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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the quarterly period ended March 31, 2002 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 May 8, 2002, 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 - March 31, 2002 and
December 31, 2001 3
Unaudited Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 2002 and 2001 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Three
Months Ended March 31, 2002 5
Unaudited Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2002 and 2001 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION 13
2
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
MARCH 31, DECEMBER 31,
---------------- ----------------
2002 2001
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ -
Accounts receivable, net 141,844 149,765
Deferred taxes 11,192 11,147
Prepaid expenses and other current assets 4,199 3,840
---------------- ----------------
TOTAL CURRENT ASSETS 157,235 164,752
PROPERTY AND EQUIPMENT, net 38,172 39,098
GOODWILL, net 208,166 208,166
OTHER ASSETS 1,701 1,507
MINORITY INTEREST 3,025 2,501
---------------- ----------------
TOTAL ASSETS $ 408,299 $ 416,024
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 136,823 $ 135,588
Other 769 1,275
Accrued expenses
Payroll 9,397 11,195
Other 9,599 14,020
Current portion of long-term debt 8,054 8,054
---------------- ----------------
TOTAL CURRENT LIABILITIES 164,642 170,132
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 92,045 96,059
DEFERRED TAXES 18,079 17,380
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares
issued or outstanding in 2002 and 2001 - -
Common stock,
Class A: $.01 par value; 12,337,700 shares authorized; 7,046,250
shares issued and outstanding in 2002 and 2001 70 70
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares
issued and outstanding in 2002 and 2001 7 7
Additional paid-in capital 110,819 110,819
Purchase price in excess of predecessor basis, net of tax benefit
of $10,306 (15,458) (15,458)
Retained earnings 38,344 37,404
Accumulated other comprehensive loss (249) (389)
----------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 133,533 132,453
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 408,299 $ 416,024
================= ===============
See notes to unaudited consolidated financial statements.
3
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
THREE MONTHS
ENDED MARCH 31,
----------------------------
2002 2001
-------------- -------------
Revenue $ 305,299 $ 345,935
Transportation costs 264,290 299,899
-------------- -------------
Gross margin 41,009 46,036
Costs and expenses:
Salaries and benefits 23,597 24,705
Selling, general and administrative 11,513 12,212
Depreciation and amortization of property and equipment 2,672 3,135
Amortization of goodwill - 1,435
Impairment of property and equipment - 3,401
-------------- -------------
Total costs and expenses 37,782 44,888
Operating income 3,227 1,148
-------------- -------------
Other income (expense):
Interest expense (2,286) (2,944)
Interest income 67 253
Other, net 62 (314)
-------------- -------------
Total other expense (2,157) (3,005)
Income (loss) before minority interest and provision for income taxes 1,070 (1,857)
-------------- -------------
Minority interest (524) (711)
-------------- -------------
Income (loss) before provision for income taxes 1,594 (1,146)
Provision for (benefit from) income taxes 654 (470)
-------------- -------------
Net income (loss) $ 940 $ (676)
============== =============
Basic earnings (loss) per common share $ 0.12 $ (0.09)
============== =============
Diluted earnings (loss) per common share $ 0.12 $ (0.09)
============== =============
See notes to unaudited condensed consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 2002
(in thousands, except shares)
MARCH 31,
2002
----------------
Class A & B Common Stock Shares
Beginning of year 7,708,546
Exercise of non-qualified stock options -
----------------
Ending balance 7,708,546
----------------
Class A & B Common Stock Amount
Beginning of year $ 77
----------------
Ending balance 77
----------------
Additional Paid-in Capital
Beginning of year 110,819
Exercise of non-qualified stock options -
----------------
Ending balance 110,819
----------------
Purchase Price in Excess of Predecessor Basis, Net of Tax
Beginning of year (15,458)
----------------
Ending balance (15,458)
----------------
Retained Earnings
Beginning of year 37,404
Net income 940
----------------
Ending balance 38,344
----------------
Accumulated Other Comprehensive Loss
Beginning of year -
Other comprehensive loss (249)
----------------
Ending balance (249)
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TOTAL STOCKHOLDERS' EQUITY $ 133,533
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Comprehensive Income
Net income $ 940
Cumulative effect of adopting Statement 133, net of tax of $55 79
Unrealized interest rate swap loss net of tax benefit of ($228) (328)
----------------
Other comprehensive loss (249)
----------------
Total comprehensive income $ 691
================
See notes to unaudited condensed consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED MARCH 31,
--------------------------------
2002 2001
--------------- ---------------
Cash flows from operating activities:
Net income (loss) $ 940 $ (676)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 2,712 3,309
Amortization of goodwill - 1,435
Impairment of property and equipment - 3,401
Deferred taxes 654 (470)
Minority interest (524) (711)
Loss on sale of assets 23 425
Changes in working capital:
Accounts receivable, net 7,921 21,025
Prepaid expenses and other current assets (359) (1,514)
Accounts payable 729 (9,928)
Accrued expenses (6,079) (2,067)
Other assets (194) 71
--------------- ---------------
Net cash provided by operating activities 5,823 14,300
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment, net (1,809) (2,544)
--------------- ---------------
Net cash used in investing activities (1,809) (2,544)
--------------- ---------------
Cash flows from financing activities:
Net payments on long-term debt (4,014) (11,756)
--------------- ---------------
Net cash used in financing activities (4,014) (11,756)
--------------- ---------------
Net 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 $ 2,038 $ 3,115
Income taxes - 15
Non-cash activity:
Unrealized (loss) gain on derivative instrument $ (140) $ 225
See notes to undaudited 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.
