10-Q 1 tenq081302.txt 2ND QUARTER 2002 10-Q 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 June 30, 2002 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 (IRS Employer Incorporation or Organization) Identification Number) 2777 Heartland Drive, Coralville, Iowa 52241 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code (319) 545-2728 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 [ ] At June 30, 2002, there were 50,000,000 shares of the Company's $.01 par value common stock outstanding. PART I FINANCIAL INFORMATION Page Number Item 1. Financial Statements Consolidated Balance Sheets June 30, 2002 (unaudited) and December 31, 2001 2 - 3 Consolidated Statements of Income (unaudited) for the Three and Six Months ended June 30, 2002 and 2001 4 Consolidated Statements of Cash Flows (unaudited) for the Six Months ended June 30, 2002 and 2001 5 Notes to Consolidated Financial Statements 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of 14 Security Holders Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 - 16 Signature 17 1 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31, 2002 2001 ------------ ------------ (Unaudited) CURRENT ASSETS Cash and cash equivalents ...................... $113,693,870 $120,794,142 Investments .................................... 36,945,065 40,281,980 Trade receivables, less allowance: $402,812 at both 2002 and 2001 ................. 33,662,693 25,700,435 Prepaid tires .................................. 3,648,246 4,077,276 Deferred income taxes .......................... 18,949,000 17,358,000 Other current assets ........................... 2,229,898 144,890 ------------ ------------ Total current assets ........................ 209,128,772 208,356,723 ------------ ------------ PROPERTY AND EQUIPMENT Land and land improvements ..................... 4,402,820 4,402,820 Buildings ...................................... 8,532,621 8,532,621 Furniture and fixtures ......................... 1,414,094 1,300,848 Shop and service equipment ..................... 1,438,955 1,453,755 Revenue equipment .............................. 156,328,909 133,902,094 ------------ ------------ 172,117,399 149,592,138 Less accumulated depreciation .................. 43,391,716 47,473,283 ------------ ------------ Property and equipment, net .................... 128,725,683 102,118,855 ------------ ------------ OTHER ASSETS, net ................................. 8,366,450 3,762,832 ------------ ------------ $346,220,905 $314,238,410 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
2 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, 2002 2001 ------------ ------------ (Unaudited) CURRENT LIABILITIES Accounts payable & accrued liabilities ........ $ 10,983,413 $ 7,073,957 Compensation & benefits ....................... 7,165,744 6,383,984 Income taxes payable .......................... 8,467,288 6,693,398 Insurance accruals ............................ 39,088,872 36,443,348 Other ......................................... 4,459,897 3,858,496 ------------ ------------ Total current liabilities .................. 70,165,214 60,453,183 ------------ ------------ DEFERRED INCOME TAXES ............................ 22,570,000 20,996,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Capital Stock: Preferred, $.01 par value; authorized 5,000,000 share; none issued ................ -- -- Common, $.01 par value; authorized 395,000,000 shares; issued and outstanding 50,000,000 ...................... 500,000 500,000 Additional paid-in capital .................... 8,603,762 6,608,170 Retained earnings ............................. 246,244,482 225,681,057 ------------ ------------ 255,348,244 232,789,227 Less unearned compensation .................... (1,862,553) -- ------------ ------------ 253,485,691 232,789,227 ------------ ------------ $346,220,905 $314,238,410 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
3 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended Six months ended June 30, June 30, 2002 2001 2002 2001 OPERATING REVENUE ....................... $ 84,359,840 $ 75,251,349 $ 157,630,082 $ 147,174,696 ------------- ------------- ------------- ------------- OPERATING EXPENSES: Salaries, wages, and benefits ........ $ 26,315,038 $ 21,967,432 $ 49,589,663 $ 43,218,764 Rent and purchased transportation .... 16,738,604 17,310,323 31,663,264 34,189,492 Operations and maintenance ........... 13,651,365 12,247,943 25,079,284 24,309,478 Taxes and licenses ................... 1,689,400 1,517,960 3,296,508 2,903,115 Insurance and claims ................. 2,983,966 1,984,443 4,842,636 3,725,396 Communications and utilities ......... 659,332 789,470 1,329,326 1,621,654 Depreciation ......................... 4,461,581 4,261,061 8,361,710 8,444,640 Other operating expenses ............. 1,866,942 1,716,914 3,790,747 3,251,080 (Gain) loss on sale of fixed assets .. 