2007 . $ 970 $ 439 $ 341,350 -- $ 342,759
Comprehensive income:
Net income ............... -- -- 50,618 -- 50,618
Unrealized loss on
available-for-sale
securities,
net of tax ............. -- -- -- (8,623) (8,623)
---------
Total comprehensive income 41,995
Dividends on common stock,
$0.06 per share ......... -- -- (5,770) -- (5,770)
Stock repurchase ........... (8) -- (10,614) -- (10,622)
--------- --------- --------- --------- ---------
Balance, September 30, 2008 $ 962 $ 439 $ 375,584 $ (8,623) $ 368,362
========= ========= ========= ========= =========
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)
Nine months ended
September 30,
(Unaudited)
2008 2007
OPERATING ACTIVITIES
Net income .............................................. $ 50,618 $ 59,539
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ........................ 32,580 35,954
Deferred income taxes ................................ (891) 1,555
Amortization of share based compensation ............. -- 63
Gain on disposal of property and equipment ........... (3,533) (10,271)
Changes in certain working capital items:
Trade receivables .................................. (2,810) (5,660)
Prepaid expenses and other current assets .......... (2,843) (1,959)
Accounts payable, accrued liabilities, and accrued . 11,631 5,286
expenses
Accrued income taxes ............................... (2,986) 1,517
--------- ---------
Net cash provided by operating activities ........... 81,766 86,024
--------- ---------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment ............ 1,833 13,221
Purchases of property and equipment, net of trades ...... (4,357) (41,201)
Net (purchases) sales of investments .................... (3,100) 160,738
Change in other assets .................................. 126 (187)
--------- ---------
Net cash (used in) provided by investing activities .. (5,498) 132,571
--------- ---------
FINANCING ACTIVITIES
Cash dividend ........................................ (5,786) (202,396)
Stock repurchase ..................................... (10,622) (19,289)
--------- ---------
Net cash used in financing activities ..... (16,408) (221,685)
--------- ---------
Net increase (decrease) in cash and cash equivalents .... 59,860 (3,090)
CASH AND CASH EQUIVALENTS
Beginning of period ..................................... 7,960 8,459
--------- ---------
End of period ........................................... $ 67,820 5,369
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes, net .................................... $ 29,583 $ 31,218
Noncash investing and financing activities:
Fair value of revenue and equipment traded ........... $ 7,297 $ 6,429
Purchased property and equipment in accounts payable $ 13,245 $ 1,882
Common stock dividends declared in accounts payable .. $ 1,939 $ 1,954
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
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and accompanying notes 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 nine month period ended September 30, 2008 other
than the adoption of Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("SFAS 157") as discussed in Note 5.
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 September 30, 2007. In the consolidated balance sheet as of
September 30, 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 short-term investments. In the
consolidated balance sheet as of December 31, 2007, the Company reclassified
$1.7 million from short-term investments to other current assets. In the
consolidated statement of cash flows for the period ended September 30, 2007,
the Company reclassified $0.5 million from investing activities as a component
of net purchases of investments, to operating activities as a component of
changes in other current assets.
5
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
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. In
October, 2008 the FASB issued Staff Position No. 157-3, "Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active", ("SOP
157-3") and is effective as of the date of issuance including periods for which
financial statements have not yet been issued. SOP 157-3 specifically provides
guidance regarding the considerations necessary when markets are inactive. The
guidance indicates that quotes from brokers or pricing services may be relevant
inputs when measuring fair value, but are not necessarily determinative in the
absence of an active market for the asset.
Application of SFAS 157 for fair value measurements is primarily related to
the valuation of investments as discussed in Note 7. 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 and SOP 157-3
for the period ended September 30, 2008. The adoption of SFAS 157 and SOP 157-3
did not have any impact on income from operations, net income, and related
earnings per share for the three month or nine month periods ended September 30,
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 $5.6 million at September 30, 2008 and $5.7
million at December 31, 2007 are included in other non-current 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 September 30, 2008. At the reset date the Company has the option to
roll the investments and reset the interest rate or sell the investments 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 (96.3% of par value) have AAA (or equivalent) ratings from
6
recognized rating agencies as of September 30, 2008. There were no gains
(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 September 30, 2008, all of the Company's auction rate securities were
associated with unsuccessful auctions. Based on the unsuccessful auctions that
began during February 2008 and continued through September 30, 2008, the Company
reclassified these investments to long-term investments. In addition, the
Company recorded an adjustment to fair value to reflect the lack of liquidity in
these securities as discussed in more detail below. This is consistent with the
presentation made in the financial statements as of March 31, 2008 and June 30,
2008. To date, there have been no instances of delinquencies or non-payment of
applicable interest from the issuers. 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 value of the auction rate
securities applying guidance in SFAS 157, "Fair Value Measurements" which became
effective for the Company as of January 1, 2008. Fair 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 September 30, 2008 measurement date
although it is not the intent of the Company to sell such securities at
discounted pricing. Historically, the fair value of such investments was
reported based on amortized cost. Until auction failures began, the fair value
of these investments were calculated using Level 1 observable inputs per SFAS
157 and fair value was deemed to be equivalent to amortized cost due to the
short-term and regularly occurring auction process. Based on auction failures
beginning in mid-February 2008 and continued failures through September 30,
2008, there were not any observable quoted prices or other relevant inputs for
identical or similar securities. Estimated fair value of all auction rate
security investments as of September 30, 2008 was calculated using unobservable,
Level 3 inputs, as defined by SFAS 157 due to the lack of observable market
inputs specifically related to student loan auction rate securities. The fair
value of these investments as of the September 30, 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 September 30, 2008 relate to the
Company's investment in auction rate student loan educational bonds.
