HEARTLAND EXPRESS INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures – We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board of Directors. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting and Financial Officer), of the effectiveness of the design and operations of our disclosure controls and procedures. 38 Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020. Management’s Annual Report on Internal Control Over Financial Reporting – Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2020. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives. The Company’s internal control over financial reporting as of December 31, 2020 has been audited by Grant Thornton LLP, an independent registered public accounting firm as stated in its report which is included herein. Changes in Internal Control Over Financial Reporting – Except for the design, implementation, and testing of Millis Transfer internal controls, there were no other changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) that occurred during the twelve months ended December 31, 2020 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 39 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE The information required by Item 10 of Part III, with the exception of the Code of Ethics discussed below, is incorporated herein by reference to our Proxy Statement for the annual shareholders’ meeting to be held on May 13, 2021 (the “Proxy Statement”) under the headings “Proposal 1 - Election of Directors,” and “Corporate Governance and the Board of Directors.” Code of Ethics We have adopted a code of ethics known as the “Code of Business Conduct and Ethics” that applies to our employees including the principal executive officer, principal financial officer, controller, and persons performing similar functions. In addition, we have adopted a code of ethics known as “Code of Ethics for Senior Financial Officers” that applies to our senior financial officers, including our chief executive officer, chief financial officer, treasurer, controller, and other senior financial officers performing similar functions who have been identified by the chief executive officer. We make these codes available on our website at www.heartlandexpress.com (and in print to any shareholder who requests them, free of charge). Information on our website is not incorporated by reference into this Annual Report. Environmental and Sustainability We have adopted an "Environmental and Sustainability Mission". This document portrays our commitment to the environment and sustainability through our long track record of successful business practices. Heartland's sustainability efforts are endorsed and overseen by senior management throughout the Company. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 of Part III is incorporated herein by reference to our Proxy Statement under the headings “Compensation Discussion and Analysis,” “Corporate Governance and the Board of Directors,” and “Summary of Cash and Certain Other Compensation Paid to the Named Executive Officers.” ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS The information required by Item 12 of Part III is incorporated herein by reference to Item 5 of Part II of this Annual Report and the Proxy Statement under the heading “Security Ownership of Principal Stockholders, Management and Others.” ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 of Part III is incorporated herein by reference to the Proxy Statement under the headings “Certain Relationships and Related Transactions” and “Corporate Governance and the Board of Directors.” 40 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 of Part III is incorporated herein by reference to the Proxy Statement under the heading “Relationship with Independent Registered Public Accounting Firm.” 41 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) 1. Financial Statements and Schedules. Report of Independent Registered Public Accounting Firm F- 1 Consolidated Balance Sheets - as of December 31, 20 20 and 201 9 F- 4 Consolidated Statements of Comprehensive Income - Years ended December 31, 20 20 , 201 9 and 201 8 F- 5 Consolidated Statements of Stockholders' Equity - Years ended December 31, 20 20 , 201 9 and 201 8 F- 6 Consolidated Statements of Cash Flows - Years ended December 31, 20 20 , 201 9 and 201 8 F- 7 Notes to Consolidated Financial Statements F- 9 2. Financial Statements Schedule Schedule II - Valuation and Qualifying Accounts and Reserves - Years ended December 31, 20 20 , 201 9 , and 201 8 S- 1 Schedules not listed have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. 3. Exhibits–The exhibits required by Item 601 of Regulation S-K are listed at paragraph (b) below. (b) Exhibits. The following exhibits are filed with this Form 10-K or incorporated herein by reference to the document set forth next to the exhibit listed below: 42 EXHIBIT INDEX 2.1 Acquisition and Merger Agreement, dated August 26, 2019, by and among, Midwest Holding Group, Inc., Millis Real Estate Leasing, LLC, the members of Millis Real Estate Leasing, LLC, Heartland Trucking, Inc., Heartland Express Inc. of Iowa, Heartland Express, Inc., in its capacity as guarantor, and David P. Millis, in his capacity as Sellers’ Representative. Incorporated by reference to Exhibit 2.1 to the Company’s Form 10-Q for the quarter ended September 30, 2019. 3.1 Articles of Incorporation, as amended. Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q, for the quarter ended September 30, 2017. 3.2 Amended and Restated Bylaws. Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q, for the quarter ended September 30, 2017. 4.1 ** Description of the Registrant's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. Incorporated by reference to Exhibit 4.1 to the Company's Form 10-K for the year ended December 31, 2019 10.1 * Heartland Express, Inc. 2011 Restricted Stock Award Plan. Incorporated by reference to Appendix A to the Company’s Schedule 14-A filed June 13, 2011. 10.2 * Nonqualified Deferred Compensation Plan. Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K for the year ended December 31, 2006. 10.3 * Form Award Notice under the 2011 Restricted Stock Award Plan. Incorporated by reference to Exhibit 10.3 to the Company's Form 10-K for the year ended December 31, 2011. 10.4 Credit Agreement, dated November 11, 2013, by and between Wells Fargo Bank, National Association and Heartland Express, Inc. of Iowa, Heartland Express, Inc., A&M Express, Inc., Heartland Express, Maintenance Services, Inc., Heartland Express Services, Inc., and Gordon Trucking Inc. Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K for the year ended December 31, 2013. 10.5 First Amendment to Credit Agreement, dated August 31, 2018, by and between Wells Fargo Bank, National Association and Heartland Express, Inc. of Iowa, Heartland Express, Inc., A&M Express, Inc., Heartland Express, Maintenance Services, Inc., and Heartland Express Services, Inc. Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q, for the quarter ended September 30, 2018. 21 ** Subsidiaries of the Registrant. 