10-Q 1 tenq033105.txt 1ST QUARTER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended March 31, 2005 Commission File No. 0-15087 -------------- ------- HEARTLAND EXPRESS, INC. (Exact Name of Registrant as Specified in Its Charter) Nevada 93-0926999 ------ ----------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 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 March 31, 2005, there were 75,000,000 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 March 31, 2005 and December 31, 2004 1-2 Consolidated Statements of Income for the Three Months Ended March 31, 2005 and 2004 3 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 4 Notes to Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11-12 Item 4. Controls and Procedures 12 PART II OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of 12 Security Holders Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12-16 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
March 31, December 31, 2005 2004 -------------- ------------- (Unaudited) CURRENT ASSETS Cash and cash equivalents ................. $ 994,070 $ 1,610,543 Short-term investments .................... 287,184,043 256,727,782 Trade receivables, less allowance of $775,000 in 2005 and 2004 ............ 38,283,677 37,102,813 Prepaid tires ............................. 2,280,990 2,692,090 Deferred income taxes ..................... 26,275,000 24,964,000 Other current assets ...................... 3,198,427 158,267 ------------ ------------ Total current assets ................... 358,216,207 323,255,495 ------------ ------------ PROPERTY AND EQUIPMENT Land and land improvements ................ 9,543,953 9,543,953 Buildings ................................. 17,494,255 17,494,255 Furniture and fixtures .................... 1,042,131 1,210,424 Shop and service equipment ................ 2,541,642 2,557,654 Revenue equipment ......................... 226,997,757 222,842,499 ------------ ------------ 257,619,738 253,648,785 Less accumulated depreciation ............. 76,987,853 68,973,751 ------------ ------------ Property and equipment, net ............... 180,631,885 184,675,034 ------------ ------------ GOODWILL ..................................... 4,814,597 4,814,597 OTHER ASSETS ................................. 4,206,596 4,266,725 ------------ ------------ $547,869,285 $517,011,851 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 1 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31, 2005 2004 ------------- ------------- (Unaudited) CURRENT LIABILITIES Accounts payable and accrued liabilities .. $ 13,418,791 $ 9,722,099 Compensation and benefits ................. 14,402,754 11,151,523 Income taxes payable ...................... 17,767,286 7,918,914 Insurance accruals ........................ 47,077,892 45,995,442 Other accruals ............................ 6,719,540 5,995,943 ------------- ------------- Total current liabilities .............. 99,386,263 80,783,921 ------------- ------------- DEFERRED INCOME TAXES ........................ 45,451,000 46,885,000 ------------- ------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred, $.01 par value; authorized 5,000,000 shares; none issued .......... -- -- Common, $.01 par value; authorized 395,000,000 shares; issued and outstanding 75,000,000 ................. 750,000 750,000 Additional paid-in capital ................ 8,510,305 8,510,305 Retained earnings ......................... 394,500,869 380,906,884 ------------- ------------- 403,761,174 390,167,189 Less unearned compensation ................ (729,152) (824,259) ------------- ------------- 403,032,022 389,342,930 ------------- ------------- $ 547,869,285 $ 517,011,851 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 2 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended March 31, 2005 2004 ------------- ------------- OPERATING REVENUE ........................ $ 118,677,472 $ 106,836,912 ------------- ------------- OPERATING EXPENSES: Salaries, wages, and benefits ......... 42,716,841 39,766,096 Rent and purchased transportation ..... 7,712,212 10,518,625 Operations and maintenance ............ 28,133,948 20,945,552 Taxes and licenses .................... 2,075,290 2,290,282 Insurance and claims .................. 2,832,265 2,496,641 Communications and utilities .......... 698,877 962,183 Depreciation .......................... 8,388,684 6,613,704 Other operating expenses .............. 4,234,394 3,504,034 Gain on disposal of fixed assets ...... (181,342) (36,251) ------------- ------------- 96,611,169 87,060,866 ------------- ------------- Operating income ................... 22,066,303 19,776,046 Interest income ....................... 1,335,225 567,516 ------------- ------------- Income before income taxes ............ 23,401,528 20,343,562 Federal and state income taxes ........ 8,307,543 7,221,965 ------------- ------------- Net income ............................ $ 15,093,985 $ 13,121,597 ============= ============= Net income per common share: Basic net income per share .......... $ 0.20 $ 0.17 ============= ============= Basic weighted average shares outstanding ........................ 75,000,000 75,000,000 ============= ============= Dividends declared per share .......... $ 0.020 $ 0.013 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 3 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended March 31, 2005 2004 ------------- ------------ OPERATING ACTIVITIES Net income .................................. $ 15,093,985 $ 13,121,597 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............. 8,393,685 6,618,705 Deferred income taxes ..................... (2,745,000) (1,788,000) Unearned compensation ..................... 