10-Q 1 tenq093002.txt 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, 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 September 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 September 30, 2002 (unaudited) and December 31, 2001 2 - 3 Consolidated Statements of Income (unaudited) for the Three and Nine Months ended September 30, 2002 and 2001 4 Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 2002 and 2001 5 Notes to Consolidated Financial Statements (unaudited) 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 Item 4. Controls and Procedures 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 Signature 15 1 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS September 30, December 31, 2002 2001 ------------ ------------ (Unaudited) CURRENT ASSETS Cash and cash equivalents ...................... $132,940,674 $120,794,142 Investments .................................... 23,315,543 40,281,980 Trade receivables, less allowance of $650,000 in 2002 and $402,812 in 2001 ........ 37,509,731 25,700,435 Prepaid tires .................................. 4,245,680 4,077,276 Deferred income taxes .......................... 19,582,000 17,358,000 Other current assets ........................... 1,184,640 144,890 ------------ ------------ Total current assets ........................ 218,778,268 208,356,723 ------------ ------------ 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 ...................... 1,433,776 1,453,755 Revenue equipment ............................... 162,902,701 133,902,094 ------------ ------------ 178,686,012 149,592,138 Less accumulated depreciation ................... 42,848,275 47,473,283 ------------ ------------ Property and equipment, net ..................... 135,837,737 102,118,855 ------------ ------------ OTHER ASSETS, net ................................. 8,654,022 3,762,832 ------------ ------------ $363,270,027 $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 September 30, December 31, 2002 2001 ------------- ------------- (Unaudited) CURRENT LIABILITIES Accounts payable & accrued liabilities ....... $ 14,105,393 $ 7,073,957 Compensation & benefits ...................... 7,787,364 6,383,984 Income taxes payable ......................... 6,716,214 6,693,398 Insurance accruals ........................... 39,613,088 36,443,348 Other ........................................ 4,512,131 3,858,496 ------------- ------------- Total current liabilities ................. 72,734,190 60,453,183 ------------- ------------- DEFERRED INCOME TAXES .......................... 25,877,000 20,996,000 ------------- ------------- 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 shares .............. 500,000 500,000 Additional paid-in capital ................... 8,603,762 6,608,170 Retained earnings ............................ 257,317,848 225,681,057 ------------- ------------- 266,421,610 232,789,227 Less: unearned compensation .................. (1,762,773) -- ------------- ------------- 264,658,837 232,789,227 ------------- ------------- $ 363,270,027 $ 314,238,410 ============= =============
3 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 OPERATING REVENUE .......................... $ 91,123,367 $ 73,917,920 $ 248,753,449 $ 221,092,616 ------------- ------------- ------------- ------------- OPERATING EXPENSES: Salaries, wages, and benefits ........... $ 29,341,346 $ 21,969,335 $ 78,931,009 $ 65,188,099 Rent and purchased transportation ....... 17,170,890 16,474,914 48,834,154 50,664,406 Operations and maintenance .............. 14,921,425 12,405,409 40,000,709 36,714,887 Taxes and licenses ...................... 1,953,378 1,586,127 5,249,886 4,489,242 Insurance and claims .................... 2,530,868 1,779,205 7,373,504 5,504,601 Communications and utilities ............ 911,176 698,956 2,240,502 2,320,610 Depreciation ............................ 5,666,127 4,279,356 14,027,837 12,723,996 Other operating expenses ................ 2,460,928 1,785,209 6,251,675 5,036,289 (Gain) loss on disposal of fixed assets . 37,759 -- 38,272 (104,763) ------------- ------------- ------------- ------------- 74,993,897 60,978,511 202,947,548 182,537,367 ------------- ------------- ------------- ------------- Operating income .................. 16,129,470 12,939,409 45,805,901 38,555,249 Interest income ......................... 648,359 1,022,472 2,128,631 3,569,134 ------------- ------------- ------------- ------------- Income before income taxes ........... 16,777,829 13,961,881 47,934,532 42,124,383 Income taxes ............................ 5,704,463 4,746,965 16,297,741 14,322,216 ------------- ------------- ------------- ------------- Net income ........................... $ 11,073,366 9,214,916 $ 31,636,791 $ 27,802,167 ============= ============= ============= ============= Earnings per common share: Basic earnings per share ............ $ 0.22 $ 0.18 $ 0.63 $ 0.56 ============= ============= ============= ============= 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)
