10-Q 1 tenq63003.txt 2ND QUARTER 2003 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, 2003 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] At June 30, 2003, 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 (Unaudited) Consolidated Balance Sheets June 30, 2003 and December 31, 2002 2 - 3 Consolidated Statements of Income for the Three and Six Months ended June 30, 2003 and 2002 4 Consolidated Statements of Cash Flows for the Six Months ended June 30, 2003 and 2002 5 Notes to Consolidated Financial Statements 6 - 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 13 Item 3 Quantitative and Qualitative Disclosures About Market Risk 13 Item 4 Controls and Procedures 14 PART II OTHER INFORMATION Item 1 Legal Proceedings 15 Item 2 Changes in Securities 15 Item 3 Defaults Upon Senior Securities 15 Item 4 Submission of Matters to a Vote of 15 Security Holders Item 5 Other Information 15 Item 6 Exhibits and Reports on Form 8-K 15 1 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31, 2003 2002 ------------ ------------ (Unaudited) CURRENT ASSETS Cash and cash equivalents ..................... $107,909,269 $109,397,246 Investments ................................... 55,556,396 44,464,176 Trade receivables, less allowance: $675,000 and $650,000 ......................... 37,477,718 33,012,394 Prepaid tires ................................. 3,820,940 4,757,850 Deferred income taxes ......................... 23,028,000 21,134,000 Other current assets .......................... 3,510,420 620,344 ------------ ------------ Total current assets ....................... 231,302,743 213,386,010 ------------ ------------ PROPERTY AND EQUIPMENT Land and land improvements .................... 6,192,820 4,402,820 Buildings ..................................... 13,157,437 8,532,621 Furniture and fixtures ........................ 1,106,173 1,300,848 Shop and service equipment .................... 1,938,546 1,403,633 Revenue equipment ............................. 200,828,625 175,476,971 ------------ ------------ 223,223,601 191,116,893 Less accumulated depreciation ................. 48,896,595 39,715,307 ------------ ------------ Property and equipment, net ................... 174,327,006 151,401,586 OTHER ASSETS, net ............................... 8,621,190 8,320,593 ------------ ------------ $414,250,939 $373,108,189 ============ ============
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, 2003 2002 ------------- ------------- (Unaudited) CURRENT LIABILITIES Accounts payable & accrued liabilities ..... $ 9,759,451 $ 8,632,810 Compensation and benefits .................. 9,523,081 7,632,766 Income taxes payable ....................... 12,464,206 6,070,318 Insurance accruals ......................... 42,796,127 40,228,160 Other ...................................... 5,090,319 4,525,396 ------------- ------------- Total current liabilities ................ 79,633,184 67,089,450 ------------- ------------- DEFERRED INCOME TAXES ........................ 34,800,000 30,089,000 ------------- ------------- 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 8,603,762 Retained earnings .......................... 292,177,427 268,488,971 ------------- ------------- 301,281,189 277,592,733 Less unearned compensation ................. (1,463,434) (1,662,994) ------------- ------------- 299,817,755 275,929,739 ------------- ------------- $ 414,250,939 $ 373,108,189 ============= =============
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, 2003 2002 2003 2002 OPERATING REVENUE ............................... $ 102,799,789 $ 84,359,840 $ 197,639,524 $ 157,630,082 ------------- ------------- ------------- ------------- OPERATING EXPENSES: Salaries, wages, and benefits ................ $ 35,190,604 $ 26,315,038 $ 67,502,911 $ 49,589,663 Rent and purchased transportation ............ 13,151,043 16,738,604 27,104,114 31,663,264 Operations and maintenance ................... 18,141,646 13,651,365 37,451,826 25,079,284 Taxes and licenses ........................... 2,125,293 1,689,400 3,998,699 3,296,508 Insurance and claims ......................... 4,164,378 2,895,068 6,535,371 4,737,143 Communications and utilities ................. 923,038 659,332 1,816,883 1,329,326 Depreciation ................................. 6,926,441 4,461,581 12,293,984 8,361,710 Other operating expenses ..................... 3,551,159 1,866,942 6,105,931 3,790,747 (Gain) loss on disposal of fixed assets ...... (27,110) 99,390 (30,771) 106,006 ------------- ------------- ------------- ------------- 84,146,492 68,376,720 162,778,948 127,953,651 ------------- ------------- ------------- ------------- Operating income ................... 18,653,297 15,983,120 34,860,576 29,676,431 Interest income .............................. 492,404 722,163 1,031,021 1,480,272 ------------- ------------- ------------- ------------- Income before income taxes ................ 19,145,701 16,705,283 35,891,597 31,156,703 Federal and state income taxes ............... 