[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, 2004 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
Delaware | 36-4007085 |
---|---|
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X
On April 30, 2004, the registrant had 7,439,872 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.
Hub Group, Inc. - Registrant | |||||
Unaudited Condensed Consolidated Balance Sheets - March 31, 2004 and | |||||
December 31, 2003 | 3 | ||||
Unaudited Condensed Consolidated Statements of Operations - Three Months | |||||
Ended March 31, 2004 and 2003 | 4 | ||||
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Three | |||||
Months Ended March 31, 2004 | 5 | ||||
Unaudited Condensed Consolidated Statements of Cash Flows - Three | |||||
Months Ended March 31, 2004 and 2003 | 6 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | ||||
Management's Discussion and Analysis of Financial Condition and | |||||
Results of Operations | 12 | ||||
PART II. Other Information | 15 |
March 31, 2004 |
December 31, 2003 | ||||
---|---|---|---|---|---|
ASSETS | |||||
CURRENT ASSETS: | |||||
Cash and cash equivalents | $ | $ | |||
Accounts receivable | |||||
Trade, net | 121,184 | 126,794 | |||
Other | 11,616 | 9,472 | |||
Deferred taxes | 4,676 | 4,676 | |||
Prepaid expenses and other current assets | 4,116 | 4,578 | |||
TOTAL CURRENT ASSETS | 141,592 |
145,520 |
|||
PROPERTY AND EQUIPMENT, net | 25,422 | 27,855 | |||
GOODWILL, net | 215,175 | 215,175 | |||
OTHER ASSETS | 829 | 1,017 | |||
TOTAL ASSETS | $ 383,018 | $ 389,567 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
CURRENT LIABILITIES: | |||||
Accounts payable | |||||
Trade | $ 116,331 | $ 118,830 | |||
Other | 3,187 | 2,555 | |||
Accrued expenses | |||||
Payroll | 10,677 | 14,157 | |||
Other | 11,000 | 11,592 | |||
Current portion of long-term debt | 8,012 | 8,017 | |||
TOTAL CURRENT LIABILITIES | 149,207 |
155,151 |
|||
LONG-TERM DEBT, EXCLUDING CURRENT PORTION | 62,011 | 67,017 | |||
DEFERRED TAXES | 25,768 | 24,364 | |||
STOCKHOLDERS' EQUITY: | |||||
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares | |||||
issued or outstanding in 2004 and 2003 | | | |||
Common stock, | |||||
Class A: $.01 par value; 12,337,700 shares authorized; 7,552,977 shares | |||||
issued and 7,436,277 outstanding in 2004; 7,410,700 issued and | |||||
outstanding in 2003 | 74 | 74 | |||
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued | |||||
and outstanding in 2004 and 2003 | 7 | 7 | |||
Additional paid-in capital | 118,925 | 115,820 | |||
Purchase price in excess of predecessor basis, net of tax benefit of $10,306 | (15,458 | ) | (15,458 | ) | |
Retained earnings | 50,045 | 47,332 | |||
Unearned Compensation | (4,502 | ) | (4,448 | ) | |
Treasury Stock, at cost (116,700 shares in 2004 and 20,200 shares in 2003) | (3,059 | ) | (292 | ) | |
TOTAL STOCKHOLDERS' EQUITY | 146,032 | 143,035 | |||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 383,018 | $ 389,567 | |||
See notes to unaudited condensed consolidated financial statements.
Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|
2004 |
2003 | ||||||
Revenue | $328,302 | $329,284 | |||||
Transportation costs | 286,498 | 287,234 | |||||
Gross margin | 41,804 | 42,050 | |||||
Costs and expenses: | |||||||
Salaries and benefits | 22,342 | 23,328 | |||||
Selling, general and administrative | 10,281 | 11,788 | |||||
Depreciation and amortization of property and equipment | 2,884 | 2,561 | |||||
Total costs and expenses | 35,507 | 37,677 | |||||
Operating income | 6,297 | 4,373 | |||||
Other income (expense): | |||||||
Interest expense | (1,713 | ) | (2,084 | ) | |||
Interest income | 53 | 50 | |||||
Other, net | 41 | (36 | ) | ||||
Total other expense | (1,619 | ) | (2,070 | ) | |||
Income before provision for income taxes | 4,678 | 2,303 | |||||
Provision for income taxes | 1,965 | 944 | |||||
Net income | $ 2,713 | $ 1,359 | |||||
Basic earnings per common share | $ 0.35 | $ 0.18 | |||||
Diluted earnings per common share | $ 0.33 | $ 0.18 | |||||
Basic weighted average number of shares outstanding | 7,746 | 7,709 | |||||
Diluted weighted average number of shares outstanding | 8,294 | 7,722 | |||||
See notes to unaudited condendsed consolidated financial statements
March 31, 2004 | |||||
---|---|---|---|---|---|
Class A and B Common Stock Shares | |||||
Beginning of year | 8,052,796 | ||||
Exercise of stock options | 125,634 | ||||
Issuance of restricted stock | 16,643 | ||||
Purchase of treasury shares | (96,500) | ||||
Ending balance | 8,098,573 | ||||
Class A and B Common Stock Amount | |||||
Beginning of year | $ | 81 | |||
Issuance of restricted stock and exercise of stock options | 1 | ||||
Purchase of treasury shares | (1) | ||||
Ending balance | 81 | ||||
Additional Paid-in Capital | |||||
Beginning of year | 115,820 | ||||
Exercise of stock options | 2,647 | ||||
Issuance of restricted stock | 458 | ||||
Ending balance | 118,925 | ||||
Purchase Price in Excess of Predecessor Basis, Net of Tax | |||||
Beginning of year | (15,458 | ) | |||
Ending balance | (15,458 | ) | |||
Retained Earnings | |||||
Beginning of year | 47,332 | ||||
Net income | 2,713 | ||||
Ending balance | 50,045 | ||||
Unearned Compensation | |||||
Beginning of year | (4,448 | ) | |||
Issuance of restricted stock | (458 | ) | |||
Compensation expense related to restricted stock | 404 | ||||
Ending balance | (4,502 | ) | |||
Treasury Stock | |||||
Beginning of year | (292 | ) | |||
Purchase of treasury shares | (2,767 | ) | |||
Ending balance | (3,059 | ) | |||
Total stockholder's equity | $ | 146,032 | |||
See notes to unaudited condensed consolidated financial statements.
Three Months Ended March 31, | |||||
---|---|---|---|---|---|
2004 |
2003 | ||||
Cash flows from operating activities: | |||||
Net income | $ 2,713 | $ 1,359 | |||
Adjustments to reconcile net income to net cash provided | |||||
by operating activities: | |||||
Depreciation and amortization of property and equipment | 2,911 | 2,574 | |||
Deferred taxes | 1,961 | 945 | |||
Compensation expense related to restricted stock | 404 | | |||
(Gain) Loss on sale of assets | (18 | ) | 8 | ||
Other assets | 188 | (208 | ) | ||
Changes in working capital: | |||||
Accounts receivable, net | 3,466 | (1,476 | ) | ||
Prepaid expenses and other current assets | 462 | (559 | ) | ||
Accounts payable | (1,867 | ) | (708 | ) | |
Accrued expenses | (4,072 | ) | 566 | ||
Net cash provided by operating activities | 6,148 | 2,501 | |||
Cash flows from investing activities: | |||||
Purchases of property and equipment, net | (460 | ) | (477 | ) | |
Net cash used in investing activities | (460 | ) | (477 | ) | |
Cash flows from financing activity: | |||||
Proceeds from stock options exercised | 2,090 | | |||
Purchase of treasury stock | (2,767 | ) | | ||
Net payments on revolver | (3,000 | ) | | ||
Payments on long-term debt | (2,011 | ) | (2,024 | ) | |
Net cash used in financing activities | (5,688 | ) | (2,024 | ) | |
Net increase (decrease) in cash and cash equivalents | | | |||
Cash and cash equivalents beginning of period | | | |||
Cash and cash equivalents end of period | $ | $ | |||
Supplemental disclosures of cash flow information | |||||
Cash paid for: | |||||
Interest | $ 1,357 | $ 1,732 |
See notes to unaudited condensed consolidated financial statements.
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 Companys financial position and results of operations for the three months ended March 31, 2004 and 2003.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2003. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2. Restructuring Charges
In the fourth quarter of 2002, the Company recorded a $458,000 liability for the remaining lease obligation related to a closed facility. Lease payments made during 2004 were $53,000 and the lease obligation is $228,000 at March 31, 2004.
During the quarter ended June 30, 2003 the Company recorded a liability of $180,000 for the estimated remaining lease obligation and closing costs related to a facility in Detroit. Approximately $61,000 of the lease obligation remains as of March 31, 2004 as lease and closing cost payments made during the period ended March 31, 2004 were $19,000.
During the year ended December 31, 2003 the Company recorded a severance charge for 165 employees of $876,000. Severance payments of $75,000 were made during the period ended March 31, 2004. All of these severance payments were made as of March 31, 2004.
