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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-27754
HUB GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4007085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
377 EAST BUTTERFIELD ROAD, SUITE 700
LOMBARD, ILLINOIS 60148
(Address, including zip code, of principal executive offices)
(708) 271-3600
(Registrant's telephone number, including area code)
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 No X
----- -----
On May 10, 1996, the registrant had 5,261,350 outstanding shares of Class A
common stock, par value $.01 per share, and 662,296 outstanding shares of Class
B common stock, par value $.01 per share.
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HUB GROUP, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION:
HUB GROUP, INC. - REGISTRANT
Unaudited Condensed Consolidated Balance Sheets - December 31, 1995 and
March 31, 1996 3
Unaudited Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 1995 and 1996 4
Unaudited Condensed Consolidated Statement of Equity - Three Months
Ended March 31, 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1996 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
HUB PARTNERSHIPS - PREDECESSOR
Unaudited Condensed Combined Balance Sheet - December 31, 1995 15
Unaudited Condensed Combined Statement of Operations for the Three
Months Ended March 31, 1995 and the Period January 1, 1996
through March 17, 1996 16
Unaudited Condensed Combined Statement of Equity - Period January 1, 1996
through March 17, 1996 17
Unaudited Condensed Combined Statements of Cash Flows for the Three
Months Ended March 31, 1995 and the Period January 1, 1996
through March 17, 1996 18
Notes to Unaudited Condensed Combined Financial Statements 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
PART II. OTHER INFORMATION 22
2
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
------------ ---------
1995 1996
------------ ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2 $ 19,956
Accounts receivable, net
Trade 6,197 82,394
Affiliates 2,376 -
Prepaid expenses 33 879
Other current assets 114 540
-------- --------
TOTAL CURRENT ASSETS 8,722 103,769
PROPERTY AND EQUIPMENT, net 137 9,535
GOODWILL, net - 17,433
DEFERRED TAX BENEFIT - 10,277
OTHER ASSETS 224 1,057
-------- --------
TOTAL ASSETS $ 9,083 $142,071
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade 5,620 76,615
Affiliates 1,774 -
Other 89 5,632
Accrued expenses
Payroll 286 3,299
Other 149 2,310
Current portion of long-term debt - 585
-------- --------
TOTAL CURRENT LIABILITIES 7,918 88,441
-------- --------
LONG-TERM DEBT - 14,999
DEFERRED TAXES - 11
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST - 789
EQUITY:
Preferred stock - -
Common stock 26 59
Additional paid-in capital 18 52,924
Partnership capital - 27
Purchase price in excess of predecessor basis - (25,764)
Tax benefit of purchase price in excess of predecessor basis - 10,306
Retained earnings 1,121 279
-------- --------
TOTAL EQUITY 1,165 37,831
-------- --------
TOTAL LIABILITIES AND EQUITY $ 9,083 $142,071
======== ========
See notes to unaudited condensed consolidated financial statements.
3
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months
Ended March 31,
------------------
1995 1996
------- -------
REVENUE:
Trade $16,174 $45,338
Affiliates 2,760 3,459
------- -------
Total revenue 18,934 48,797
PURCHASED TRANSPORTATION 17,370 43,412
------- -------
Net revenue 1,564 5,385
COSTS AND EXPENSES:
Salaries and benefits 642 2,587
Selling, general and administrative 312 1,043
------- -------
Total costs and expenses 954 3,630
Operating income 610 1,755
------- -------
OTHER INCOME (EXPENSE):
Interest expense - (37)
Interest income 28 31
Other, net 5 8
------- -------
Total other income (expense) 33 2
INCOME BEFORE MINORITY INTEREST AND PROVISION FOR
INCOME TAXES 643 1,757
------- -------
MINORITY INTEREST - 687
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 643 1,070
PROVISION FOR INCOME TAXES - 187
------- -------
NET INCOME $ 643 $ 883
======= =======
PRO FORMA PROVISION FOR ADDITIONAL INCOME TAXES 257 241
------- -------
PRO FORMA NET INCOME $ 386 $ 642
======= =======
PRO FORMA EARNINGS PER SHARE $ 0.23 $ 0.29
======= =======
PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 1,662 2,233
======= =======
See notes to unaudited condensed consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EQUITY
For the three months ended March 31, 1996
(in thousands, except share amounts)
Common Stock Additional
------------------- Paid-in Partnership
Shares Amount Capital Capital
--------- ------ ---------- -----------
BALANCE AT JANUARY 1, 1996 300 $ 26 $ 18 $ -