10,492 -- 513 (104,763) ------------- ------------- ------------- ------------- 68,376,720 61,795,546 127,953,651 121,558,856 ------------- ------------- ------------- ------------- Operating income ............ 15,983,120 13,455,803 29,676,431 25,615,840 Interest income ...................... 722,163 1,177,855 1,480,272 2,546,662 ------------- ------------- ------------- ------------- Income before income taxes ........ 16,705,283 14,633,658 31,156,703 28,162,502 Income taxes ......................... 5,679,795 4,975,445 10,593,278 9,575,251 ------------- ------------- ------------- ------------- Net income ........................ $ 11,025,488 9,658,213 $ 20,563,425 $ 18,587,251 ============= ============= ============= ============= Earnings per common share: Basic and diluted earnings per share ..................... $ 0.22 $ 0.19 $ 0.41 $ 0.37 ============= ============= ============= ============= Basic weighted average shares outstanding........................ 50,000,000 50,000,000 50,000,000 50,000,000 ============= ============= ============= ============= The accompanying notes are an integral part of these consolidated financial statements.
4 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, 2002 2001 ------------- -------------- OPERATING ACTIVITIES Net income ................................. $ 20,563,425 $ 18,587,251 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........... 8,363,377 8,833,698 Deferred income taxes ................... (17,000) 670,000 Unearned compensation ................... 133,039 -- (Gain) loss on disposal of fixed assets . 106,006 (35,458) Changes in certain working capital items: Trade receivables .................... (7,962,258) (4,970,600) Other current assets ................. (2,085,008) (1,209,236) Prepaid expenses ..................... 429,030 (592,604) Accounts payable and accrued expenses. 7,107,203 1,491,746 Accrued income taxes ................. 1,773,890 3,252,540 ------------- -------------- Net cash provided by operating activities 28,411,704 26,027,337 ------------- -------------- INVESTING ACTIVITIES Proceeds from sale of property and equipment 516,874 182,795 Capital additions .......................... (34,760,480) (16,833,513) Net maturities (purchases) of municipal bonds ...................................... 3,336,915 (8,354,526) Increase in other assets ................... (4,605,285) (160,535) ------------- -------------- Net cash used in investing activities ...... (35,511,976) (25,165,779) ------------- -------------- Net increase (decrease) in cash and cash equivalents ........................... (7,100,272) 861,558 CASH AND CASH EQUIVALENTS Beginning of period ........................ 120,794,142 128,027,076 ------------- -------------- End of period .............................. $ 113,693,870 $ 128,888,634 ============= ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes ............................ $ 8,836,388 $ 5,652,711 Noncash investing activities: Book value of revenue equipment traded .. $ 7,398,759 $ 6,944,787 The accompanying notes are an integral part of these consolidated financial statements.
5 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of Heartland Express, Inc., a Nevada holding company, and its wholly-owned subsidiaries ("Heartland" or the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures have been omitted or condensed pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Results of operations in interim periods are not necessarily indicative of results for a full year. These consolidated financial statements and notes thereto should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities, at the date of the accompanying consolidated financial statements, and the reported amounts of the revenues and expenses during the reporting periods. Actual results could differ from those estimates. Note 2. Contingencies The Company is involved in certain legal proceedings arising in the normal course of business. In the opinion of management, the Company's potential exposure under pending legal proceedings is adequately provided for in the accompanying consolidated financial statements. Note 3. Segment Information The Company has nine operating divisions; 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 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. Recapitalization and Stock Split On January 28, 2002, the Board of Directors approved an approximate three for two stock split, effected in the form of a 57.68826 percent stock dividend. The stock split occurred on February 19, 2002, to stockholders of record on the close of business on February 8, 2002. The number of common shares issued and outstanding and all per share amounts have been adjusted to reflect the stock split for all periods presented. 