31.1 ** Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.2 ** Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32.1 *** Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 *** Certification of the Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document - the instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) 43 * Management contract or compensatory plan or arrangement. ** Filed herewith. *** Furnished herewith. ITEM 16. FORM 10-K SUMMARY None. 44 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. HEARTLAND EXPRESS, INC. Date: February 19, 2021 By: /s/ Michael J. Gerdin Michael J. Gerdin Chairman, President, and Chief Executive Officer (Principal Executive Officer) By: /s/ Christopher A. Strain Christopher A. Strain Vice President of Finance, Treasurer, and Chief Financial Officer (Principal Accounting and Financial Officer) Pursuant to the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date /s/ Michael J. Gerdin Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) February 19, 2021 Michael J. Gerdin /s/ Christopher A. Strain Vice President of Finance, Treasurer, and Chief Financial Officer (Principal Accounting and Financial Officer) February 19, 2021 Christopher A. Strain /s/ Benjamin J. Allen Director February 19, 2021 Benjamin J. Allen /s/ Larry J. Gordon Director February 19, 2021 Larry J. Gordon /s/ Tahira K. Hira Director February 19, 2021 Tahira K. Hira /s/ David P. Millis Director February 19, 2021 David P. Millis /s/ Brenda S. Neville Director February 19, 2021 Brenda S. Neville /s/ James G. Pratt Director February 19, 2021 James G. Pratt /s/ Michael J. Sullivan Director February 19, 2021 Michael J. Sullivan 45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Heartland Express, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Heartland Express, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule II (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 19, 2021 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Auto Liability and Workers’ Compensation Claims Reserve Accrual As described further in Notes 1 and 7 to the consolidated financial statements, the Company is self-insured for a portion of its risk related to auto liability and workers’ compensation. Self-insurance results when the Company insures itself by maintaining funds to cover possible losses rather than by purchasing an insurance policy. The Company accrues for the cost of the self-insured portion of unpaid claims by evaluating the nature and severity of individual claims and by estimating future claims development based upon historical development trends. The actual cost to settle self-insured claim liabilities may differ from the Company’s reserve estimates due to legal costs, claims that have been incurred but not reported, and various other uncertainties. We identified the estimation of auto liability and workers’ compensation claims accruals subject to self-insurer insurance retention of $2.0 million and $1.0 million, respectively, as a critical audit matter. Auto liability and workers’ compensation unpaid claim liabilities are determined by projecting the estimated ultimate loss related to a claim, less actual costs paid to date. These estimates rely on the assumption that historical claim patterns are an accurate representation for future claims that have been incurred but not completely paid. The principal considerations for assessing auto liability and workers’ compensation claims as a critical audit matter are the high level of estimation uncertainty related to determining the severity of these types of claims, as well as the inherent subjectivity in management’s judgment in estimating the total costs to settle or dispose of these claims. Our audit procedures related to this critical audit matter included the following, among others: • We tested the effectiveness of controls over auto liability and workers’ compensation claims, including the completeness and accuracy of claim expenses and payments. F-1 • We tested management’s process for determining the auto liability and workers’ compensation accrual, including evaluating the reasonableness of the methods and assumptions used in estimating the ultimate claim losses with the assistance of an actuarial specialist. • We tested management's claim reserve estimates by inspecting source documents to test key attributes of the claims data. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2018. Tulsa, Oklahoma February 19, 2021 F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Heartland Express, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Heartland Express, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 19, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Tulsa, Oklahoma February 19, 2021 F-3 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) ASSETS December 31, 2020 December 31, 2019 CURRENT ASSETS Cash and cash equivalents $ 113,852 $ 76,684 Trade receivables, net 55,577 56,753 Prepaid tires 8,241 9,107 Other current assets 15,342 8,947 Income tax receivable — 323 Total current assets 193,012 151,814 PROPERTY AND EQUIPMENT Land and land improvements 77,525 60,637 Buildings 86,712 70,603 Leasehold improvements — 437 Furniture and fixtures 4,807 4,255 Shop and service equipment 14,380 13,726 Revenue equipment 590,153 583,134 Construction in progress 5,783 6,351 779,360 739,143 Less accumulated depreciation 240,080 212,856 Property and equipment, net 539,280 526,287 GOODWILL 168,295 168,295 OTHER INTANGIBLES, NET 24,746 27,136 DEFERRED INCOME TAXES, NET 8,164 6,006 OTHER ASSETS 17,679 19,393 $ 951,176 $ 898,931 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 12,751 $ 11,060 Compensation and benefits 22,422 24,712 Insurance accruals 15,837 17,584 Other accruals 18,557 10,051 Income taxes payable 1,475 — Total current liabilities 71,042 63,407 LONG-TERM LIABILITIES Income taxes payable 5,801 5,956 Deferred income taxes, net 104,004 93,698 Insurance accruals less current portion 45,995 51,211 Total long-term liabilities 155,800 150,865 COMMITMENTS AND CONTINGENCIES (Note 12) STOCKHOLDERS' EQUITY Preferred stock, par value $.01; authorized 5,000 shares; none issued — — Capital stock, common, $.01 par value; authorized 395,000 shares; issued 90,689 in 2020 and 2019; outstanding 80,653 and 82,028 in 2020 and 2019, respectively 907 907 Additional paid-in capital 4,330 4,141 Retained earnings 890,970 826,666 Treasury stock, at cost; 10,036 and 8,661 shares in 2020 and 2019, respectively ( 171,873 ) ( 147,055 ) 724,334 684,659 $ 951,176 $ 898,931 The accompanying notes are an integral part of these consolidated financial statements. F-4 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands, except per share amounts) Year Ended December 31, 2020 2019 2018 OPERATING REVENUE $ 645,262 $ 596,815 $ 610,803 OPERATING EXPENSES Salaries, wages and benefits 269,482 240,139 227,872 Rent and purchased transportation 4,643 7,984 18,700 Fuel 86,094 101,871 110,536 Operations and maintenance 27,647 24,479 27,143 Operating taxes and licenses 14,962 14,459 16,390 Insurance and claims 22,229 17,003 17,227 Communications and utilities 5,281 4,953 6,086 Depreciation and amortization 109,937 100,212 100,519 Other operating expenses 26,398 22,781 21,506 Gain on disposal of property and equipment ( 14,830 ) ( 31,341 ) ( 24,963 ) 551,843 502,540 521,016 Operating income 93,419 94,275 89,787 Interest income 842 3,955 2,130 Interest expense — ( 1,052 ) — Income before income taxes 94,261 97,178 91,917 Federal and state income tax expense 23,455 24,211 19,240 Net income $ 70,806 $ 72,967 $ 72,677 Other comprehensive income, net of tax — — — Comprehensive income $ 70,806 $ 72,967 $ 72,677 Net income per share Basic $ 0.87 $ 0.89 $ 0.88 Diluted $ 0.87 $ 0.89 $ 0.88 Weighted average shares outstanding Basic 81,388 81,980 82,378 Diluted 81,444 82,024 82,410 Dividends declared per share $ 0.08 $ 0.08 $ 0.08 The accompanying notes are an integral part of these consolidated financial statements. F-5 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except per share amounts) Capital Additional Stock, Paid-In Retained Treasury Common Capital Earnings Stock Total Balance, January 1, 2018 $ 907 $ 3,518 $ 694,174 $ ( 123,954 ) $ 574,645 Net income — — 72,677 — 72,677 Dividends on common stock, $0.08 per share — — ( 6,589 ) — ( 6,589 ) Repurchases of common stock — — — ( 25,087 ) ( 25,087 ) Stock-based compensation, net of tax — ( 64 ) — 390 326 Balance, December 31, 2018 907 3,454 760,262 ( 148,651 ) 615,972 Net income — — 72,967 — 72,967 Dividends on common stock, $0.08 per share — — ( 6,563 ) — ( 6,563 ) Issuance of common stock for acquisition — 113 — 637 750 Stock-based compensation, net of tax — 574 — 959 