During the three months ended March 31, 2004, the Company recorded a severance charge for 20 employees of $115,000. All of these severance payments were made as of March 31, 2004.
NOTE 3. Stock Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Companys stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company grants options at fair market value and therefore recognizes no compensation expense.
The following table illustrates the effect on the net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands, except per share data):
Three Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|
March 31, | ||||||||
2004 | 2003 | |||||||
Net income, as reported | $ | 2,713 | $ | 1,359 | ||||
Add: Total stock-based compensation included in reported net income, net of | ||||||||
related tax effects | 234 | - | ||||||
Deduct: Total stock-based employee compensation expense determined under fair | ||||||||
value based method for all awards, net of related tax effects | (401 | ) | (178 | ) | ||||
Net income, pro forma | $ | 2,546 | $ | 1,181 | ||||
Earnings per share: | ||||||||
Basic-- as reported | $ | 0.35 | $ | 0.18 | ||||
Basic-- pro forma | $ | 0.33 | $ | 0.15 | ||||
Diluted-- as reported | $ | 0.33 | $ | 0.18 | ||||
Diluted-- pro forma | $ | 0.31 | $ | 0.15 | ||||
Dividend Yield | $ | 0.00 | $ | 0.00 | ||||
The above table is based upon the valuation of option grants using the Black-Scholes pricing model for traded options in 2003 with an assumed risk-free interest rate of 3.3%, a stock price volatility factor of 40.0% and an expected life of the options of six years. Using the foregoing assumptions, the calculated weighted-average fair value of options granted in 2003 was $2.24. No options were granted in 2004. Because the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, in managements opinion, the model does not necessarily provide a reliable single measure of the fair value of its employee stock options.
The pro forma disclosure is not likely to be indicative of pro forma results which may be expected in future periods because of the fact that options vest over several years, pro forma compensation expense is recognized as the options vest and additional awards may also be granted.
NOTE 4. Earnings Per Share
The following is a reconciliation of the Companys earnings per share:
Three Months Ended March 31, 2004 |
Three Months Ended March 31, 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(000's) |
(000's) |
||||||||||||
Income |
Shares |
Per Share Amount |
Income |
Shares |
Per Share Amount | ||||||||
Basic EPS | |||||||||||||
Income available to | |||||||||||||
common stockholders | $2,713 | 7,746 | $0.35 | $1,359 | 7,709 | $0.18 | |||||||
Effect of Dilutive Securities | |||||||||||||
Stock options | | 548 | | | 13 | | |||||||
Diluted EPS | |||||||||||||
Income available to | |||||||||||||
common stockholders | |||||||||||||
including assumed exercises of | |||||||||||||
stock options and restricted stock | $2,713 | 8,294 | $0.33 | $1,359 | 7,722 | $0.18 | |||||||
Stock options that were not included in diluted weighted-average shares because they would have been antidilutive were 23,000 and 1,033,550 for the three months ending March 31, 2004 and 2003, respectively.
NOTE 5. Property and Equipment
Property and equipment consist of the following (in thousands):
March 31, | December 31, | ||||
---|---|---|---|---|---|
2004 | 2003 | ||||
Building and improvements | $ 57 | $ 57 | |||
Leasehold improvements | 617 | 608 | |||
Computer equipment and software | 52,219 | 51,927 | |||
Furniture and equipment | 6,153 | 6,085 | |||
Transportation equipment and automobiles | 1,091 | 1,221 | |||
60,137 | 59,898 | ||||
Less: Accumulated depreciation and amortization | (34,715 | ) | (32,043 | ) | |
Property and Equipment, net | $ 25,422 | $ 27,855 | |||
NOTE 6. Debt
The Companys outstanding debt is as follows:
March 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
2004 | 2003 | |||||||
(000's) | (000's) | |||||||
Bank revolving line of credit | $ | 3,000 | $ | 6,000 | ||||
Term notes with quarterly payments of $2,000,000 with a balloon payment | ||||||||
of $9,000,000 due June 24, 2005; interest is due quarterly at a floating | ||||||||
rate | 17,000 | 19,000 | ||||||
Notes due on June 25, 2009 with annual payments of $10,000,000 | ||||||||
commencing on June 25, 2005; interest is paid quarterly at a fixed rate | ||||||||
of 9.14% | 50,000 | 50,000 | ||||||
Capital lease obligations collateralized by certain equipment | 23 | 34 | ||||||
Total debt | 70,023 | 75,034 | ||||||
Less current portion | (8,012 | ) | (8,017 | ) | ||||
$ | 62,011 | $ | 67,017 | |||||
On March 25, 2004, at the Companys request, the Credit Agreement was amended to reduce the interest rate, commitment fees and the aggregate Revolving Credit Commitment. The interest rate for the Revolving Line of Credit was changed from LIBOR plus 2.0% to LIBOR plus 1.75%. The interest rate for the Term Loan was changed from LIBOR plus 2.25% to LIBOR plus 1.75%. The interest rate for both the Revolving Line of Credit and the Term Loan can be reduced to LIBOR plus 1.625% if the Companys cash flow leverage ratio is below 1.75 to 1. The commitment fees charged on the unused Line of Credit were reduced from .35% to .3%. The commitment fees can be reduced to .275% if the Companys cash flow leverage ratio is below 1.75 to 1. The Companys current cash flow leverage ratio is 1.8 to 1. The Revolving Credit Commitment was reduced from $50,000,000 to $35,000,000.