6,509,537 5,679,795 12,203,141 10,593,278 ------------- ------------- ------------- ------------- Net income ................................ $ 12,636,164 11,025,488 $ 23,688,456 $ 20,563,425 ============= ============= ============= ============= Net income per common share: Basic net income per share ............... $ 0.25 $ 0.22 $ 0.47 $ 0.41 ============= ============= ============= ============= 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, 2003 2002 ------------- ------------- OPERATING ACTIVITIES Net income ................................... $ 23,688,456 $ 20,563,425 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............. 12,303,986 8,363,377 Deferred income taxes ..................... 2,817,000 (17,000) Unearned compensation ..................... 199,560 133,039 Gain (loss) on disposal of fixed assets ... (30,771) 106,006 Changes in certain working capital items: Trade receivables ...................... (4,465,324) (7,962,258) Other current assets ................... (2,890,076) (2,085,008) Prepaid expenses ....................... 936,910 429,030 Accounts payable and accrued expenses .. 6,419,622 7,107,203 Accrued income taxes ................... 6,393,888 1,773,890 ------------- ------------- Net cash provided by operating activities . 45,373,251 28,411,704 ------------- ------------- INVESTING ACTIVITIES Proceeds from sale of property and equipment . 70,936 516,874 Capital additions ............................ (35,529,345) (12,540,985) Acquisition of business ...................... -- (26,719,495) Net maturities (purchases) of municipal bonds (11,092,220) 3,336,915 Increase in other assets ..................... (310,599) (105,285) ------------- ------------- Net cash used in investing activities ........ (46,861,228) (35,511,976) ------------- ------------- Net decrease in cash and cash equivalents .... (1,487,977) (7,100,272) CASH AND CASH EQUIVALENTS Beginning of period .......................... 109,397,246 120,794,142 ------------- ------------- End of period ................................ $ 107,909,269 $ 113,693,870 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes .............................. $ 2,992,253 $ 8,836,388 Noncash investing activities: Book value of revenue equipment traded .... $ 1,637,232 $ 7,398,759
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 unaudited financial statements of Heartland Express, Inc. (the "Company") have been prepared in accordance with 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. The financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2002 included in the Annual Report on Form 10-K of the Company filed with the Securities and Exchange Commission. Interim results of operations are not necessarily indicative of the results to be expected for the full year or any other interim periods. There were no changes to the Company's significant accounting policies during the quarter. 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 wrongful death lawsuits were filed in U.S. District Court for the Eastern District of TN Northern Division in Knoxville. The combined relief south in the cases was approximately $65 million for compensatory damages and $200 million for punitive damages. One of the suits was dismissed soon after being filed. During the second quarter of 2003, the second (4 fatality) lawsuit was settled for an amount well within the Company's insurance limits. The third (single fatality) lawsuit was settled during July of 2003, again for an amount well within the Company's insurance limits. A fourth personal injury lawsuit was subsequently filed, which seeks relief in the amount of $387,500; this case is still active. 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 Change in Accounting Estimate Effective April 1, 2003 the Company reduced the salvage value on its trailer fleet from $6,000 to $4,000 per trailer. This change in accounting estimate increased second quarter 2003 depreciation expense by approximately $570,000. 6 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 the acquisition. The acquired 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 operation 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 Six Months Ended June 30, June 30, 2003 2002 2003 2002 ------ ------ ------ ------ Operating revenue ...................... 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ Operating expenses: Salaries, wages, and benefits ....... 34.2% 31.2% 34.2% 31.5% Rent and purchased transportation ... 19.9 13.7 20.1 12.8 Operations and maintenance .......... 17.6 16.2 19.0 15.9 Taxes and licenses .................. 2.1 2.0 2.0 2.1 Insurance and claims ................ 4.1 3.4 3.3 3.0 Communications and utilities ........ 0.9 0.8 0.9 0.8 Depreciation ........................ 5.3 6.7 5.3 6.2 Other operating expenses ............ 3.5 2.2 3.1 2.4 (Gain) loss on disposal of fixed assets ............................ -- 0.1 -- 0.1 ------ ------ ------ ------ Total operating expenses ........ 81.9% 81.1% 82.4% 81.2% ------ ------ ------ ------ Operating income ............. 18.1% 18.9% 17.6% 18.8% Interest income ........................ 0.5 0.9 0.5 0.9 ------ ------ ------ ------ Income before income taxes ...... 18.6% 19.8% 18.1% 19.7% Federal and state income taxes ......... 6.3 6.7 6.1 6.7 ------ ------ ------ ------ Net income ................... 12.3% 13.1% 12.0% 13.0% ====== ====== ====== ====== The following is a discussion of the results of operations of the three and six month periods ended June 30, 2003 compared with the same periods in 2002, and the changes in financial condition through the second quarter of 2003. Three Months Ended June 30, 2003 and 2002 Operating revenue increased $18.4 million (21.9%), to $102.8 million in the second quarter of 2003 from $84.4 million in the second quarter of 2002. The increase in revenue resulted from additional business from existing customers and the growth of our customer base. Operating revenue was also positively impacted by fuel surcharges assessed to customers and the June 1, 2002 acquisition of Great Coastal Express. Fuel surcharge revenue increased to $4.0 million in the second quarter of 2003 from $1.2 million in the second quarter of 2002 due to higher average fuel prices. The acquisition of Great Coastal Express contributed approximately $9.7 million to second quarter 2003 revenue. Operating revenue for the second quarter of 2003 increased 18.8% before fuel surcharge. Salaries, wages, and benefits increased $8.9 million (33.7%), to $35.2 million in the second quarter of 2003 from $26.3 million in the second quarter of 2002. As a percentage of revenue, salaries, wages and benefits increased to 34.2% in 2003 from 31.2% in 2002. These increases were primarily the result of increased reliance on employee drivers and a decrease in the percentage of miles driven by independent contractors. The increase in employee driver miles was attributable to internal growth in the company tractor fleet and to the June 1, 2002 acquisition of Great Coastal Express. During the second quarter of 2003, employee drivers accounted for 82% and independent contractors 18% of the total fleet miles, compared with 71% and 29%, respectively, in the second quarter of 2002. In addition, the Company incurred increased health insurance and workers' compensation costs due to the increased frequency and severity of claims, and due to increased reliance on employee drivers. 8 Rent and purchased transportation decreased $3.6 million (21.4%), to $13.1 million in the second quarter of 2003 from $16.7 million in the second quarter of 2002. As a percentage of revenue, rent and purchased transportation decreased to 12.8% in the second quarter of 2003 from 19.9% in the second quarter of 2002. This reflects the Company's decreased reliance upon independent contractors. During the 2003 period, the Company reimbursed independent contractors for the higher cost of fuel based on fuel surcharges collected from customers. Rent and purchased transportation, before fuel surcharge, decreased 24.8% over the same period in 2002. Operations and maintenance increased $4.5 million (32.9%) to $18.1 million in the second quarter of 2003 from $13.6 million in the second quarter of 2002. As a percentage of revenue, operations and maintenance increased to 17.6% in the second quarter of 2003 from 16.2% during the second quarter of 2002. The increase in operations and maintenance is primarily attributable to increased fuel costs due to increased reliance on the company-owned tractors and record high fuel prices experienced in the second quarter of 2003. Taxes and licenses increased $0.4 million (25.8%), to $2.1 million in the second quarter of 2003 from $1.7 million in the second quarter of 2002. As a percentage of revenue, taxes and licenses increased to 2.1% in 2003 from 2.0% during the second quarter of 2002. Insurance and claims increased $1.3 million (43.8%), to $4.2 million in the second quarter of 2003 from $2.9 million in the second quarter of 2002. As a percentage of revenue, insurance and claims increased to 4.1% in the second quarter of 2003 from 3.4% in the second quarter of 2002. The Company experienced higher insurance premiums and an increased self-insurance retention level during the current quarter. In addition, 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 (40.0%), to $0.9 million in the 2003 period from $0.7 million in the 2002 period. As a percentage of revenue, communications and utilities increased to 0.9% in the second quarter of 2003 from 0.8% in the second quarter of 2002. Communications expense increased due to fleet growth and the implementation of satellite communications with independent contractors. Depreciation increased $2.4 million (55.2%) to $6.9 million during the second quarter of 2003 from $4.5 million in the second quarter of 2002. As a percentage of revenue, depreciation