June 5, 2008
VIA EDGAR AND FAX TRANSMISSION (202) 772-9202
Linda Cvrkel
Accounting Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-3561
Re: Securities and Exchange Commission ("SEC") Comment Letter dated May 22,
2008 regarding Heartland Express, Inc. Form 10-K for the fiscal year ended
December 31, 2007, File No. 000-15087
Dear Ms. Cvrkel:
The following is in response to the comments and requests for information in
your letter dated May 22, 2008 related to our 2007 Form 10-K. We have today
electronically filed with the SEC this response to your letter. A courtesy copy
of the filing has been forwarded to Ms. Yu via facsimile transmission at the fax
number listed above.
1. We note from your consolidated statements of cash flows that you have
presented purchases and sales of municipal bonds and other investments
on a net basis in your consolidated statements of cash flows. In
future filings, please revise to present purchases sales and
maturities of investments on a gross basis in your consolidated
statement of cash flows as required by paragraph 18 of SFAS No. 115.
Response: We note the Staff's comment regarding gross basis of sales
and maturities of investments in the consolidated statement of cash
flows pursuant to paragraph 18 of SFAS No. 115. We respectfully submit
that the Company has presented purchases, sales and maturities of
investments on a net basis per guidance, under paragraph 13 of SFAS
No. 95, which states, "Items that qualify for net reporting because
their turnover is quick, their amounts are large, and their maturities
are short are cash receipts and payments pertaining to (a) investments
(other than cash equivalents), (b) loans receivable, and (c) debt,
providing that the original maturity of the asset or liability is
three months or less." The Company has determined that net
presentation is more meaningful to investors as the Company's
investments consist of auction rate securities which typically are
bought and sold every 35 days. The Company's historical participation
in auctions every 35 days equates to an annual turn-over of the
Company's investment portfolio approximately 10 times annually. The
Company believes that net increases and decreases to the investment
portfolio and not the gross increases and decreases are more
beneficial to investors based on the underlying activity of the
Company's investments.
2. We note from the disclosures provided in Notes 2 and 4 that the
Company adopted SAB 108 by recording a $15.9 million cumulative
adjustment to retained earnings during the year ended December 31,
2006 to record a previously unrecorded state income tax exposure
liability of $11.8 million and related increase in the deferred tax
liability of $4.1 million. We also note from the disclosures provided
that the amount recorded pertains to potential state tax liabilities
for the years 1996 through 2005 and the impact on deferred taxes for
those same years. We also note from your disclosures that these errors
were considered immaterial under the Company's previous method of
evaluating misstatements.
Please tell us and expand future filings to disclose the method
previously utilized to evaluate misstatements prior to the adoption of
SAB 108. Also, please provide us with an analysis indicating the
dollar amounts of the misstatements that existed with respect to the
various periods that were misstated along with managements'
materiality analysis of the misstatements prior to the adoption of SAB
108. We may have further comment upon receipt of your response.
Response: Prior to the adoption of Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements," ("SAB 108") the
Company used the income statement, "rollover" approach to evaluating
misstatements. In using the rollover approach, the Company quantified
the misstatement based on the amount of the error originating in the
current year consolidated statement of operations and thus ignoring
the effect of correcting the portion of the current year consolidated
balance sheet misstatement that originated in prior years. The Company
will incorporate the following disclosure in the footnotes to the
consolidated financial statements in future filings in which the 2006
financial statements are presented:
"In September 2006, the SEC issued Staff Accounting Bulletin No.
108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements
(SAB 108), to address diversity in practice in quantifying
financial statement misstatements. SAB 108 requires an entity to
quantify misstatements using a balance sheet and income statement
approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant
quantitative and qualitative factors. Prior to the adoption of
SAB 108 the Company quantified misstatements using the income
statement approach whereby errors were quantified based on the
amount of the error originating in the current year consolidated
statement of operations and thus ignoring the effects of
correcting the portion of the current year consolidated balance
sheet misstatement that originated in prior years. SAB 108 was
effective as of the beginning of the Company's 2006 fiscal year,
allowing a one-time transitional cumulative effect adjustment to
retained earnings as of January 1, 2006 for errors that were not
previously deemed material, but are material under the guidance
in SAB 108. The Company adopted the provisions of SAB No. 108 and
recorded a $15.9 million cumulative adjustment to the January 1,
2006 retained earnings for a previously unrecorded state income
tax exposure liability and related deferred tax liability. The
amount recorded pertains to potential state income tax
liabilities for the years 1996 through 2005 and the impact on
deferred tax liabilities for those same years. These errors were
considered immaterial under the Company's previous income
statement method of evaluating misstatements."
Management's materiality assessment
The Company has used the guidance as set forth in SAB 99,
"Materiality" in assessing the materiality by period. Quantitatively,
the following table sets forth the key considerations:
Quantitative Analysis
(amounts in 000's except per share amounts) 2006 2005 2004
Net income as reported 87,171 71,905 62,447
Weighted average shares outstanding 98,359 99,125 100,000
Earnings per share as reported 0.89 0.73 0.62
Rollover error impact 171 (2,169) (2,793)
Adjusted net income 87,342 69,736 59,654
% of misstatement to amounts reported 0.2% 3.0% 4.5%
Adjusted earnings per share 0.89 0.70 0.60
Years prior to 2004 were deemed to be less important in our
considerations as they were no longer included in our annual report on
Form 10-K and given the nature of the misstatements and its
relationship to earnings, would not be expected to result in a
conclusion different than that reached for the years ended 2004, 2005
and 2006.