The Company had $31,000,000 of unused and available borrowings under its bank revolving line of credit at March 31, 2004 and $43,000,000 December 31, 2003. The Company was in compliance with its debt covenants at March 31, 2004.
The Company has standby letters of credit that expire from 2004 to 2012. As of March 31, 2004, the letters of credit were $1 million.
NOTE 7. Contingencies
The Company is a party to litigation incident to its business, including claims for freight lost or damaged in transit, improperly shipped or improperly billed. Some of the lawsuits to which the Company is party are covered by insurance and are being defended by the Companys insurance carriers. Some of the lawsuits are not covered by insurance and are being defended by the Company. Management does not believe that the outcome of this litigation will have a materially adverse effect on the Companys financial position.
NOTE 8. Stock Buy Back Plan
During the fourth quarter of 2003, the Board of Directors authorized the purchase of up to 500,000 shares of the Companys Class A Common Stock from time to time. The timing of the program will be determined by financial and market conditions. As of March 31, 2004, the Company purchased 116,700 shares for $3,059,000. A summary of purchases in 2004 follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Shares | Maximum Number of | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total Number | Purchased as | Shares that May | ||||||||||||
of Shares | Average Price | Part of Publicly | Yet be Purchased | |||||||||||
Purchased | Paid Per Share | Announced Plan | Under the Plan (1) | |||||||||||
January 1 to January 31 | - | - | - | 479,800 | ||||||||||
February 1 to February 29 | 27,800 | $ 27.61 | 27,800 | 452,000 | ||||||||||
March 1 to March 31 | 68,700 | 28.46 | 68,700 | 383,300 | ||||||||||
Total | 96,500 | $ 28.67 | 96,500 | |||||||||||
(1) The Company announced on November 3, 2003 that the Board of Directors had authorized the purchase of up to 500,000 shares of the Company's Class A Common Stock from time to time. There is no expiration date for the Plan.
HUB GROUP, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31, 2003
Revenue
Transportation related revenue, generated by the Companys intermodal, truckload brokerage and logistics business units, increased 2.4% or $7.4 million. Intermodal revenue increased 1.1% to $230.5 million from $228.0 million in 2003 due primarily to an increase in volume. Truckload brokerage revenue increased 0.7% to $51.0 million from $50.6 million in 2003 due primarily to an increase in revenue per load. Logistics revenue increased 12.5% to $39.7 million from $35.2 million due primarily to increased volume. Hub Group Distribution Services (HGDS) revenue decreased 54.1% to $7.1 million in 2004 from $15.5 million in 2003 due primarily to a decrease in the installation business. Total revenue for Hub Group, Inc. (the Company) decreased 0.3% to $328.3 million in 2004 from $329.3 million in 2003.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Gross Margin
Gross margin decreased 0.6% to $41.8 million in 2004 from $42.1 million in 2003. As a percent of revenue, gross margin decreased slightly to 12.7% in 2004 from 12.8% in 2003. The decrease is due primarily to HGDS.
Salaries and Benefits
Salaries and benefits decreased to $22.3 million in 2004 from $23.3 million in 2003. As a percentage of revenue, salaries and benefits decreased to 6.8% from 7.1% in 2003. This was due primarily to a decrease in headcount. Headcount at March 31, 2004 was 1,182.
Selling, General and Administrative
Selling general and administrative expenses decreased to $10.3 million in 2004 from $11.8 million in 2003. As a percentage of revenue, these expenses decreased to 3.1% in 2004 from 3.6% in 2003. Equipment lease expense decreased by $0.8 million due primarily to the lease buy-outs in the later half of 2003. Telephone expense decreased by $0.3 million due primarily to a reduction in headcount. Office expense decreased by $0.2 million due primarily to a reduction in offices and cost savings initiatives.
