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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 1
[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
Item 1. Financial Statements
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
--------------------- ------------------
(Not Reviewed)
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)
----------------
Total stockholders' equity $ 133,533
================
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: (Not Reviewed)
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 provided by
operating 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 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.
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 for the three months ended March 31, 2002. In the fourth quarter
of 2001, the Company recorded adjustments which resulted in a decline of
$0.7 million in net income to properly report the annual results for the
year as a result of accounting irregularities at the Company's 65% owned
subsidiary, Hub Group Distribution Services. The Company was unable to
determine in which quarters in 2001 the adjustments should have been made
and the amount to be recorded in each quarter. As a result, the results for
the three months ended March 31, 2002 are not comparable to the results for
the three months ended March 31, 2001.
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
------------- ----------
Net income (loss) as reported $ 940 $ (676)
Add back amortization of goodwill, net of tax
- 847
----------- ---------
Adjusted net income 940 171
------------- ----------
Adjusted basic and diluted earnings per share $ 0.12 $ 0.02
------------- ----------
8
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ACCOUNTING ADJUSTMENT
In the fourth quarter of 2001, the Company recorded adjustments
which resulted in a decline of $0.7 million in net income to properly
report the annual results for the year as a result of accounting
irregularities at the Company's 65% owned subsidiary, Hub Group
Distribution Services ("Hub Distribution"). The Company was unable to
determine in which quarters in 2001 the adjustments should have been made
and the amount to be recorded in each quarter. As a result, the results for
the three months ended March 31, 2002 are not comparable to the results for
the three months ended March 31, 2001.
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 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.
9
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.
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.
10
Earnings Per Share
Basic and diluted earnings per common share increased to $0.12 in
2002 from a loss of $0.09 in 2001.
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
SIGNATURES
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: June 11, 2002 /s/ Jay E. Parker
-----------------------------
Jay E. Parker
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
14