95,107 95,107 Gain on disposal of fixed assets .......... (181,342) (36,251) Changes in certain working capital items: Trade receivables ....................... (1,180,864) (2,292,535) Other current assets .................... (3,040,160) (2,449,546) Prepaid tires ........................... 497,500 788,350 Accounts payable and accrued liabilities. 6,093,226 3,173,568 Accrued income taxes .................... 9,848,372 8,362,958 ------------ ------------ Net cash provided by operating activities ... 32,874,509 25,593,953 ------------ ------------ INVESTING ACTIVITIES Proceeds from sale of property and equipment. 421,000 36,251 Capital additions ........................... (2,012,417) (5,382,578) Net purchases of municipal bonds ............ (30,456,261) (48,099,106) Increase in other assets .................... 55,128 71,718 ------------ ------------ Net cash used in investing activities ....... (31,992,550) (53,373,715) ------------ ------------ FINANCING ACTIVITIES, cash dividend ............ (1,498,432) (999,594) ------------ ------------ Net decrease in cash and cash equivalents ... (616,473) (28,779,356) CASH AND CASH EQUIVALENTS Beginning of year ........................... 1,610,543 38,618,430 ------------ ------------ End of quarter .............................. $ 994,070 $ 9,839,074 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes ............................. $ 1,204,171 $ 647,007
The accompany notes are an integral part of these consolidated financial statements. 4 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements of Heartland Express, Inc. and subsidiaries (the "Company") have been prepared in accordance with 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 consolidated financial statements for the year ended December 31, 2004 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. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 3. Segment Information The Company has 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. Cash and Cash Equivalents Cash equivalents are short-term, highly liquid investments with insignificant interest rate risk and original maturities of three months or less. The Company previously reported municipal bonds with a reset provision of three months or less as a cash equivalent. The Company is now classifying all municipal bonds based upon their original maturity date without respect to any reset provisions. Reclassifications have been completed on all prior periods reported herein to be consistent with this change. Restricted and designated cash and investments totaling $4.2 million at March 31, 2005 and $4.0 million at March 31, 2004 are classified as other assets. The restricted funds represent those required for self-insurance purposes and designated funds that are earmarked for a specific purpose not for general business use. 5 Note 5. Investments Investments primarily include municipal bonds with interest reset provisions and short-term municipal bonds. The cost approximates the fair value due to the nature of the investments. Therefore, accumulated other comprehensive income (loss) has not been recognized as a separate component of stockholders' equity. Note 6. Property, Equipment, and Depreciation The Company's tractor fleet has historically been depreciated by the 125% declining balance method applied to cost, net of salvage value. Tractors purchased beginning in June, 2004 are being depreciated by the 125% declining balance method applied to the book value of the asset at the beginning of each period. The salvage value is no longer being deducted from the book value each period when computing the depreciation base used to calculate the declining balance depreciation and resulted in additional depreciation of $768,750 in the first quarter of 2005. Note 7. Stock Split On July 21, 2004, the Board of Directors approved a three-for-two stock split, affected in the form of a fifty percent stock dividend. The stock split occurred on August 20, 2004, to shareholders of record as of August 9, 2004. This stock split increased the number of outstanding shares to 75.0 million from 50.0 million. 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. Note 8. Earnings Per Share: Basic earnings per share are based upon the weighted average common shares outstanding during each year. Diluted earnings per share are based upon the weighted average common and common equivalent shares outstanding during each year. Heartland Express has no common stock equivalents; therefore, diluted earnings per share are equal to basic earnings per share. All earnings per share data presented have been restated to reflect a three-for-two stock split on August 20, 2004. Note 9. Stock Based Compensation At March 31, 2005 the Company has a restricted stock award plan. The plan shares are being amortized over a five year period as compensation expense. Amortized compensation expense of $95,107 in each of the three month periods ended March 31, 2005 and 2004 is recorded in salaries, wages, and benefits on the statement of operations. The unamortized portion of the stock awards is recorded in stockholders' equity as unearned compensation. All unvested shares are included in the Company's 75.0 million outstanding shares. Note 10. New Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," a revision of SFAS No. 123, which addresses the accounting for share-based payment transactions. SFAS No. 123(R) eliminates the ability to account for employee share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued to Employees," and generally requires instead that such transactions be accounted and recognized in the statement of operations based on their fair value. The Company does not anticipate that SFAS No. 123(R) will have an impact on the Company. 