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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 September 30, 2001 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)
(630) 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 X No __
On November 13, 2001, the registrant had 7,046,250 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 - September 30, 2001 and
December 31, 2000 3
Unaudited Condensed Consolidated Statements of Operations - Three Months
and Nine Months Ended September 30, 2001 and 2000 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Nine
Months Ended September 30, 2001 5
Unaudited Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 2001 and 2000 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. Other Information 17
2
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------
2001 2000
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ -
Accounts receivable, net 195,315 195,765
Deferred taxes 11,183 7,933
Prepaid expenses and other current assets 4,551 3,609
----------------- -----------------
TOTAL CURRENT ASSETS 211,049 207,307
PROPERTY AND EQUIPMENT, net 39,900 43,854
GOODWILL, net 209,602 213,907
OTHER ASSETS 1,737 2,177
----------------- -----------------
TOTAL ASSETS $ 462,288 $ 467,245
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 157,377 $ 166,743
Other 6,133 8,529
Accrued expenses
Payroll 11,669 9,559
Other 10,385 9,658
Current portion of long-term debt 8,037 12,341
----------------- -----------------
TOTAL CURRENT LIABILITIES 193,601 206,830
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 115,096 109,089
DEFERRED TAXES 17,950 15,202
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 1,032 352
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares
issued or outstanding in 2001 and 2000 - -
Common stock,
Class A: $.01 par value; 12,337,700 shares authorized; 7,046,250
shares issued and outstanding in 2001 and 7,046,050 shares issued and
outstanding in 2000 70 70
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares
issued and outstanding in 2001 and 2000 7 7
Additional paid-in capital 110,817 110,817
Purchase price in excess of predecessor basis, net of tax benefit of $10,306 (15,458) (15,458)
Retained earnings 39,613 40,336
Accumulated other comprehensive loss (440) -
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 134,609 135,772
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 462,288 $ 467,245
================= =================
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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -------------
Revenue $ 323,046 $ 354,797 $ 987,004 $ 1,027,694
Transportation costs 278,475 310,574 851,066 899,423
----------- ----------- ----------- -------------
Gross margin 44,571 44,223 135,938 128,271
Costs and expenses:
Salaries and benefits 23,461 24,648 71,663 71,972
Selling, general and administrative 16,989 11,698 41,541 34,129
Depreciation and amortization of property and equipment 2,147 1,508 8,117 3,908
Amortization of goodwill 1,435 1,435 4,305 4,305
Impairment of property and equipment - - 3,401 -
----------- ----------- ----------- -------------
Total costs and expenses 44,032 39,289 129,027 114,314
Operating income 539 4,934 6,911 13,957
----------- ----------- ----------- -------------
Other income (expense):
Interest expense (2,426) (2,558) (7,793) (8,566)
Interest income 189 228 522 568
Other, net 93 47 (185) 170
----------- ----------- ----------- -------------
Total other expense (2,144) (2,283) (7,456) (7,828)
Income (loss) before minority interest and provision for income taxes (1,605) 2,651 (545) 6,129
----------- ----------- ----------- -------------
Minority interest 280 - 680 120
----------- ----------- ----------- -------------
Income (loss) before provision for income taxes (1,885) 2,651 (1,225) 6,009
Provision for (benefit from) income taxes (773) 1,087 (502) 2,464
----------- ----------- ----------- -------------
Net income (loss) $ (1,112) $ 1,564 $ (723) $ 3,545
=========== =========== =========== =============
Basic earnings (loss) per common share $ (0.14) $ 0.20 $ (0.09) $ 0.46
=========== =========== =========== =============
Diluted earnings (loss) per common share $ (0.14) $ 0.20 $ (0.09) $ 0.46
=========== =========== =========== =============
See notes to unaudited condensed consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended September 30, 2001
(in thousands, except shares)
PURCHASE
PRICE IN
CLASS A & B EXCESS OF ACCUMULATED
COMMON STOCK ADDITIONAL PREDECESSOR OTHER TOTAL
--------------------- PAID-IN BASIS, NET RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL OF TAX EARNINGS LOSS EQUITY
----------- --------- ----------- ----------- ---------- ------------- ---------------
Balance at December 31, 2000 7,708,346 $ 77 $ 110,817 $ (15,458) $ 40,336 $ - $ 135,772
Comprehensive income
Net loss - - - - (723) - (723)
Other comprehensive
income (loss):
Cumulative effect of
adopting Statement 133,
net of tax of $55 - - - - - 79 79
Unrealized interest rate swap
loss net of tax benefit of ($361) - - - - - (519) (519)
---------------
Comprehensive loss (1,163)
----------- --------- ----------- ----------- ---------- ------------- ---------------
Balance at September 30, 2001 7,708,346 $ 77 $ 110,817 $ (15,458) $ 39,613 $ (440) $ 134,609
=========== ========= =========== =========== ========== ============= ===============
See notes to unaudited condensed consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2001 2000
---------------- ----------------
Cash flows from operating activities:
Net income (loss) $ (723) $ 3,545
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 8,612 4,505
Amortization of goodwill 4,305 4,305
Impairment of property and equipment 3,401 -
Deferred taxes (502) 2,464
Minority interest 680 120
Loss/(Gain) on sale of assets 410 (3)
Changes in working capital:
Accounts receivable, net 450 (3,533)
Prepaid expenses and other current assets (942) (2,526)
Accounts payable (11,762) 22,562
Accrued expenses 2,397 3,757
Other assets 440 18
---------------- ----------------
Net cash provided by operating activities 6,766 35,214
---------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment, net (8,469) (20,050)
---------------- ----------------
Net cash used in investing activities (8,469) (20,050)
---------------- ----------------
Cash flows from financing activities:
Proceeds from sale of common stock - 31
Distributions to minority interest - (454)
Net borrowings/(payments) on long-term debt 1,703 (16,633)
Proceeds from issuance of long-term debt - 27
---------------- ----------------
Net cash provided by (used in) financing activities 1,703 (17,029)
---------------- ----------------
Net decrease in cash and cash equivalents - (1,865)
Cash and cash equivalents, beginning of period - 1,865
---------------- ----------------
Cash and cash equivalents, end of period $ - $ -
================ ================
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 7,488 $ 9,377
Income taxes 60 1,520
Non-cash activity:
Unrealized loss on derivative instrument $ 440 $ -
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.
These condensed consolidated financial statements and notes thereto should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000. Results of operations in interim periods are not necessarily
indicative of results to be expected for a full year.