6 On March 7, 2002, the principal stockholder awarded 90,750 shares of his common stock to key employees of the Company. The shares will vest to them over a five-year period subject to restrictions on transferability and to forfeiture in the event of termination of employment. Any forfeited shares will be returned to the principal stockholder. The fair market value of these shares was treated as a contribution of capital and is being amortized over the five-year vesting period as compensation. Note 5. Acquisition The Company acquired the trucking assets of a Virginia-based truckload carrier during the quarter ended June 30, 2002. The Company's consolidated financial statements include the operations of this division from June 1, 2002, the date of acquisition. The acquired assets were recorded at their estimated fair values at the acquisition date in accordance with Financial Accounting Standards Board No. 141 (FAS 141), "Business Combinations". Goodwill was recorded in "Other assets, net" for the amount the purchase price exceeded the fair value. The amount paid for the acquisition did not exceed 10 percent of the Company's total assets. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Information Except for certain historical information contained herein, this Quarterly Report on Form 10-Q contains forward-looking statements that 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 statement concerning proposed new strategies or developments; any statements regarding future economic conditions or performance; any statements of belief and any statement of assumptions underlying any of the foregoing. Words such as "believe," "may," "could," "expects," "anticipates," and "likely," and variations of these words or similar expressions, are intended to identify such forward-looking statements. The Company's actual results could differ materially from those discussed in the section entitled "Factors That May Affect Future Results," included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Company's Annual report on Form 10-K, which is by this reference incorporated herein. The Company does not assume, and specifically disclaims, any obligation to update any forward-looking statements contained in this Quarterly report. 7 Results of Operations: The following table sets forth the percentage relationship of expense items to operating revenue for the periods indicated. Three Months Ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 ------- ------- ------- ------- Operating revenue...................... 100.0% 100.0% 100.0% 100.0% ------- ------- ------- ------- Operating expenses: Salaries, wages, and benefits....... 31.2% 29.2% 31.5% 29.4% Rent and purchased transportation... 23.0 20.1 23.2 19.8 Operations and maintenance.......... 16.2 16.3 15.9 16.5 Taxes and licenses.................. 2.0 2.0 2.1 2.0 Insurance and claims................ 3.5 2.6 3.1 2.5 Communications and utilities........ 0.8 1.0 0.8 1.1 Depreciation........................ 5.7 5.3 5.7 5.3 Other operating expenses............ 2.2 2.3 2.4 2.2 (Gain) on sales of fixed assets..... - - - - ------- ------- ------- ------- Total operating expenses............ 81.1% 82.1% 81.2% 82.6% ------- ------- ------- ------- Operating income................ 18.9% 17.9% 18.8% 17.4% Interest income........................ 0.9 1.5 0.9 1.7 ------- ------- ------- ------- Income before income taxes...... 19.8% 19.4% 19.7% 19.1% Income taxes........................... 6.7 6.6 6.7 6.5 ------- ------- ------- ------- Net income...................... 13.1% 12.8% 13.0% 12.6% ======= ======= ======= ======= The following is a discussion of the results of operations of the three and six month periods ended June 30, 2002 compared with the same periods in 2001, and the changes in financial condition through the second quarter of 2002. Three Months Ended June 30, 2002 and 2001 Operating revenue increased $9.1 million (12.1%), to $84.4 million in the second quarter of 2002 from $75.3 million in the second quarter of 2001. The Company's operating revenue, before fuel surcharges, increased 14.7% over the same period in 2001. The revenue increase was primarily attributable to the expansion of the Company's customer base as well as increased volume from existing customers. Operating revenue for both periods, was positively impacted by fuel surcharges assessed to customers. Salaries, wages, and benefits increased $4.3 million (19.8%), to $26.3 million in the second quarter of 2002 from $22.0 million in the second quarter of 2001. As a percentage of revenue, salaries, wages and benefits increased to 31.2% in 2002 from 29.2% in 2001. These increases were a result of increased reliance on employee drivers and a corresponding decrease in miles driven by independent contractors. The increase in employee driver miles was attributable to internal growth in the company tractor fleet. During the second quarter of 2002, employee drivers accounted for 71% and independent contractors 29% of the total fleet miles, compared with 67% and 33%, respectively, in the second quarter of 2001. The Company also experienced an increase in the frequency and severity of workers' compensation claims in comparison to the 2001 period. 