6 In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary Assets--An Amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Non-monetary Transactions," and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The Company is currently evaluating the affect that the adoption of SFAS 153 will have on its consolidated results of operations and financial condition and has not determined the financial impact. Note 11. Commitments and Contingencies On January 7, 2002, the Owner-Operators Independent Drivers Association, Inc. served a lawsuit against the Company in the United States District Court for the Southern District of Iowa. The lawsuit alleges that the Company failed to adequately inform the owner-operators of certain deductions from their settlement statements in violation of Department of Transportation regulations and that the Company's standard contract with owner-operators violates those regulations. The lawsuit sought unspecified damages and an injunction to prevent owner-operators from hauling for the Company until alleged contractual deficiencies are corrected. In January 2005, Heartland Express paid $250,000 to the plaintiffs and class members. In March 2005, the District Court awarded attorneys' fees on behalf of the plaintiffs in the amount of $225,381 to resolve all claims in the case. The award of the attorneys' fees has been accrued as of March 31, 2005. The Company is party to ordinary, routine litigation and administrative proceedings incidental to its business. In the opinion of management, the Company's potential exposure under pending legal proceedings is adequately provided for in the accompanying consolidated financial statements. The Company has commitments at March 31, 2005 to acquire revenue equipment for approximately $49.4 million in 2005 and $49.5 million in 2006. These commitments are expected to be financed from existing cash and investment balances and cash flows from operations. Note 12. Reclassifications Certain reclassifications have been made to the prior period financial statements to conform to the current year's presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements Except for certain historical information contained herein, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, assumptions and uncertainties which are difficult to predict. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, or other financial items; any statements of plans, strategies, and objectives of management for future operations; any statements concerning proposed new strategies or developments; any statements regarding future economic conditions or performance; any statements of belief and any statement of assumptions underlying any of the foregoing. Words such as "believe," "may," "could," "expects," "anticipates," and "likely," and variations of these words or similar expressions, are intended to identify such forward-looking statements. The Company's actual results could differ materially from those discussed in the section entitled "Factors That May Affect Future Results," included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Company's Annual report on Form 10-K, which is by this reference incorporated herein. The Company does not assume, and specifically disclaims, any obligation to update any forward-looking statements contained in this Quarterly report. 7 Overview Heartland Express, Inc. is a short-to-medium haul truckload carrier. The Company transports freight for major shippers and generally earns revenue based on the number of miles per load delivered. During the first quarter of 2005, freight revenue, excluding fuel surcharge, increased 6.2% to $108.6 million from $102.2 million in the first quarter of 2004. The Company takes pride in the quality of the service that it provides to its customers. The keys to maintaining a high level of service are experienced drivers, reliable equipment and equipment availability. Heartland has one of the newest fleets in the industry with an average tractor age of 22 months and trailer age of 38 months. The Company anticipates making significant capital expenditures for revenue equipment during the remainder of 2005. The Company expects future revenue equipment purchases to be financed using current cash and investment balances and cash flow provided by operations. The Company continues to work with shippers and drivers to minimize the impact of the revised DOT hours-of-service regulations that took effect on January 4, 2004. These new regulations were rescinded in September of 2004 by the United States Circuit Court of Appeals for the District of Columbia on grounds that driver health was not properly addressed. At that time the new regulations were extended to September 30, 2005 at which time further rule changes could become effective. The trucking industry continues to experience a shortage of qualified drivers. In order to attract and retain experienced drivers, the Company increased pay for all drivers $0.03 per mile during the first quarter of 2004 and again in the first quarter of 2005. Management believes that the Company continues to offer one of the highest pay packages in the industry. This pay package along with increased recruiting efforts should allow the Company to attract additional qualified drivers; however, a long term shortage of drivers could hinder growth. Effective October 1, 2002, all newly manufactured truck engines must comply with the engine emission standards mandated by the Environmental Protection Agency (EPA). The new engines have resulted in a significant increase in the cost of new tractors, lower fuel efficiency, and higher maintenance costs. All new tractor purchases beginning in 2004 will include engines that conform to the new standards. As a result of these purchases, the operating costs associated with new replacement tractors have increased. Additional EPA engine design requirements will take affect in 2007 and are expected to further reduce fuel efficiency and increase engine prices. 