NOTE 2. Earnings (Loss) per Share
The following is a reconciliation of the Company's Earnings (Loss) per
Share:
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
-------------------------- ------------------------
(000's) (000's)
---------------- --------------
Per-Share Per-Share
Loss Shares Amount Income Shares Amount
-------- ------ --------- ------ ------ ---------
Basic (Loss) Earnings per Share
Income (loss) available to
common stockholders $(1,112) 7,709 $ (0.14) $1,564 7,708 $ 0.20
-------- ------ --------- ------ ------ ---------
Effect of Dilutive Securities
Stock options - 15 - - - -
-------- ------ --------- ------ ------ ---------
Diluted (Loss) Earnings per Share
Income (loss) available to
common stockholders
plus assumed exercises $(1,112) 7,724 $ (0.14) $1,564 7,708 $ 0.20
-------- ------ --------- ------ ------ ---------
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
-------------------------- ------------------------
(000's) (000's)
---------------- --------------
Per-Share Per-Share
Loss Shares Amount Income Shares Amount
-------- ------ --------- ------ ------ ---------
Basic (Loss) Earnings per Share
Income (loss) available to
common stockholders $ (723) 7,708 $(0.09) $3,545 7,708 $ 0.46
-------- ------ --------- ------ ------ ---------
Effect of Dilutive Securities
Stock options - 9 - - 11 -
-------- ------ --------- ------ ------ ---------
Diluted (Loss) Earnings per Share
Income (loss) available to
common stockholders
plus assumed exercises $ (723) 7,717 $(0.09) $3,545 7,719 $ 0.46
-------- ------ --------- ------ ------ ---------
7
NOTE 3. Property and Equipment
Property and equipment consist of the following:
September 30, December 31,
--------------- -------------
2001 2000
--------------- -------------
(000's)
Building and improvements $ 57 $ 57
Leasehold improvements 2,096 2,111
Computer equipment and software 47,828 46,396
Furniture and equipment 7,722 7,635
Transportation equipment and automobiles 3,540 3,678
--------------- -------------
61,243 59,877
Less: Accumulated depreciation and amortization (21,343) (16,023)
--------------- -------------
PROPERTY AND EQUIPMENT, net $ 39,900 $ 43,854
=============== =============
Depreciation and amortization expense for the nine months ending
September 30, 2001, includes approximately $1.5 million in additional
depreciation due primarily to a change in estimated useful lives for various
assets. Of this amount, $0.9 million relates to various assets, that in December
2000, were determined to be no longer useful once the Company's new operating
system was completed. The remaining $0.6 million of additional depreciation
relates to the Company's decision to accelerate depreciation for a piece of
communications software that was replaced with a more stable and cost effective
software application during the second quarter of 2001.
NOTE 4. Impairment of Property and Equipment
On March 30, 2001, a $3.4 million pretax charge was recorded due to the
impairment of Hub Group Distribution Services' ("Hub Distribution") e-Logistics
software ("e-software"). This e-software was used to process orders relating to
the home delivery of large box items purchased over the internet. Management
made the decision to exit the internet home delivery business and, in
conjunction with this decision, all customer contracts associated with the
internet home delivery business were terminated as of March 30, 2001.
Consequently, the e-software's fair value was reduced to zero based on the lack
of any future cash flows attributable to Hub Distribution's e-Logistics
initiative. The Company does not intend to use the software in the future.
NOTE 5. Restructuring Charge
In the fourth quarter of 2000, management approved a plan to
restructure the Company's accounting functions and centralize them at its
corporate headquarters in Lombard, Illinois. This centralization plan was to
result in the reduction of 56 accounting-related positions from the operating
companies. All affected employees were informed in mid-November 2000. In
connection with this plan, the Company recorded a pre-tax charge of $250,000
included in salaries and benefits in the fourth quarter of 2000. As of September
30, 2001, $206,000 had been paid related to the accounting restructuring and
thirty-one employees had been terminated. The remaining $44,000 of accrual was
reversed during the third quarter, thereby reducing salaries and benefits
expense.
NOTE 6. Derivative Financial Instrument
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("Statement 133"), "Accounting for
Derivative Instruments and Hedging Activities." On January 1, 2001, the Company
adopted Statement 133 and recorded the fair value of its interest rate swap of
$79,000, net of related income taxes of $55,000, as an asset. The transition
adjustment to record the asset was included in other comprehensive income.
8
The Company uses this interest rate swap to manage its exposure to
changes in interest rates for its floating rate debt. This interest rate swap
qualifies as a cash flow hedge. The interest rate differential to be received or
paid on the swap is recognized in the condensed consolidated statements of
operations as a reduction or increase in interest expense, respectively. In
accordance with the new derivative requirements, the effective portion of the
change in the fair value of the derivative instrument is recorded in the
condensed consolidated balance sheets as a component of current assets or
liabilities and other comprehensive income. The ineffective portion of the
change in the fair value of the derivative instrument, along with the gain or
loss on the hedged item, is recorded in earnings and reported in the condensed
consolidated statements of operations, on the same line as the hedged item.
For the nine months ended September 30, 2001, the Company adjusted its
derivative financial instrument to fair value which resulted in an unrealized
loss of $519,000, net of the related income tax benefit of $361,000. This
adjustment is included in other comprehensive loss.
NOTE 7. Bad Debt Write-off
During September 2001, the Company recognized bad debt expense which is
included in selling, general and administrative expense in the accompanying
condensed consolidated statements of operations in the amount of $4.7 million
related to a Korean steamship line customer ("Customer"). The Customer filed for
reorganization under the Corporate Reorganization Act of Korea in May 2001 and
has subsequently been forced into liquidation by the Korean courts. According to
court filings, the Customer does not have adequate funds to pay its secured
creditors. The Company, as an unsecured creditor, was notified by the trustee
appointed by the court during September 2001 that it should not expect to
recover any funds from the Customer.
NOTE 8. Recent Accounting Pronouncements
On June 30, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 141, "Business Combinations"("Statement 141"). Under
Statement 141, all business combinations initiated after June 30, 2001 must be
accounted for using the purchase method of accounting. Use of the
pooling-of-interests method will be prohibited. Additionally, Statement 141
requires that certain intangible assets that can be identified and named be
recognized as assets apart from goodwill. Statement 141 is effective for all
business combinations initiated after June 30, 2001.
On June 30, 2001, the FASB issued Statement No. 142, "Goodwill and
Other Intangible Assets" ("Statement 142"). Under Statement 142, goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. Intangible assets that
have finite useful lives will continue to be amortized over their useful lives.
The Company will adopt Statement 142 as of January 1, 2002 for goodwill and
other intangible assets acquired prior to June 30, 2001. As of September 30,
2001, goodwill, net of accumulated amortization, is $209.6 million and
amortization expense for the nine months ended September 30, 2001 is $4.3
million. Except as set forth in Outlook, Risks and Uncertainties - Amortization
of Goodwill, the Company has not yet fully determined the impact that Statement
142 will have on the Company's financial condition or results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("Statement 144") which supercedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Statement 144 created one accounting model
for long-lived assets to be disposed of by sale that applies to all long-lived
assets, including discontinued operations, and replaces the provisions of
Accounting Principles Board Opinion No. 30, "Reporting Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions", for
the disposal of segments of a business. Statement 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reporting in continuing operations or in discontinued
operations. The provisions of Statement 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
9
generally, are to be applied prospectively. The Company does not expect this
statement to have a material impact on its statements of financial condition or
results of operations.