Nine months ended September 30, 2002 2001 ------------- ------------- OPERATING ACTIVITIES Net income ................................... $ 31,636,791 $ 27,802,167 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization .............. 14,034,505 13,307,583 Deferred income taxes ...................... 2,657,000 1,597,000 Unearned compensation ...................... 232,819 -- Loss on disposal of fixed assets ........... 148,463 16,913 Changes in certain working capital items: Trade receivables ........................ (11,809,296) (2,409,434) Other current assets ..................... 58,396 (388,172) Prepaid expenses ......................... (1,039,750) (450,501) Accounts payable and accrued expenses .... 9,221,856 4,462,893 Accrued income taxes ..................... 22,816 2,384,303 ------------- ------------- Net cash provided by operating activities 45,163,600 46,322,752 ------------- ------------- INVESTING ACTIVITIES Proceeds from sale of property and equipment . 5,475,880 182,795 Capital additions ............................ (50,561,527) (21,691,442) Net maturities (purchases) of municipal bonds 16,966,437 (23,875,039) (Increase) decrease in other assets .......... (4,897,858) 98,843 ------------- ------------- Net cash used in investing activities ........ (33,017,068) (45,284,843) ------------- ------------- Net increase in cash and cash equivalents .... 12,146,532 1,037,909 CASH AND CASH EQUIVALENTS Beginning of period .......................... 120,794,142 128,027,076 ------------- ------------- End of period ................................ $ 132,940,674 $ 129,064,985 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes ............................... $ 13,617,925 $ 10,340,913 Noncash investing activities: Book value of revenue equipment traded ..... $ 11,969,142 $ 9,250,948 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. On June 21, 2002 a driver for the Company was involved in a multiple (5) fatality accident in Knoxville, TN. Three lawsuits have been field 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. No further developments have occurred. 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 presents its one reportable segment. 6 Note 4. Recapitalization and Stock Split On January 28, 2002, the Board of Directors approved an approximate three for two stock spilt, 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. 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 On June 1, 2002, the Company acquired the business and trucking assets of Great Coastal Express, Inc. ("Great Coastal"), a privately-held truckload carrier. Great Coastal had gross revenues of approximately $70.0 million in 2001 and operated approximately 500 company tractors, 125 owner-operators, and 1,650 trailers at the date of acquisition. The accquired assets were recorded at their estimated fair values as of the acquisition date in accordance with Financial Accounting Standards Board statement number 141 (SFAS 141), "Business Combinations". Goodwill has been recorded in "Other Assets, net" for the amount, which the purchase price exceeded the fair value of the assets acquired. The acquisition has been accounted for in the Company's results of operations since the acquisition date. The pro forma effect of the acquisition on the Company's results of operations is immaterial. 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 Nine Months Ended September 30, September 30, 2002 2001 2002 2001 ------ ------ ------ ------ Operating revenue 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ Operating expenses: Salaries, wages, and benefits 32.2% 29.8% 31.7% 29.5% Rent and purchased transportation 22.3 19.6 22.9 18.9 Operations and maintenance 16.4 16.8 16.1 16.7 Taxes and licenses 2.1 2.1 2.1 2.0 Insurance and claims 2.8 2.3 3.0 2.4 Communications and utilities 1.0 0.9 0.9 1.0 Depreciation 5.8 6.2 5.8 5.7 Other operating expenses 2.7 2.4 2.5 2.3 (Gain) loss on disposal of fixed assets 0.0 0.1 0.0 0.0 ------ ------ ------ ------ Total operating expenses 82.3% 82.5% 81.6% 82.6% ------ ------ ------ ------ Operating income 17.7% 17.5% 18.4% 17.4% Interest income 0.7 1.4 0.9 1.6 ------ ------ ------ ------ Income before income taxes 18.4% 18.9% 19.3% 19.0% Income taxes 6.2 6.4 6.6 6.4 ------ ------ ------ ------ Net income 12.2% 12.5% 12.7% 12.6% ====== ====== ====== ====== The following is a discussion of the results of operations of the three and nine months periods ended September 30, 2002 compared with the same periods in 2001, and the changes in financial condition through the third quarter of 2002. Three Months Ended September 30, 2002 and 2001 Operating revenue increased $17.2 million (23.3%), to $91.1 million in the third quarter of 2002 from $73.9 million in the third quarter of 2001. The growth in our fleet resulted in increased revenue from existing customers and the expansion of our customer base. Operating revenue for both periods, was positively impacted by fuel surcharges assessed to customers. Salaries, wages, and benefits increased $7.4 million (33.6%), to $29.3 million in the third quarter of 2002 from $21.9 million in the third quarter of 2001. As a percentage of revenue, salaries, wages and benefits increased to 32.2% in 2002 from 29.8% in 2001. These increases were primarily the result of increased reliance on employee drivers and a decrease in the percentage of miles driven by independent contractors. During the third quarter of 2002, employee drivers accounted for 73% and independent contractors 27% of the total fleet miles, compared with 68% and 32%, respectively, in the third quarter of 2001. The Company also experienced an increase in the cost of health insurance claims in comparison to the 2001 period. 