8 Results of Operations: The following table sets forth the percentage relationship of expense items to operating revenue for the periods indicated. Three months Ended March 31, 2005 2004 ------- ------- Operating revenue 100.0% 100.0% ------- ------- Operating expenses: Salaries, wages, and benefits 36.0% 37.2% Rent and purchased transportation 6.5 9.9 Operations and maintenance 23.7 19.6 Taxes and licenses 1.7 2.1 Insurance and claims 2.4 2.3 Communications and utilities 0.6 0.9 Depreciation 7.1 6.2 Other operating expenses 3.6 3.3 (Gain) on disposal of fixed assets (0.2) (0.0) ------- ------- Total operating expenses 81.4% 81.5% ------- ------- Operating income 18.6% 18.5% Interest income 1.1 0.5 ------- ------- Income before income taxes 19.7% 19.0% Federal and state income taxes 7.0 6.7 ------- ------- Net income 12.7% 12.3% ======= ======= The following is a discussion of the results of operations of the quarter ended March 31, 2005 compared with the same period in 2004, and the changes in financial condition through the first quarter of 2005. Operating revenue increased $11.8 million (11.1%), to $118.7 million in the first quarter of 2005 from $106.8 million in the first quarter of 2004. The increase in revenue resulted from improved freight rates and improved optimization of revenue equipment. Operating revenue for both periods was positively impacted by fuel surcharges assessed to customers. Fuel surcharge revenue increased $5.5 million to $10.1 million in the first quarter of 2005 from $4.6 million in the first quarter of 2004. Salaries, wages, and benefits increased $2.9 million (7.4%), to $42.7 million in the first quarter of 2005 from $39.8 million in the first quarter of 2004. These increases were primarily the result of increased reliance on employee drivers due to a decrease in the number of independent contractors utilized by the Company and a driver pay increase. During the first quarter of 2005, employee drivers accounted for 90% and independent contractors 10% of the total fleet miles, compared with 86% and 14%, respectively, in the first quarter of 2004. For the second year in a row the Company increased pay for all drivers $0.03 per mile during the first quarter. The driver pay increased was phased in at $.01 per month in the first quarter of 2005. In addition, the Company incurred increased health insurance costs due to the increased frequency and severity of claims. Rent and purchased transportation decreased $2.8 million (26.7%), to $7.7 million in the first quarter of 2005 from $10.5 million in the first quarter of 2004. This reflects the Company's decreased reliance upon independent contractors. Rent and purchased transportation for both periods includes amounts paid to independent contractors under the Company's fuel stability program. The Company increased the independent contractor base mileage pay by $.03 per mile on January 1, 2005. Operations and maintenance increased $7.2 million (34.3%) to $28.1 million in the first quarter of 2005 from $20.9 million in the first quarter of 2004. The increase in operations and maintenance is primarily attributable to 9 increased fuel costs due to the increased percentage of fleet miles driven by employee drivers. Fuel cost per mile, net of fuel surcharge, increased 11.0% in the first quarter of 2005 compared to the same period of 2004. The industry experienced record high fuel prices throughout the first quarter of 2005. In addition, fuel efficiency for new tractors purchased beginning in 2004 is being negatively impacted due to EPA mandated engine clean air standards. Insurance and claims increased $0.3 million (13.4%), to $2.8 million in the first quarter of 2005 from $2.5 million in the first quarter of 2004. 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. Depreciation increased $1.8 million (26.8%) to $8.4 million during the first quarter of 2005 from $6.6 million in the first quarter of 2004. Effective June 1, 2004, the Company began depreciating new tractors by applying the 125% declining balance to the book cost of the tractor. Previously, the 125% declining balance method was applied to book cost, net of salvage. This change in estimate increased depreciation by approximately $768,750 during the three months ended March 31, 2005. In addition, depreciation increased because of the growth of our company owned tractor and trailer fleet. Other operating expenses increased $0.7 million (20.8%) to $4.2 million during the first quarter of 2005 from $3.5 million during the first quarter 2004. Other operating expenses consist primarily of costs incurred for freight handling, highway tolls, driver recruiting expenses, and administrative costs. During the first quarter of 2005, freight handling and tolls increased $0.6 million and advertising expense related to driver recruiting increased $0.2 million compared to the first quarter of 2004. The Company's effective tax rate was 35.5% in the first quarter of 2005 and 2004. As a result of the foregoing, the Company's operating ratio (operating expenses as a percentage of operating revenue) was 81.4% during the first quarter of 2005 compared with 81.5% during the first quarter of 2004. Net income increased $2.0 million (15.0%), to $15.1 million during the first quarter of 2005 from $13.1 million during the first quarter of 2004. 