The estimated fair value of the underlying investments as of September 30,
2008 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 values of the student loan auction rate securities were
estimated using a discounted cash flow approach to value 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, expected rates of returns, 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 value and considered
these assumptions in the Company's cash flow models but did not exclusively use
the fair values provided by financial institutions based on their internal
modeling. The Company is aware that trading of student loan auction rate
securities is occurring in secondary markets which were considered in the
Company's fair value assessment although the Company has not listed any of its
assets for sale on the secondary market. As a result of the fair value
measurements, the Company recognized an unrealized loss and reduction to
investments, of $8.6 million during the nine month period ended September 30,
2008. There was not any unrealized loss on investments as of December 31, 2007
as the auctions had functioned regularly through that date. The unrealized loss
of $8.6 million net of tax was recorded as an adjustment to other accumulated
comprehensive loss.
The Company has evaluated the unrealized losses to determine whether this
decline is other than temporary. Management has concluded the decline in fair
value to be temporary based on the following considerations:
7
o Current market activity and the lack of severity or extended decline
do not warrant such action at this time.
o During June 2008, the Company received $1.1 million as the result of a
partial call by an issuer. The Company received par value for the
amount of the call.
o During July 2008, the Company received $8.0 million in calls at par
and subsequent to September 30, 2008 the Company has received $0.7
million in calls, further evidencing that the underlying investments
are being settled at par.
o 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.
o There have not been any significant changes in collateralization and
ratings of the underlying securities since the first failed auction.
The Company continues to hold 96.3% of the auction rate security
portfolio in senior positions of AAA (or equivalent) rated securities.
The other 3.7% of the auction rate security portfolio is covered by
the principle terms of a settlement agreement in which the Company
will receive par for the underlying auction rate security holdings no
later than July 2, 2012. Current rates of returns on these holdings,
which are considerably higher than comparable investments and will not
reset until March 2009, and the fact the Company will receive par
value of the investment no later than July 2, 2012, supports a value
for these investments of par value.
o The Company is not aware of any changes in default rates of the
underlying student loans that are the assets to the trusts issuing the
auction rate security debt.
o 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. This has the potential to impact
existing securities with underlying student loans.
o As individual trusts that are the issuers of the auction rate student
loan debt, which the Company holds, continue to pay higher default
rates of interest, there is the potential that the underlying trust
would seek alternative financing and call the existing debt at which
point it is estimated the Company would receive par value of the
investment.
o All ARS investments are held with financial institutions that have
agreed in principle to settlement agreements with various regulatory
agencies to provide liquidity. Although the principles of the
respective settlement agreements focus mostly on small investors
(generally companies and individual investors with auction rate
security assets less than $25 million), the respective settlements
state the financial institutions will work with issuers and other
interested parties to use their best efforts to provide liquidity
solutions to companies not specifically covered by the principle terms
of the respective settlements by the end of 2009.
In addition to the items noted above, the Company has the intent and
ability to hold these investments until recovery, therefore there was not
any other than temporary impairment recorded on these investments during
the period ended September 30, 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 value continue to remain below cost or the fair value
decrease significantly from current fair value, the Company may be required to
record an impairment of these investments, through a charge 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 nine month period ended September 30, 2008.
8
Available-for-sale
Level 3 Fair Value Measurements debt securities (1)
(in thousands)
Balance, December 31, 2007 $ -
Purchases, sales, issuances, and settlements 2,818
Transfers in to (out of) Level 3 186,427
Total gains or losses (realized/unrealized):
Included in earnings -
Included in other comprehensive loss (8,623)
----------
Balance, September 30, 2008 $ 180,622
==========
(1) Available-for-sale auction rate securities had observable market inputs
and were valued at amortized cost at December 31, 2007 based on regular,
successful auctions. Based on unsuccessful auctions during the nine months ended
September 30, 2008, the fair value of these securities was changed to modeling
techniques, as described previously, using unobservable market inputs.
The amortized cost and fair value of investments at September 30, 2008 and
December 31, 2007 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
September 30, 2008: (in thousands)
Current:
Municipal bonds $ 545 - - $ 545
Long-term
Auction rate student
loan educational bonds 189,500 - 8,878 180,622
--------- --------- --------- ---------
$ 189,790 - $ 8,623 $ 180,622
========= ========= ========= =========
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. Heartland Express has no common stock
equivalents; therefore, diluted earnings per share are equal to basic earnings
per share.
9
Note 10. Dividends
On September 8, 2008, the Company's Board of Directors declared a regular
quarterly dividend of $0.02 per common share, approximately $1.9 million,
payable October 2, 2008 to shareholders of record at the close of business on
September 19, 2008. On October 2, 2008, the Company paid the $1.9 million
dividend declared during the third 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
benefits was $25.2 million as of January 1, 2007, the date of adoption and $25.7
million at December 31, 2007. At September 30, 2008, the Company had a total of
$23.0 million in gross unrecognized tax benefits. Of this amount, $14.9 million
represents the amount of unrecognized tax benefits that, if recognized, would
impact our effective tax rate. Unrecognized tax benefits were increased by
approximately $0.5 million during the three month period ended September 30,
2008 due to risks associated with state income tax filing positions for the
Company's corporate subsidiaries. Unrecognized tax benefits were a net decrease
of approximately $2.7 million during the nine month period ended September 30,
2008, due to the expiration of certain statutes of limitation net of additions.