As previously reported in the Company's Form 10-K for the year ended
December 31, 2001, the Company's independent auditors were unable to review
the quarterly financial data from 2001 in accordance with standards established
by the American Institute of Certified Public Accountants because the Company
did not restate its results on a quarterly basis.
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, 2001. 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
MARCH 31, 2002 MARCH 31, 2001
----------------------------- ----------------------------
(000'S) (000'S)
---------------- ---------------
Per-Share Per-Share
INCOME SHARES AMOUNT LOSS SHARES AMOUNT
-------- -------- ----------- ------- -------- ----------
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) available to
common stockholders $940 7,709 $0.12 $(676) 7,708 $(0.09)
---- ----- ----- ------ ----- -------
EFFECT OF DILUTIVE SECURITIES
Stock options - 5 - - 3 -
---- ----- ----- ------ ----- -------
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) available to
common stockholders
plus assumed exercises $940 7,714 $0.12 $(676) 7,711 $(0.09)
---- ----- ----- ------ ----- -------
7
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31, DECEMBER 31,
------------ ------------
2002 2001
------------ ------------
(000'S)
Building and improvements $ 57 $ 57
Leasehold improvements 2,142 2,126
Computer equipment and software 50,756 49,373
Furniture and equipment 7,655 7,542
Transportation equipment and automobiles 3,805 3,690
------------ ------------
64,415 62,788
Less: Accumulated depreciation and amortization (26,243) (23,690)
------------ ------------
PROPERTY AND EQUIPMENT, net $ 38,172 $ 39,098
============ ============
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENT
On June 30, 2001, the Financial Accounting Standards Board issued
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 adopted Statement
142 as of January 1, 2002. The Company has not yet completed its assessment
regarding any potential impairment of goodwill but will do so as required by
Statement 142.
The following table presents net income for 2002 in comparison to 2001
exclusive of amortization expense recognized in the previous year related to
goodwill which will no longer be amortized. Amounts are in thousands except per
share information:
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
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Net income (loss) as reported $ 940 $ (676)
Add back amortization of goodwill, net of tax - 847
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Adjusted net income 940 171
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Adjusted basic and diluted earnings per share $ 0.12 $ 0.02
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8
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2001
REVENUE
Revenue for Hub Group, Inc. (the "Company") decreased 11.7% to $305.3
million in 2002 from $345.9 million in 2001. Intermodal revenue decreased 15.5%
from 2001. The decline is primarily attributed to a $32.3 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
8.5% over 2001. Logistics revenue, which includes revenue from the Company's
supply chain solutions services and all revenue from its 65% owned subsidiary,
Hub Group Distribution Services ("Hub Distribution"), decreased 14.0% from 2001.
The decline in logistics revenue was due to a 34.6% decline at Hub Distribution.
Hub Distribution experienced a significant decline primarily in their
installation business due to lower demand from their largest customer. Partially
offsetting this decline in logistics, supply chain solutions services revenue
increased 13.8% through the addition of new customers to this product line.
GROSS MARGIN
Gross margin decreased 10.9% to $41.0 million in 2002 from $46.0
million in 2001. As a percent of revenue, gross margin increased slightly to
13.4% from 13.3% in 2001.
SALARIES AND BENEFITS
Salaries and benefits decreased 4.5% to $23.6 million in 2002 from
$24.7 million in 2001. As a percentage of revenue, salaries and benefits
increased from 7.1% in 2001 to 7.7% in 2002. The increase as a percentage of
revenue is attributed to the decrease in revenue. The decrease in expense is
attributed primarily to a decrease in both headcount and incentive compensation,
which is partially offset by increased costs for employee health benefits.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased 5.7% to $11.5
million in 2002 from $12.2 million in 2001. As a percentage of revenue, these
expenses increased to 3.8% in 2002 from 3.5% in 2001. The increase as a
percentage of revenue is due to the decrease in revenue and $1.0 million of
professional fees incurred in the first quarter of 2002 related to the
investigation and restatement of Hub Distribution's historical financial
statements. Without the $1.0 million in professional services, selling general
and administrative expense decreased $1.7 million. This decrease is primarily
attributed to a reduction in non-capitalizable information technology contractor
costs, outsourced data center costs, travel costs and telephone costs.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment decreased 14.8%
to $2.7 million in 2002 from $3.1 million in 2001. This expense as a percentage
of revenue remained constant at 0.9% in both periods. Depreciation expense in
the prior year included $0.9 million of excess depreciation related to various
assets that were determined to be no longer useful once the Company's new
operating system was completed. Without the excess depreciation expense in the
prior year, depreciation expense increased $0.5 million due primarily to the
additional software placed in service throughout 2001.