increased to 6.7% in 2003 from 5.3% during the second quarter of 2003. Effective April 1, 2003 the Company reduced the salvage value on its trailer fleet to $4,000 from $6,000 resulting in an increase of approximately $570,000 in trailer depreciation. Additionally, depreciation increased because of the growth of our company owned tractor and trailer fleet. Other operating expenses increased $1.7 million (90.2%) to $3.6 million during the second quarter of 2003 from $1.9 million during the second quarter 2002. As a percentage of revenue, other operating expenses increased to 3.5% during the second quarter of 2003 from 2.2% in the second quarter of 2002. Other operating expenses consist primarily of cost incurred for freight handling, highway tolls, driver recruiting expenses, and administrative costs. Interest income decreased $0.2 (31.8%) to $0.5 million in the second quarter of 2003 from $0.7 million in the second quarter of 2002. 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 compared three month periods. Income taxes have been provided at the statutory federal and state rates, adjusted for certain permanent differences between financial statement and income tax reporting. 9 As a result of the foregoing, the Company's operating ratio (operating expenses as a percentage of operating revenue) was 81.9% during the second quarter of 2003 compared with 81.1% during the second quarter of 2002. Net income increased $1.6 million (14.6%), to $12.6 million during the second quarter of 2003 from $11.0 million during the second quarter of 2002. Six Months Ended June 30, 2003 and 2002 Operating revenue increased $40.0 million (25.4%), to $197.6 million in the six months ended June 30, 2003 from $157.6 million in the 2002 period. The Company's operating revenues, before fuel surcharges, increased 21.2% over the compared 2002 period. Fuel surcharge revenue increased to $8.3 million for the six months ended June 30, 2003 from $1.5 million in the compared 2002 period. The revenue increase was primarily attributable to the expansion of the Company's customer base as well as increased volume from existing customers, and the June 1, 2002 acquisition of Great Coastal Express. The acquisition of Great Coastal Express contributed $19.5 million to the 2003 year-to-date revenues. Salaries, wages, and benefits increased $17.9 million (36.1%), to $67.5 million in the six months ended June 30, 2003 from $49.6 million in the 2002 period. As a percentage of revenue, salaries, wages and benefits increased to 34.2% in 2003 from 31.5% in 2002. 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 and the June 1, 2002 acquisition of Great Coastal Express. During the first six months of 2003, employee drivers accounted for 80% and independent contractors 20% of the total fleet miles, compared with 71% and 29%, respectively, in the compared 2002 period. The Company also experienced an increase in the frequency and severity of workers' compensation and health insurance claims in comparison to the compared 2002 period. Rent and purchased transportation decreased $4.6 million (14.4%), to $27.1 million in the first six months of 2003 from $31.7 million in the 2002 period. As a percentage of revenue, rent and purchased transportation decreased to 13.7% in the 2003 period from 20.1% in the compared 2002 period. This reflects the Company's decreased reliance upon independent contractors. During the 2002 period, the Company reimbursed independent contractors for the higher cost of fuel based on fuel surcharges collected from customers. Rent and purchased transportation, before fuel surcharge, decreased 18.9% from the 2002 period. Operations and maintenance increased $12.4 million (49.3%) to $37.5 million in the six months ended June 30, 2003 from $25.1 million in the 2002 period. This increase is attributable to increased reliance on the Company owned fleet and record high fuel prices experienced in the first six months of 2003. As a percentage of revenue, operations and maintenance increased to 19.0% in the 2003 period from 15.9% during the 2002 period . Taxes and licenses increased $0.7 million (21.3%), to $4.0 million in the first six months of 2003 from $3.3 million in the compared 2002 period. As a percentage of revenue, taxes and licenses decreased to 2.0% in the 2003 period from 2.1% in the 2002 period. This cost increase is primarily attributable to the growth in fleet miles. Insurance and claims increased $1.8 million (38.0%), to $6.5 million in the first six months of 2003 from $4.7 million in the compared 2002 period. As a percentage of revenue, insurance and claims increased to 3.3% in the 2003 period from 3.0% in the 2002 period. The Company's liability insurance premiums and self-insurance retention level increased effective April 1, 2003. In addition, 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. 