1,533 Balance, December 31, 2019 907 4,141 826,666 ( 147,055 ) 684,659 Net income — — 70,806 — 70,806 Dividends on common stock, $0.08 per share — — ( 6,502 ) — ( 6,502 ) Repurchases of common stock — — — ( 26,139 ) ( 26,139 ) Stock-based compensation, net of tax — 189 — 1,321 1,510 Balance, December 31, 2020 $ 907 $ 4,330 $ 890,970 $ ( 171,873 ) $ 724,334 The accompanying notes are an integral part of these consolidated financial statements. F-6 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, OPERATING ACTIVITIES 2020 2019 2018 Net income $ 70,806 $ 72,967 $ 72,677 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 110,381 100,932 101,329 Deferred income taxes 8,148 4,699 2,755 Stock-based compensation expense 2,092 2,065 539 Gain on disposal of property and equipment ( 14,830 ) ( 31,341 ) ( 24,963 ) Changes in certain working capital items (net of acquisition): Trade receivables 1,176 6,676 15,338 Prepaid expenses and other current assets ( 3,628 ) 509 1,227 Accounts payable, accrued liabilities, and accrued expenses 3,062 ( 10,758 ) ( 26,012 ) Accrued income taxes 1,643 623 3,653 Net cash provided by operating activities 178,850 146,372 146,543 INVESTING ACTIVITIES Proceeds from sale of property and equipment 93,160 92,942 130,752 Purchases of property and equipment, net of trades ( 204,337 ) ( 163,780 ) ( 169,276 ) Acquisition of business, net of cash acquired — ( 61,927 ) — Change in other assets 129 ( 26 ) 710 Net cash used in investing activities ( 111,048 ) ( 132,791 ) ( 37,814 ) FINANCING ACTIVITIES Cash dividends paid ( 6,502 ) ( 6,563 ) ( 6,589 ) Shares withheld for employee taxes related to stock-based compensation ( 582 ) ( 532 ) ( 213 ) Repayments on acquired debt — ( 93,348 ) — Repurchases of common stock ( 25,654 ) — ( 25,087 ) Net cash used in financing activities ( 32,738 ) ( 100,443 ) ( 31,889 ) Net increase (decrease) in cash, cash equivalents and restricted cash 35,064 ( 86,862 ) 76,840 CASH, CASH EQUIVALENTS AND RESTRICTED CASH Beginning of period 96,076 182,938 106,098 End of period $ 131,140 $ 96,076 $ 182,938 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ — $ 929 $ — Cash paid during the period for income taxes, net of refunds $ 13,664 $ 18,888 $ 12,832 Noncash investing and financing activities: Purchased property and equipment in accounts payable $ 2,172 $ 1,476 $ 1,944 Sold revenue equipment in other current assets $ 3,383 $ 1,282 $ 3,783 Treasury stock acquired in accounts payable $ 485 $ — $ — F-7 Year Ended December 31, RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH 2020 2019 2018 Cash and cash equivalents $ 113,852 $ 76,684 $ 161,448 Restricted cash included in other current assets $ 1,075 $ 1,594 $ 3,105 Restricted cash included in other assets $ 16,213 $ 17,798 $ 18,385 Total cash, cash equivalents and restricted cash $ 131,140 $ 96,076 $ 182,938 The accompanying notes are an integral part of these consolidated financial statements. F-8 HEARTLAND EXPRESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Significant Accounting Policies Nature of Business Heartland Express, Inc. is a holding company incorporated in Nevada, which owns all of the stock of Heartland Express, Inc. of Iowa, Heartland Express Services, Inc., Heartland Express Maintenance Services, Inc., Midwest Holding Group, LLC and Millis Transfer, LLC. On December 31, 2018, A & M Express, Inc. was merged into Heartland Express, Inc. of Iowa. On August 26, 2019, Heartland Express, Inc. of Iowa acquired Midwest Holding Group, Inc. and Millis Real Estate Leasing, LLC (together, "Millis Transfer"), a truckload carrier headquartered in Black River Falls, Wisconsin. Effective December 31, 2019, Millis Transfer, Inc. and Midwest Holding Group, Inc. were converted to Millis Transfer, LLC and Midwest Holding Group, LLC, respectively. Further, effective December 31, 2019, Millis Real Estate Leasing, LLC, Rivera Real Estate, LLC, and Great River Leasing, LLC were merged into Millis Transfer, LLC. We, together with our subsidiaries, are a short-to-medium haul truckload carrier (predominately 500 miles or less per load). We primarily provide nationwide asset-based dry van truckload service for major shippers from Washington to Florida and New England to California. Principles of Consolidation The accompanying consolidated financial statements include the parent company, Heartland Express, Inc., and its subsidiaries, all of which are wholly owned. All material intercompany items and transactions have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) 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. Segment Information We provide truckload services across the United States (U.S.) and parts of Canada. These truckload services are primarily asset-based transportation services in the dry van truckload market, and we also offer truckload temperature-controlled transportation services to select dedicated customers, which are not significant to our operations. Our Chief Operating Decision Maker oversees and manages all of our transportation services, on a combined basis, including previously acquired entities. As a result of the foregoing, we have determined that we have one segment, consistent with the authoritative accounting guidance on disclosures about segments of an enterprise and related information. 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 at acquisition. At December 31, 2020 and 2019, restricted and designated cash and investments totaled $ 17.3 million and $ 19.4 million, respectively. At December 31, 2020, $ 1.1 million was included in other current assets and $ 16.2 million was included in other non-current assets in the consolidated balance sheets. At December 31, 2019, $ 1.6 million was included in other current assets and $ 17.8 million was included in other non-current assets in the consolidated balance sheets. The restricted and designated funds represent deposits required by state agencies for self-insurance purposes and funds that are earmarked for a specific purpose and not for general business use. Investments Municipal bonds of $ 1.5 million at December 31, 2020 and 2019, are stated at amortized cost, are classified as held-to-maturity and are included in restricted cash in other non-current assets. Investment income received on held-to-maturity municipal bond investments is generally exempt from federal income taxes and is recognized as earned. F-9 Trade Receivables and Allowance for Doubtful Accounts The Company recognizes revenue over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The delivery of the shipment and completion of the performance obligation allows for the collection of payment based on the credit terms for customer accounts which are generally on a net 30 day basis or less. We use our write off history and our knowledge of uncollectible accounts in estimating the allowance for bad debts. We review the adequacy of our allowance for doubtful accounts on a monthly basis. We are aggressive in our collection efforts resulting in a low number of write-offs annually. Conditions that would lead an account to be considered uncollectible include customers filing bankruptcy and the exhaustion of all practical collection efforts. We will use the necessary legal recourse to recover as much of the receivable as is practical under the law. Allowance for doubtful accounts was $ 1.1 million and $ 1.1 million at December 31, 2020 and 2019, respectively. Prepaid Tires, Property, Equipment, and Depreciation Property and equipment are reported at cost, net of accumulated depreciation. Maintenance and repairs are charged to operations as incurred. Tires are capitalized separately from revenue equipment and are reported separately as “Prepaid tires” in the consolidated balance sheets and amortized over two years . Depreciation expense of $ 0.4 million and $ 0.7 million for the years ended December 31, 2020 and 2019, respectively, has been