8 Rent and purchased transportation decreased $0.6 million (3.3%), to $16.7 million in the second quarter of 2002 from $17.3 million in the second quarter of 2001. As a percentage of revenue, rent and purchased transportation decreased to 19.8% in the second quarter of 2002 from 23.0% in the second quarter of 2001. This reflects the Company's decreased reliance upon independent contractors. During the 2001 period, the Company reimbursed independent contractors for the higher cost of fuel based on fuel surcharges collected from customers. Operations and maintenance increased $1.4 million (11.5%) to $13.6 million in the second quarter of 2002 from $12.2 million in the second quarter of 2001. This increase is attributable to increased reliance on the Company owned fleet. As a percentage of revenue, operations and maintenance decreased to 16.2% during the second quarter of 2002 from 16.3% in the second quarter of 2001. Taxes and licenses increased $0.2 million (11.3%), to $1.7 million in the second quarter of 2002 from $1.5 million in the second quarter of 2001. This increase is primarily attributable to the growth in fleet miles. As a percentage of revenue, taxes and licenses remained constant at 2.0% in the second quarter of 2002 and 2001. Insurance and claims increased $1.0 million (50.4%), to $3.0 million in the second quarter of 2002 from $2.0 million in the second quarter of 2001. As a percentage of revenue, insurance and claims increased to 3.5% in the second quarter of 2002 from 2.6% in the second quarter of 2001. The frequency of property damage and related cargo damage claims increased. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. Communications and utilities decreased $0.1 million (16.5%), to $0.7 million in the 2002 period from $0.8 million in the 2001 period. As a percentage of revenue, communications and utilities decreased to 0.8% in the second quarter of 2002 from 1.0% in the second quarter of 2001. Depreciation increased $0.2 million (4.7%) to $4.5 million during the second quarter of 2002 from $4.3 million in the second quarter of 2001. Depreciation increased because of increased reliance on company owned tractors and the replacement of fully depreciated trailers. As a percentage of revenue, depreciation decreased to 5.3% of revenue during the second quarter of 2002 from 5.7% during the second quarter of 2001. Other operating expenses increased $0.2 million (8.7%) to $1.9 million during the second quarter of 2002 from $1.7 million during the second quarter 2001. As a percentage of revenue, other operating expenses decreased to 2.2% during the second quarter of 2002 from 2.3% in the second quarter of 2001. Other operating expenses consists primarily of pallet cost, driver recruiting expense, and administrative costs. Interest income decreased $0.5 (38.7%) to $0.7 million in the second quarter of 2002 from $1.2 million in the second quarter of 2001. Interest income earned is primarily exempt from federal taxes and therefore earned at a lower pre-tax rate. Interest earned has been negatively impacted by Federal Reserve Bank reductions in short term interest rates. The Company's effective tax rate was 34.0% for both the three month period ended June 30, 2002 and 2001. Income taxes have been provided at the statutory federal and state rates, adjusted for certain permanent differences between financial statement and income tax reporting. As a result of the foregoing, the Company's operating ratio (operating expenses as a percentage of operating revenue) was 81.1% during the second quarter of 2002 compared with 82.1% during the second quarter of 2001. Net income increased $1.3 million (14.2%), to $11.0 million during the second quarter of 2002 from $9.7 million during the second quarter of 2001. 9 Six Months Ended June 30, 2002 and 2001 Operating revenue increased $10.4 million (7.1%), to $157.6 million in the six months ended June 30, 2002 from $147.2 million in the 2001 period. The Company's operating revenues, before fuel surcharges, increased 10.4% over the compared 2001 period. The revenue increase was primarily attributable to the expansion of the Company's customer base as well as increased volume from existing customers. Operating revenue for both periods was positively impacted by fuel surcharges assessed to customers. Salaries, wages, and benefits increased $6.4 million (14.7%), to $49.6 million in the six months ended June 30, 2002 from $43.2 million in the 2001 period. As a percentage of revenue, salaries, wages and benefits increased to 31.5% in 2002 from 29.4% in 2001. These increases were a result of increased reliance on employee drivers and a corresponding decrease in miles driven by independent contractors. The increase in employee driver miles was attributable to internal growth in the company tractor fleet. During the first six months of 2002, employee drivers accounted for 71% and independent contractors 