Net income - -
Distributions to shareholders (25) (17)
Issuance of common stock in acquisitions 1,662,296 - -
Retirement of shares acquired (200) - -
Sale of common stock in initial public
offering, net of offering costs 4,261,250 58 52,923
Acquisition of general partnership interests - - - 27
--------- ---- ------- ----
BALANCE AT MARCH 31, 1996 5,923,646 $ 59 $52,924 $ 27
========= ==== ======= ====
Purchase Tax Benefit of
Price in Purchase Price
Excess of in Excess of
Predecessor Predecessor Retained
Basis Basis Earnings Equity
----------- -------------- -------- --------
BALANCE AT JANUARY 1, 1996 $ - $ - $ 1,121 $ 1,165
Net income - - 883 883
Distributions to shareholders - - (1,725) (1,767)
Issuance of common stock in acquisitions - - - -
Retirement of shares acquired - - - -
Sale of common stock in initial public
offering, net of offering costs - - - 52,981
Acquisition of general partnership interests (25,764) 10,306 - (15,431)
-------- ------- ------- --------
BALANCE AT MARCH 31, 1996 $(25,764) $10,306 $ 279 $ 37,831
======== ======= ======= ========
See notes to unaudited condensed consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months
ended March 31,
------------------
1995 1996
------ --------
Cash flows from operating activities:
Net income $ 643 $ 883
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9 45
Deferred taxes - 39
Minority interest - 687
Changes in working capital, net of effects of
purchase transactions:
Accounts receivable, net (27) 1,755
Prepaid expenses - (18)
Other current assets 7 331
Accounts payable (182) 71
Accrued expenses (62) 74
Other assets 2 (128)
------ --------
Net cash provided by operations 390 3,739
------ --------
Cash flows from investing activities:
Cash used in acquisitions, net - (35,544)
Purchases of property and equipment, net (4) (118)
------ --------
Net cash used by investing activities (4) (35,662)
------ --------
Cash flows from financing activities:
Proceeds from sale of common stock in initial
public offering, net of offering costs - 52,981
Distributions (992) (1,767)
Proceeds from long-term debt - 663
------ --------
Net cash provided by (used in)
financing activities (992) 51,877
------ --------
Net increase (decrease) in cash (606) 19,954
Cash, beginning of period 2,026 2
------ --------
Cash, end of period $1,420 $ 19,956
====== ========
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ - -
Income taxes 19 28
See notes to unaudited condensed consolidated financial statements.
6
HUB GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Hub Group, Inc. (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial statements have been
condensed or omitted pursuant to those rules and regulations. However, the
Company believes that the disclosures contained herein are adequate to make the
information presented not misleading.
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
NOTE 2. CAPITAL STRUCTURE
On March 8, 1995, the Company was incorporated and issued 100 shares
to the sole incorporator. On March 18, 1996, the Company purchased Hub City
Terminals, Inc. ("Hub Chicago") in a stock-for-stock acquisition through
issuance of 1,000,000 shares of the Company's Class A common stock and 662,296
shares of the Company's Class B common stock. Hub Chicago has been accounted
for similar to the pooling of interests method of accounting and has been
included in all periods presented on a historical cost basis.
Concurrent with the acquisition of Hub Chicago in March 1996, the
Company completed the initial public offering of 4,261,250 shares of its Class A
common stock, with net proceeds to the Company of $53.0 million. Coincident with
the initial public offering, a selling stockholder sold 1,000,000 shares of the
Company's Class A common stock through a secondary offering. The Company did not
receive any net proceeds from the sale of the shares by the selling stockholder.
Concurrent with the initial public offering, the Company, through its
new wholly owned subsidiary, Hub Chicago, acquired with cash the general
partnership interests in 26 operating partnerships. In addition, the Company
directly acquired with cash a controlling interest in the Hub Group Distribution
Services partnership (together with the 26 operating partnerships collectively
referred to as "Hub Partnerships"). The combined financial statements of Hub
Partnerships, the predecessor to the business of the Company, are included
herein. Further reference is made to the Company's Registration Statement filed
on Form S-1 for the historical financial statements of Hub Chicago and Hub
Partnerships. See Note 3. "Business Combinations" for further discussion of
these acquisitions.