Depreciation and Amortization of Property and Equipment
Depreciation and amortization increased to $2.9 million in 2004 from $2.6 million in 2003. This expense as a percentage of revenue increased to 0.9% from 0.8% in 2003. The increase in depreciation and amortization is due primarily to a higher amount of computer equipment being depreciated in 2004 as a result of lease buy-outs in 2003.
Other Income (Expense)
Interest expense decreased to $1.7 million in 2004 from $2.1 million in 2003. The decrease in interest expense is due primarily to carrying a lower average debt balance this year as compared to the prior year.
Interest income remained constant at $0.05 million in 2004 and 2003.
Provision for Income Taxes
The provision for income taxes increased to $2.0 million in 2004 compared to $0.9 million in 2003. The Company provided for income taxes using an effective rate of 42.0% in 2004 and an effective rate of 41.0% in the first quarter of 2003.
Net Income
Net income increased to $2.7 million in 2004 from $1.4 million from 2003.
Earnings Per Common Share
Basic earnings per share increased to $0.35 in 2004 from $0.18 in 2003 and diluted earnings per shared increased to $0.33 in 2004 from $0.18 in 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and capital expenditures through cash flows from operations and bank borrowings.
Cash provided by operating activities for the three months ended March 31, 2004, was approximately $6.1 million, which resulted primarily from net income from operations and non-cash charges of $5.4 million.
Net cash used in investing activities for the three months ended March 31, 2004, was $0.5 million and related to expenditures principally made to enhance the Companys information system capabilities.
The net cash used in financing activities for the three months ended March 31, 2004, was $5.7 million and related primarily to payments on the Companys debt and purchase of treasury stock offset by an increase in cash resulting from stock options being exercised.
The Company does not believe its net working capital deficit impairs its ability to meet obligations as they become due.
On March 25, 2004, at the Companys request, the Credit Agreement was amended to reduce the interest rate, commitment fees and the aggregate Revolving Credit Commitment. The interest rate for the Revolving Line of Credit was changed from LIBOR plus 2.0% to LIBOR plus 1.75%. The interest rate for the Term Loan was changed from LIBOR plus 2.25% to LIBOR plus 1.75%. The interest rate for both the Revolving Line of Credit and the Term Loan can be reduced to LIBOR plus 1.625% if the Companys cash flow leverage ratio is below 1.75 to 1. The commitment fees charged on the unused Line of Credit were reduced from .35% to .3%. The commitment fees can be reduced to .275% if the Companys cash flow leverage ratio is below 1.75 to 1. The Companys current cash flow leverage ratio is 1.8 to 1. The Revolving Credit Commitment was reduced from $50 million to $35 million.
The Company had $31 million of unused and available borrowings under its bank revolving line of credit at March 31, 2004 and $43 million December 31, 2003. The Company was in compliance with its debt covenants at March 31, 2004.
The Company has standby letters of credit that expire from 2004 to 2012. As of March 31, 2004, the letters of credit were $1 million.
OUTLOOK, RISKS AND UNCERTAINTIES
Except for historical data, the information contained in this Quarterly Report constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. Forward-looking statements in this report include, but are not limited to, those contained in this Outlook, Risks and Uncertainties section regarding expectations, hopes, beliefs, estimates, intentions or strategies regarding the future. The Company assumes no liability to update any such forward-looking statements. In addition to those mentioned elsewhere in this section, such risks and uncertainties include the impact of competitive pressures in the marketplace, including the entry of new, web-based competitors and direct marketing efforts by the railroads, the degree and rate of market growth in the intermodal and highway transportation markets served by the Company, changes in rail and truck capacity, further consolidation of rail carriers, deterioration in relationships with existing rail carriers, rail service conditions, changes in governmental regulation, adverse weather conditions, fuel shortages, changes in the cost of services from rail, drayage and other vendors, the situation in the Middle East and fluctuations in interest rates.