included in communications and utilities in the consolidated statements of comprehensive income. Depreciation for financial statement purposes is computed by the straight-line method for all assets other than new tractors. We recognize depreciation expense on new tractors (excluded tractors acquired through acquisition) at 125% declining balance method. New tractors are depreciated to salvage values of $ 15,000 , while new trailers are depreciated to salvage values of $ 4,000 . Revenue equipment acquired through acquisitions is generally revalued to current market values as of the acquisition date. These acquired assets are depreciated on a straight-line basis aligned with the remaining period of expected use. As acquired equipment is replaced, our fleet returns to our base methods of declining balance depreciation for tractors and straight-line depreciation for trailers. Lives of the assets are as follows: Years Land improvements and buildings 5-30 Leasehold improvements 5-25 Furniture and fixtures 3-5 Shop and service equipment 3-10 Revenue equipment 5-7 Impairment of Long-Lived Assets We periodically evaluate property and equipment and amortizable intangible assets for impairment upon the occurrence of events or changes in circumstances that indicate the carrying amount of assets may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset group to future net undiscounted cash flows expected to be generated by the group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount over which the carrying amount of the assets exceeds the fair value of the assets. There were no impairment charges recognized during the years ended December 31, 2020, 2019, and 2018. Fair Value of Financial Instruments The fair values of cash and cash equivalents, trade receivables, held-to-maturity investments and accounts payable, which are recorded at cost, approximate fair value based on the short-term nature and high credit quality of these financial instruments. Advertising Costs We expense all advertising costs as incurred. Advertising costs are included in other operating expenses in the consolidated statements of comprehensive income. Advertising expense was $ 1.8 million, $ 1.9 million, and $ 1.8 million for the years ended December 31, 2020, 2019, and 2018, respectively. F-10 Goodwill Goodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. The Company performs its annual impairment test as of September 30. The Company first assesses qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of our reporting unit is less than its carrying amount, including goodwill. If, after assessing qualitative factors, the Company determines that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, then the Company performs a full fair value assessment of identifiable net assets to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized, if any. As of September 30, 2020, the Company’s assessment of qualitative factors informed its conclusion that a goodwill impairment did not occur. The significant qualitative factors considered include an increase in the Company’s revenue and continued strong cash flow. Our reporting unit had fair value significantly in excess of its carrying value. Management determined that no impairment charge was required for the years ended December 31, 2020, 2019, and 2018. Other Intangibles, Net Other intangibles, net consists of a tradename, covenants not to compete, and customer relationships. All intangible assets determined to have finite lives are amortized over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to future cash flows. We periodically evaluate amortizable intangible assets for impairment upon occurrence of events or changes in circumstances that indicate the carrying amount of intangible assets may not be recoverable. Management determined that no intangible impairment charge was required for the years ended December 31, 2020, 2019, and 2018. See Note 5 for additional information regarding intangible assets. Insurance Accruals We are self-insured for auto liability, cargo loss and damage, bodily injury and property damage ("BI/PD"), and workers’ compensation. Insurance accruals reflect the estimated cost of claims, including estimated loss and loss adjustment expenses incurred but not reported, and not covered by insurance. Accident and workers’ compensation accruals are based upon individual case estimates, including reserve development, and estimates of incurred-but-not-reported losses based upon our own historical experience and industry claim trends. Insurance accruals are not discounted. In addition to internally developed reserves and estimates, we utilize an actuarial specialist to provide an independent annual assessment of the internally developed accident and workers' compensation accruals. The cost of cargo and BI/PD insurance and claims are included in insurance and claims expense, while the costs of workers’ compensation insurance and claims are included in salaries, wages, and benefits in the consolidated statements of comprehensive income. Insurance accruals are presented as either current or non-current in the consolidated balance sheets based on our expectation of when payment will occur. Health insurance accruals reflect the estimated cost of health related claims, including estimated expenses incurred but not reported. The cost of health insurance and claims are included in salaries, wages and benefits in the consolidated statements of comprehensive income. Health insurance accruals of $ 4.5 million and $ 6.0 million are included in other accruals in the consolidated balance sheets as of December 31, 2020 and 2019, respectively. Revenue and Expense Recognition The Company recognizes revenue over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The delivery of the shipment and completion of the performance obligation allows for the collection of payment generally within 30 days after the delivery date of the shipment for the majority of our customers. The Company's operations are consistent with those in the trucking industry where freight is hauled twenty-four hours a day and seven days a week, subject to hours of service rules. The Company’s average length of haul is 400-500 miles per trip and each individual shipment accepted by the Company is considered a separate contract with the performance obligation being the delivery of the freight. Our average length of haul for each load of freight generally equals less than one day of continuous transit time. The Company estimates revenue for multiple-stop loads based on miles run and estimates revenue for single stop loads based on transit time, as the customer simultaneously receives and consumes the benefit provided. The Company hauls freight and earns revenue on a consistent basis throughout the periods presented. A corresponding contract asset existed for the estimated revenue of these in-process loads for $ 1.1 million and $ 1.2 million as of December 31, 2020 and 2019, respectively. Recorded contract assets are included in the accounts receivable line item of the balance sheet. Corresponding liabilities are recorded in the accounts payable and accrued liabilities and compensation and benefits line items for the estimated expenses on F-11 these same in-process loads. The Company had no contract liabilities associated with our operations as of December 31, 2020 and 2019. Stock-Based Compensation We have a stock-based compensation plan that provides for the grants of restricted stock awards to our employees. We account for restricted stock awards using the fair value method of accounting for stock-based compensation. Issuances of stock upon vesting of restricted stock are made from treasury stock. Compensation expense for restricted stock grants is recognized over the requisite service period of each award and is included in salaries, wages and benefits in the consolidated statements of comprehensive