NOTE 3. BUSINESS COMBINATIONS
On March 18, 1996, the Company acquired the general partnership
interests in 26 operating partnerships and a controlling interest in the Hub
Group Distribution Services partnership for a total purchase price of
approximately $43,309,000. The purchase price of these acquisitions was
allocated to the assets acquired and liabilities assumed based on the fair value
at the date of acquisition using the purchase method of accounting.
The portion of the difference between fair value and historical cost
of individual assets acquired and liabilities assumed attributable to
partnership interests acquired by the Company from non-control group
stockholders was recorded at fair market value. This resulted in goodwill of
approximately $17,449,000 and an increase in property and equipment of
approximately $96,000. The remaining portion
7
of the difference between fair value and historical cost attributable to
partnership interests acquired from control group stockholders, approximately
$25,764,000, has been charged to equity as purchase price in excess of
predecessor basis. The allocations presented represent preliminary purchase
price allocations. Goodwill, the cost of purchased businesses in excess of the
market value of net tangible and identifiable assets acquired, is being
amortized over 40 years on a straight-line basis. On an ongoing basis, the
Company will measure realizability by the ability of the Hub Partnerships to
generate current and expected future operating income in excess of annual
amortization of goodwill.
In connection with the purchase of the partnership interests in each
of the Hub Partnerships, approximately $10,306,000 has been recorded as a
deferred tax benefit (utilizing an assumed effective tax rate of 40%),
representing the tax effect of the difference between goodwill for income tax
purposes of approximately $43,213,000 and goodwill for financial reporting
purposes of approximately $17,449,000. The corresponding credit is recorded as
an increase in equity in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
The following summarizes the effects of businesses acquired and
accounted for as purchases in 1996 as if they had been acquired as of January 1,
1995:
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1996
------------ ------------
(000's)
Revenue as reported $ 18,934 $ 48,797
Revenue of purchased business for period prior to
acquisitions, net of eliminations 148,118 138,954
-------- --------
Pro forma revenue $167,052 $187,751
-------- --------
Net income as reported $ 386 $ 642
Net income of purchased businesses for period prior
to acquisition 898 870
Adjustment for goodwill amortization (66) (56)
-------- --------
Pro forma net income $ 1,218 $ 1,456
-------- --------
Earnings per share as reported $ 0.23 $ 0.29
Effect of purchased businesses prior to acquisitions 0.01 (0.01)
-------- --------
Pro forma earnings per share $ 0.24 $ 0.28
-------- --------
8
Business acquisitions which involved the use of cash were accounted as follows:
THREE MONTHS
ENDED
MARCH 31, 1996
--------------
(000's)
Accounts receivable $ 75,576
Prepaid expenses 861
Other current assets 724
Property and equipment 9,309
Goodwill 17,449
Deferred tax benefit 10,306
Other assets 704
Accounts payable (74,693)
Accrued expenses (5,100)
Long-term debt (14,921)
Minority interest (102)
Partnership capital (27)
Purchase price in excess of
predecessor basis 25,764
Tax benefit of purchase price in
excess of predecessor basis (10,306)
--------
Cash used in acquisitions $ 35,544
--------
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(000's)
Land -- 92
Building and improvements -- 798
Leasehold improvements 17 415
Computer equipment and software 478 5,025
Furniture and equipment 221 2,072
Transportation equipment and automobiles 29 1,770
---- ------
745 10,172
Less: Accumulated depreciation (608) (637)
---- ------
PROPERTY AND EQUIPMENT, net 137 9,535
---- ------
NOTE 5. INCOME TAXES
The Company records income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the Company to compute deferred taxes based upon the amount of taxes
payable in future years, after considering known changes in tax rates and other
statutory provisions that will be in effect in those years. Prior to March 18,
1996, the Company was a non-taxable Subchapter S corporation. The pro forma
provision for additional income taxes for the three months ended March 31, 1995
and 1996 assumes that the Company operated as a taxable corporation since
January 1, 1995.