The total net amount of accrued interest and penalties for such unrecognized tax
benefits was $12.1 million at September 30, 2008 and $11.9 million at December
31, 2007. Net interest and penalties included in income tax expense for the
three and nine month periods ended September 30, 2008 was an additional tax
expense of approximately $0.4 million and $0.1 million, respectively. Net
interest and penalties included in income tax expense for the three and nine
month periods ended September 30, 2007 was an additional tax expense of $0.9
million and $1.2 million, respectively. These unrecognized tax benefits relate
to risks associated with state income tax filing positions for the Company's
corporate subsidiaries.
The Company's effective tax rate was 38.8% and 39.3 %, respectively, in the
three months ended September 30, 2008 and 2007. The Company's effective tax rate
was 33.7% and 36.6%, respectively, in the nine months ended September 30, 2008
and 2007. The decrease in the effective tax rate for the nine months ending
September 30, 2008 is primarily attributable to a favorable income tax expense
adjustment as a result of the application of FASB Interpretation No. 48 ("FIN
48"). Under the application of FIN 48 during the nine months ended September 30,
2008, the Company reduced its liability for unrecognized tax benefits and
associated penalties and interest for lapses in applicable statute of
limitations and during the nine months ended September 30, 2007, the Company
increased its liability for unrecognized tax benefits. The associated tax
benefit (expense) was $2.9 million and ($1.4) million for the nine month periods
ended September 30, 2008 and 2007, respectively. The associated changes for the
three month periods ended September 30, 2008 and 2007 were not material.
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 September 30, 2008, the Company did not have any ongoing examinations or
10
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 $1.6 to $2.1 million during the next
twelve months mainly due to the expiration of certain statute of limitations net
of additional interest accruals.
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. 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.
During the quarter ended September 30, 2008 the Company entered into a
commitment for a tractor fleet upgrade and the purchase of additional trailers.
The commitment is expected to include the purchase of approximately 1,600 new
tractors and 400 new trailers with a total estimated purchase commitment of
approximately $84 million net of trade value of traded tractors.
The delivery of the equipment began during the quarter ended September 30,
2008 and is expected to continue throughout 2009. As of September 30, 2008 the
Company had approximately $82 million of this net commitment remaining of which
the Company had $12.9 million of equipment purchases recorded in accounts
payable and accrued liabilities. The remaining commitment will be reduced as
equipment is delivered and paid. Subsequent to September 30, 2008, the Company
paid approximately $24 million towards these commitments.
Note 13. 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 September 30, 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:
Nine Months Ended September 30,
-------------------------------
2008 2007
-------- ------
Shares of Common Stock Repurchased (in Millions) 0.8 -
Value of stock repurchased (in Millions) $ 10.6 -
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. During the nine months ended September 30, 2008, the Company rented
storage space from its chief executive officer on a month-to-month lease, which
provided monthly rentals that were not significant. In the opinion of
management, the rates paid were comparable to those that could have been
negotiated with a third party.
11
Rent expense paid to the Company's chief executive officer for the three
months ended September 30, 2008 was not material and there was no rent expense
paid to the chief executive officer during the three months ended September 30,
2007. Rent expense paid to the chief executive officer totaled approximately
$0.04 million and $0.05 million for the nine months ended September 30, 2008 and
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 September 30, 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.
On May 9, 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles" ("SFAS No. 162") which reorganizes the generally
accepted accounting principles ("GAAP") hierarchy as detailed in the statement.
The purpose of the new standard is to improve financial reporting by providing a
consistent framework for determining what accounting principles should be used
when preparing U.S. GAAP financial statements. SFAS No. 162 will be effective 60
days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles. The Company does not expect the
adoption of SFAS No. 162 to effect the financial position, results of operations
or cash flows of the Company.
Note 16. Subsequent Event
Subsequent to September 30, 2008, the Company repurchased 969,100 shares of
common stock for a total purchase price of $12.9 million under a repurchase
program authorized by the board of directors in September 2001. See Note 13 for
additional information.
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,"
12
"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 nine regional operating centers plus its corporate
headquarters. The Company's nine regional operating centers, accounted for 73.5%
and 71.1% of the third quarter 2008 and 2007 operating revenues and 73.6% and
72.5% of the operating revenues for the nine month period ended September 30,
2008 and 2007. 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 September 30, 2008, the Company's tractor
fleet had an average age of 2.5 years while the trailer fleet had an average age
of 4.4 years. During the quarter ended September 30, 2008, the Company began a
tractor fleet upgrade covering approximately half of the Company's tractor
fleet. The Company took delivery of 197 new tractors of the anticipated total of
1600 and delivery of the new trucks will continue for the remainder of 2008 and
throughout 2009. 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 third quarter of 2008 with operating revenues of
$169.9 million, including fuel surcharges, net income of $18.7 million, and
earnings per share of $0.19 on average outstanding shares of 96.2 million. The
Company posted an 83.2% operating ratio (net operating expenses as a percentage
of operating revenues) and an 11.0% 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 $249.0 million and a debt-free balance
sheet. The Company had total assets of $575.2 million at September 30, 2008. The
Company achieved a return on assets of 12.3% and a return on equity of 19.3% for
the twelve months ended September 30, 2008, compared to the twelve months ended
September 30, 2007 which were 13.6% and 19.3%, respectively. The Company's cash
flow from operations for the first nine months of 2008 of $81.8 million
represented a 4.2 million (5.0%) decrease from the same period of 2007 mainly
due to a $8.9 million (15%) decrease in net income offset by $3.8 increase from
working capital items further offset by $0.9 million change in noncash items.