29% of the total fleet miles, compared with 67% and 33%, respectively, in the compared 2001 period. The Company also experienced an increase in the frequency and severity of workers' compensation and health insurance claims in comparison to the compared 2001 period. Rent and purchased transportation decreased $2.5 million (7.4%), to $31.7 million in the first six months of 2002 from $34.2 million in the 2001 period. As a percentage of revenue, rent and purchased transportation decreased to 20.1% in the 2002 period from 23.2% in the compared 2001 period. This reflects the Company's decreased reliance upon independent contractors. During the 2001 period, the Company reimbursed independent contractors for the higher cost of fuel based on fuel surcharges collected from customers. Operations and maintenance increased $0.8 million (3.2%) to $25.1 million in the six months ended June 30, 2002 from $24.3 million in the 2001 period. This increase is attributable to increased reliance on the Company owned fleet. As a percentage of revenue, operations and maintenance decreased to 15.9% in the 2002 period from 16.5% during the 2001 period. Taxes and licenses increased $0.4 million (13.6%), to $3.3 million in the first six months of 2002 from $2.9 million in the compared 2001 period. As a percentage of revenue, taxes and licenses increased to 2.1% in the 2002 period from 2.0% in the 2001 period. This increase is primarily attributable to the growth in fleet miles. Insurance and claims increased $1.1 million (30.0%), to $4.8 million in the first six months of 2002 from $3.7 million in the compared 2001 period. As a percentage of revenue, insurance and claims increased to 3.1% in the 2002 period from 2.5% in the 2001 period. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. Communications and utilities decreased $0.3 million (18.0%), to $1.3 million in the 2002 period from $1.6 million in 2001 period. As a percentage of revenue, communications and utilities decreased to 0.8% in the 2002 period from 1.1% in the 2001 periods. Depreciation decreased $0.1 million (1.0%) to $8.3 million during the first six months of 2002 from $8.4 million in the compared 2001 period. As a percentage of revenue, depreciation decreased to 5.3% in the 2002 period from 5.7% in the 2001 periods. Depreciation expense decreased due to the replacement of tractors without a salvage value with new tractors with an assigned salvage value. 10 Other operating expenses increased $0.5 million (16.6%) to $3.8 million during the first six months 2002 from $3.3 million during the compared 2001 period. As a percentage of revenue, other operating expenses increased to 2.4% in the 2002 period from 2.2% in the 2001 periods. Other operating expenses consists primarily of pallet cost, driver recruiting expense, goodwill, and administrative costs. Interest income decreased $1.1 (41.9%) to $1.5 million in the first six months of 2002 from $2.6 million in the compared 2001 period. Interest income earned is primarily exempt from federal taxes and therefore earned at a lower pre-tax rate. Interest earned has been negatively impacted by the Federal Reserve Bank reductions in short-term interest rates. The Company's effective tax rate is 34.0% for both the six months ended June 30, 2002 and 2001. Income taxes have been provided at the statutory federal and state rates, adjusted for certain permanent differences between financial statement and income tax reporting. As a result of the foregoing, the Company's operating ratio (operating expenses as a percentage of operating revenue) was 81.2% during the first six months of 2002 compared with 82.6% during the first six months of 2001. Net income increased $2.0 million (10.6%), to $20.6 million during the first six months of 2002 from $18.6 million during the compared 2001 period. Liquidity and Capital Resources The growth of the Company's business has required significant investments in new revenue equipment. Historically the Company has been debt-free, financing revenue equipment through cash flow from 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 six months ended June 30, 2002, was net cash provided by operating activities of $28.4 million compared to $26.0 million in the corresponding 2001 period. Capital expenditures for property and equipment, primarily revenue equipment net of trade-ins, totaled $34.8 million for the first six months of 2002 compared to $16.8 million for the same period in 2001. Management believes the Company has adequate liquidity to meet its current and projected needs. The Company will continue to have significant capital requirements over the long term which are expected to be funded by cash flow provided by operations and from cash, cash equivalents, and investments on hand. Based on the Company's strong financial position, management believes outside financing could be obtained, if necessary, to fund capital expenditures. Factors That May Affect Future