9
The reconciliation of the Company's effective tax rate to the federal
statutory tax rate is as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1996
-------------- ------------
U.S. federal statutory rate 34.0% 34.0%
State taxes, net of federal benefit 6.0 6.0
Income earned as non-taxable Subchapter S
corporation prior to March 18, 1996 (40.0) (22.5)
-------------- ------------
Net effective rate 0.0% 17.5%
-------------- ------------
The following is a summary of the Company's provision for income taxes:
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1996
-------------- ------------
Current
Federal $ -- $ 150
State and local -- 26
-------------- ------------
-- 176
-------------- ------------
Deferred
Federal -- 9
State and local -- 2
-------------- ------------
-- 11
-------------- ------------
Total provision $ -- $ 187
-------------- ------------
See Note 3. "Business Combinations" for discussion of deferred taxes recorded
pursuant to acquisitions.
NOTE 6. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Fair value approximates book value at the balance sheet date.
March 31, 1996
--------------
(000's)
Line of credit with no expiration date, interest
payable monthly at 1/2% less than the bank's
prime lending rate (7.75% at March 31, 1996),
secured by certain assets. $ 425
Installment notes payable due through 2000,
monthly installments ranging from $234-$10,929,
including interest, ranging from 2.9% to 12%,
collateralized by certain equipment. 1,633
Unsecured balloon notes, interest compounded
annually at 5.45%, interest and principal
due March, 2001. 13,176
Mortgage note payable due in 1998 with monthly
installments of $2,381, including interest at
8.5%, collateralized by all property. 214
Capital lease obligations, collateralized by
certain equipment. 136
-----------
Total long-term debt 15,584
Less current portion (585)
-----------
14,999
-----------
10
NOTE 7. STOCK-BASED COMPENSATION PLAN
Concurrent with the initial public offering the Company adopted a Long-Term
Incentive Plan (the "Incentive Plan"). Under the Incentive Plan, stock options,
and stock appreciation rights, restricted stock and performance units may be
granted for the purpose of attracting and motivating key employees and non-
employee directors of the Company. Concurrent with the adoption of the Incentive
Plan the Company granted 326,500 options to key employees and 36,000 options to
non-employee directors. All options granted have an exercise price of $14.00 per
share, the initial public offering price. The options granted to key employees
vest ratably over a five-year period and expire 10 years after the date they
were granted. The options granted to the non-employee directors vest ratably
over a three-year period and expire 10 years after the date of grant.
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this standard no later than
December 31, 1996. This Statement encourages companies to recognize expense for
stock options at an estimated fair value based on an option pricing model. If
expense is not recognized for stock options, pro forma footnote disclosure is
required of what net income and earnings per share would have been under the
Statement's approach to valuing and expensing stock options. Certain other new
disclosures will be required. The Company will implement the provisions of this
Statement in 1996, but has decided that it will not recognize the expense
related to stock options in the financial statements. The impact of this new
Statement has not yet been completely evaluated.
NOTE 8. EQUITY
December 31, 1995
-----------------------
Issued and
Authorized Outstanding
---------- -----------
Preferred stock, $.01 par value 2,000,000 --
Common stock, no par value 200 200
Class A common stock, $.01 par value 12,337,700 100
Class B common stock, $.01 par value 662,300 --
March 31, 1996
-----------------------
Issued and
Authorized Outstanding
---------- -----------
Preferred stock, $.01 par value 2,000,000 --
Class A common stock, $.01 par value 12,337,700 5,261,350
Class B common stock, $.01 par value 662,300 662,296
NOTE 9. SUBSEQUENT EVENT
On May 2, 1996, the Company acquired the domestic intermodal marketing
business of American President Lines - Domestic Distribution Services from its
parent, American President Companies, LTD. The Company paid $2,000,000 in cash
and issued notes for $6,000,000, bearing interest which is due annually on any
unpaid balances, at an annual rate of 6%. The note will be paid with three
equal annual installments beginning on May 1, 1997.