Revenue and Transportation Costs
During 2004, in connection with the field realignment, the Company revised its revenue classifications by transportation mode. Accordingly, the 2003 revenue amounts have been reclassified to conform to the current year presentation (in thousands):
2003 | Intermodal | Truckload | Logistics | HGDS | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Quarter Ended March 31 | $ | 228.0 | $ | 50.6 | $ | 35.2 | $ | 15.5 | $ | 329.3 | |||||||
Quarter Ended June 30 | 229.2 | 52.9 | 33.6 | 15.9 | 331.6 | ||||||||||||
Quarter Ended September 30 | 240.2 | 53.7 | 37.6 | 8.0 | 339.5 | ||||||||||||
Quarter Ended December 31 | 254.0 | 53.3 | 37.5 | 14.4 | 359.2 | ||||||||||||
Total | $ | 951.4 | $ | 210.5 | $ | 143.9 | $ | 53.8 | $ | 1,359.6 | |||||||
Transit times have increased for certain rail vendors due to rail congestion caused primarily by increased volume. A decline in rail service could adversely affect the Companys revenue for the remainder of 2004 and could increase the Companys operating costs per load, which could negatively impact net income.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates on its bank line of credit and term notes which may adversely affect its results of operations and financial condition. The Company seeks to minimize the risk from interest rate volatility through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use financial instruments for trading purposes. No derivative financial instruments were in use during the three months ended Mar 31, 2004.
CONTROLS AND PROCEDURES
As of March 31, 2004, an evaluation was carried out under the supervision and with the participation of the Companys management, including our Chief Executive Office and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2004. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation.
PART II. Other Information
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
(e) | Note 8 of the Company's Notes to Unaudited Condensed Consolidated Financial Statements is incorporated herein by reference. |
Item 6. Exhibits and Reports on Form 8-K
(a) | A list of exhibits included as part of this report is set forth in the Exhibit Index incorporated herein by reference. |
(b) | Reports on Form 8-K. The Company furnished a Report on March 2, 2004 reporting in Item 9 that it was attaching as an exhibit a press release containing operating results for the fourth quarter of 2003. |
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: April 30, 2004 | /s/ Thomas M. White |
Thomas M. White | |
Senior Vice President | |
Chief Financial Officer and Treasurer | |
(Principal Financial Officer) |
Exhibit No. Description
10.29 | Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and Harris Trust and Savings Bank dated March 25, 2004. |
31.1 | Certification of David P. Yeager, Vice Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed under Exhibit 31 of Item 601 of Regulation S-K |
31.2 | Certification of Thomas M. White, Senior Vice President-Chief Financial Officer and Treasurer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed under Exhibit 31 of Item 601 of Regulation S-K |
32.1 | Certification of David P. Yeager and Thomas M. White, Chief Executive Officer and Chief Financial Officer, respectively, Pursuant to 18 U.S.C. Section 1350, filed under Exhibit 32 of Item 601 of Regulation S-K |
Harris Trust and Savings Bank
LaSalle Bank National Association
Chicago, Illinois
Chicago, Illinois
U.S.Bank National Association
National City Bank
Milwaukee, Wisconsin
Chicago,Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of April 30, 1999 (the Credit Agreement), as amended and currently in effect, by and among Hub Group, Inc. (the Public Hub Company), Hub City Terminals, Inc. for itself and as successor by merger to Hub Holdings, Inc. (Hub Chicago; together with the Public Hub Company, the Borrowers) and you (the Lenders). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement.
The Borrowers have requested that the Lenders modify the Applicable Margins, decrease the aggregate Revolving Credit Commitments from $50,000,000 to $35,000,000 and make certain other amendments to the Credit Agreement and the Lenders are willing to do so under the terms and conditions set forth in this amendment (herein, the Amendment).
1. Amendments.
Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Credit Agreement shall be and hereby is amended as follows:
1.01. The chart appearing in the definition of Applicable Margin appearing in Section 4.1 of the Credit Agreement shall be amended and as so amended, shall be restated to read as follows:
Applicable Margin | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
For Domestic Rate | |||||||||||
Portion of Revolving | |||||||||||
Credit Loans | Applicable Margin | ||||||||||
and Term Loans | For LIBOR | ||||||||||
and Swing Loans | Portions of | ||||||||||
"When Following Status | Bearing Interest | Revolving Credit | |||||||||
Exists For Any Margin | with Reference to | Loans and Term | Commitment | ||||||||
Determination Date | Domestic Rate Is: | Loans Is: | Fee Is: | ||||||||
Level I Status | 0.00% | 1.625% | .275% | ||||||||
Level II Status | 0.00% | 1.75% | .30% | ||||||||
Level III Status | 0.00% | 2.00% | .35% | ||||||||
Level IV Status | 0.50% | 2.50% | .40% |
1.02. The definition of the terms Level I Status, Level II Status, Level III Status and Level IV Status appearing in Section 4.1 of the Credit Agreement shall be amended and as so amended shall be restated in their entirety to read, respectively, as follows:
