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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, 2003 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.)
3050 HIGHLAND PARKWAY, SUITE 100
DOWNERS GROVE, ILLINOIS 60515
(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 __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ___ No X
On May 5, 2003, 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, 2003 and
December 31, 2002 3
Unaudited Condensed Consolidated Statements of Operations - Three Months
Ended March 31, 2003 and 2002 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Three
Months Ended March 31, 2003 5
Unaudited Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2003 and 2002 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
PART II. OTHER INFORMATION 15
2
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
----------------- -----------------
2003 2002
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ -
Accounts receivable
Trade, net 130,063 126,736
Other 11,864 13,715
Deferred taxes 3,912 3,221
Prepaid expenses and other current assets 5,291 4,732
----------------- -----------------
TOTAL CURRENT ASSETS 151,130 148,404
PROPERTY AND EQUIPMENT, net 32,104 34,209
GOODWILL, net 215,175 215,175
OTHER ASSETS 1,682 1,474
----------------- -----------------
TOTAL ASSETS $ 400,091 $ 399,262
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 124,311 $ 124,980
Other 3,187 3,226
Accrued expenses
Payroll 10,469 10,275
Other 9,343 8,971
Current portion of long-term debt 8,041 8,061
----------------- -----------------
TOTAL CURRENT LIABILITIES 155,351 155,513
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 92,023 94,027
DEFERRED TAXES 17,018 15,382
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized; no
shares issued or outstanding in 2003 and 2002 - -
Common stock
Class A: $.01 par value; 12,337,700 shares authorized; 7,046,250
shares issued and outstanding in 2003 and 2002 70 70
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares
issued and outstanding in 2003 and 2002 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 40,261 38,902
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 135,699 134,340
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 400,091 $ 399,262
================= =================
See notes to unaudited condensed consolidated financial statements.
3
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED MARCH 31,
--------------------------------
2003 2002
-------------- --------------
Revenue $ 329,284 $ 305,299
Transportation costs 287,234 264,290
-------------- --------------
Gross margin 42,050 41,009
Costs and expenses:
Salaries and benefits 23,328 23,597
Selling, general and administrative 11,788 11,513
Depreciation and amortization of property and equipment 2,561 2,672
-------------- --------------
Total costs and expenses 37,677 37,782
Operating income 4,373 3,227
-------------- --------------
Other income (expense):
Interest expense (2,084) (2,286)
Interest income 50 67
Other, net (36) 62
-------------- --------------
Total other expense (2,070) (2,157)
Income before minority interest and provision for income taxes 2,303 1,070
-------------- --------------
Minority interest - (524)
-------------- --------------
Income before provision for income taxes 2,303 1,594
Provision for income taxes 944 654
-------------- --------------
Net income $ 1,359 $ 940
============== ==============
Basic earnings per common share $ 0.18 $ 0.12
============== ==============
Diluted earnings per common share $ 0.18 $ 0.12
============== ==============
Basic weighted average number of shares outstanding 7,709 7,709
============== ==============
Diluted weighted average number of shares outstanding 7,722 7,714
============== ==============
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, 2003
(IN THOUSANDS, EXCEPT SHARES)
MARCH 31,
2003
-----------------
Class A & B Common Stock Shares
Beginning of year 7,708,546
-----------------
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
-----------------
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 38,902
Net income 1,359
-----------------
Ending balance 40,261
-----------------
Stockholders' Equity
Beginning of year 134,340
Net income 1,359
-----------------
ENDING BALANCE $ 135,699
=================
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,
--------------------------------
2003 2002
--------------- ---------------
Cash flows from operating activities:
Net income $ 1,359 $ 940
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 2,574 2,712
Deferred taxes 945 654
Minority interest - (524)
Loss on sale of assets 8 23
Other assets (208) (194)
Changes in working capital:
Accounts receivable, net (1,476) 7,921
Prepaid expenses and other current assets (559) (359)
Accounts payable (708) 729
Accrued expenses 566 (6,079)
--------------- ---------------
Net cash provided by operating activities 2,501 5,823
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment, net (477) (1,809)
--------------- ---------------
Net cash used in investing activities (477) (1,809)
--------------- ---------------
Cash flows from financing activities:
Net borrowings (payments) on revolver - (2,000)
Payments on long-term debt (2,024) (2,014)
--------------- ---------------
Net cash used in financing activities (2,024) (4,014)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents - -
Cash and cash equivalents beginning of period - -
--------------- ---------------
Cash and cash equivalents end of period $ - $ -
=============== ===============
Supplemental disclosures of cash flow information Cash paid for:
Interest $ 1,732 $ 2,038
Non-cash activity:
Unrealized loss on derivative instrument $ - $ (140)
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 for
the three months ended March 31, 2003 and 2002.