10
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUE
Revenue for Hub Group, Inc. (the "Company") decreased 8.9% to $323.0
million in 2001 from $354.8 million in 2000. Overall, management believes that
a soft economy has negatively impacted the current year growth. Intermodal
revenue decreased 14.9% from 2000. The decline in intermodal revenue was
primarily due to a $31.8 million reduction in demand for intermodal service from
the Company's steamship customers. Two large steamship customers ceased doing
business with the Company in the second quarter of 2001. While one steamship
customer has terminated operations worldwide, the other has changed its method
of business. Truckload brokerage revenue increased 4.7% from 2000. Logistics
revenue, which includes revenue from the Company's supply chain solutions
services and revenue from Hub Group Distribution Services ("Hub Distribution"),
increased 9.7% compared to 2000. This increase was primarily due to significant
growth from the Company's supply chain solutions business.
GROSS MARGIN
Gross margin increased 0.8% to $44.6 million in 2001 from $44.2 million
in 2000. As a percent of revenue, gross margin increased to 13.8% from 12.5% in
2000. The increase in gross margin as a percent of revenue is primarily due to
the increase in the intermodal gross margin percentage resulting primarily from
the loss of the high volume, lower margin steamship business.
SALARIES AND BENEFITS
Salaries and benefits decreased 4.8% to $23.5 million in 2001 from
$24.6 million in 2000. As a percentage of revenue, salaries and benefits
increased to 7.3% from 6.9% in 2000. The increase as a percentage of revenue is
due to the decrease in revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 45.2% to $17.0
million in 2001 from $11.7 million in 2000. As a percentage of revenue, these
expenses increased to 5.3% from 3.3% in 2000. The increase as a percentage of
revenue is primarily attributed to a $4.7 million write-off associated with the
bankruptcy and forced liquidation of a Korean steamship line customer and the
decrease in the Company's revenue.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization increased 42.4% to $2.1 million in 2001
from $1.5 million in 2000. This expense as a percentage of revenue increased to
0.7% from 0.4% in 2000. The increase in depreciation and amortization is due to
the depreciation of software applications placed into service throughout 2000
and 2001.
AMORTIZATION OF GOODWILL
Amortization of goodwill remained constant at $1.4 million in both 2001
and 2000.
11
OTHER INCOME (EXPENSE)
Interest expense decreased 5.2% to $2.4 million in 2001 from $2.6
million in 2000. The decrease in interest expense is due primarily to lower
interest rates.
Interest income remained constant at $0.2 million in both periods.
MINORITY INTEREST
Minority interest increased to $0.3 million in 2001 from $0.0 million
in 2000. Minority interest represents the 35% minority interest in Hub
Distribution.
INCOME TAXES
The (benefit from)/provision for income taxes decreased to $(0.8)
million in 2001 from $1.1 million in 2000. The Company recorded an income tax
benefit and provision using an effective rate of 41% in 2001 and 2000,
respectively.
NET INCOME/(LOSS)
The Company incurred a net loss of $(1.1) million in 2001 compared to
net income of $1.6 million in 2000.
EARNINGS/(LOSS) PER SHARE
Basic and diluted loss per common share was $(0.14) in 2001 compared to
earnings per share of $0.20 in 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUE
Revenue for the Company decreased 4.0% to $987.0 million in 2001 from
$1,027.7 million in 2000. Overall, management believes that a soft economy has
negatively impacted the current year growth. Intermodal revenue decreased 8.5%
from 2000. In addition to a soft economy, the decline in intermodal revenue was
primarily due to a $33.2 million reduction in demand for intermodal service from
the Company's steamship customers. Two large steamship customers ceased doing
business with the Company in the second quarter. While one steamship customer
has terminated operations worldwide, the other has changed its method of
business. Truckload brokerage revenue remained flat in comparison to 2000.
Logistics revenue, which includes revenue from the Company's supply chain
solutions services and revenue from Hub Distribution, increased 17.8% compared
to 2000. This increase was primarily due to significant growth from the
Company's supply chain solutions business.
GROSS MARGIN
Gross margin increased 6.0% to $135.9 million in 2001 from $128.3
million in 2000. As a percent of revenue, gross margin increased to 13.8% from
12.5% in 2000. The increase in gross margin as a percent of revenue is primarily
due to two significant factors. First, gross margin for intermodal improved due
primarily to the loss of the high volume, lower margin steamship business.
Second, Hub Distribution experienced an unusually strong gross margin percentage
due to some one-time installation projects and an amendment to a contract with
one of its customers. This amendment allowed for a rate increase back to the
beginning of the current contract year.
12
SALARIES AND BENEFITS
Salaries and benefits decreased 0.4% to $71.7 million in 2001 from
$72.0 million in 2000. As a percentage of revenue, salaries and benefits
increased to 7.3% from 7.0% in 2000. The increase as a percentage of revenue is
primarily attributed to the decrease in revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 21.7% to $41.5
million in 2001 from $34.1 million in 2000. As a percentage of revenue, these
expenses increased to 4.2% from 3.3% in 2000. The increase as a percentage of
revenue is primarily attributed to a $4.7 million write-off associated with the
bankruptcy and forced liquidation of a Korean steamship line customer, increased
expenditures related to information systems and to the decrease in revenue.
Information systems costs increased, in part, due to the leasing of computer
hardware required to support newly developed software applications, data
communication costs and costs associated with the outsourced data center.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization increased 107.7% to $8.1 million in 2001
from $3.9 million in 2000. This expense as a percentage of revenue increased to
0.8% from 0.4% in 2000. The increase in depreciation and amortization is due in
part to the depreciation of software applications placed into service throughout
2000 and 2001. Additionally, during the first half of the year, the Company
recognized $1.5 million in additional depreciation due primarily to a change in
estimated useful lives for various assets. Of this amount, $0.9 million relates
to various assets, that in December 2000, were determined to be no longer useful
once the Company's new operating system was completed. The remaining $0.6
million of additional depreciation relates to the Company's decision to
accelerate depreciation for a piece of communications software that was replaced
with a more stable and cost effective software application during the second
quarter of 2001.
AMORTIZATION OF GOODWILL
Amortization of goodwill remained constant at $4.3 million in both 2001
and 2000.
IMPAIRMENT OF PROPERTY AND EQUIPMENT
The $3.4 million impairment charge in 2001 was due to Hub
Distribution's exit from its initiative surrounding the home delivery of large
box items purchased over the internet.
OTHER INCOME (EXPENSE)
Interest expense decreased 9.0% to $7.8 million in 2001 from $8.6
million in 2000. The decrease in interest expense is due primarily to carrying a
lower average debt balance this year as compared to the prior year and lower
interest rates.
Interest income decreased to $0.5 million in 2001 from $0.6 million in
2000.