Level I Status means, for any Determination Date, that as of the close of the most recently completed fiscal quarter of the Public Hub Company with reference to which such Determination Date was set, the Cash Flow Leverage Ratio is less than 1.75 to 1. |
Level II Status means, for any Determination Date, that as of the close of the most recently completed fiscal quarter of the Public Hub Company with reference to which such Determination Date was set, the Cash Flow Leverage Ratio is greater than or equal to 1.75 to 1 but less than 2.25 to 1. |
Level III Status means, for any Determination Date, that as of the close of the most recently completed fiscal quarter of the Public Hub Company with reference to which such Determination Date was set, the Cash Flow Leverage Ratio is greater than or equal to 2.25 to 1 but less than 2.75 to 1. |
Level IV Status means, for any Determination Date, that as of the close of the most recently completed fiscal quarter of the Public Hub Company with reference to which such Determination Date was set, the Cash Flow Leverage Ratio is greater than or equal to 2.75 to 1. |
1.03. Section 7.10 of the Credit Agreement shall be amended and as so amended shall be restated in its entirety to read as follows:
Section 7.10. Cash Flow Leverage Ratio. The Hub Group shall not, as of the close of each fiscal quarter of the Public Hub Company, permit the Cash Flow Leverage Ratio as of such date to be more than 3.00 to 1. |
1.04. The Revolving Credit Commitments of the Lenders set forth opposite the Lenders names on their respective signature pages of the Credit Agreement or on an Assignment Agreement delivered pursuant to Section 11.10 of the Credit Agreement, as the case may be, shall be amended and restated as set forth on Annex I attached hereto. On the effective date of this Amendment, the Lenders shall make appropriate adjustments between themselves to reflect the changes in the Revolving Credit Commitments contemplated hereby and the Borrower shall be deemed to have requested non-ratable Loans to effect such adjustments.
2. Conditions Precedent.
The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent:
2.01. The Borrowers, the Guarantors and the Lenders shall have executed and delivered this Amendment.
2.02. Legal matters incident to the execution and delivery of this Amendment shall be reasonably satisfactory to the Agent and its counsel.
Upon the satisfaction of the foregoing conditions precedent, the Applicable Margins shall be those applicable for Level II Status and shall remain in effect until the Determination Date occurring after the effective date hereof.
3. Representations.
In order to induce the Lenders to execute and deliver this Amendment, the Borrowers hereby represent to the Lenders that as of the date hereof, the representations and warranties set forth in Section 5 of the Credit Agreement are and remain true and correct in all material respects (except to the extent the same expressly relate to an earlier date and except that for purposes of this paragraph the representations contained in Section 5.5 shall be deemed to refer to the most recent financial statements of the Public Hub Company delivered to the Lenders) and the Borrowers are in full compliance with all of the terms and conditions of the Credit Agreement after giving effect to this Amendment and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment.
4. Miscellaneous.
4.01. Each Borrower and each Guarantor acknowledges and agrees that, except as modified by this Amendment, all of the Loan Documents to which it is a party remain in full force and effect for the benefit and security of, among other things, the Obligations as modified hereby. Each Borrower and each Guarantor further acknowledges and agrees that all references in such Loan Documents to the Obligations shall be deemed a reference to the Obligations as so modified. Each Borrower and each Guarantor further agrees to execute and deliver any and all instruments or documents as may be reasonably required by the Agent or the Required Lenders to confirm any of the foregoing.
4.02. The Borrowers and the Guarantors have heretofore executed and delivered to the Agent that certain Security Agreement dated as of October 15, 2002 and certain other Collateral Documents. The Borrowers and the Guarantors hereby acknowledge and agree that the Liens created and provided for by the Collateral Documents continue to secure, among other things, the Obligations arising under the Credit Agreement as amended hereby; and the Collateral Documents and the rights and remedies of the Agent thereunder, the obligations of the Borrowers and the Guarantors thereunder, and the Liens created and provided for thereunder remain in full force and effect and shall not be affected, impaired or discharged hereby. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Collateral Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment.
4.03. Except as specifically amended hereby, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as specifically amended hereby.
4.04. This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois.
4.05. The Borrowers agree to pay, jointly and severally, all reasonable out-of-pocket costs and expenses incurred by the Agent in connection with the preparation, execution and delivery of this Amendment and the documents and transactions contemplated hereby, including the reasonable fees and expenses of counsel for the Agent with respect to the foregoing.