10 Communications and utilities increased $0.5 million (36.7%), to $1.8 million in the 2003 period from $1.3 million in 2002 period. As a percentage of revenue, communications and utilities increased to 0.9% in the 2003 period from 0.8% in the 2002 periods. The increase is primarily the result of increased fleet growth and the implementation of satellite communications with independent contractors. Depreciation increased $4.0 million (47.0%) to $12.3 million during the first six months of 2003 from $8.3 million in the compared 2002 period. As a percentage of revenue, depreciation increased to 6.2% in the 2003 period from 5.3% in the 2002 periods. Depreciation expense increased approximately $570,000 due to the April 1, 2003 reduction of salvage value for the Company's trailer fleet. Trailer salvage values were decreased to $4,000 from $6,000 previously recorded. In addition, depreciation expense has increased due to the growth in the Company's tractor and trailer fleets. Other operating expenses increased 2.3 million (61.1%) to $6.1 million during the first six months 2003 from $3.8 million during the compared 2002 period. As a percentage of revenue, other operating expenses increased to 3.1% in the 2003 period from 2.4% in the 2002 periods. Other operating expenses consist primarily of freight handling, highway tolls, drivers recruiting expenses, and administrative costs. Interest income decreased $0.5 (30.3%) to $1.0 million in the first six months of 2003 from $1.5 million in the compared 2002 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, 2003 and 2002. 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 82.4% during the first six months of 2003 compared with 81.2% during the first six months of 2002. Net income increased $3.1 million (15.2%), to $23.7 million during the first six months of 2003 from $20.6 million during the compared 2002 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, 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 six months ended June 30, 2003, was net cash provided by operating activities of $45.4 million compared to $28.4 million in the corresponding 2002 period. Capital expenditures for property and equipment, primarily revenue equipment net of trade-ins, totaled $35.5 million for the first six months of 2003 compared to $12.5 million for the same period in 2002. In addition, the Company purchased terminal locations in Columbus, Ohio and Olive Branch, Mississippi during the first quarter of 2003. The Company purchased the trucking assets of Great Coastal Express on June 1, 2002 for $26.7 million. 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. The Company ended the quarter with $163.5 million in cash, cash equivalents, and investments and no debt. Based on the Company's strong financial position, management believes outside financing could be obtained, if necessary, to fund capital expenditures. 11 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. 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. New Accounting Standards In June 2001, FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company adopted this statement effective January 1, 2003. The adoption of this SFAS did not have a material impact on its Consolidated Financial Statements. 12 In April 2002, FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds previous accounting guidance, with required all gains and losses from the extinguishments of debt be classified as an extraordinary item. Under SFAS No. 145 classification of debt extinguishments depends on the facts and circumstances of the transaction. The Company adopted this statement effective January 1, 2003. The adoption of this SFAS did not have a material impact upon its Consolidated Financial Statements as the Company has no debt. In July 2002, FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for the costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." This statement is effective for exit or disposal activities initiated after December 31, 2002. The Company adopted this statement effective January 1, 2003; however, the Company has had no transactions to which this statement would be applicable during the first six months of 2003. In December 2002, FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" which requires certain pro form disclosures. This statement also amended the transition provisions of SFAS No. 123. The Company adopted SFAS No. 123 as amended by SFAS No. 148 effective January 1, 2003; however, the Company has had no transactions to which this statement would be applicable during the first six months of 2003. In November 2002, FASB issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others" which requires that guarantor to recognize at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The Company has not guaranteed the indebtedness or obligations of others. Therefore, the adoption of this Interpretation will not have a material impact upon its Consolidated Financial Statements. In January 2003, FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities" which