8 Rent and purchased transportation increased $0.7 million (4.2%), to $17.2 million in the third quarter of 2002 from $16.5 million in the third quarter of 2001. As a percentage of revenue, rent and purchased transportation decreased to 18.8% in the third quarter of 2002 from 22.3% in the third quarter of 2001. The Company continues to reduce its reliance upon independent contractors. During both periods, the Company reimbursed independent contractors for the higher cost of fuel based on fuel surcharges collected from customers. Operations and maintenance increased $2.5 million (20.3%) to $14.9 million in the third quarter of 2002 from $12.4 million in the third quarter of 2001. As a percentage of revenue, operations and maintenance decreased to 16.4% during the third quarter of 2002 from 16.8% in the third quarter of 2001. The increase in operations and maintenance is primarily attributable to increased fuel costs due to increased reliance on company-owned tractors. Taxes and licenses increased $0.4 million (23.2%), to $2.0 million in the third quarter of 2002 from $1.6 million in the third quarter of 2001. As a percentage of revenue, taxes and licenses remained constant at 2.1% for both compared periods. Insurance and claims increased $0.8 million (42.2%), to $2.5 million in the third quarter of 2002 from $1.7 million in the third quarter of 2001. As a percentage of revenue, insurance and claims increased to 2.8% during the third quarter of 2002 from 2.4% in the third quarter of 2001. 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 increased $0.2 million (30.4%), to $0.9 million in the 2002 period from $0.7 million in the 2001 period. As a percentage of revenue, communications and utilities increased to 1.0% in the third quarter of 2002 from 0.9% in the third quarter of 2001. The increased reliance on company-owned tractors increased expenses related to satellite communications. Depreciation increased $1.4 million (32.4%) to $5.7 million during the third quarter of 2002 from $4.3 million in the third quarter of 2001. As a percentage of revenue, depreciation increased to 6.2% of revenue during the third quarter of 2002 from 5.8% during the third quarter of 2001. Depreciation increased because of the growth of our company owned tractor and trailer fleet. Other operating expenses increased $0.7 million (37.9%) to $2.5 million during the third quarter of 2002 from $1.8 million during the third quarter 2001. As a percentage of revenue, other operating expenses increased to 2.7% from 2.4% in the third quarter of 2001. Other operating expenses consist primarily of costs incurred for freight handling, highway tolls, driver recruiting expenses, and administrative costs. Interest income decreased $0.4 (36.6%) to $0.6 million in the third quarter of 2002 from $1.0 million in the third 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 September 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 82.3% during the third quarter of 2002 compared with 82.5% during the third quarter of 2001. Net income increased $1.9 million (20.2%), to $11.1 million during the third quarter of 2002 from $9.2 million during the third quarter of 2001. 9 Nine Months Ended September 30, 2002 and 2001 Operating revenue increased $27.7 million (12.5%), to $248.8 million in the nine months ended September 30, 2002 from $221.1 million in the 2001 period. The growth of our fleet resulted in increased revenue from existing customers and the expansion of our customer base. Operating revenue for both periods was also positively impacted by fuel surcharges assessed to customers. Salaries, wages, and benefits increased $13.7 million (21.1%), to $78.9 million in the nine months ended September 30, 2002 from $65.2 million in the 2001 period. As a percentage of revenue, salaries, wages and benefits increased to 31.7% in 2002 from 29.5% in 2001. These increases were primarily the result of increased reliance on employee drivers and a decrease in the percentage of miles driven by independent contractors. During the first nine 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 $1.8 million (3.6%), to $48.8 million in the first nine months of 2002 from $50.7 million in the 2001 period. As a percentage of revenue, rent and purchased transportation decreased to 19.6% in the 2002 period from 22.9% in the compared 2001 period. This reflects the Company's decreased reliance upon independent contractors. During both periods, the Company has reimbursed independent contractors for the higher cost of fuel based on fuel surcharges collected from customers. Operations and maintenance increased $3.3 million (8.9%) to $40.0 million in the nine months ended September 30, 2002 from $36.7 million in the 2001 period. As a percentage of revenue, operations and maintenance decreased to 16.1% in the 2002 period from 16.7% during the 2001 period. The increase is attributable to cost increases, primarily fuel, associated with the increased reliance on the company-owned fleet. Taxes and licenses increased $0.8 million (16.9%), to $5.2 million in the first nine months of 2002 from $4.4 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 compared 2001 period. The increases are primarily the result of fleet growth. Insurance and claims increased $1.9 million (34.0%), to $7.4 million in the first nine months of 2002 from $5.5 million in the compared 2001 period. As a percentage of revenue, insurance and claims increased to 2.5% in the 2002 period from 2.4% 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 $0.1 million (3.5%), to $2.2 million in the 2002 period from $2.3 million in 2001 period. As a percentage of revenue, communications and utilities decreased to 0.9% in the 2002 period from 1.0% in the 2001 periods. Depreciation increased $1.3 million (10.2%) to $14.0 million during the first nine months of 2002 from $12.7 million in the compared 2001 period. As a percentage of revenue, depreciation decreased to 5.6% in the 2002 period from 5.8% in the 2001 periods. Depreciation expense increased due to growth in the company owned tractor and trailer fleet. 