The Company's cash flow from operations was 16.9% of operating revenues for the
nine month period ended September 30, 2008 compared to 19.6% for the same period
in 2007.
The overall demand for freight services continues to be tight, an
overcapacity of trucks and continued historical highs in fuel pricing continued
to negatively impact the operating results for the three and nine month periods
ended September 30, 2008. Although fuel expense continues to negatively impact
our operating results, the Company did experience decreasing fuel prices in the
second half of the third quarter. The increase in the demand for freight late in
the second quarter of 2008 did not continue throughout the third quarter. The
soft freight demand continued to result in downward pressures on freight and
fuel surcharge rates and has resulted in lower equipment utilization for the
three and nine month periods ended September 30, 2008.
13
Fuel expense, net of fuel surcharge recoveries, decreased 7.0% during the three
month period ended September 30, 2008 compared to the same period of 2007 due to
decreases in fuel prices experienced in the second half of the third quarter of
2008 and increased 13.4% during the nine month period ended September 30, 2008
compared to the same period of 2007 driven by higher net fuel cost experienced
during the nine month period ended September 30, 2008.
Results of Operations:
The following table sets forth the percentage relationship of expense items
to operating revenue for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
-------- ------- ------- -------
Operating revenue .............................. 100.0% 100.0% 100.0% 100.0%
-------- ------- ------- -------
Operating expenses:
Salaries, wages, and benefits ............ 30.3% 32.8% 30.7% 33.5%
Rent and purchased transportation ........ 2.8 3.6 3.1 3.7
Fuel ..................................... 34.4 27.8 35.0 26.7
Operations and maintenance ............... 2.4 2.2 2.6 2.3
Operating taxes and licenses ............. 1.4 1.7 1.4 1.6
Insurance and claims ..................... 3.8 1.9 3.6 3.2
Communications and utilities ............. 0.5 0.7 0.6 0.7
Depreciation ............................. 6.8 8.4 6.7 8.2
Other operating expenses ................. 2.6 3.1 2.7 3.0
Gain on disposal of property and equipment (1.7) (0.3) (0.7) (2.3)
-------- ------- ------- -------
Total operating expenses ................. 83.2% 81.9% 85.7% 80.4%
-------- ------- ------- -------
Operating income ................. 16.8% 18.1% 14.3% 19.6%
Interest income ................................ 1.1 1.2 1.5 1.8
-------- ------- ------- -------
Income before income taxes ....... 18.0% 19.3% 15.8% 21.4%
Federal and state income taxes ................. 7.0 7.6 5.3 7.8
-------- ------- ------- -------
Net income ....................... 11.0% 11.7% 10.5% 13.6%
======== ======= ======= =======
The following is a discussion of the results of operations of the three and
nine month period ended September 30, 2008 compared with the same period in
2007.
Three Months Ended September 2008 and 2007
Operating revenue increased $23.4 million (15.9%), to $169.9 million in the
third quarter of 2008 from $146.6 million in the third quarter of 2007. The
increase in revenue resulted from an increase in fuel surcharge revenue of $18.9
million to $40.4 million, with additional increases in line haul revenue of
approximately $4.5 million. The increase in fuel surcharge revenue was a direct
result of an increase in fuel costs during the period. Fuel surcharge revenue
was $21.5 million in the third quarter of 2007. The increase in line haul
revenue was due to an increase in fleet miles, $3.0 million, as a result of
higher market demand for freight early in the quarter, and overall rate
improvements of approximately $1.3 million due to changes in the mix of freight
hauled.
Salaries, wages, and benefits increased $3.4 million (7.0%), to $51.5
million in the third quarter of 2008 from $48.1 million in the third quarter of
2007. The increase in salaries, wages and benefits was the result of increases
of approximately $1.0 million in company driver wages, approximately $0.5
million in health insurance and approximately $1.4 million in workers'
compensation and an increase of $0.3 million in non-driver payroll with the
remaining increase of $0.2 million due to higher payroll taxes as a result of
14
higher payroll costs. Driver wages increased $1.0 million (2.8%), due to an
increase in total fleet miles as discussed above. Further, the mix of the number
of employee drivers to independent contractors increased slightly to a mix of
96% company drivers and 4% independent contractors during the quarter ended
September 30, 2008 compared to 95% company drivers and 5% independent
contractors during the same period of 2007. The increase in workers'
compensation expense, $1.4 million to $2.7 million in the quarter ended
September 30, 2008 from $1.3 million in for the same period in 2007 due to an
increase in frequency and severity of claims. Health insurance expense also
increased $0.5 million to $2.3 million in the third quarter of 2008 from $1.8
million in third quarter of 2007 due to an increase in frequency and severity of
claims.