Other income/(expense) decreased to $(0.2) million in 2001 from $0.2
million in 2000. The change is due primarily to a $0.4 million loss on the
disposal of a piece of software in 2001.
MINORITY INTEREST
Minority interest increased to $0.7 million in 2001 from $0.1 million
in 2000. Minority interest represents the 35% minority interest in Hub
Distribution.
13
INCOME TAXES
The (benefit from)/provision for income taxes decreased to $(0.5)
million in 2001 from $2.5 million in 2000. The Company recorded an income tax
benefit and provision using an effective rate of 41% in 2001 and 2000,
respectively.
NET INCOME/(LOSS)
The Company incurred a net loss of $(0.7) million in 2001 compared to
net income of $3.5 million in 2000.
EARNINGS/(LOSS) PER SHARE
Basic and diluted loss per common share was $(0.09) in 2001 compared to
earnings per share of $0.46 in 2000.
LIQUIDITY AND CAPITAL RESOURCES
In order to minimize net financing costs, the Company intentionally
maintains low cash balances by using available cash to reduce borrowings. The
Company has funded its operations and capital expenditures through cash flows
from operations and bank borrowings.
Cash provided by operating activities for the nine months ended
September 30, 2001, was approximately $6.8 million, which resulted primarily
from net income from operations before non-cash charges of $16.2 million offset
by a net decrease in working capital of $9.4 million. The decrease in working
capital resulted primarily from a temporary increase in accounts receivable days
sales outstanding due to related issues from the implementation of a new billing
system.
Net cash used in investing activities for the nine months ended
September 30, 2001, was $8.5 million related to capital expenditures. The
capital expenditures were principally made to enhance the Company's information
system capabilities. The most significant project relates to a customized
operating system.
The net cash provided by financing activities for the nine months ended
September 30, 2001, was $1.7 million. This was comprised of $12.0 million of
borrowings on the Company's line of credit offset by $10.3 million of scheduled
payments on the Company's term debt, installment notes and capital leases.
The Company maintains a multi-bank credit facility. The facility was
originally comprised of $50.0 million in term debt and a $50.0 million revolving
line of credit. At September 30, 2001, there was $37.0 million of outstanding
term debt and $36.0 million outstanding and $14.0 million unused and available
under the line of credit. Borrowings under the line of credit are unsecured and
have a five-year term that began on April 30, 1999, with a floating interest
rate based upon the LIBOR (London Interbank Offered Rate) or Prime Rate. The
term debt has quarterly payments ranging from $1,250,000 to $2,000,000 with a
balloon payment of $19.0 million due on March 31, 2004.
On March 30, 2001, the Company executed an amendment of its unsecured
$50.0 million term debt and the $50.0 million five-year revolving line of credit
agreement. The amendment modifies the definition of EBITDAM (earnings before
interest expense, income taxes, depreciation, amortization and minority
interest) slightly, extending the date for adding back certain non-cash charges.
Effective September 30, 2001, the Company executed an additional amendment,
allowing the $4.7 million of customer bad debt write-off from a Korean steamship
line to be added back for the purpose of calculating EBITDAM at September 30,
2001. All other provisions of the existing credit facility remained unchanged.
The Company was in compliance with the amended financial covenants that were
effective as of September 30, 2001.
The Company maintains $50.0 million of private placement debt (the
"Notes"). These Notes are unsecured and have an eight-year average life.
Interest is paid quarterly. These Notes mature on June 25, 2009, with annual
14
payments of $10.0 million commencing on June 25, 2005.
On March 30, 2001, the Company executed an amendment to the Notes. This
amendment modifies the definition of EBITDAM slightly, extending the date for
adding back certain non-cash charges. Effective September 30, 2001, the Company
executed an additional amendment, allowing the $4.7 million of customer bad debt
write-off from a Korean steamship line to be added back for the purpose of
calculating EBITDAM at September 30, 2001. All other provisions of the Notes
agreement remained unchanged. The Company was in compliance with the amended
financial covenants that were effective as of September 30, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 30, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 141, "Business Combinations"("Statement 141"). Under
Statement 141, all business combinations initiated after June 30, 2001 must be
accounted for using the purchase method of accounting. Use of the
pooling-of-interests method will be prohibited. Additionally, Statement 141
requires that certain intangible assets that can be identified and named be
recognized as assets apart from goodwill. Statement 141 is effective for all
business combinations initiated after June 30, 2001.
On June 30, 2001, the FASB issued Statement No. 142, "Goodwill and
Other Intangible Assets" ("Statement 142"). Under Statement 142, goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. Intangible assets that
have finite useful lives will continue to be amortized over their useful lives.
The Company will adopt Statement 142 as of January 1, 2002 for goodwill and
other intangible assets acquired prior to June 30, 2001. As of September 30,
2001, goodwill, net of accumulated amortization, was $209.6 million and
amortization expense for the nine months ended September 30, 2001 was $4.3
million. Except as set forth in Outlook, Risks and Uncertainties - Amortization
of Goodwill, the Company has not yet fully determined the impact that Statement
142 will have on the Company's financial condition or results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("Statement 144") which supercedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Statement 144 created one accounting model
for long-lived assets to be disposed of by sale that applies to all long-lived
assets, including discontinued operations, and replaces the provisions of
Accounting Principles Board Opinion No. 30, "Reporting Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions", for
the disposal of segments of a business. Statement 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reporting in continuing operations or in discontinued
operations. The provisions of Statement 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. The Company does not expect this
statement to have a material impact on its statements of financial condition or
results of operations.
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, brokerage and
logistics markets served by the Company, changes in rail and truck capacity,
15
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 and fluctuations in interest
rates.
AMORTIZATION OF GOODWILL
The Company will adopt FASB Statement 142 as of January 1, 2002. As a
result of this new standard, goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather will be tested at least annually
for impairment. In conjunction with Statement 142, the Company will cease
amortizing its goodwill, which the Company expects will result in approximately
$5.7 million of reduced amortization expense on an annual basis beginning in
2002. The Company will also, at a minimum, test annually for impairment. Should
the Company determine that its goodwill is impaired in the context of Statement
142, the goodwill will be adjusted to reflect its fair value and a corresponding
charge to earnings would result.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash to be provided by operations, cash
available under its line of credit and the Company's ability to obtain
additional credit will be sufficient to meet the Company's short-term working
capital and capital expenditure needs. The Company believes that the
aforementioned items are sufficient to meet its anticipated long-term working
capital, capital expenditure and debt repayment needs.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest
rates 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.