income. Total compensation of $ 13.6 million related to all awards granted under the program has been amortized over the requisite service period for each separate vesting period as if the award is, in substance, multiple awards between 2011 and 2023. Earnings per Share Basic earnings per share are based upon the weighted average common shares outstanding during each year. Diluted earnings per share is based on the basic weighted earnings per share with additional weighted common shares for common stock equivalents. During the years ended December 31, 2020, 2019, and 2018, we granted restricted shares of common stock to certain of our employees under the Company's 2011 Restricted Stock Award Plan. A reconciliation of the numerator (net income) and denominator (weighted average number of shares outstanding) of the basic and diluted earnings per share (“EPS”) for 2020, 2019, and 2018 is as follows (in thousands, except per share data): 2020 Net Income (numerator) Shares (denominator) Per Share Amount Basic EPS $ 70,806 81,388 $ 0.87 Effect of restricted stock — 56 Diluted EPS $ 70,806 81,444 $ 0.87 2019 Net Income (numerator) Shares (denominator) Per Share Amount Basic EPS $ 72,967 81,980 $ 0.89 Effect of restricted stock — 44 Diluted EPS $ 72,967 82,024 $ 0.89 2018 Net Income (numerator) Shares (denominator) Per Share Amount Basic EPS $ 72,677 82,378 $ 0.88 Effect of restricted stock — 32 Diluted EPS $ 72,677 82,410 $ 0.88 Income Taxes We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amount of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The effect of a change in tax rates on deferred taxes is recognized in the period that the change is enacted. We have not recorded a valuation allowance against any deferred tax assets at December 31, 2020 and 2019. In F-12 management’s opinion, it is more likely than not that we will be able to utilize these deferred tax assets in future periods as a result of our history of profitability, taxable income, and reversal of deferred tax liabilities. Pursuant to the authoritative accounting guidance on income taxes, when establishing a valuation allowance, we consider future sources of taxable income such as “future reversals of existing taxable temporary differences and carry-forwards” and “tax planning strategies”. In the event we determine that the deferred tax assets will not be realized in the future, the valuation adjustment to the deferred tax assets is charged to earnings or accumulated other comprehensive loss based on the nature of the asset giving rise to the deferred tax asset and the facts and circumstances resulting in that conclusion. We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense. New Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". This update requires measurement and recognition of expected versus incurred credit losses for financial assets held. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein. We have adopted this standard effective January 1, 2020 and the impact of adoption of the standard did not have a material impact on our financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that reporting period; however, early adoption is permitted. We have adopted this standard effective January 1, 2021 and the impact of adoption of the standard did not have a material impact on our financial statements. Note 2. Concentrations of Credit Risk and Major Customers Our major customers represent primarily the consumer goods, appliances, food products and automotive industries. Credit is granted to customers on an unsecured basis. Our five largest customers accounted for approximately 34 %, 36 %, and 37 % of operating revenues for the years ended December 31, 2020, 2019, and 2018, respectively. Our five largest customers accounted for approximately 30 % and 30 % of gross accounts receivable as of December 31, 2020 and 2019, respectively. There was no single customer that accounted for more than 10 % of operating revenues for the year ended December 31, 2020. During the years ended December 31, 2019 and December 31, 2018, there was one customer that accounted for more than 10 % of operating revenues at 10.9 % and 12.5 %, respectively. This customer had accounts receivable of $ 5.8 million as of December 31, 2019. Note 3. Revenue Recognition The Company recognizes revenue over time as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The delivery of the shipment and completion of the performance obligation allows for the collection of payment generally within 30 days after the delivery date of the shipment for the majority of our customers. The Company's operations are consistent with those in the trucking industry where freight is hauled twenty-four hours a day and seven days a week, subject to hours of service rules. The Company’s average length of haul is 400-500 miles per trip and each individual shipment accepted by the Company is considered a separate contract with the performance obligation being the delivery of the freight. Our average length of haul for each load of freight generally equals less than one day of continuous transit time. The Company estimates revenue for multiple-stop loads based on miles run and estimates revenue for single stop loads based on transit time, as the customer simultaneously receives and consumes the benefit provided. The Company hauls freight and earns revenue on a consistent basis throughout the periods presented. A corresponding contract asset existed for the estimated revenue of these in-process loads for $ 1.1 million and $ 1.2 million as of December 31, 2020 and 2019, respectively. F-13 Recorded contract assets are included in the accounts receivable line item of the balance sheet. Corresponding liabilities are recorded in the accounts payable and accrued liabilities and compensation and benefits line items for the estimated expenses on these same in-process loads. The Company had no contract liabilities associated with our operations as of December 31, 2020 and 2019. Total revenues recorded were $ 645.3 million, $ 596.8 million, and $ 610.8 million for the twelve months ended December 31, 2020, 2019, and 2018, respectively. Fuel surcharge revenues were $ 61.7 million, $ 75.0 million, and $ 85.3 million for the twelve months ended December 31, 2020, 2019, and 2018, respectively. Accessorial and other revenues recorded in the consolidated statements of comprehensive income collectively represented $ 14.3 million, $ 13.5 million, and $ 14.9 million for the twelve months ended December 31, 2020, 2019, and 2018, respectively. Note 4. Acquisition of Millis Transfer On August 26, 2019, Heartland Express, Inc. of Iowa (the “Buyer”) and Heartland Express, Inc., as guarantor, entered into an Acquisition and Merger Agreement with Millis Transfer. Millis Transfer is a truckload carrier headquartered in Black River Falls, Wisconsin, providing asset-based dry van truckload transportation services, including local, regional, and dedicated services. Pursuant to the Acquisition and Merger Agreement of the Millis Transfer acquisition, the Buyer acquired all of Millis Transfer’s outstanding equity (the “Transaction”). The Buyer paid $ 156.0 million of total consideration, including cash (net of working capital adjustment), restricted shares of the Company's common stock, and assumed indebtedness of Millis Transfer. With the Millis Transfer acquisition, total cash paid, net of working capital adjustment, and common stock issued of $62.7 million was funded out of the Company’s available cash and restricted shares of the Company's common stock issued from treasury stock. The transaction included the assumption of $ 93.3 million of Millis Transfer's indebtedness, of which no debt was outstanding at December 31, 2019. The Acquisition and Merger Agreement contains customary representations, warranties, covenants, escrow, and indemnification provisions. The following unaudited pro forma