Rent and purchased transportation decreased $0.5 million (10.0%), to $4.7
million in the third quarter of 2008 from $5.2 million in the third quarter of
2007. Rent and purchased transportation for both periods includes amounts paid
to independent contractors under the Company's fuel stability program. The
decrease reflects the net effect of the Company's decreased number of
independent contractors resulting in an overall decrease in miles driven by
independent contractors ($1.0 million) and an increase of amounts paid under the
Company's fuel stability program ($0.5 million).
Fuel increased $17.6 million (43.3%), to $58.4 million for the three months
ended September 30, 2008 from $40.7 million for the same period of 2007. The
increase is the result of increased fuel prices and an increase in miles driven,
with minimal change in the overall fuel economy of our fleet. The Company's fuel
cost per mile per company-owned tractor mile increased 46.8% in third quarter of
2008 compared to 2007. Fuel cost per mile, net of fuel surcharge, decreased 7.3%
in the third quarter of 2008 compared to 2007 as a result of declining fuel
prices in the third quarter of 2008 compared to a period of rising fuel prices
in the third quarter of 2007. Offsetting the net decrease in fuel cost per mile
was the Company's third quarter fuel cost per gallon, $4.03 per gallon, which
increased by 46.8% in 2008 compared to the same period of 2007, $2.75 per
gallon, and higher empty miles which the Company does not receive any fuel
surcharge revenue.
Operations and maintenance increased $0.8 million (24.5%), to $4.1 million
in the third quarter of 2008 from $3.3 million in the third quarter of 2007 due
to an increase in preventative maintenance, maintenance and parts replacement
directly related to an increase in average age of our tractor fleet.
Insurance and claims increased $3.6 million (128.0%), to $6.4 million in
the third quarter of 2008 from $2.8 million in the third quarter of 2007 due to
an increase in the severity of larger claims.
Depreciation decreased $0.9 million (7.0%), to $11.5 million during the
third quarter of 2008 from $12.4 million in the third 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 quarters ended September
30, 2008 and 2007. As tractors are depreciated using the 125% declining balance
methods, depreciation expense declines in years subsequent to the first year
after initial purchase and continue to decline with the age of the fleet.
Tractor depreciation decreased $0.7 million to $8.2 million in the quarter ended
September 30, 2008 from $8.9 million in the quarter ended September 30, 2007.
There was an additional decline in trailer depreciation of $0.1 from $2.7
million to $2.6 million as a net result of a higher number of trailers in the
fleet offset by trailers that have become fully depreciated in 2008 due to an
increase in the age of our trailer fleet.
Gain on the disposal of property and equipment increased $2.4 million, to
$2.9 million from a gain of $0.5 million in the third quarter of 2007.
Approximately all of the $2.4 million increase is attributable to a substantial
increase in the number of tractors traded during the 2008 period compared to
tractor sales/trades during the 2007 period as the Company began a tractor fleet
upgrade during the third quarter of 2008. There were not any substantial gains
or losses on any other property or equipment sales during the quarter ended
September 30, 2008 and 2007.
15
Interest income increased $0.2 million (11.6%) in the third quarter of 2008
compared to the 2007 period as a result of a 36.6% increase in average cash,
cash equivalents, and investments held during each period. The increase in
average cash, cash equivalents, and investments is 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. Offsetting the increase in
average interest bearing balances was a decrease in the average return on the
balances.
The Company's effective tax rate did not materially change in the third
quarter of 2008 compared to the third quarter of 2007.
As a result of the foregoing, the Company's operating ratio (net operating
expenses as a percentage of operating revenue) was 83.2% during the third
quarter of 2008 compared with 81.9% during the third quarter of 2007. Net income
increased $1.6 million (9.2%), to $18.7 million during the third quarter of 2008
from $17.1 million during the third quarter of 2007.
Nine Months Ended September 2008 and 2007
Operating revenue increased $44.5 million (10.1%), to $483.6 million in the
nine months ending September 30, 2008 from $439.1 million in the 2007 period.
The increase in revenue resulted from an increase in fuel surcharge revenue of
$45.9 million to $106.6 million offset by a net decrease in line haul revenue of
approximately $1.4 million. The increase in fuel surcharge revenue was a direct
result of an increase in fuel costs during the period. Fuel surcharge revenue
was $60.7 million for the nine months ended September 30, 2007. The decrease in
line haul revenue was due to a reduction in fleet miles, $4.5 million, as a
direct result of an overall decline in market demand for freight that the
Company experienced during the first nine months of 2008 compared to 2007. The
decrease in line haul revenue due to reduction of fleet miles was offset
approximately $3.1 million due to average line haul rate improvements for the
nine months ending September 30, 2008 compared to the same period of 2007.