11
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS COMBINATIONS
On March 18, 1996, Hub Group, Inc. (the "Company") acquired the
general partnership interests in 26 operating partnerships and a controlling
interest in the Hub Group Distribution Services partnership (collectively
referred to as "Hub Partnerships") for a total purchase price of approximately
$43,309,000. The purchase price of these acquisitions was allocated to the
assets acquired and liabilities assumed based on the fair value on the date of
acquisition using the purchase method of accounting. Prior to the acquisitions,
the Company's business was comprised of the operations of its wholly owned
subsidiary, Hub City Terminals, Inc. ("Hub Chicago").
The acquired businesses' revenues are approximately nine times that of
Hub Chicago. As a result, consolidated revenues and operating expenses will
increase dramatically in future quarters. Additionally, purchased
transportation costs and operating costs as a percent to revenue may differ from
historical trends for Hub Chicago.
RESULTS OF OPERATIONS
REVENUES
Revenues totaled $48.8 million for the first quarter ended March 31,
1996, representing a 157.7% increase over the comparable period in 1995.
Without the acquisition, company revenues totaled $20.2 million for the first
quarter of 1996 representing a 6.5% increase over the comparable period in 1995.
This increase resulted principally from revenues generated from sales to the Hub
Partnerships.
PURCHASED TRANSPORTATION
Purchased transportation decreased in the first quarter of 1996 to
89.0% of revenues from 91.7% of revenues in the comparable period in 1995.
Without the acquisition, purchased transportation decreased slightly to 91.6% of
revenues in the period compared to 91.7% of revenues in the comparable period in
1995. Management has been successful in controlling purchased transportation
costs in a somewhat erratic transportation market exacerbated by economic
uncertainty and rising fuel costs. Continued fuel price increases could
adversely impact the Company's ability to maintain purchased transportation
costs at current levels.
NET REVENUES
Net revenues increased to 11.0% of revenues in the first quarter of
1996 from 8.3% of revenues in the comparable period in 1995. Without the
acquisition, net revenues increased slightly to 8.4% of revenues in the period
compared to 8.3% of revenues in the first quarter of 1995.
SALARIES AND BENEFITS
Salaries and benefits increased to $2.6 million or 5.3% of revenues in
the first quarter of 1996 compared to $.6 million or 3.4% of revenues in the
comparable period in 1995. Without the acquisition, salaries and benefits
increased to $.7 million or 3.6% of revenues compared to $.6 million or 3.4% of
revenues in the comparable period in 1995. This increase was a result of
additional staffing to implement
12
the Company's strategy to grow its truckload brokerage operations and additional
sales personnel to expand the local revenue base.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $1.0 million
or 2.1% of revenues in the first quarter of 1996 compared to $.3 million or 1.6%
of revenues in the comparable period in 1995. Without the acquisition, selling,
general and administrative costs for the period totaled $.2 million or 1.2% of
revenues compared to $.3 million or 1.6% of revenues in the comparable period in
1995. This decrease was the result of a reduction in the bad debt reserve of
$80,000.
OPERATING INCOME
Operating income increased to $1.8 million or 3.6% of revenues in the
first quarter of 1996 compared to $.6 million or 3.2% of revenues in the
comparable period in 1995. Without the acquisition, operating income increased
to $.7 million or 3.6% of revenues for the period compared to $.6 million or
3.2% of revenues in the comparable period in 1995.
OTHER INCOME (EXPENSE)
All of the interest expense incurred in the first quarter of 1996 was
incurred subsequent to March 17, 1996 and relates primarily to balloon notes
assumed in the acquisition (see "Liquidity and Capital Resources"). Interest
expense will increase significantly in the second quarter of 1996 as the balloon
notes will be outstanding for the entire quarter. Additionally, the Company
will be recognizing interest expense on notes issued in conjunction with an
acquisition which closed in May, 1996 (see "Liquidity and Capital Resources").
The Company incurred no interest expense in the first quarter of 1995.
Interest income will increase significantly in the second quarter of
1996 from the investment of the portion of the net proceeds from the initial
public offering retained by the Company. Additional interest income will be
generated by the Hub Partnerships, as they will be included for the full
quarter. Reported interest income was approximately $30,000 for both of the
quarters ended March 31, 1995 and 1996.
MINORITY INTEREST
Minority interest was $.7 million or 1.4% of revenues in the first
quarter of 1996. Without the acquisition, the company had no minority interest
for the quarters ended March 31, 1996 and March 31, 1995.