The following tables summarize the quantitative considerations for the
respective quarters (amounts in $000's except per share information).
The rollover impact of the misstatement was allocated to the quarters
based on pre-tax earnings for the respective quarters given the
relationship to earnings:
2006
(amounts in 000's except
per share amounts) Q1 Q2 Q3 Q4 Fiscal Year
Net income 19,740 24,772 23,011 19,648 87,171
Weighted average shares 98,429 98,429 98,331 98,252 98,359
EPS 0.20 0.25 0.23 0.20 0.89
Adjusted net income 19,779 24,821 23,056 19,687 87,342
Change % of net income 0.2% 0.2% 0.2% 0.2% 0.2%
Adjusted EPS 0.20 0.25 0.23 0.20 0.89
2005
(amounts in 000's except
per share amounts) Q1 Q2 Q3 Q4 Fiscal Year
Net income 15,094 17,630 17,542 21,639 71,905
Weighted average shares 100,000 99,833 98,429 98,429 99,125
EPS 0.15 0.18 0.18 0.22 0.73
Adjusted net income 14,639 17,098 17,013 20,986 69,736
Change % of net income 3.0% 3.0% 3.0% 3.0% 3.0%
Adjusted EPS 0.15 0.17 0.17 0.21 0.70
2004
(amounts in 000's except
per share amounts) Q1 Q2 Q3 Q4 Fiscal Year
Net income 13,122 15,700 17,070 16,555 62,447
Weighted average shares 100,000 100,000 100,000 100,000 100,000
EPS 0.13 0.16 0.17 0.17 0.62
Adjusted net income 12,534 15,002 16,305 15,813 59,654
Change % of net income 4.5% 4.4% 4.5% 4.5% 4.5%
Adjusted EPS 0.13 0.15 0.16 0.16 0.60
The concept of materiality can not be limited only to the quantitative
considerations above, and the Company considered certain, qualitative
factors to be equally relevant in our consideration of materiality.
Those qualitative considerations are discussed below, and represent an
important part of our overall conclusion as to whether the
misstatements were material to any of the periods presented.
Qualitative factors considered were the following (SAB 99 qualitative
guidance shown in italics):
o Whether the misstatements mask a change in earnings or other
trends. Per the analysis above, the misstatement does not change
net income to net loss in any period presented, and more
importantly, as this adjustment was limited to income taxes,
there is no impact on operating income, expense ratios or other
meaningful measures on which we would expect an investor or
analysts would assess our financial results. In addition, these
misstatements do not result in material adjustments to earnings
per share (EPS) or the effective tax rate.
o Whether the misstatement arises from an item capable of precise
measurement or whether it arose from an estimate and, if so, the
degree of imprecision inherent in the estimate. Due to the nature
of the misstatements related to potential state tax liabilities
for filing positions taken, the misstatement was not able to be
measured with precise measurement. The liability recorded
represents management's best estimate based on facts and
conditions known to the Company at the time of the respective
filings.
o Whether the misstatement concerns a segment or other portion of
the registrant's business that has been identified as playing
significant role in the registrant's operations or profitability.
The misstatements do not concern any particular segment as the
Company operates in one segment as disclosed in the footnotes to
the Company's financial statements.
o Whether the misstatement affects the registrant's compliance with
regulatory requirements or compliance with loan covenants or
other contractual requirements. The Company is not aware of any
such regulatory or contractual requirements and did not have any
debt outstanding during the periods presented.
o Whether the misstatement has the effect of increasing
management's compensation - for example, by satisfying
requirements for the award of bonuses or other forms of incentive
compensation. The Company has not had any material forms of
incentive compensation for management that has been attached to
or derived from operating results and therefore management
compensation was not affected by the misstatement.
o Whether the misstatement involves concealment of any unlawful
transaction. The misstatement does not conceal any unlawful
transaction.
No other qualitative considerations were identified in our
consideration of materiality of the misstatements identified.
Misstatement analysis
Based on consideration of the qualitative and quantitative factors set forth
above, the Company concluded that the impact of the misstatement was not
material to any of the periods during the years ended December 31, 2004, 2005 or
2006 under the rollover method employed in evaluating misstatements in years
prior to the adoption of SAB 108. As a result, the Company applied the
provisions of SAB 108 and recorded an adjustment to 2006 opening retained
earnings to reflect the liability as determined.
In connection with our response to your comments, the Company acknowledges that:
o The Company is responsible for the adequacy and accuracy of the
disclosure in the Company's filings;
o Staff comments, or changes to the Company's disclosures in response to
Staff comments, do not foreclose the Commission from taking any action
with respect to the filing; and
o The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
The Company appreciates your assistance in the Company's compliance with
applicable disclosure requirements and enhancing the overall disclosures in the
Company's filings. Should you have any questions or comments regarding the
Company's responses, please call me at 319-626-3600.
Sincerely,
/s/ John P. Cosaert
-------------------
John P. Cosaert
Chief Financial Officer
cc: Jean Yu, Securities and Exchange Commission