Salaries, wages, and benefits increased $1.5 million (1.1%), to $148.6
million in the nine months ended September 30, 2008 from $147.1 million in the
2007 period. The increase in salaries, wages and benefits was the net result of
decreases of approximately $0.7 million in company driver wages and $0.2 million
in other benefits, offset by increases of approximately $1.2 million in workers'
compensation, approximately $0.5 in health insurance benefits, and $0.8 million
in non-driver payroll. Driver wages decreased $0.7 million (0.6%), due to a
decrease in total fleet miles as a direct result of an overall softness in
market demand for freight during the first nine months of 2008 compared to the
same period of 2007. The mix of the number of employee drivers to independent
contractors increased slightly to a mix of 96% company drivers and 4%
independent contractors during the nine months ended September 30, 2008 compared
to 95% company drivers and 5% independent contractors during the same period of
2007. The increase in workers' compensation expense, $1.2 million (26.7%) to
$5.6 million in the nine month period ended September 30, 2008 from $4.4 million
in for the same period in 2007 was directly attributable to an increase in
frequency and severity of claims. The increase in health insurance benefits was
attributable to an increase in the frequency and severity of claims. The
increase in non-driver payroll was mostly due to increased levels of shop and
sales support personnel.
Rent and purchased transportation decreased $1.1 million (7.1%), to $15.0
million in the first nine months of 2008 from $16.1 million in the compared
period of 2007. Rent and purchased transportation for both periods includes
amounts paid to independent contractors under the Company's fuel stability
program. The decrease reflects the net effect of the Company's decreased number
of independent contractors that contributed to an overall decrease in payments
for miles driven by independent contractors ($2.6 million) offset by an increase
in amounts paid under the Company's fuel stability program ($1.5 million).
Fuel increased $52.1 million (44.5%), to $169.4 million for the nine months
ended September 30, 2008 from $117.3 million for the same period of 2007. The
increase is the net result of increased fuel prices ($52.4 million) and a
decrease in miles driven ($0.3 million). The Company's fuel cost per
company-owned tractor mile increased 44.7% in first nine months of 2008 compared
to the same period of 2007. Fuel cost per mile, net of fuel surcharge, increased
16
13.2% in the first nine months of 2008 compared to the same period of 2007. The
Company's fuel cost per gallon for the first nine months of 2008, $3.86 per
gallon, increased by 49.7% in 2008 compared to the same period of 2007, $2.57
per gallon.
Operations and maintenance increased $2.4 million (24.2%), to $12.4 million
in the nine months ended September 30, 2008 from $10.0 million for 2007 due to
an increase in preventative maintenance, maintenance and parts replacement
directly related to an increase in average age of our tractor fleet as well as
more adverse weather conditions during the first three months of 2008 compared
to the same period of 2007.
Insurance and claims increased $3.1 million (22.2%), to $17.2 million in
the nine months ended September 30, 2008 from $14.1 million in the same period
of 2007 due mainly to increases in the frequency and severity of larger claims.
Depreciation decreased $3.3 million (9.4%), to $32.6 million for the nine
month period ended September 30, 2008 from $35.9 million in the same period of
2007. The decrease is mainly attributable to a decrease in tractor purchases for
the twelve month periods leading up to and including the first nine months of
2008 and 2007. As tractors are depreciated using the 125% declining balance
methods, depreciation expense declines in years subsequent to the first year
after initial purchase and continues to decrease with the age of the fleet.
Tractor depreciation decreased $4.3 million to $22.3 million in the nine month
period ended September 30, 2008 from $26.6 million in the quarter ended
September 30, 2007 due primarily to a decrease in average depreciation per unit.
The decline in tractor depreciation was offset by an increase of $0.3 million in
trailer depreciation and $0.6 million on all other assets for the nine month
period ended September 30, 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 of approximately 6% offset by
no depreciation on fully depreciated trailers. The increase in other asset
depreciation is due to new facilities in North Liberty, Iowa and Phoenix,
Arizona opened during 2nd and 3rd quarters of 2007.
Gain on the disposal of property and equipment decreased $6.8 million
(65.6%), to $3.5 million during the nine months ended September 30, 2008 from
$10.3 million in the same period of 2007. There was an increase of approximately
$0.1 million due to an increase in the number of tractors and trailers traded or
sold during the 2008 period compared to the 2007 period. Offsetting this
increase was a decrease of approximately $6.9 million in gains during the nine
month period ended September 30, 2007 attributable to sales of real estate held
in Dubois, Pennsylvania that was being leased to an unrelated third party as
well as an idle facility in Columbus, Ohio and property in Coralville, Iowa. The
proceeds received from those sales was used in the financing the new corporate
headquarters in North Liberty, Iowa. There was not any property sales during the
nine month period ended September 30, 2008.
Interest income decreased $0.9 million (11.6%), to $7.0 million in the nine
months ended September 30, 2008 from $8.0 million in the same period of 2007 as
the net result of a 22.7% decrease in average cash, cash equivalents, and
investments held during each period offset by an increase in the overall rate of
return of approximately 2.1%. The decrease in average cash, cash equivalents,
and investments is 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 33.7% and 36.5%, respectively, in the
nine months ended September 30, 2008 and 2007. The decrease in the effective tax
rate was largely attributable to favorable income tax expense adjustments as a
result of the application of FIN 48. Under the application of FIN 48, the
Company reduced its liability in the nine months ended September 30, 2008 by
$2.9 million mainly due to expiration of statute of limitations, for
unrecognized tax benefits related to risks associated with state income tax
filing positions for the Company's corporate subsidiaries. The associated change
during the same period of 2007 was a $1.4 million increase to tax expense.
17
As a result of the foregoing, the Company's operating ratio (net operating
expenses as a percentage of operating revenue) was 85.7% during the first nine
months of 2008 compared with 80.4% during the first nine months of 2007. Net
income decreased $8.9 million (15.0%), to $50.6 million during the first nine
months of 2008 from $59.5 million during the compared 2007 period.