Results The Company's future results may be affected by a number of factors over which the Company has little or no control. Fuel prices, insurance and claims costs, liability claims, interest rates, the availability of qualified drivers, fluctuations in the resale value of revenue equipment, economic and customer business cycles and shipping demands are economic factors over which the Company has little or no control. Significant increases or rapid fluctuations in fuel prices, interest rates or insurance costs or liability claims, to the extent not offset by increases in freight rates, and the resale value of revenue equipment could reduce the Company's profitability. Weakness in the general economy, including a weakness in consumer demand for goods and services, could adversely affect the Company's customers and the Company's growth and revenues, if customers reduce their demand for transportation services. Customers encountering adverse economic conditions represent a greater potential for loss, and the Company may be required to increase its reserve for bad debt losses. Weakness in customer demand for the Company's services or in the general rate environment may also restrain the Company's ability to increase rates or obtain fuel surcharges. 11 Inflation and Fuel Cost Most of the Company's operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the past three years, the most significant effects of inflation have been on revenues equipment prices and the compensation paid to the drivers. Innovations in equipment technology and comfort have resulted in higher tractor prices, and there has been an industry-wide increase in wages paid to attract and retain qualified drivers. The Company historically has limited the effects of inflation through increases in freight rates and certain cost control efforts. In addition to inflation, fluctuations in fuel prices can affect profitability. Most of the Company's contracts with customers contain fuel surcharge provisions. Although the Company historically has been able to pass through most long-term increases in fuel prices and operating taxes to customers in the form of surcharges and higher rates, shorter-term increases are not fully recovered. Competitive conditions in the transportation industry, such as lower demand for transportation services, could affect the Company's ability to obtain rate increases or fuel surcharges. Seasonality The nature of the Company's primary traffic (appliances, automotive parts, paper products, retail goods, and packages foodstuffs) causes it to be distributed with relative uniformity throughout the year. However, seasonal variations during and after the winter holiday season have historically results in reduced shipments by several industries served. In addition, the Company's operating expenses historically have been higher during the winter months due to increased operating costs in colder weather and higher fuel consumption due to increased engine idling. Recently Issued Account Pronouncements In June 2001, the Financial Accounting Standards Board issued FAS No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). Under FAS 142, which establishes new accounting and reporting requirements for goodwill and other intangible assets, all goodwill amortization ceased effective January 1, 2002. The impact of ceasing amortization did not have a material impact on net income. The Company tested for impairment of its goodwill by comparing the fair value of the Company to its carrying value and determined that no impairment of goodwill existed. On an ongoing basis (absent any impairment indicators), the Company expects to perform the impairment test annually during the fourth quarter. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of;" however, it retains the fundamental provisions of that Statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." In addition, the Statement provides some guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset to be disposed of other than by sales (e.g., abandoned) be classified as "held and used" until it is disposed of and establishes more restrictive criteria to classify an asset as "held for sale." The Company adopted this statement January 1, 2002 and it did not have a material impact. In June 2002, the FASB issued Statement No. 146 (FAS 146), Accounting for Costs Associates with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. Under FAS 146, such costs will be recognized when the liability is incurred, rather than at the date of commitment to an exit plan. FAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application permitted. The Company does not expect the adoption of FAS 146 to have a material effect on the financial statements. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company purchases only high quality, liquid investments. Primarily all investments as of June 30, 2002 have an original maturity of six months or less. The Company holds all investments to maturity and therefore, is exposed to minimal market risk related to its cash equivalents and investments. The Company has no debt outstanding as of June 30, 2002 and therefore, has no market risk related to debt. As of June 30, 2002, the Company has no derivative financial instruments to reduce its exposure to diesel fuel price fluctuations. 13 PART II OTHER INFORMATION Item 1. Legal Proceedings On June 21, 2002 a driver for the Company was involved in a multiple (5) fatality accident in Knoxville, TN. Three lawsuits have been filed in U.S. District Court for the Eastern District of TN Northern Division of Knoxville, TN. The combined relief sought in the cases is approximately $54.5 million for compensatory damages and $215 million for punitive damages. No other action including governmental is contemplated. The Company is a party to ordinary, routine litigation and adminis- trative proceedings incidental to its business. None of the claims would materially impact net income or financial position. These proceedings primarily involve personnel matters and claims for personal injury or property damage incurred in the transportation of freight. The Company maintains insurance to cover liabilities arising from the transportation of freight for amounts in excess of self- insured retentions. Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulations S-K Page of Method of Exhibit No. Document Filing 3.1 Articles of Incorporation Incorporated by reference to the Company's registration statement on Form S-1, Registration No. 33- 8165, effective November 5, 1986. 3.2 Bylaws Incorporated by reference to the Company's registration statement on Form S-1, Registration No. 33- 8165, effective November 5, 1986. 14 3.3 Certificate of Amendment Incorporated by To Articles of Incorporation reference to the Company's Form 10-QA, for the quarter ended June 30, 1997, dated March 26, 1998. 4.1 Articles of Incorporation Incorporated by reference to the Company's registration statement on Form S-1, Registration No. 33- 8165, effective November 5, 1986. 4.3 Certificate of Amendment Incorporated by to Articles of Incorporation reference to the Company's Form 10-QA, for the quarter ended June 30, 1997, dated March 26, 1998. 9.1 Voting Trust Agreement dated Incorporated by June 6, 1997 among the Gerdin reference to the Educational Trusts and Larry Company's Form 10-K Crouse, voting trustee. for the year ended December 31, 1997. Commission file no. 0-15087. 10.1 Business Property Lease Incorporated by between Russell A. Gerdin reference to the as Lessor and the Company Company's Form 10-K as Lessee, regarding the for the year ended Company's headquarters at September 30, 2000. 2777 Heartland Drive, Commission file no. Coralville, Iowa 52241 0-15087. 10.2 Form of Independent Incorporated by Contractor Operating reference to the Agreement between the Company's Form 10-K Company and its for the year ended independent contractor December 31, 1993. providers of tractors Commission file no. 0-15087. 15 10.3 Description of Key Incorporated by Management Deferred reference to the Incentive Compensation Company's Form 10-K Arrangement for the year ended December 31, 1993. Commission file no. 0-15087. 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 . 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K (i) Report on Form 8-K, dated April 8, 2002, announcing the appointment of KPMG LLP as independent auditors effective April 5, 2002. 16 SIGNATURES 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. Dated: August 12, 2002 By: /s/ Russell A. Gerdin Russell A. Gerdin President and Chief Executive Officer (principal executive officer) By: /s/ John P. Cosaert John P. Cosaert Executive Vice President-Finance, Chief Financial Officer and Treasurer (principal accounting and financial officer) 17 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended June 30, 2002 (the "Form 10-Q") of Heartland Express, Inc. (the "Issuer"). I, Russell A. Gerdin, President and Chief Executive Officer of the Issuer, certify that: (i) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d); and (ii) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: August 12, 2002 By: /s/ Russell A. Gerdin Russell A. Gerdin President and Chief Executive Officer (principal executive officer) EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350, and accompanies the quarterly report on Form 10-Q for the quarter ended June 30, 2002 (the "Form 10-Q") of Heartland Express, Inc (the "Issuer"). I, John P. Cosaert, Executive Vice President - Finance, Chief Financial Officer , and Treasurer of the Issuer, certify that: (i) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d); and (ii) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: August 12, 2002 By: /s/ John P. Cosaert John P. Cosaert Executive Vice President-Finance, Chief Financial Officer, and Treasurer (principal accounting and financial officer) END OF FILING