INCOME TAXES
Income taxes were $.2 million or .4% of revenues in the first quarter
of 1996. The Company had no provision for income taxes prior to March 18, 1996,
as the Company was a non-taxable subchapter S corporation.
NET INCOME
Net income increased to $.9 million in the first quarter of 1996
compared to $.6 million in the comparable period in 1995, but decreased to 1.8%
of revenues in the first quarter of 1996 compared to the first quarter of 1995.
Without the acquisition, net income increased to $.7 million or 3.6% of revenues
in the first quarter of 1996 compared to $.6 million or 3.4% of revenues in the
comparable period of 1995.
13
PRO FORMA PROVISION FOR ADDITIONAL INCOME TAXES
Additional pro forma income taxes of $.2 million in the first quarter
of 1996 and $.3 million in the first quarter of 1995 were recorded to provide an
assumed effective federal and state income tax provision at a rate of 40% of
income before taxes for the periods prior to March 18, 1996 and March 31, 1995
respectively.
PRO FORMA NET INCOME
Pro forma net income increased to $.6 million in the first quarter of
1996 compared to $.4 million in the comparable period in 1995, but decreased to
1.3% of revenues in the first quarter of 1996 compared to 2.0% of revenues in
the first quarter of 1995.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share increased to $.29 in the quarter ended
March 31, 1996 compared to $.23 for the quarter ended March 31, 1995. Without
the acquisition, pro forma earnings per share increased to $.26 in the first
quarter of 1996 compared to $.23 in the comparable period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1996, the Company had two significant
transactions that affected liquidity. The two transactions were the initial
public offering of the Company's common stock and the subsequent acquisition of
the Hub Partnerships. These two items represented a cash inflow and outflow of
$53.0 million and $35.5 million, respectively. Related to the acquisition, the
Company assumed long-term debt of $14.9 million, the majority of which is
comprised of 5-year balloon notes due in March of 2001, bearing interest at an
annual rate of 5.45%. Additionally, the acquisition resulted in the recognition
of a $10.3 million deferred tax asset which will offset cash payments for taxes
ratably over the next 15 years. The $17.4 million of goodwill acquired will
result in an annual tax deductible expense to be recognized ratably over the
next 15 years. For book purposes goodwill is being amortized over 40 years.
Immediately prior to the initial public offering and acquisition, Hub
Chicago issued 5-year balloon notes, due in March 2001, to its shareholders for
approximately $663,000, bearing interest at an annual rate of 5.45%. In May of
1996, the Company closed on its acquisition of the domestic intermodal marketing
business of American President Lines-Domestic Distribution Services. The Company
paid $2.0 million at closing and issued a note for $6.0 million, bearing
interest at an annual rate of 6.0%, which is due annually on any unpaid
balances. The note will be paid with three equal annual installments beginning
on May 1, 1997.
The Company maintains a bank line of credit totaling $5.0 million
which bears interest at the prime rate less 1/2%. As of March 31, 1996 the
unused and available portion of this credit line was $4.6 million. Although
there can be no assurances, management believes it can obtain a significant
additional line of credit, if necessary.
The Company does not require substantial capital expenditures.
Capital expenditures are principally used to enhance or expand the Company's
computer system and network capabilities. Reported consolidated capital
expenditures will be significantly higher in the future due to the acquisition
of the Hub Partnerships in March, 1996.
The Company believes that existing cash, cash provided by operations
and cash available under lines of credit will be sufficient to meet the
Company's short-term working capital and capital expenditure needs. The company
also believes that the aforementioned items are sufficient to meet its long-term
working capital, capital expenditure and debt repayment needs through the year
2001.
14
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED BALANCE SHEET
(in thousands)
December 31,
------------
1995
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $10,949
Accounts receivable, net
Trade 74,406
Affiliate 1,774
Prepaid expenses 832
Other current assets 1,641
-------
TOTAL CURRENT ASSETS 89,602
PROPERTY AND EQUIPMENT, net 8,994
OTHER ASSETS 366
-------
TOTAL ASSETS $98,962
=======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $64,212
Affiliate 2,376
Other 3,323
Accrued expenses
Payroll 4,125
Other 1,115
Current portion of long-term debt 681
-------
TOTAL CURRENT LIABILITIES 75,832
-------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 1,007
CONTINGENCIES AND COMMITMENTS
MANDATORILY REDEEMABLE COMMON STOCK 10,386
EQUITY:
Common stock, $0-$100 par value 1,943
Additional paid-in capital 500
Treasury stock (32)
Partnership capital 129
Retained earnings 9,197
-------
TOTAL STOCKHOLDERS' EQUITY 11,737
-------
TOTAL LIABILITIES AND EQUITY $98,962
=======
See notes to unaudited condensed combined financial statements.