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, 2002. Results of operations in interim periods are not
necessarily indicative of results to be expected for a full year due partially
to seasonality.
NOTE 2. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include the allowance for
doubtful accounts, costs of purchased transportation and services and reserves
for pricing and billing adjustments. Actual results could differ from those
estimates.
During the first quarter of 2002, the Company revised its estimate of
accrued transportation costs resulting in an increase in pretax income of
approximately $2.8 million in the quarter.
NOTE 3. RESTRUCTURING CHARGES
In the fourth quarter of 2002, the Company recorded a $458,000
liability for the remaining lease obligation related to a closed facility.
Approximately $400,000 of the lease obligation remains as of March 31, 2003 as
lease payments made during the period were $58,000.
During the three months ended March 31, 2003, the Company recorded a
severance charge for 23 employees of $132,000. All of these severance payments
were made as of March 31, 2003.
NOTE 4. STOCK BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," as amended by Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock. The Company
grants options at fair market value and therefore recognizes no compensation
expense.
7
The following table illustrates the effect on the net income and net
income per share for the quarters ended March 31, 2003 and 2002 if the Company
had applied the fair value recognition provisions of SFAS No. 123, to
stock-based employee compensation (in thousands, except per share data):
THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
------------ ------------
Net income, as reported $ 1,359 $ 940
Deduct: Total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax effects (178) (159)
------------ ------------
Net income, pro forma $ 1,181 $ 781
============ ============
Earnings per share:
Basic-- as reported $ 0.18 $ 0.12
============ ============
Basic-- pro forma $ 0.15 $ 0.10
============ ============
Diluted-- as reported $ 0.18 $ 0.12
============ ============
Diluted-- pro forma $ 0.15 $ 0.10
============ ============
Dividend Yield $ 0.00 $ 0.00
============ ============
The above table is based upon the valuation of option grants using the
Black-Scholes pricing model for traded options with assumed risk-free interest
rates of 3.3% and 3.4% for 2003 and 2002, respectively, stock price volatility
factor of 40.0% for both 2003 and 2002, and an expected life of the options of
six years. Using the foregoing assumptions, the calculated weighted-average fair
value of options granted in 2003 and 2002 was $2.24 and $3.51, respectively.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the input
assumptions can materially affect the fair value estimate, in management's
opinion, the model does not necessarily provide a reliable single measure of the
fair value of its employee stock options.
The pro forma disclosure is not likely to be indicative of pro forma
results which may be expected in future periods because of the fact that options
vest over several years, pro forma compensation expense is recognized as the
options vest and additional awards may also be granted.