9
AMORTIZATION OF GOODWILL
Amortization of goodwill decreased to $0.0 million in 2002 from $1.4
million in 2001. As of January 1, 2002, the Company adopted Financial Accounting
Standards Board Statement No. 142, "Goodwill and Other Intangible Assets
("Statement 142"). Under Statement 142, goodwill and intangible assets that have
indefinite useful lives are no longer amortized.
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 22.4% to $2.3 million in 2002 from $2.9
million in 2001. The decrease in interest expense is due to carrying a lower
average debt balance and lower interest rates this year as compared to the prior
year.
Interest income decreased to $0.1 million in 2002 from $0.3 million in
2001.
Other income/(expense) increased to $0.1 million in 2002 from $(0.3)
million in 2001. The change is due primarily to a $0.4 million loss on the
disposal of a piece of software in 2001.
MINORITY INTEREST
The minority interest add back decreased to $0.5 million in 2002 from
$0.7 million in 2001. In 2002, Hub Distribution recorded a charge of $1.0
million for professional fees incurred related to the investigation and
restatement of its historical financial statements. Without this charge, the
minority interest add back would have been $0.2 million in 2002. In 2001, the
minority interest add back was due primarily to the impairment charge taken
during the quarter. Without this charge, Hub Distribution earned $1.4 million in
pre-minority interest, pre-tax income and minority interest expense would have
been $0.5 million. The decline in net income in 2002, excluding the
non-recurring charges from both years, is due to lower profitability at Hub
Distribution due primarily to reduced demand for their installation business.
INCOME TAX PROVISION
The income tax provision increased to $0.7 million in 2002 compared to
an income tax benefit of $0.5 million in 2001. The Company recorded income taxes
using an effective rate of 41.0% in both years.
NET INCOME
Net Income increased to $0.9 million in 2002 from a loss of $0.7
million in 2001.
EARNINGS PER SHARE
Basic and diluted earnings per common share increased to $0.12 in 2002
from a loss of $0.09 in 2001.
ACCOUNTING ADJUSTMENT
In the fourth quarter of 2001, the Company made adjustments to properly
report the annual results for the year as a result of the accounting
irregularities at Hub Distribution. Had these adjustments been spread ratably
over 2001, the net loss for the first quarter of 2001 would have been $0.9
million. Basic and diluted loss per common share would have been $0.11.
10
RECENT ACCOUNTING PRONOUNCEMENTS
On June 30, 2001, the Financial Accounting Standards Board issued
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 adopted Statement
142 as of January 1, 2002. The Company has not yet completed its assessment
regarding any potential impairment of goodwill but will do so as required by
Statement 142.
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, 2002, was approximately $5.8 million, which resulted primarily from net
income from operations before non-cash charges of $3.8 million and a net
increase from working capital of $2.0 million.
Net cash used in investing activities for the three months ended March
31, 2002, was $1.8 million related to capital expenditures. The capital
expenditures were principally made to enhance the Company's information system
capabilities. The expenditures are primarily related to enhancing the Company's
operating system and various software applications.
The net cash used in financing activities for the three months ended
March 31, 2002, was $4.0 million. This was comprised of $2.0 million of
voluntary payments on the Company's line of credit and $2.0 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 is
comprised of term debt and a revolving line of credit. At March 31, 2002, there
was $33.0 million of outstanding term debt and $17.0 million outstanding and
$33.0 million unused and available under the line of credit. Borrowings under
the revolving 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 principal
payments ranging from $1,250,000 to $2,000,000 with a balloon payment of $19.0
million due on March 31, 2004.
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
principal payments of $10.0 million commencing on June 25, 2005.
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,
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.
11
SELLING, GENERAL AND ADMINISTRATIVE
Management believes the fees for professional services incurred during
the second quarter of 2002 related to the investigation and restatement related
to Hub Distribution's historical financial statements will range between
$200,000 and $300,000 on a pre-minority interest, pre-tax basis.
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
9 of the Company's Form 10-K filed for the year ended December 31, 2001. 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 March 31, 2002, the Company had an
interest rate swap with a notional amount of $25.0 million, a weighted average
pay rate of 8.37%, a weighted average receive rate of 4.80% 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.
12
PART II. OTHER INFORMATION
None.
13
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly authorized this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HUB GROUP, INC.
DATE: May 8, 2002 /s/ Jay E. Parker
Jay E. Parker
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)