Dated as of March 25, 2004 | |
HUB GROUP, INC., a Borrower | |
HUB CITY TERMINALS, INC., a Borrower | |
By | |
David P. Yeager | |
Chief Executive Officer for each of the above | |
Companies |
Accepted and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK | |
By | |
Name:__________________________ | |
Title:___________________________ | |
U.S.BANK NATIONAL ASSOCIATION | |
By | |
Name:__________________________ | |
Title:___________________________ | |
LASALLE BANK NATIONAL ASSOCIATION | |
By | |
Name:__________________________ | |
Title:___________________________ | |
NATIONAL CITY BANK | |
By | |
Name:__________________________ | |
Title:___________________________ | |
LENDER | REVOLVING CREDIT COMMITMENT | ||||
---|---|---|---|---|---|
Harris Trust and Savings Bank | $14,381,922.67 | ||||
U.S. Bank National Association | $ 9,418,077.33 | ||||
LaSalle Bank National Association | $ 6,300,000.00 | ||||
National City Bank | $ 4,900,000.00 |
The undersigned heretofore executed and delivered to the Lenders the Guaranty Agreement. The undersigned hereby consent to the Amendment to the Credit Agreement as set forth above and confirm that the Guaranty Agreement and all of the obligations of the undersigned thereunder remain in full force and effect. The undersigned further agree that their consent to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained, except to the extent, if any, required by the Guaranty Agreement.
HUB CHICAGO HOLDINGS, INC., a Guarantor | |
By | |
David P. Yeager | |
Chief Executive Officer | |
HLX COMPANY, L.L.C., a Guarantor | |
By | |
David P. Yeager | |
Vice Chairman and Chief Executive Officer | |
QSSC, INC. | |
QUALITY SERVICES, L.L.C. | |
QUALITY SERVICES OF KANSAS, L.L.C. | |
QUALITY SERVICES OF NEW JERSEY, L.L.C. | |
Q.S. OF ILLINOIS, L.L.C. | |
Q.S. OF GEORGIA, L.L.C. | |
By | |
David P. Yeager | |
Chief Executive Officer for each of the | |
above Guarantors | |
HUB GROUP ALABAMA, LLC | |
HUB GROUP ATLANTA, LLC | |
HUB GROUP BOSTON, LLC | |
HUB GROUP CANADA, L.P. | |
HUB GROUP CLEVELAND, LLC | |
HUB GROUP DETROIT, LLC | |
HUB GROUP FLORIDA, LLC | |
HUB GROUP GOLDEN GATE, LLC | |
HUB GROUP INDIANAPOLIS, LLC | |
HUB GROUP KANSAS CITY, LLC | |
HUB GROUP LOS ANGELES, LLC | |
HUB GROUP MID ATLANTIC, LLC | |
HUB GROUP NEW ORLEANS, LLC | |
HUB GROUP NEW YORK STATE, LLC | |
HUB GROUP NEW YORK-NEW JERSEY, LLC | |
HUB GROUP NORTH CENTRAL, LLC | |
HUB GROUP OHIO, LLC | |
HUB GROUP PHILADELPHIA, LLC | |
HUB GROUP PITTSBURGH, LLC | |
HUB GROUP PORTLAND, LLC | |
HUB GROUP ST. LOUIS, LLC | |
HUB GROUP TENNESSEE, LLC | |
HUB CITY TEXAS, L.P. | |
HUB GROUP TRANSPORT, LLC | |
HUB GROUP ASSOCIATES, INC. | |
HUB FREIGHT SERVICES, INC. | |
HUB HIGHWAY SERVICES | |
HUB GROUP DISTRIBUTION SERVICES, LLC | |
By | |
David P. Yeager | |
Chief Executive Officer for each of the | |
above Guarantors | |
I, David P. Yeager, certify that:
1) | I have reviewed this report on Form 10-Q of Hub Group, Inc.; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | (paragraph omitted pursuant to SEC release Nos. 33-8238 and 34-47986); |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2004 | |
/s/ David P.Yeager | |
Name: David P. Yeager | |
Title: Vice Chairman and | |
Chief Executive Officer |
I, Thomas M. White, certify that:
1) | I have reviewed this report on Form 10-Q of Hub Group, Inc.; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | (paragraph omitted pursuant to SEC release Nos. 33-8238 and 34-47986); |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2004 | |
/s/ Thomas M. White | |
Name: Thomas M. White | |
Title: Senior Vice President- | |
Chief Financial Officer and Treasurer |
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following statement is provided by the undersigned to accompany the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 of Hub Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and shall not be deemed filed pursuant to any provision of the Exchange Act of 1934 or any other securities law.
Each of the undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hub Group, Inc.
/s/David P. Yeager | /s/Thomas M. White |
David P. Yeager | Thomas M. White |
Vice Chairman and Chief Executive Officer | Senior Vice President- Chief Financial Officer |
Hub Group, Inc. | and Treasurer |
Hub Group, Inc. |