The Company has both fixed and variable rate debt as described in Note
8 of the Company's Form 10-K filed for the year ended December 31, 2000. The
Company has entered into an interest rate swap agreement designated as a hedge
on a portion of the Company's variable rate debt. The purpose of the swap is to
fix the interest rate on a portion of the variable rate debt and reduce certain
exposures to interest rate fluctuations. At September 30, 2001, the Company had
an interest rate swap with a notional amount of $25.0 million, a weighted
average pay rate of 7.87%, a weighted average receive rate of 4.84% and a
maturity date of September 30, 2002. This swap agreement involves the exchange
of amounts based on the variable interest rate for amounts based on the fixed
interest rate over the life of the agreement, without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an adjustment
of interest expense related to the debt.
The main objective of interest rate risk management is to reduce the
total funding cost to the Company and to alter the interest rate exposure to the
desired risk profile.
16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits included as part of this Report is
set forth in the Exhibit Index appearing elsewhere
herein by this reference.
17
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: November 13, 2001 /S/ JAY E. PARKER
-----------------
Jay E. Parker
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit No.
10.18 Amendment to $100 million Credit Agreement among the Registrant, Hub
City Terminals, Inc. and Harris Trust and Savings Bank effective as of
September 30, 2001.
10.19 Amendment to $50 million Note Purchase Agreement among the Registrant,
Hub City Terminals, Inc. and various purchasers effective as of
September 30, 2001.
HUB GROUP, INC.
HUB CITY TERMINALS, INC.
AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank LaSalle Bank National Association
Chicago, Illinois Chicago, Illinois
U.S. Bank National Association National City Bank
Des Plaines, Illinois Cleveland, Ohio
Firstar Bank, N.A.
Milwaukee, Wisconsin
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 make certain 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. AMENDMENT.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the definition of "EDITDAM" appearing in Section 4.1 of the
Credit Agreement shall be amended (effective as of September 30, 2001) and as so
amended shall be restated in its entirety to read as follows:
""EBITDAM" means, with reference to any period, Net
Income for such period plus all amounts deducted in arriving
at such Net Income amount in respect of (i) Interest Expense
for such period, PLUS (ii) taxes (including federal, state and
local income taxes) for such period, PLUS (iii) all amounts
properly charged for depreciation and amortization during such
period on the books of the Hub Group, PLUS (iv) any deduction
for Minority Interest during such period, PLUS (v) if such
period includes the fiscal quarters of the Public Hub Company
ending on December 31, 2000 or March 31, 2001, non-cash
charges during such quarters on the books of the Hub Group in
accordance with GAAP aggregating up to $5,100,000 (for both
such quarters taken together), PLUS (vi) all other non-cash
charges during such period on the books of the Hub Group in
accordance with GAAP to the extent the aggregate amount of
such other non-cash charges do not exceed $2,500,000 during
any period of four consecutive fiscal quarters of the Public
Hub Company (prorated appropriately downward (or upward) for
any shorter (or longer) period); PLUS (vii) if such period
includes the fiscal quarters of the Public Hub Company ending
on December 31, 2000, March 31, 2001 or June 30, 2001,
severance payments made during such quarters aggregating up to
$1,200,000 (for all such quarters taken together); PLUS (viii)
if such period includes the fiscal quarters of the Public Hub
Company ending on March 31, 2001, June 30, 2001, September 30,
2001 or December 31, 2001, severance payments (in addition to
those accounted for in clause (vii) above) made during such
quarters aggregating up to $600,000 (for all four such
quarters taken together), PLUS (ix) if such period includes
the fiscal quarter of the Public Hub Company ending on
September 30, 2001, the write-off of the receivable due from
Cho Yang Shipping Co., Ltd. during such quarter on the books
of the Hub Group in an amount not in excess of $4,740,000."
2. CONDITIONS PRECEDENT.
The effectiveness of the amendments made in Section 1 of this Amendment
is subject to the satisfaction of all of the following conditions precedent:
2.01. The Borrowers, the Guarantors and the Required Lenders shall
have executed and delivered this Amendment.
2.02. The Senior Note Offering shall have been modified by written
instrument (the "SENIOR NOTE AMENDMENT") in form and substance reasonably
satisfactory to the Agent and Required Lenders to effect a modification of the
terms and conditions thereof such that the same are no more burdensome on the
Borrowers than the corresponding provisions of the Credit Agreement after giving
effect to the modifications contemplated by this Amendment.
2.03. After giving effect to this Amendment, no Default or Event of
Default (other than amended hereby) shall have occurred and be continuing as of
the date this Amendment would otherwise take effect.
2.04. Legal matters incident to the execution and delivery of this
Amendment and the Senior Note Amendment shall be reasonably satisfactory to the
Agent and its counsel.
Upon the satisfaction of the foregoing conditions precedent, this
Amendment shall become effective as of September 30, 2001.
2
3. AMENDMENT FEE.
In consideration of the Lenders' agreements in this Amendment, the
Borrowers shall pay to the Agent for the ratable benefit of the Lenders (in
accordance with their respective Percentages) which have executed and delivered
a counterpart of this Amendment to the Agent no later than 5:00 p.m. (Chicago
time) on November 8, 2001 an amendment fee in an amount equal to 0.2% of such
executing Lenders' Commitments (the "AMENDMENT FEE"), such Amendment Fee to be
fully earned and due and payable to such executing Lenders upon such Lenders'
execution of this Amendment.
4. 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.
5. MISCELLANEOUS.
5.01. 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. 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.
5.02. 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.
5.03. 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.
3
5.04. 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.
4
Dated as of November 8, 2001.
HUB GROUP, INC., a Borrower
HUB CITY TERMINALS, INC., a Borrower
By
David P. Yeager
Chief Executive Officer for each of the above
Companies
5
GUARANTORS' CONSENT
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. Without limiting the generality of the foregoing, each of
the undersigned limited liability companies (other than HLX Company, L.L.C.,
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. and Hub
Group Transport, LLC) acknowledge and agree that it (i) was previously organized
as and is the same entity as the limited partnership listed in the parenthesis
next to its name below and that executed the Guaranty Agreement and (ii) is
liable on the Guaranty Agreement to the same extent, and with the same force and
effect, as if it had originally executed the Guaranty Agreement in the place and
stead of its respective converting limited partnership.
HUB CHICAGO HOLDINGS, INC., a Guarantor
By
David P. Yeager
Chief Executive Officer for each of the above
Companies
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
2
HUB GROUP ALABAMA, LLC (formerly
known as Hub City Alabama, L.P.)
HUB GROUP ATLANTA, LLC (formerly
known as Hub City Atlanta, L.P.)
HUB GROUP BOSTON, LLC (formerly
known as Hub City Boston, L.P.)
HUB GROUP CANADA, L.P.
HUB GROUP CLEVELAND, LLC (formerly
known as Hub City Cleveland, L.P.)
HUB GROUP DETROIT, LLC (formerly
known as Hub City Detroit, L.P.)
HUB GROUP FLORIDA, LLC (formerly
known as Hub City Florida, L.P.)
HUB GROUP GOLDEN GATE, LLC (formerly
known as Hub City Golden Gate,L.P.)
HUB GROUP INDIANAPOLIS, LLC (formerly
known as Hub City Indianapolis, L.P.)