8
NOTE 5. EARNINGS PER SHARE
The following is a reconciliation of the Company's earnings per share:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2003 MARCH 31, 2002
------------------------ ------------------------
(000'S) (000'S)
-------------- --------------
Per Share Per Share
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ ---------
BASIC EPS
Income available to
common stockholders $1,359 7,709 $ 0.18 $ 940 7,709 $ 0.12
------ ------ --------- ------ ------ ---------
EFFECT OF DILUTIVE SECURITIES
Stock options - 13 - - 5 -
------ ------ --------- ------ ------ ---------
DILUTED EPS
Income available to
common stockholders
plus assumed exercises $1,359 7,722 $ 0.18 $ 940 7,714 $ 0.12
====== ====== ========= ====== ====== =========
Stock options that were not included in diluted weighted-average shares
because they would have been antidilutive were 1,033,550 and 921,650 for the
three months ending March 31, 2003 and 2002, respectively.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
Building and improvements $ 57 $ 57
Leasehold improvements 550 1,582
Computer equipment and software 49,668 52,095
Furniture and equipment 6,115 8,234
Transportation equipment and automobiles 2,012 2,127
------------- -------------
58,402 64,095
Less: Accumulated depreciation and amortization (26,298) (29,886)
------------- -------------
Property and Equipment, net $ 32,104 $ 34,209
============= =============
9
NOTE 7. DEBT
The Company's outstanding debt is as follows:
MARCH 31, DECEMBER 31,
2003 2002
-------------- --------------
(000'S)
Bank revolving line of credit. At March 31, 2003 and December 31, 2002,
the interest rate was 4.31% and 4.18%, respectively $ 25,000 $ 25,000
Term notes with quarterly payments of $2,000,000 with a balloon payment
of $9,000,000 due June 24, 2005; interest is due quarterly at a floating rate
based upon LIBOR (London Interbank Offered Rate) or Prime rate. At March 31,
2003 and December 31, 2002, the weighted average interest
rate was 4.54% and 4.40%, respectively 25,000 27,000
Notes due on June 25, 2009 with annual payments of $10,000,000
commencing on June 25, 2005; interest is paid quarterly at a fixed rate
of 9.14% during 2003 and 2002 50,000 50,000
Capital lease obligations collateralized by certain equipment 64 88
-------------- --------------
Total debt 100,064 102,088
Less current portion (8,041) (8,061)
-------------- --------------
$ 92,023 $ 94,027
-------------- --------------
The Company had $24.3 million of unused and available borrowings under its bank
revolving line of credit at March 31, 2003 and December 31, 2002. The Company
was in compliance with its debt covenants, as amended, at March 31, 2003.
NOTE 8. CONTINGENCIES
In 2002, Quality Services of New Jersey, LLC ("QSNJ"), a Company-owned
drayage operation closed its operations in Bensalem, Pennsylvania and Harrison,
New Jersey. Two unions filed unfair labor practice charges with the National
Labor Relations Board ("NLRB") alleging that QSNJ, Hub Group, Inc., Hub Group
New York-New Jersey, LLC and Hub City Terminals, Inc. violated various federal
labor laws in connection with closing these operations. The NLRB conducted an
investigation and, on April 30, 2003, issued a complaint with respect to some of
the allegations. The NLRB dismissed other allegations contained in the charges.
The NLRB is seeking to recover lost wages and benefits to former QSNJ
employees, to require QSNJ operations to be restored and to offer reinstatement
to former QSNJ employees. The NLRB may also seek injunctive relief requiring
immediate restoration of QSNJ operations. The Company believes its actions were
in compliance with the law and intends to vigorously defend itself in this
action. While the Company cannot presently estimate the outcome of any NLRB
hearing, the costs, should the matter be resolved unfavorably to the Company,
could materially adversely affect the Company's results of operations.
In addition, the Company is a party to litigation incident to its
business, including claims for freight lost or damaged in transit, improperly
shipped or improperly warehoused. Some of the lawsuits to which the Company is
party are covered by insurance and are being defended by the Company's insurance
carriers. Some of the lawsuits are not covered by insurance and are being
defended by the Company. Management does not believe that the outcome of this
litigation will have a materially adverse effect on the Company's financial
position or results of operations.
10
The Company incurred approximately $850,000 of professional fees
during the three months ended March 31, 2003, related to ordinary course of
business litigation, including a customer dispute and legal fees incurred in
connection with the suits filed by the Company against three former Hub
Presidents who left the Company and violated their non-competition agreements.
Hub secured temporary injunctions against the three former Hub Presidents in
February 2003. During the three months ended March 31, 2002, the Company
incurred approximately $1,000,000 of professional fees related to the
investigation and restatement of Hub Distribution Services 2001 and prior
financial statements.