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 three months ended March 31, 2005, was net cash provided by operating activities of $32.9 million compared to $25.6 million in the corresponding 2004 period. Capital expenditures for property and equipment, primarily revenue equipment net of trade-ins, totaled $2.0 million for the first three months of 2005 compared to $5.4 million for the same period in 2004. The Company anticipates new tractor and trailer purchases, net of trades, totaling approximately $54.0 million in 2005. 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. Future capital expenditures are expected to be funded by cash flow provided by operations and from existing cash, cash equivalents, and investments. The Company ended the quarter with $288.2 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. 10 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 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. Based on the Department of Energy national average diesel prices, the cost of fuel increased 29% over the first quarter of 2004. 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, short-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 and higher fuel consumption in colder weather. Concentrations of Credit Risk and Major Customers The Company's major customers represent the consumer goods, appliances, food products and automotive industries. Credit is usually granted to customers on an unsecured basis. The Company's five largest customers accounted for 34% and 33% of revenues for the quarter ended March 31, 2005 and 2004, respectively. Operating revenue from one customer exceeded 10% of total gross revenues in the three months ended March 31, 2005 and 2004. 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company purchases only high quality, liquid investments. Primarily all investments as of March 31, 2005 have an original maturity or interest reset date of twelve months or less. Due to the short term nature of the investments, the Company is exposed to minimal market risk related to its cash equivalents and investments. The Company has no debt outstanding as of March 31, 2005 and therefore, has no market risk related to debt. As of March 31, 2005, the Company has no derivative financial instruments to reduce its exposure to fuel price fluctuations. Item 4. Controls and Procedures As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operations of the Company's disclosure controls and procedures, and as defined in Exchange Act Rule 15d-15(e). Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in enabling the Company to record, process, summarize and report information required to be included in the Company's periodic SEC filings within the required time period. There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is a party to ordinary, routine litigation and administrative proceedings incidental to its business. These proceedings primarily involve claims for personal injury, property damage, and workers' compensation incurred in connection with the transportation of freight. The Company maintains insurance to cover liabilities arising from the transportation of freight for amounts in excess of certain self-insured retentions. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 12 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K 1. Report on Form 8-K, dated January 18, 2005, announcing the Company's financial results for the quarter ended December 31, 2004. 2. Report on Form 8-K, dated March 10, 2005, announcing the declaration of a quarterly cash dividend. No other information is required to be filed under Part II of the form. 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. Date: May 6, 2005 BY: /s/ John P. Cosaert ------------------------- John P. Cosaert Executive Vice President-Finance, Chief Financial Officer and Treasurer (principal accounting and financial officer) 13 Exhibit No. 31.1 Certification I, Russell A. Gerdin, Chairman, 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. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or cause such disclosure controls and procedures to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's 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: May 6, 2005 BY: /s/ Russell A. Gerdin ---------------------- Russell A. Gerdin Chairman, President and Chief Executive Officer 14 Exhibit No. 31.2 Certification I, John P. Cosaert, Executive Vice President, Chief Financial Officer and Treasurer of Heartland Express, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Heartland Express, Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or cause such disclosure controls and procedures to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's 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: May 6, 2005 BY: /s/ John P. Cosaert ----------------------- John P. Cosaert Executive Vice President-Finance Chief Financial Officer and Treasurer (principal accounting and financial officer) 15 Exhibit No. 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Russell A. Gerdin, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heartland Express, Inc., on Form 10-Q for the period ended March 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Heartland Express, Inc. Dated: May 6, 2005 BY: /s/ Russell A. Gerdin ------------------------- Russell A. Gerdin Chairman, President and Chief Executive Officer I, John P. Cosaert, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heartland Express, Inc., on Form 10-Q for the period ended March 31, 2005 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Heartland Express, Inc. Dated: May 6, 2005 BY: /s/ John P. Cosaert ----------------------- John P. Cosaert Executive Vice President and Chief Financial Officer 16