15
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
(in thousands)
Three Months January 1
Ended through
March 31, March 17,
1995 1996
------------ ---------
REVENUE:
Trade $ 150,879 $142,413
Affiliate 4,793 3,992
--------- --------
Total revenue 155,672 146,405
PURCHASED TRANSPORTATION 137,273 128,405
--------- --------
Net revenue 18,399 18,000
COSTS AND EXPENSES:
Salaries and benefits 9,286 9,807
Selling, general and administrative 4,220 3,946
--------- --------
Total costs and expenses 13,506 13,753
Operating income 4,893 4,247
--------- --------
INTEREST AND OTHER INCOME 200 159
--------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,093 4,406
PROVISION FOR INCOME TAXES 116 126
--------- --------
NET INCOME $ 4,977 $ 4,280
========= ========
See notes to unaudited condensed combined financial statements.
16
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED STATEMENTS OF EQUITY
For the period January 1, 1996 through March 17, 1996
(in thousands, except share amounts)
Common Stock Additional
----------------- Paid-in Treasury Partnership Retained
Shares Amount Capital Stock Capital Earnings Equity
------ ------- ---------- -------- ----------- -------- -------
BALANCE AT JANUARY 1, 1996 84,763 $ 1,814 $629 $(32) 129 $ 9,197 $11,737
Net income 4,280 4,280
Distributions (1,745) (629) 32 (13,477) (15,819)
------ ------- ---- ---- ----- ------- -------
BALANCE AT MARCH 17, 1996 84,763 $ 69 $ -- $ -- $ 129 $ -- $ 198
====== ======= ==== ==== ===== ======= =======
See notes to unaudited condensed combined financial statements.
17
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS JANUARY 1
ENDED THROUGH
MARCH 31, MARCH 17,
1995 1996
------------ ---------
Cash flows from operating activities:
Net income $ 4,977 $ 4,280
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 538 553
Loss on sale of property and equipment 12 3
Changes in working capital:
Accounts receivable, net 1,324 604
Prepaid expenses (198) (29)
Other current assets (168) 918
Accounts payable 1,011 4,783
Accrued expenses (281) (140)
Other assets 14 (407)
-------- --------
Net cash provided by operations 7,229 10,565
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net (1,341) (775)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 724 13,594
Proceeds from sale of common stock 146 --
Distributions (6,449) (26,207)
Payments on long-term debt (164) (361)
-------- --------
Net cash used in financing activities (5,743) (12,974)
-------- --------
Net increase (decrease) in cash 145 (3,184)
Cash, beginning of period 14,805 10,949
-------- --------
Cash, end of period $ 14,950 $ 7,765
======== ========
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 36 $ 56
Income taxes 140 130
See notes to unaudited condensed combined financial statements.
18
HUB PARTNERSHIPS
NOTES TO UNAUDITED CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed combined financial statements of 26
Subchapter S corporations and the Hub Group Distributions Services partnership
(collectively referred to as "Hub Partnerships" or the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. However, the Company believes that the
disclosures contained herein are adequate to make the information presented not
misleading.
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
NOTE 2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The unaudited condensed combined financial statements of Hub Partnerships
are presented herein to reflect the financial condition and results of
operations of the Hub Partnerships as of and for the periods in which the Hub
Partnerships were the predecessor to the business acquired by Hub Group, Inc. on
March 18, 1996, as necessary to disclose the financial statements of the
business acquired by Hub Group, Inc. pursuant to the rules and regulations of
the Securities and Exchange Commission.