11
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2002
REVENUE
Revenue for the quarter increased 7.9% to $329.3 million in 2003 from
$305.3 million in 2002. Intermodal revenue increased 8.5% to $233.2 million from
$214.9 million in 2002 due to increased volume from existing customers and price
increases due to increased transportation costs. Truckload brokerage revenue
decreased 8.9% to $48.7 million from $53.5 million in 2002 due primarily to a
strategic decision to support logistics customer growth with traditional
brokerage resources. Supply chain solutions logistics revenue increased 80.5% to
$31.8 million from $17.6 million in 2002 due primarily to increased volume from
new customers added in 2002 and existing customers. In addition, Hub Group
Distribution Services ("HGDS") revenue decreased 19.8% to $15.5 million in 2003
from $19.3 million in 2002 due to the previously disclosed loss of a large
logistics customer in 2002 partially offset by an increase in installation
business.
GROSS MARGIN
Gross margin increased to $42.1 million in 2003 from $41.0 million in
2002. As a percent of revenue, gross margin decreased to 12.8% in 2003 from
13.4% in 2002. During the first quarter of 2002, the Company revised its
estimate of accrued transportation costs resulting in an increase in gross
margin of approximately $2.8 million in the quarter. Gross margin as a
percentage of revenue decreased primarily as a result of the revised estimate of
accrued transportation costs of $2.8 million in 2002 offset by changes in
customer mix and competitively pricing increased transportation costs.
SALARIES AND BENEFITS
Salaries and benefits decreased to $23.3 million in 2003 from $23.6
million in 2002. As a percentage of revenue, salaries and benefits decreased to
7.1% from 7.7% in 2002 due primarily to a decrease in headcount and an increase
in revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $11.8
million in 2003 from $11.5 million in 2002. As a percentage of revenue, these
expenses decreased to 3.6% in 2003 from 3.8% in 2002. The decrease as a
percentage of revenue is primarily attributed to an increase in revenue and a
decrease in professional fees. The Company incurred approximately $850,000 of
professional fees during the three months ended March 31, 2003, related to
ordinary course of business litigation, including a customer dispute and legal
fees incurred in connection with the suits filed by the Company against three
former Hub Presidents who left the Company and violated their non-competition
agreements. Hub secured temporary injunctions against the three former Hub
Presidents in February 2003. For the three months ended March 31, 2002, the
Company incurred approximately $1,000,000 of professional fees related to the
investigation and restatement of HGDS' 2001 and prior financial statements.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization decreased to $2.6 million in 2003 from
$2.7 million in 2002. This expense as a percentage of revenue decreased to 0.8%
from 0.9% in 2002. The decrease in expense in 2003 is due primarily to a lower
amount of leasehold improvements and furniture and fixtures being depreciated
and amortized in 2003 as a result of the asset retirements in connection with
the relocation of the Company's headquarters and HGDS.
12
OTHER INCOME (EXPENSE)
Interest expense decreased to $2.1 million in 2003 from $2.3 million
in 2002. The decrease in interest expense is due primarily to lower interest
rates.
Interest income decreased to $0.05 million in 2003 from $0.07
million in 2002 primarily as a result of lower customer finance charges.
MINORITY INTEREST
Minority interest was a $0.5 million benefit in 2002. Minority
interest represented the 35% interest in HGDS prior to the Company's purchase of
this interest in August 2002.
PROVISION FOR INCOME TAXES
The provision for income taxes increased to $0.9 million in 2003
compared to $0.7 million in 2002. The Company provided for income taxes using an
effective rate of 41.0% in 2003 and 2002.
NET INCOME
Net income increased to $1.4 million in 2003 from $0.9 million in
2002.
EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share increased to $0.18 in
2003 from $0.12 in 2002.
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, 2003, was approximately $2.5 million, which resulted primarily from
net income from operations, non-cash charges of $3.5 million and a net decrease
in working capital of $2.2 million. The decrease in the net working capital
deficit was primarily related to an increase in accounts receivable as a result
of the Company's sales growth and a decrease in accounts payable offset by an
increase in accrued expenses.