financial information for the years ended December 31, 2018 and December 31, 2019, assume that the acquisition of Millis occurred as of January 1, 2018. Pro forma adjustments reflected in the financial information below relate to accounting policy changes, such as changes in depreciation expense of revenue equipment, amortization of intangible assets, and accounting for certain operations and maintenance costs, along with other adjustments for terminal rent expense to align Millis results with those of the Company and income tax effects for the periods presented. The net effect of these pro forma adjustments increased net income by $ 3.0 million and $ 3.6 million for the periods ended December 31, 2019 and 2018, respectively. Year ended Year ended December 31, 2019 December 31, 2018 (in thousands) Operating revenue $ 694,672 $ 760,917 Net income $ 75,951 $ 76,259 The Millis pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred at the beginning of the periods presented or that may be obtained in the future. The results of the acquired businesses have been included in the consolidated financial statements since the date of acquisition. Millis represented 21.1 % of consolidated total assets as of December 31, 2019, and represented 8.8 % of operating revenue for the twelve months ended December 31, 2019. Millis acquisition related expenses of $ 0.5 million are included in the consolidated statement of comprehensive income within the other operating expenses line item for the twelve months ended December 31, 2019. The allocation of the Millis purchase price is detailed in the tables below. The goodwill recognized represents expected synergies from combining the operations of the Company with Millis Transfer, as well as other intangible assets that did not meet the criteria for separate recognition. Goodwill and intangible assets recognized in the transaction are not deductible for tax purposes. The assets and liabilities associated with Millis Transfer were recorded at their fair values as of the acquisition date and the amounts are as follows: F-14 MILLIS TRANSFER ACQUISITION DATE FAIR MARKET VALUES (in thousands) Trade and other accounts receivable $ 14,474 Other current assets 1,656 Property and equipment 117,060 Other non-current assets 802 Intangible assets 15,300 Goodwill 35,885 Total assets 185,177 Accounts payable, accrued expenses, and current portion of long-term debt ( 31,737 ) Insurance accruals ( 4,371 ) Long-term debt ( 70,191 ) Deferred taxes ( 16,201 ) Total cash paid and common stock issued $ 62,677 MILLIS TRANSFER TOTAL PURCHASE PRICE CONSIDERATION (in thousands) Cash paid pursuant to Stock Purchase Agreement $ 61,927 Common stock issued pursuant to the Acquisition and Merger Agreement 750 Total cash paid and common stock issued $ 62,677 Note 5. Intangible Assets and Goodwill All intangible assets determined to have finite lives are amortized over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to future cash flows. There was no change in the gross amount of identifiable intangible assets during the twelve months ended December 31, 2020. Amortization expense of $ 2.4 million, $ 2.7 million and $ 2.5 million for the twelve months ended December 31, 2020, 2019 and 2018, respectively, was included in depreciation and amortization in the consolidated statements of comprehensive income. Intangible assets subject to amortization consisted of the following at December 31, 2020 and 2019: 2020 Amortization period (years) Gross Amount Accumulated Amortization Net intangible assets (in thousands) Customer relationships 15-20 $ 23,000 $ 4,531 $ 18,469 Tradename 0.5-10 12,900 8,740 4,160 Covenants not to compete 1-10 5,300 3,183 2,117 $ 41,200 $ 16,454 $ 24,746 2019 Amortization period (years) Gross Amount Accumulated Amortization Net intangible assets (in thousands) Customer relationships 15-20 $ 23,000 $ 3,221 $ 19,779 Tradename 0.5-10 12,900 8,260 4,640 Covenants not to compete 1-10 5,300 2,583 2,717 $ 41,200 $ 14,064 $ 27,136 F-15 Future amortization expense for intangible assets is estimated at $ 2.4 million for 2021, $ 2.3 million for 2022, $ 2.2 million for 2023, $ 1.9 million for 2024, and $ 1.9 million for 2025. Changes in carrying amount of goodwill during the twelve months ended December 31, 2020 and December 31, 2019 were as follows: (in thousands) Balance at December 31, 2018 $ 132,410 Acquisition 35,885 Balance at December 31, 2019 $ 168,295 Acquisition — Balance at December 31, 2020 $ 168,295 Note 6. Long-Term Debt In November 2013, Heartland Express, Inc. of Iowa, (the "Borrower"), a wholly owned subsidiary of the Company, entered into a Credit Agreement with Wells Fargo Bank, National Association, (the “Bank”). Pursuant to the Credit Agreement, the Bank provided a five-year, $ 250.0 million unsecured revolving line of credit, which was used to assist in the repayment of all debt acquired at the time of acquisition, and which may be used for future working capital, equipment financing, and general corporate purposes. The Bank's original commitment decreased to $ 175.0 million on November 1, 2016 through October 31, 2018. However, on August 31, 2018, Borrower and the Bank entered into the First Amendment to this Credit Agreement. The First Amendment (i) provides for a $ 100.0 million unsecured revolving line of credit (the “Revolver”), which may be used for working capital, equipment financing, permitted acquisitions, and general corporate purposes, (ii) provides an uncommitted accordion feature, which allows the Company a one-time request, at the discretion of the Bank, to increase the Revolver by up to an additional $ 100.0 million, (iii) increases the letter of credit subfeature of the Credit Agreement from $ 20.0 million to $ 30.0 million, and (iv) extends the maturity of the Credit Agreement to August 31, 2021, subject to the Borrower’s ability to terminate the commitment at any time at no additional cost to the Borrower. The Credit Agreement is unsecured, with a negative pledge against all assets of our consolidated group, except for debt associated with permitted acquisitions, new purchase-money debt and capital lease obligations as described in the Credit Agreement. Borrowings under the Credit Agreement can either be, at the Borrower's election, (i) one-month or three-month LIBOR (Index) plus a spread between 0.700 % and 0.900 % per annum, based on the Company's consolidated funded debt to adjusted EBITDA ratio or (ii) Prime (Index) plus 0.0 %. The weighted average variable annual percentage rate is not calculated since no amounts were borrowed and outstanding at December 31, 2020. There is a commitment fee on the unused portion of the Revolver between 0.0725 % and 0.1750 % per annum, based on the Company's consolidated funded debt to adjusted EBITDA ratio. The Credit Agreement contains customary financial covenants including, but not limited to, (i) a maximum adjusted leverage ratio of 2 :1, measured quarterly on a trailing twelve month basis, (ii) a minimum net income requirement of $ 1.00 , measured quarterly on a trailing twelve month basis, (iii) a minimum tangible net worth of $ 250.0 million requirement, measured quarterly, and (iv) limitations on other indebtedness and liens. The Credit Agreement also includes customary events of default, covenants, representations and warranties, and indemnification provisions. We were in compliance with the respective financial covenants as of and for the year ended December 31, 2020 and December 31, 2019. We had no long term debt outstanding at December 31, 2020 or 2019. Outstanding letters of credit associated with the revolving line of credit at December 31, 2020 were $ 11.5 million compared to $ 11.3 million at December 31, 2019. As of December 31, 2020, availability for future borrowing under the Credit Agreement was $ 88.5 million compared to $ 88.7 million at December 31, 2019. F-16 Note 7. Auto Liability