Liquidity and Capital Resources
The growth of the Company's business requires significant investments in
new revenue equipment. Historically the Company has been debt-free, funding
revenue equipment purchases with cash flow provided by operations. 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 nine months ended September 30,
2008, was net cash provided by operating activities of $81.8 million compared to
$86.0 million in 2007. This decrease of $4.2 million is due primarily to a
decrease of net income (excluding non-cash depreciation, deferred tax and
amortization of unearned compensation, and gains on disposal of equipment) of
approximately $8.0 million in the nine month period ended September 30, 2008
compared to the same period of 2007. Offsetting this decrease was an increase in
operating cash inflows due to working capital items of approximately $3.8
million. The net increase in cash inflows by operating assets and liabilities
was primarily the result of increases in accounts receivable collections, higher
accounts payable and accrued expenses as well as timing and amount of tax
payments from period to period. Cash flow from operating activities was 16.9 %
of operating revenues in 2008 compared with 19.6% in 2007.
Capital expenditures for property and equipment, net of trade-ins, totaled
$4.4 million for the first nine months of 2008 compared to $41.2 million during
the same period of 2007. Capital expenditures during the first nine months of
2007 included $3.8 million for construction of buildings related to our Phoenix
and North Liberty facilities which were opened in 2007. Construction of these
facilities was completed during the second and third quarters of 2007. Capital
expenditures for the first nine months of 2007 also included $10.4 million of
tractors and $11.4 million of trailers. In 2008 there were $0.5 million in
tractor purchases, $1.8 million in trailer purchases, and $1.5 million for the
acquisition of a terminal location near Dallas, Texas. There were not any
capital expenditures for construction costs during the first nine months of
2008.
The Company paid cash dividends of $5.8 million in the nine month period
ended September 30, 2008 compared to $202.4 million in 2007. The Company
declared a $1.9 million cash dividend in September 2008, included in accounts
payable and accrued liabilities at September 30, 2008, which was paid on October
2, 2008. Dividends paid during the nine month period ended September 30, 2007
included a special dividend of $2.00 per share, $196.5 million.
The Company paid income taxes of $29.6 million, net of refunds; in 2008
which was $1.6 million lower than income taxes paid during the same period in
2007 of $31.2 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
September 30, 2008 and has no expiration date. During the nine months ended
September 30, 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 September 30, 2008, the Company
has approximately 11.5 million shares remaining under the current Board of
Director repurchase authorization. Subsequent to the period ended September 30,
2008 the Company repurchased an additional 969,100 shares for approximately
$12.9 million. 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 short and long-term which are expected
to be funded from cash flows provided by operations and from existing
18
cash and cash equivalents. The Company ended the quarter with $67.8 million in
cash and cash equivalents, an increase of $59.8 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 nine month period ended September 30, 2008. In addition to cash and
cash equivalents, the Company had $0.5 million in short-term investments and
$180.6 million in long-term investments. The Company's balance sheet remains
debt free.
As of September 30, 2008, approximately 96.3% (par value) of the Company's
$180.6 million long-term investment balance was invested in auction rate student
loan educational bonds backed by the U.S. government. The majority,
(approximately 96.3% of student loan auction rate securities portfolio at cost)
of the underlying investments continue to hold AAA (or equivalent) ratings from
recognized rating agencies. The remaining 3.7% of the student loan auction rate
securities portfolio hold AA ratings and were insurance backed securities.
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 generally occurring at least every 35
days from 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, strong operating results and certain financial
institutions offering no net cost loans against our current auction rate
securities holdings related to the financial institution's settlement with
various regulatory agencies, discussed further below, should the need arise.
The Company was required to estimate the fair value of the auction rate
securities applying guidance in SFAS 157, "Fair Value Measurements" which became
effective for the Company as of January 1, 2008. Fair 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 September 30, 2008 measurement date
although it is not the intent of the Company to sell such securities at
discounted pricing. Historically, the fair value of such investments was
reported based on amortized cost. Until auction failures began, the fair value
of these investments were calculated using Level 1 observable inputs per SFAS
157 and fair value was deemed to be equivalent to amortized cost due to the
short-term and regularly occurring auction process. Based on auction failures
beginning in mid-February 2008 and continued failures through September 30,
2008, there were not any observable quoted prices or other relevant inputs for
identical or similar securities. Estimated fair value of all auction rate
security investments as of September 30, 2008 was calculated using unobservable,
Level 3 inputs, as defined by SFAS 157 due to the lack of observable market
inputs specifically related to student loan auction rate securities. The fair
value of these investments as of the September 30, 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 September 30, 2008 relate to the
Company's investment in auction rate student loan educational bonds.