NOTE 3. SPECIAL DISTRIBUTION
Immediately prior to March 18, 1996, the Company distributed substantially
all of its equity, including retained earnings through March 17, 1996, to its
shareholders in the form of cash and notes. The notes are five-year balloon
notes bearing interest at an annual rate of 5.45%. Interest is compounded
annually with all principal and interest due in March of 2001.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, 1995
-----------------
(000's)
Land $ 92
Building and improvements 1,376
Leasehold improvements 674
Computer equipment and software 8,562
Furniture and equipment 3,418
Transportation equipment and automobiles 2,353
-----------------
16,475
Less: Accumulated depreciation (7,481)
-----------------
PROPERTY AND EQUIPMENT, net $ 8,994
-----------------
19
HUB PARTNERSHIPS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS COMBINATIONS
On March 18, 1996, Hub Group, Inc. acquired the general partnership
interest in 26 operating partnerships and a controlling interest in the Hub
Group Distribution Services partnership (collectively referred to as "Hub
Partnerships"). The unaudited condensed combined financial statements of Hub
Partnerships are presented herein to reflect the financial condition and results
of operations of the Hub Partnerships as of and for the periods in which the Hub
Partnerships were the predecessor to the business acquired by Hub Group, Inc. on
March 18, 1996.
RESULTS OF OPERATIONS
REVENUES
Revenues totaled $146.4 million for the period January 1, 1996 through
March 17, 1996, representing a 6.0% decrease from the quarter ended March 31,
1995. Although truckload brokerage and logistics revenues increased
significantly to approximately $24.7 million, total revenues decreased due to
the shortened period in 1996 compared to the first quarter in 1995.
PURCHASED TRANSPORTATION
Purchased transportation decreased in the period ended March 17, 1996
to 87.7% of revenues from 88.2% of revenues in the first quarter of 1995. The
decrease is attributable to the Company's volume leverage with vendors,
efficient utilization of available leased equipment and management's continued
focus on controlling purchased transportation costs.
NET REVENUES
Net revenues increased to 12.3% of revenues in the period ended March
17, 1996 from 11.8% of revenues in the first quarter of 1995.
SALARIES AND BENEFITS
Salaries and benefits increased to $9.8 million or 6.7% of revenues in
the period ended March 17, 1996 compared to $9.3 million or 6.0% of revenues in
the first quarter in 1995. The majority of the increase resulted from the
Company's decision to invest in additional staffing to handle new brokerage and
logistics business, expansion of local and national sales forces and additional
financial and administrative functions needed to continue the Company's growth.
Management feels that the increased staffing provides the foundation to handle
future revenue growth at reduced incremental staffing levels.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs decreased to $3.9 million in
the period ended March 17, 1996 compared to $4.2 million in the first quarter of
1995. The decrease in expenditures is directly attributable to the shortened
period in 1996.
20
OPERATING INCOME
Operating income decreased to $4.2 million or 2.9% of revenues in the
period ended March 17, 1996 compared to $4.9 million or 3.1% of revenues in the
first quarter of 1995.
INTEREST AND OTHER INCOME
Interest and other income remained constant at $.2 million and .1% of
revenues in the period ended March 17, 1996 as compared to the quarter ended
March 31, 1995.
INCOME TAXES
Provision for income taxes remained constant at $.1 million or .1% of
revenues for the period ended March 17, 1996 as compared to the quarter ended
March 31, 1995. Provision for income taxes represents the provision for state
and local income taxes that are assessed directly to the Hub Partnerships.
NET INCOME
Net income decreased to $4.3 million or 2.9% of revenues in the period
ended March 17, 1996 compared to $5.0 million or 3.2% of revenues in the first
quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Hub Partnerships, prior to being acquired on March 18, 1996,
distributed substantially all of its equity to its shareholders. This
distribution was made through use of existing cash and through issuance of
five-year balloon notes, bearing interest at an annual rate of 5.45%.
Since the Hub Partnerships sold all of its liabilities and
substantially all of its assets, it no longer has any cash requirements related
to working capital needs or debt maturities.
21
PART II. OTHER INFORMATION
None.
22
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly authorized this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUB GROUP, INC.
DATE: May 14, 1996 /s/ William L. Crowder
------------------------------------
William L. Crowder
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
5
1,000
3-MOS
DEC-31-1996
MAR-31-1996
19956
0
82394
950
0
103769
10172
637
142071
88441
0
59
0
0
37772
142071
0
48797
0
43412
3630
67
31
1070
428
1755
0
0
0
642
0.29
0