Net cash used in investing activities for the three months ended
March 31, 2003, was $0.5 million and related to capital expenditures principally
made to enhance the Company's information system capabilities.
The net cash used in financing activities for the three months ended
March 31, 2003, was $2.0 million and related primarily to scheduled payments on
the Company's term debt and capital leases.
The Company does not believe its net working capital deficit impairs
its ability to meet obligations as they become due. The Company had $24.3
million of unused and available borrowings under its bank revolving line of
credit at March 31, 2003 and December 31, 2002.
The Company has standby letters of credit that expire from 2003 to
2012. As of March 31, 2003, the letters of credit were $725,000.
13
OUTLOOK, RISKS AND UNCERTAINTIES
Except for historical data, the information contained in this
Quarterly Report constitutes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are inherently uncertain and subject to risks. Such statements should be viewed
with caution. Actual results or experience could differ materially from the
forward-looking statements as a result of many factors. Forward-looking
statements in this report include, but are not limited to, those contained in
this "Outlook, Risks and Uncertainties" section regarding expectations, hopes,
beliefs, estimates, intentions or strategies regarding the future. The Company
assumes no liability to update any such forward-looking statements. In addition
to those mentioned elsewhere in this section, such risks and uncertainties
include the impact of competitive pressures in the marketplace, including the
entry of new, web-based competitors and direct marketing efforts by the
railroads, the degree and rate of market growth in the intermodal and highway
transportation markets served by the Company, changes in rail and truck
capacity, further consolidation of rail carriers, deterioration in relationships
with existing rail carriers, rail service conditions, changes in governmental
regulation, adverse weather conditions, fuel shortages, changes in the cost of
services from rail, drayage and other vendors, the situation in the Middle East
and fluctuations in interest rates.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Management estimates that depreciation and amortization of property
and equipment will most likely remain relatively constant throughout the year.
The most significant factor contributing to the relative consistency, as opposed
to an increase, in depreciation and amortization is the reduction in the amount
of internally developed software expected to be capitalized in 2003.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest
rates on its bank line of credit and term notes which may adversely affect its
results of operations and financial condition. The Company seeks to minimize the
risk from interest rate volatility through its regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial
instruments. The Company does not use financial instruments for trading
purposes.
CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation of
the Company's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures were effective. No
significant changes were made in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of this
evaluation.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In 2002, Quality Services of New Jersey, LLC ("QSNJ"), a
Company-owned drayage operation closed its operations in
Bensalem, Pennsylvania and Harrison, New Jersey. Two unions
filed unfair labor practice charges with the National Labor
Relations Board ("NLRB") alleging that QSNJ, Hub Group, Inc.,
Hub Group New York-New Jersey, LLC and Hub City Terminals,
Inc. violated various federal labor laws in connection with
closing these operations. The NLRB conducted an investigation
and, on April 30, 2003, issued a complaint with respect to
some of the allegations. The NLRB dismissed other allegations
contained in the charges.
The NLRB is seeking to recover lost wages and benefits to
former QSNJ employees, to require QSNJ operations to be
restored and to offer reinstatement to former QSNJ employees.
The NLRB may also seek injunctive relief requiring immediate
restoration of QSNJ operations. The Company believes its
actions were in compliance with the law and intends to
vigorously defend itself in this action. While the Company
cannot presently estimate the outcome of any NLRB hearing, the
costs, should the matter be resolved unfavorably to the
Company, could materially adversely affect the Company's
results of operations.
Item 6. None.
15
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 5, 2003 /S/ THOMAS M. WHITE
-------------------
Thomas M. White
Senior Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
I, David P. Yeager, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Hub Group, Inc.;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
DATE: MAY 5, 2003
/S/ DAVID P.YEAGER
Name: David P. Yeager
Title: Chief Executive Officer
CERTIFICATION
I, Thomas M. White, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Hub Group, Inc.;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
DATE: MAY 5, 2003
/S/ THOMAS M. WHITE
Name: Thomas M. White
Title: Senior Vice President-Finance and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No.
99.2 Section 906 Certification.