addresses the consolidation and disclosures of these entities by business enterprises. As the Company does not have any interest in such types of entities the adoption of this Interpretation will not have a material impact upon its Consolidated Financial Statements. On May 15, 2003, the Financial Accounting Standards Board issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We adopted the provisions of SFAS No. 150 on July 1, 2003. We did not enter into any financial instruments within the scope of the SFAS No. 150 during June 2003. Item 3 Quantitative and Qualitative Disclosures About Market Risk The Company purchases only high quality, liquid investments. Primarily all investments as of June 30, 2003 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, 2003 and therefore, has no market risk related to debt. As of June 30, 2003, the Company has no derivative financial instruments to reduce its exposure to diesel fuel price fluctuations. 13 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. 14 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 wrongful death lawsuits were filed in U.S. District Court for the Eastern District of TN Northern Division in Knoxville. The combined relief sought in the cases was approximately $65 million for compensatory damages and $200 million for punitive damages. One of the suits was dismissed soon after being filed. During the second quarter of 2003, the second (4 fatality) lawsuit was settled for an amount well within the Company's insurance limits. The third (single fatality) lawsuit was settled during July of 2003, again for an amount well within the Company's insurance limits. A fourth personal injury lawsuit was subsequently filed, which seeks relief in the amount of $387,500; this case is still active. 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 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 None Item 3 Defaults Upon Senior Securities None Item 4 Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of Heartland Express, Inc. was held on May 8, 2003 for the purpose of electing five directors for one year terms and to ratify the selection of KPMG, LLP as the Company's independent public accountants for 2003. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, and there was no solicitation in opposition to management's nominees. Each of management's nominees for director as listed in the Proxy Statement was elected and KPMG, LLP was appointed independent public accountants for 2003. Of the 50,000,000 shares entitled to vote, stockholders representing 44,472,472 shares (88.9%) were present in person or by proxy. 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. 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. (b) Report on Form 8-K, dated April 17, 2003, announcing the Company's financial results for the quarter ended March 31, 2003. No other information is required to be filed under Part II of the form. 15 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 13, 2003 By /s/ John P. Cosaert John P. Cosaert Executive Vice President-Finance, Chief Financial Officer and Treasurer (principal accounting and financial officer) 16 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-15(e) and 15d-15(e)) 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) 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 (c) 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 (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of 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 controls over financial reporting. Date: August 13, 2003 /s/ Russell A. Gerdin Russell A. Gerdin President and Chief Executive Officer (principal executive officer) 17 SECTION 302 CERTIFICATION I, John P. Cosaert, Executive Vice President and 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-15(e) and 15d-15(e)) 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) 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 (c) 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 (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonability likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of 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: August 13, 2003 /s/ John P. Cosaert John P. Cosaert Executive Vice President-Finance Chief Financial Officer and Treasurer (principal accounting and financial officer) 18 Exhibit 99 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Heartland Express, Inc. (the " Company") on Form 10-Q for the period ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best knowledge of the undersigned: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to Heartland Express, Inc. and will be retained by Heartland Express, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Dated: August 13, 2003 By:/s/Russell A. Gerdin Russell A. Gerdin Chairman, President and Chief Executive Officer Dated: August 13, 2003 By:/s/John P. Cosaert John P. Cosaert Executive Vice President and Chief Financial Officer 19