HUB GROUP KANSAS CITY, LLC (formerly
known as Hub City Kansas City, L.P.)
HUB GROUP LOS ANGELES, LLC (formerly
known as Hub City Los Angeles, L.P.)
HUB GROUP MID ATLANTIC, LLC (formerly
known as Hub City Mid Atlantic, L.P.)
HUB GROUP NEW ORLEANS, LLC (formerly
known as Hub City New Orleans, L.P.)
HUB GROUP NEW YORK STATE, LLC (formerly
known as Hub City New York State, L.P.)
HUB GROUP NEW YORK-NEW JERSEY, LLC
(formerly known as Hub City New
York-New Jersey, L.P.)
HUB GROUP NORTH CENTRAL, LLC (formerly
known as Hub City North Central, L.P.)
HUB GROUP OHIO, LLC (formerly known as
Hub City Ohio, L.P.)
HUB GROUP PHILADELPHIA, LLC (formerly
known as Hub City Philadelphia, L.P.)
HUB GROUP PITTSBURGH, LLC (formerly known
as Hub City Pittsburgh, L.P.)
HUB GROUP PORTLAND, LLC (formerly known
as Hub City Portland, L.P.)
HUB GROUP ST. LOUIS, LLC (formerly known
as Hub City St. Louis, L.P.)
HUB GROUP TENNESSEE, LLC (formerly known
as Hub City Tennessee, L.P.)
3
HUB CITY TEXAS, L.P.
HUB GROUP TRANSPORT, LLC
By
David P. Yeager
Chief Executive Officer for each of
the above Guarantors
4
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:_____________________________________
FIRSTAR BANK, N.A.
By
Name:______________________________________
Title:_____________________________________
LASALLE BANK NATIONAL ASSOCIATION
By
Name:______________________________________
Title:_____________________________________
NATIONAL CITY BANK
By
Name:______________________________________
Title:_____________________________________
5
================================================================================
HUB GROUP, INC.
and
HUB CITY TERMINALS, INC.
-----------------------------------
THIRD AMENDMENT
Dated as of November 8, 2001
to
NOTE PURCHASE AGREEMENTS
Dated as of June 15, 1999
-----------------------------------
Re: $50,000,000 8.64% Senior Notes
Due June 25, 2009
================================================================================
THIRD AMENDMENT TO NOTE PURCHASE AGREEMENTS
THIS THIRD AMENDMENT dated as of November 8, 2001 (the or this "THIRD
AMENDMENT") to the Note Purchase Agreements each dated as of June 15, 1999, as
amended by the First Amendment to Note Purchase Agreements dated as of February
26, 2001 and the Second Amendment to Note Purchase Agreements dated as of March
30, 2001, is between HUB GROUP, INC., a Delaware corporation ("PUBLIC HUB
COMPANY"), HUB CITY TERMINALS, INC., a Delaware corporation, for itself and as
successor by merger to Hub Holdings, Inc. ("HUB CHICAGO"; Public Hub Company and
Hub Chicago being individually referred to herein as an "OBLIGOR" and
collectively as the "OBLIGORS"), and each of the institutions which is a
signatory to this Third Amendment (collectively, the "NOTEHOLDERS").
RECITALS:
A. The Obligors and each of the Noteholders have heretofore entered
into separate and several Note Purchase Agreements each dated as of June 15,
1999 (as amended by the First Amendment to Note Purchase Agreements dated as of
February 26, 2001 and the Second Amendment to Note Purchase Agreements dated as
of March 30, 2001, collectively, the "NOTE PURCHASE AGREEMENTS"). The Obligors
have heretofore issued the $50,000,000 8.64% Senior Notes Due June 25, 2009 (the
"NOTES") dated June 25, 2000 pursuant to the Note Purchase Agreements.
B. The Obligors and the Noteholders now desire to amend the Note
Purchase Agreements in the respects, but only in the respects, hereinafter set
forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Purchase Agreements unless herein defined or the
context shall otherwise require.
D. All requirements of law have been fully complied with and all other
acts and things necessary to make this Third Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.
NOW, THEREFORE, upon the full and complete satisfaction of the
conditions precedent to the effectiveness of this Third Amendment set forth in
SECTION 3.1 hereof, and in consideration of good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Obligors and the
Noteholders do hereby agree as follows:
SECTION 1. AMENDMENTS.
SECTION 1.1. The definition of "CONSOLIDATED EBITDA" appearing in
Schedule B to the Note Purchase Agreements shall be amended and restated in its
entirety to read as follows:
"CONSOLIDATED EBITDA" for any period means the sum of (a)
Consolidated Net Income during such period PLUS (to the extent deducted
in determining Consolidated Net Income), (b) all provisions for any
Federal, state or local income taxes made by the Public Hub Company and
the Restricted Subsidiaries during such period, (c) all provisions for
2
depreciation and amortization (other than amortization of debt
discount) made by the Public Hub Company and the Restricted
Subsidiaries during such period, (d) Consolidated Interest Expense
during such period, (e) Minority Interest Expense, (f) if such period
includes the fiscal quarters of the Public Hub Company ending on
December 31, 2000 or March 31, 2001, non-cash charges during such
quarters on the books of the Public Hub Company and its Restricted
Subsidiaries in accordance with GAAP aggregating up to $5,100,000 (for
both such quarters taken together), (g) all other non-cash charges
during such period on the books of the Public Hub Company and its
Restricted Subsidiaries in accordance with GAAP to the extent the
aggregate amount of such other non-cash charges do not exceed
$2,500,000 during any period of four consecutive fiscal quarters of the
Public Hub Company (prorated appropriately downward (or upward) for any
shorter (or longer) period), (h) if such period includes the fiscal
quarters of the Public Hub Company ending on December 31, 2000 March
31, 2001 or June 30, 2001, severance payments made during such quarters
aggregating up to $1,200,000 (for all such quarters taken together),
(i) if such period includes the fiscal quarters of the Public Hub
Company ending on March 31, 2001, June 30, 2001, September 30, 2001 or
December 31, 2001, severance payments (in addition to those accounted
for in clause (h) above) made during such quarters aggregating up to
$600,000 (for all four such quarters taken together) and (j) if such
period includes the fiscal quarter of the Public Hub Company ending on
September 30, 2001, the write-off of the receivable due from Cho Yang
Shipping Co., Ltd. during such quarter on the books of the Public Hub
Company and its Restricted Subsidiaries in an amount not in excess of
$4,740,000. For purposes of calculations under SECTION 10.3,
Consolidated EBITDA shall be adjusted for the period in respect of
which any such calculation is being made to give effect to (i) the
audited "EBITDA" (determined in a manner consistent with the definition
of "Consolidated EBITDA" contained in this Agreement) of any business
entity acquired by the Public Hub Company or any Restricted Subsidiary
(the "ACQUIRED BUSINESS") and (ii) all Debt incurred by the Public Hub
Company or any Restricted Subsidiary in connection with such
acquisition, and shall be computed as if the Acquired Business had been
a Restricted Subsidiary throughout the period and all Debt incurred in
connection with such acquisition had been incurred at the beginning of
such period in respect of which such calculation is being made. Without
limiting the foregoing, Consolidated EBITDA shall also be adjusted for
the period in respect of which any such calculation is being made to
eliminate (1) the audited "EBITDA" of any Subsidiary or other property
or assets disposed of by the Public Hub Company or any Restricted
Subsidiary (the "TRANSFERRED BUSINESS") and (2) Debt relating to such
Subsidiary, property or assets, as the case may be, and shall be
computed as if the Transferred Business had been transferred at the
beginning of such period in respect of which such calculation is being
made. In the case of any business entity acquired during the twelve
3
calendar month period immediately preceding the date of any
determination hereunder whose financial records are not, and are not
required to be in accordance with applicable laws, rules and
regulations, audited by the Public Hub Company's independent public
accountants at the time of the acquisition thereof, the Public Hub
Company shall base such determination upon the Public Hub Company's
internally audited net earnings of such business entity for the
immediately preceding fiscal year or the net earnings of such business
entity as audited by such business entity's independent auditors for
the immediately preceding fiscal year.