10 Other operating expenses increased $1.3 million (24.1%) to $6.3 million during the first nine months 2002 from $5.0 million during the compared 2001 period. As a percentage of revenue, other operating expenses increased to 2.5% in the 2002 period from 2.3% in the 2001 periods. Other operating expenses consist primarily of costs incurred for freight handling, highway tolls, driver recruiting expenses, and administrative costs. Interest income decreased $1.5 million (40.4%) to $2.1 million in the first nine months of 2002 from $3.6 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 nine months ended September 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 81.6% during the first nine months of 2002 compared with 82.6% during the first nine months of 2001. Net income increased $3.8 million (13.8%), to $31.6 million during the first nine months of 2002 from $27.8 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 nine months ended September 30, 2002, was net cash provided by operating activities of $45.2 million compared to $46.3 million in the corresponding 2001 period. Capital expenditures for property and equipment, primarily revenue equipment net of trade-ins, totaled $50.6 million for the first nine months of 2002 compared to $21.7 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 and claims costs, 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 cost of operations. During the past three years, the most significant effect of inflation has been on revenue 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 increase 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 resulted 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 Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 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 material impact. In June 2002, the FASB issued Statement No. 146 (SFAS 146), Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. Under SFAS 146, such costs will be recognized when the liability is incurred, rather than at the date of commitment to an exit plan. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application permitted. The Company will adopt SFAS 146 on January 1, 2003. There will be no impact on future financial statements unless restructuring occurs. 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company purchases only high quality, liquid investments. Primarily all investments as of September 30, 2002 have an original maturity of twelve months or less. The Company holds all investments to maturity and therefore, is exposed to minimal market risk related to its cash equivalents. The Company has no debt outstanding as of September 30, 2002 and therefore, has no market risk related to debt. As of September 30, 2002, the Company has no derivative financial instruments to reduce its exposure to fuel price fluctuations. Item 4. Controls and Procedures Evaluation of Disclosure Control and Procedures Within 90 days of the filing of this report, the principal executive officer and principal financial officer of the Company, under the supervision and with the participation of the Company's management, have evaluated the disclosure controls and procedures of the Company as defined in Exchange Act Rule 13(a)-14(c) and have determined that such controls and procedures are effective. Changes in Internal Controls There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to in the paragraph above. 13 PART II OTHER INFORMATION Item 1. Legal Proceedings One June 21, 2002 a driver for the Company was involved in a multiple (5) fatality accident in Knoxville, TN. Three lawsuits have been field 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. No further developments have occurred. Additionally, the Company is a party to ordinary, routine litigation and administrative proceedings incidental to its business. None of the claims would materially impact net income or financial position. These proceedings primarily involve claims for personal injury and property damage 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 self-insured retentions. Item 2. Changes in Securities None 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) Exhibits: 99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) No reports on Form 8-K were filed during the current period. No other information is required to be filed under Part II of the form. 14 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: November 11, 2002 By: /s/ John P. Cosaert John P. Cosaert Executive Vice President-Finance, Chief Financial Officer and Treasurer (principal accounting and financial officer) 15 SECTION 302 CERTIFICATION I, Russell A. Gerdin, President 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.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 11, 2002 /s/ Russell A. Gerdin Russell A. Gerdin President and Chief Executive Officer (principal executive officer) 16 SECTION 302 CERTIFICATION I, John P. Cosaert, Executive Vice President-Finance, 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.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures 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) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date: 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 11, 2002 /s/ John P. Cosaert John P. Cosaert Executive Vice President-Finance, Chief Financial Officer and Treasurer (principal accounting and financial officer) 17