The estimated fair value of the underlying investments as of September 30,
2008 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 values of the student loan auction rate securities were
estimated using a discounted cash flow approach to value the underlying
collateral of the trust issuing the debt securities considering the estimated
19
average life of the underlying student loans that are the collateral to the
trusts, principal outstanding, expected rates of returns, 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 value and considered
these assumptions in the Company's cash flow models but did not exclusively use
the fair values provided by financial institutions based on their internal
modeling. The Company is aware that trading of student loan auction rate
securities is occurring in secondary markets which were considered in the
Company's fair value assessment although the Company has not listed any of its
assets for sale on the secondary market. As a result of the fair value
measurements, the Company recognized an unrealized loss and reduction to
investments, of $8.6 million during the nine month period ended September 30,
2008. There was not any unrealized loss on investments as of December 31, 2007
as the auctions had functioned regularly through that date. The unrealized loss
of $8.6 million net of tax was recorded as an adjustment to other accumulated
comprehensive loss. The fair value adjustment did not have any impact on the
Company's consolidated statement of operations for the nine months ended
September 30, 2008.
The Company has evaluated the unrealized losses to determine whether this
decline is other than temporary. Management has concluded the decline in fair
value to be temporary based on the following considerations.
o Current market activity and the lack of severity or extended
decline do not warrant such action at this time.
o During June 2008, the Company received $1.1 million as the result
of a partial call by an issuer. The Company received par value
for the amount of the call.
o During July 2008, the Company received $8.0 million in calls at
par and subsequent to September 30, 2008 the Company has received
$0.7 million in calls, further evidencing that the underlying
investments are being settled at par.
o 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.
o There have not been any significant changes in collateralization
and ratings of the underlying securities since the first failed
auction. The Company continues to hold 96.3% of the auction rate
security portfolio in senior positions of AAA (or equivalent)
rated securities. The other 3.7% of the auction rate security
portfolio is covered by the principle terms of a settlement
agreement in which the Company will receive par for the
underlying auction rate security holdings no later than July 2,
2012. Current rates of returns on these holdings, which are
considerably higher than comparable investments and will not
reset until March 2009, and the fact the Company will receive par
value of the investment no later than July 2, 2012, supports a
value for these investments of par value.
o The Company is not aware of any changes in default rates of the
underlying student loans that are the assets to the trusts
issuing the auction rate security debt.
o 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. This has the
potential to impact existing securities with underlying student
loans.
o As individual trusts that are the issuers of the auction rate
student loan debt, which the Company holds, continue to pay
higher default rates of interest, there is the potential that the
underlying trust would seek alternative financing and call the
existing debt at which point it is estimated the Company would
receive par value of the investment.
o All auction rate security investments are held with financial
institutions that have agreed in principle to settlement
agreements with various regulatory agencies to provide liquidity.
Although the principles of the respective settlement agreements
focus mostly on small investors (generally companies and
individual investors with ARS assets less than $25 million), the
respective settlements state the financial institutions will work
with issuers and other interested parties to use their best
efforts to provide liquidity solutions to companies not
specifically covered by the principle terms of the respective
settlements by the end of 2009.
20
In addition to the items noted above, the Company has the intent and
ability to hold these investments until recovery, therefore there was not any
other than temporary impairment recorded on these investments during the period
ended September 30, 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 value continue to remain below cost or the fair value
decrease significantly from current fair value, the Company may be required to
record an impairment of these investments, through a charge in the consolidated
statement of operations.
Net working capital for the nine month period September 30, 2008 decreased
by $138.5 million over 2007 largely due to a decrease in short-term investments
of $186.4 million as a result of the reclassification of $186.9 million of
short-term investments to long-term during the nine month period ended September
30, 2008, as discussed above.
Off-Balance Sheet Transactions
The Company's liquidity is not materially 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
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 Should estimated fair value of auction rate securities continue
to remain below cost or the fair value decrease significantly
from current fair value, the Company may be required to record an
impairment of these investments, through a charge in the
consolidated statement of operations which could have a
materially adverse effect on our earnings.
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 may 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.
21
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 September 30, 2008, ($189.5 million amortized
cost), and if market rates of interest on our 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 September 30, 2008 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 quarter ended September 30, 2008
and 2007, fuel expense, net of fuel surcharge revenue and fuel stabilization
paid to owner operators, was $19.6 million and $20.4 million or 13.9% and 17.0%,
respectively, of the Company's total net operating expenses, net of fuel
surcharge. For the nine months ended September 30, 2008 and 2007, fuel expense,
net of fuel surcharge revenue and fuel stabilization paid to owner operators,
was $67.4 million and $59.6 million or 16.2% and 16.8%, 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
September 30, 2008, the Company has no derivative financial instruments and has
not utilized such 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.
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
None
22
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 July 22, 2008, announcing the
Company's financial results for the quarter ended June
30, 2008.
2. Report on Form 8-K, dated September 9, 2008, announcing
the declaration of a quarterly cash dividend.
No other information is required to be filed under Part II of the form.
23
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: November 7, 2008 BY: /S/ John P. Cosaert
-------------------
John P. Cosaert
Executive Vice President-Finance,
Chief Financial Officer and
Treasurer
(Principal accounting and
financial officer)
24
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: November 7, 2008 By: /s/ Russell A. Gerdin
----------------------
Russell A. Gerdin
Chairman and Chief 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 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: November 7, 2008 By: /s/ John P. Cosaert
-------------------
John P. Cosaert
Executive Vice President-Finance
Chief Financial Officer and
Treasurer
(principal accounting and 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 the
Quarterly Report of Heartland Express, Inc., on Form 10-Q for the period ended
September 30, 2008 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: November 7, 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 September
30, 2008 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: November 7, 2008 By: /s/ John P. Cosaert
-------------------
John P. Cosaert
Executive Vice President
and Chief Financial Officer