SECTION 1.2. The definition of "CONSOLIDATED EBITDAR" appearing in
Schedule B to the Note Purchase Agreements shall be amended and restated in its
entirety to read as follows:
"CONSOLIDATED EBITDAR" for any period means the sum of (a)
Consolidated Net Income during such period, PLUS (to the extent
deducted in determining Consolidated Net Income) (b) all provisions for
any Federal, state or local income taxes made by the Public Hub Company
and the Restricted Subsidiaries during such period, (c) all provisions
for depreciation and amortization (other than amortization of debt
discount) made by the Public Hub Company and the Restricted
Subsidiaries during such period, (d) Consolidated Interest Expense
during such period, (e) all Rentals (other than Rentals on Capital
Leases) payable during such period by the Public Hub Company and the
Restricted Subsidiaries, (f) Minority Interest Expense, (g) if such
period includes the fiscal quarters of the Public Hub Company ending on
December 31, 2000 or March 31, 2001, non-cash charges during such
quarters on the books of the Public Hub Company and its Restricted
Subsidiaries in accordance with GAAP aggregating up to $5,100,000 (for
both such quarters taken together), (h) all other non-cash charges
during such period on the books of the Public Hub Company and its
Restricted Subsidiaries in accordance with GAAP to the extent the
aggregate amount of such other non-cash charges do not exceed
$2,500,000 during any period of four consecutive fiscal quarters of the
Public Hub Company (prorated appropriately downward (or upward) for any
shorter (or longer) period), (i) if such period includes the fiscal
quarters of the Public Hub Company ending on December 31, 2000 or March
31, 2001 or June 30, 2001, severance payments made during such quarters
aggregating up to $1,200,000 (for all such quarters taken together),
(j) if such period includes the fiscal quarters of the Public Hub
Company ending on March 31, 2001, June 30, 2001, September 30, 2001 or
December 31, 2001, severance payments (in addition to those accounted
for in clause (i) above) made during such quarters aggregating up to
$600,000 (for all four such quarters taken together) and (k) if such
period includes the fiscal quarter of the Public Hub Company ending on
September 30, 2001, the write-off of the receivable due from Cho Yang
Shipping Co., Ltd. during such quarter on the books of the Public Hub
Company and its Restricted Subsidiaries in an amount not in excess of
$4,740,000. Consolidated EBITDAR shall not be adjusted to take into
account earnings or interest of an Acquired Business that were earned
or accrued prior to its becoming an Acquired Business.
4
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
SECTION 2.1. To induce the Noteholders to execute and deliver this
Third Amendment (which representations shall survive the execution and delivery
of this Third Amendment), the Obligors, jointly and severally, represent and
warrant to the Noteholders that:
(a) this Third Amendment has been duly authorized, executed
and delivered by each Obligor and this Third Amendment constitutes the
legal, valid and binding obligation, contract and agreement of each
Obligor enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(b) the Note Purchase Agreements, as amended by this Third
Amendment, constitute the legal, valid and binding obligations,
contracts and agreements of the Obligors enforceable against them in
accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors'
rights generally;
(c) the execution, delivery and performance by the Obligors
of this Third Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body
or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its certificate of incorporation or
bylaws, (2) any order of any court or any rule, regulation or order of
any other agency or government binding upon it, or (3) any provision of
any material indenture, agreement or other instrument to which any
Obligor is a party or by which any Obligor's properties or assets are
or may be bound, including, without limitation, the Credit Agreement
dated as of April 30, 1999, among the Obligors, the Lenders party
thereto and Harris Trust and Savings Bank, individually and as Agent,
and all amendments, supplements and modifications thereto, or (B)
result in a breach or constitute (alone or with due notice or lapse of
time or both) a default under any indenture, agreement or other
instrument referred to in CLAUSE (III)(A)(3) of this SECTION 2.1(C);
(d) as of the date hereof and after giving effect to
this Third Amendment, no Default or Event of Default has occurred which
is continuing;
(e) all the representations and warranties contained in
Section 5 of the Note Purchase Agreements (other than those contained
in Sections 5.3, 5.4(a), 5.4(b) and 5.9) are true and correct in all
material respects with the same force and effect as if made by the
Obligors on and as of the date hereof (other than any representation
and warranty that expressly relates to a specified earlier date, which
was true and correct in all material respects as of such date);
PROVIDED, THAT, notwithstanding any reference in Sections 5.4(c) and
5.4(d) of the Note Purchase Agreements to the Restricted Subsidiaries
listed on Schedule 5.4 to the Note Purchase Agreements, the
5
representations and warranties hereby made by the Obligors with
reference to Sections 5.4(c) and 5.4(d) of the Note Purchase Agreements
shall relate to the Restricted Subsidiaries existing on the date
hereof;
(f) the statements and information furnished to the
Noteholders in connection with the negotiation of this Amendment do
not, taken as a whole, and other than financial projections or
forecasts, contain any untrue statements of a material fact or omit a
material fact necessary to make the material statements contained
herein or therein not misleading, the Noteholders acknowledging that as
to any projections furnished to the Noteholders, the Obligors and the
Constituent Company Guarantors only represent that the same were
prepared on the basis of information and estimates the Obligors
believed to be reasonable; and
(g) all tax returns with respect to any income tax or other
material tax required to be filed by the Obligors and the Restricted
Subsidiaries in any jurisdiction have, in fact, been filed, and all
taxes, assessments, fees and other governmental charges upon the
Obligors or the Restricted Subsidiaries or upon any of their respective
properties, income or franchises, which are shown to be due and payable
in such returns, have been paid. The Obligors do not know of any
proposed additional tax assessment against the Obligors or any
Restricted Subsidiary for which adequate provision in accordance with
GAAP has not been made. Adequate provisions in accordance with GAAP for
taxes on the books of the Obligors and each Restricted Subsidiary have
been made for all open years, and for its current fiscal period.