and Workers’ Compensation Insurance Accruals We act as a self-insurer for auto liability, defined as including property damage, personal injury, or cargo based on defined insurance retention of $ 0.1 million under our Millis policy prior to April 1, 2020 and $ 1.0 million subsequent to April 1, 2020, or $ 2.0 million under our Heartland policy, for any individual claim based on the insured party, accident date, and circumstances of the loss event. Within the Heartland policy, there is an additional $ 1.0 million aggregate self-insurance corridor for claims between $ 2.0 million and $ 3.0 million. For both Heartland and Millis claims, liabilities in excess of these deductibles are covered by insurance up to $ 60.0 million including retention of 50% of exposure from $ 5.0 million to $ 10.0 million. We retain any liability in excess of $ 60.0 million. We act as a self-insurer for property damage to our tractors and trailers. Prior to April 1, 2020, Heartland and Millis claims in excess of insurance retention had different coverage features. For the Heartland policy, claims in excess of the deductible are covered up to $ 100.0 million. For the Millis policy, claims subsequent to August 26, 2019 and prior to April 1, 2020, we retain liability between $ 3.0 million and $ 10.0 million, while liabilities in excess of these amounts are covered by insurance up to $ 100.0 million. For both policies prior to April 1, 2020, we retain any liability in excess of $ 100.0 million. We act as a self-insurer for workers’ compensation based on defined insurance retention of $1.0 million under our Heartland policy, which includes Millis, effective July 1, 2020. Millis had defined insurance retention of $ 0.5 million from August 26, 2019 through July 1, 2020. Liabilities in excess of insurance retention limits are covered by insurance. The State of Iowa initially required us to deposit $ 0.7 million into a trust fund as part of the self-insurance program. Earnings on this account become part of the required deposit and as of December 31, 2020 and 2019 total deposits in this account were $ 1.5 million. This deposit is in municipal bonds classified as held-to-maturity and is recorded in other non-current assets on the consolidated balance sheets. In addition, we have provided insurance carriers with letters of credit totaling approximately $ 13.0 million in connection with our liability and workers’ compensation insurance arrangements and self-insurance requirements of the Federal Motor Carrier Safety Administration. There were no outstanding balances due on any letters of credit at December 31, 2020 or 2019. Accident and workers’ compensation accruals include the estimated settlements, settlement expenses and an estimate for claims incurred but not yet reported for property damage, personal injury and public liability losses from vehicle accidents and cargo losses as well as workers’ compensation claims for amounts not covered by insurance. Accident and workers’ compensation accruals are based upon individual case estimates, including reserve development, and estimates of incurred-but-not-reported losses based upon our own historical experience and industry claim trends. Since the reported liability is an estimate, the ultimate liability may be more or less than reported. In addition to internally developed reserves and estimates, we utilize an actuarial specialist to provide an independent annual assessment of the internally developed accident and workers' compensation accruals. If adjustments to previously established accruals are required, such amounts are included in operating expenses in the current period. These accruals are recorded on an undiscounted basis. Estimated claim payments to be made within one year of the balance sheet date have been classified as insurance accruals within current liabilities as of December 31, 2020 and 2019. F-17 Note 8. Income Taxes Deferred tax assets and liabilities as of December 31 are as follows: 2020 2019 Deferred income tax assets: (in thousands) Allowance for doubtful accounts $ 258 $ 262 Accrued expenses 6,353 3,892 Stock-based compensation 126 178 Insurance accruals 14,283 15,054 State net operating loss carryforward — 2,618 Federal net operating loss carryover and credits — 8,793 Indirect tax benefits of unrecognized tax benefits 1,037 1,052 Other 221 3 Total gross deferred tax assets 22,278 31,852 Less valuation allowance — — Net deferred tax assets 22,278 31,852 Deferred income tax liabilities: Property and equipment ( 98,355 ) ( 101,843 ) Goodwill and amortizable intangibles ( 18,959 ) ( 15,939 ) Prepaid expenses ( 804 ) ( 1,762 ) ( 118,118 ) ( 119,544 ) Net deferred tax liability $ ( 95,840 ) $ ( 87,692 ) The deferred tax amounts above have been classified in the accompanying consolidated balance sheets at December 31, 2020 and 2019 as follows: 2020 2019 (in thousands) Noncurrent assets, net $ 8,164 $ 6,006 Long-term liabilities, net ( 104,004 ) ( 93,698 ) $ ( 95,840 ) $ ( 87,692 ) We have not recorded a valuation allowance against any deferred tax assets at December 31, 2020 and 2019. In management’s opinion, it is more likely than not that we will be able to utilize these deferred tax assets in future periods as a result of our history of profitability, taxable income, and reversal of deferred tax liabilities. Income tax expense consists of the following: 2020 2019 2018 (in thousands) Current income taxes: Federal $ 10,835 $ 14,122 $ 11,985 State 4,472 5,698 4,498 15,307 19,820 16,483 Deferred income taxes: Federal 736 5,595 5,537 State 7,412 ( 1,204 ) ( 2,780 ) 8,148 4,391 2,757 Total $ 23,455 $ 24,211 $ 19,240 The income tax provision differs from the amount determined by applying the U.S. federal tax rate as follows: F-18 2020 2019 2018 (in thousands) Federal tax at statutory rate (21%, 21%, 21% respectively) $ 19,795 $ 20,406 $ 19,302 State taxes, net of federal benefit 5,678 3,561 2,200 Permanent differences to return 446 540 408 Return to provision adjustment ( 2,615 ) ( 392 ) ( 1,327 ) Uncertain income tax penalties and interest, net ( 73 ) 289 ( 1,067 ) Other 224 ( 193 ) ( 276 ) $ 23,455 $ 24,211 $ 19,240 At December 31, 2020 and December 31, 2019, we had a total of $ 4.9 million and $ 5.0 million in gross unrecognized tax benefits, respectively, included in long-term income taxes payable in the consolidated balance sheets. Of this amount, $ 3.9 million and $ 4.0 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of December 31, 2020 and December 31, 2019, respectively. Unrecognized tax benefits were a net decrease of $ 0.1 million and a net increase of $ 0.4 million during the years ended December 31, 2020 and 2019, respectively, due mainly to the expiration of certain statutes of limitation net of additions and settlements with respective states. This had the effect of decreasing the effective state tax rate in 2020 and increasing the effective state rate during 2019. The total net amount of accrued interest and penalties for such unrecognized tax benefits was $ 0.9 million and $ 0.9 million at December 31, 2020 and December 31, 2019, respectively, and is included in income taxes payable in the consolidated balance sheets. Net interest and penalties included in income tax expense for the years ended December 31, 2020, 2019 and 2018 was approximately $ 0.1 million, zero , and a benefit of $ 1.4 million, respectively. Income tax expense is increased each period for the accrual of interest on outstanding positions and penalties when the uncertain tax position is initially recorded. Income tax expense is reduced in periods by the amount of accrued interest and penalties associated with reversed uncertain tax positions due to lapse of applicable statute of limitations, when applicable or when a position is settled. Income tax expense was reduced during the years ended December 31, 2020, 2019 and 2018 due to reversals of interest and penalties due to lapse of applicable statute of limitations and settlements, net of additions for interest and penalty accruals during the same period. These unrecognized tax benefits relate to risks associated with state income tax filing positions for our corporate subsidiaries. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: 2020 2019 (in thousands) Balance at January 1, $ 5,010 $ 4,585 Additions based on tax positions related to current year 767 1,138 Additions for tax positions of prior years — 124 Reductions for tax positions of prior years ( 216 ) — Reductions due to lapse of applicable statute of limitations ( 428 ) ( 701 ) Settlements ( 196 ) ( 136 ) Balance at December 31, $ 4,937 $ 5,010 A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. These changes could result from the expiration of the statute of limitations, examinations or other unforeseen circumstances. We do not have any outstanding litigation related to tax matters. At this time, management’s best estimate of the reasonably possible change in the amount of gross unrecognized tax benefits is approximately no change to an increase of $ 1.0 million during the next twelve months, due to the combination of expiration of certain statute of limitations and estimated additions. The federal statute of limitations remains open for the years 2017 and forward. Tax years 2010 and forward are subject to audit by state tax authorities depending on the tax code and administrative practice of each state. F-19 Note 9. Equity We have a stock repurchase program with 5.4 million shares remaining authorized for repurchase as of December 31, 2020. There were 1.5 million shares repurchased in the open market during the year ended December 31, 2020, none in 2019, and 1.4 million in 2018. Repurchases are expected to continue from time to time, as determined by market conditions, cash flow requirements, securities law limitations, and other factors, until the number of shares authorized have been repurchased, or until the authorization is terminated. The share repurchase authorization is discretionary and has no expiration date. During the years ended December 31, 2020, 2019 and 2018 our Board of Directors declared regular quarterly dividends totaling $ 6.5 million, $ 6.6 million, and $ 6.6 million for each year, respectively. Future payment of cash dividends and the amount of such dividends will depend upon our financial conditions, our results of operations, our cash requirements, our tax treatment, and certain corporate law requirements, as well as factors deemed relevant by our Board of Directors. Note 10. Stock-Based Compensation In July 2011, a Special Meeting of Stockholders of Heartland Express, Inc. was held, at which meeting the approval of the Heartland Express, Inc. 2011 Restricted Stock Award Plan (the “Plan”) was ratified. The Plan made available up to 0.9 million shares for the purpose of making restricted stock grants to our eligible officers and employees. The Plan has 0.1 million shares that remain available for the purpose of making restricted stock grants at December 31, 2020. Shares granted in 2017 through 2020 have various vesting terms that range from immediate to four years from the date of grant and have share prices ranging between $ 18.12 and $ 23.37 . Compensation expense associated with these awards is based on the market value of our stock on the grant date. Compensation expense associated with restricted stock awards is included in salaries, wages and benefits in the consolidated statements of comprehensive income. There were no significant assumptions made in determining fair value. Compensation expense associated with restricted stock awards was $ 2.1 million, $ 2.1 million, and $ 0.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. Unrecognized compensation expense was $ 0.7 million at December 31, 2020 which will be recognized over a weighted average period of 0.9 years. The following table summarizes our restricted stock award activity for the years ended December 31, 2020, 2019 and 2018. The vesting dates for the awards vested in 2020 occurred relatively evenly throughout the year ended December 31, 2020. The fair value of awards vested during 2020, 2019 and 2018 was $ 2.3 million, $ 1.8 million and $ 0.8 million, respectively. 2020 Number of Restricted Stock Awards ( in thousands) Weighted Average Grant Date Fair Value Unvested at January 1 52.1 $ 20.55 Granted 119.9 20.24 Vested ( 111.8 ) 20.38 Forfeited ( 0.5 ) 19.32 Outstanding (unvested) at end of year 59.7 $ 20.29 2019 Number of Restricted Stock Awards ( in thousands) Weighted Average Grant Date Fair Value Unvested at January 1 26.5 $ 21.31 Granted 114.0 19.88 Vested ( 87.9 ) 19.93 Forfeited ( 0.5 ) 17.11 Outstanding (unvested) at end of year 52.1 $ 20.55 F-20 2018 Number of Restricted Stock Awards (in thousands) Weighted Average Grant Date Fair Value Unvested at beginning of year 53.7 $ 21.82 Granted 10.0 18.58 Vested ( 35.7 ) 21.48 Forfeited ( 1.5 ) 17.11 Outstanding (unvested) at end of year 26.5 $ 21.31 Note 11. Profit Sharing Plan and Retirement Plan We have retirement savings plans (the “Retirement Savings Plans”) for substantially all employees who have completed one year of service and are 19 years of age or older. Employees may make 401(k) contributions subject to Internal Revenue Code limitations. The Retirement Savings Plans provide for a discretionary profit sharing contribution to non-driver employees and a matching contribution of a discretionary percentage to driver employees ("Heartland Plan"). Following the acquisition of Millis Transfer on August 26, 2019 a retirement savings plan ("Millis Transfer Plan") was created. The Millis Transfer Plan has the aforementioned characteristics of the Heartland Plan, but is for Millis Transfer employees. Our contributions to the Retirement Savings Plans totaled approximately $ 2.3 million, $ 1.6 million, and $ 1.0 million, for the years ended December 31, 2020, 2019 and 2018, respectively. Note 12. Commitments and Contingencies We are a party to ordinary, routine litigation and administrative proceedings incidental to our business. In the opinion of management, our potential exposure under pending legal proceedings is adequately provided for in the accompanying consolidated financial statements. The total estimated purchase commitments for tractors (net of tractor sale commitments) and trailer equipment at December 31, 2020, was $ 121.9 million. Note 13. Quarterly Financial Information (Unaudited) First Second Third Fourth (In Thousands, Except Per Share Data) Year ended December 31, 2020 Operating revenue $ 166,318 $ 160,873 $ 162,282 $ 155,789 Operating income 17,326 24,989 27,339 23,765 Income before income taxes 17,703 25,146 27,510 23,902 Net income 13,238 19,182 20,714 17,672 Net income per share, basic 0.16 0.24 0.25 0.22 Net income per share, diluted 0.16 0.24 0.25 0.22 Year ended December 31, 2019 Operating revenue $ 139,536 $ 142,144 $ 147,908 $ 167,227 Operating income 20,843 29,030 26,739 17,663 Income before income taxes 21,988 30,259 27,415 17,516 Net income 17,318 22,361 20,501 12,787 Net income per share, basic 0.21 0.27 0.25 0.16 Net income per share, diluted 0.21 0.27 0.25 0.16 Note 14. Subsequent Events No events occurred requiring disclosure other than the repurchase of 0.7 million shares of our common stock for $ 12.9 million subsequent to December 31, 2020. F-21 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In Thousands, Except Per Share Data) Column C Column A Column B Charges To Column D Column E Balance At Cost Balance Beginning And Other At End Description of Period Expense Accounts Deductions of Period Allowance for doubtful accounts: Year ended December 31, 2020 $ 1,100 $ — $ — $ — $ 1,100 Year ended December 31, 2019 900 200 — — 1,100 Year ended December 31, 2018 1,475 — — 575 900 See accompanying Report of Independent Registered Public Accounting Firm. S-1