SECTION 3. CONDITIONS TO EFFECTIVENESS OF THIS THIRD AMENDMENT.
SECTION 3.1. This Third Amendment shall not become effective until, and
shall become effective when, each and every one of the following conditions
shall have been satisfied:
(a) executed counterparts of this Third Amendment, duly
executed by the Obligors and the holders of at least 51% of the
outstanding principal of the Notes, shall have been delivered to the
Noteholders;
(b) the Noteholders shall have received a copy of the
resolutions of the Board of Directors of each Obligor authorizing the
execution, delivery and performance by such Obligor of this Third
Amendment, certified by such Obligor's Secretary or an Assistant
Secretary;
(c) the representations and warranties of the Obligors set
forth in SECTION 2 hereof are true and correct on and with respect to
the date hereof;
(d) the Noteholders party to this Third Amendment shall have
received an amendment fee in an amount equal to 0.20% times the
aggregate outstanding principal amount of the Notes held by such
Noteholder; and
(e) the Noteholders shall have received a true, correct and
complete copy of the Amendment to the Bank Credit Agreement dated the
date hereof.
6
Upon receipt of all of the foregoing, this Third Amendment shall become
effective as of September 30, 2001.
SECTION 4. PAYMENT OF NOTEHOLDERS' COUNSEL FEES AND EXPENSES.
SECTION 4.1. The Obligors agrees to pay upon demand, the reasonable
fees and expenses of Chapman and Cutler, counsel to the Noteholders, in
connection with the negotiation, preparation, approval, execution and delivery
of this Third Amendment.
SECTION 5. MISCELLANEOUS.
SECTION 5.1. This Third Amendment shall be construed in connection with
and as part of each of the Note Purchase Agreements, and except as modified and
expressly amended by this Third Amendment, all terms, conditions and covenants
contained in the Note Purchase Agreements and the Notes are hereby ratified and
shall be and remain in full force and effect.
SECTION 5.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Third Amendment may refer to the Note Purchase Agreements without making
specific reference to this Third Amendment but nevertheless all such references
shall include this Third Amendment unless the context otherwise requires.
SECTION 5.3. The descriptive headings of the various Sections or parts
of this Third Amendment are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
SECTION 5.4. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH ILLINOIS LAW.
SECTION 5.5. The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and this Third
Amendment may be executed in any number of counterparts, each executed
counterpart constituting an original, but all together only one agreement.
[Signature Pages Begin on Next Page]
7
IN WITNESS WHEREOF, the Obligors and the Noteholders have caused this
instrument to be executed as of November 8, 2001.
HUB GROUP, INC.
HUB CITY TERMINALS, INC.
By ______________________________________
David P. Yeager
Chief Executive Officer for each of the
above Companies
Consented, Accepted and Agreed
as of November 8, 2001
HUB CHICAGO HOLDINGS, INC., a Constituent
Company Guarantor
By ______________________________________
David P. Yeager
Chief Executive Officer for each of the
above Companies
HLX COMPANY, L.L.C., a Constituent
Company 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 Constituent Company Guarantors
HUB GROUP ALABAMA, LLC (formerly known as
Hub City Alabama, L.P.)
HUB GROUP ATLANTA, LLC (formerly known as
Hub City Atlanta, L.P.)
HUB GROUP BOSTON, LLC (formerly known as
Hub City Boston, L.P.)
HUB GROUP CANADA, L.P.
HUB GROUP CLEVELAND, LLC (formerly known
as Hub City Cleveland, L.P.)
HUB GROUP DETROIT, LLC (formerly known as
Hub City Detroit, L.P.)
HUB GROUP FLORIDA, LLC (formerly known as
Hub City Florida, L.P.)
HUB GROUP GOLDEN GATE, LLC (formerly
known as Hub City Golden Gate, L.P.)
HUB GROUP INDIANAPOLIS, LLC (formerly
known as Hub City Indianapolis, L.P.)
HUB GROUP KANSAS CITY, LLC (formerly
known as Hub City Kansas City, L.P.)
HUB GROUP LOS ANGELES, LLC (formerly
known as Hub City Los Angeles, L.P.)
HUB GROUP MID ATLANTIC, LLC (formerly
known as Hub City Mid Atlantic, L.P.)
HUB GROUP NEW ORLEANS, LLC (formerly
known as Hub City New Orleans, L.P.)
HUB GROUP NEW YORK STATE, LLC (formerly
known as Hub City New York State, L.P.)
HUB GROUP NEW YORK-NEW JERSEY, LLC
(formerly known as Hub City New
York-New Jersey, L.P.)
HUB GROUP NORTH CENTRAL, LLC (formerly
known as Hub City North Central, L.P.)
HUB GROUP OHIO, LLC (formerly known as
Hub City Ohio, L.P.)
HUB GROUP PHILADELPHIA, LLC (formerly
known as Hub City Philadelphia, L.P.)
HUB GROUP PITTSBURGH, LLC (formerly known
as Hub City Pittsburgh, L.P.)
HUB GROUP PORTLAND, LLC (formerly known
as Hub City Portland, L.P.)
HUB GROUP ST. LOUIS, LLC (formerly known
as Hub City St. Louis, L.P.)
HUB GROUP TENNESSEE, LLC (formerly known
as Hub City Tennessee, L.P.)
HUB CITY TEXAS, L.P.
HUB GROUP TRANSPORT, LLC
By ______________________________________
David P. Yeager
Chief Executive Officer for each of the
above Constituent Company Guarantors
Consented, Accepted and Agreed as of November 8, 2001:
BAYSTATE HEALTH SYSTEM, INC.
By: David L. Babson & Company Inc. as
Investment Adviser
By________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
C.M. LIFE INSURANCE COMPANY
By: David L. Babson & Company Inc. as
Investment Sub-Adviser
By________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By: David L. Babson & Company Inc., as
Investment Adviser
By________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
INVESTORS PARTNER LIFE INSURANCE COMPANY
By______________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
JOHN HANCOCK LIFE INSURANCE COMPANY
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
JOHN HANCOCK VARIABLE LIFE INSURANCE
COMPANY
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
MELLON BANK, N.A., solely in its
capacity as Trustee for the Bell
Atlantic Master Trust (as directed by
John Hancock Life Insurance Company),
and not in its individual capacity
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
RELIASTAR LIFE INSURANCE COMPANY
By: ING INVESTMENT MANAGEMENT LLC,
as agent
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
RELIASTAR LIFE INSURANCE COMPANY OF NEW
YORK
By: ING INVESTMENT MANAGEMENT LLC,
as agent
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of November 8, 2001:
UNITED OF OMAHA LIFE INSURANCE COMPANY
By_____________________________________
Name:
Title:
