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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, 1999 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 10, 1999, the registrant had 7,029,950 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, 1999
and December 31, 1998 3
Unaudited Condensed Consolidated Statements of Operations - Three
Months Ended March 31, 1999 and 1998 4
Unaudited Condensed Consolidated Statement of Stockholders'
Equity - Three Months Ended March 31, 1999 5
Unaudited Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1999 and 1998 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 12
2
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
-------------- -------------
1999 1998
-------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,283 $ 15,178
Accounts receivable, net 162,064 148,104
Prepaid expenses and other current assets 5,343 6,036
-------------- -------------
TOTAL CURRENT ASSETS 178,690 169,318
PROPERTY AND EQUIPMENT, net 18,702 19,111
GOODWILL, net 115,095 115,858
OTHER ASSETS 479 504
-------------- -------------
TOTAL ASSETS $ 312,966 $ 304,791
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 124,659 $ 123,513
Other 15,566 7,909
Accrued expenses
Payroll 6,183 6,339
Other 5,688 6,332
Deferred taxes 1,751 1,751
Current portion of long-term debt 2,953 3,161
-------------- -------------
TOTAL CURRENT LIABILITIES 156,800 149,005
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 28,366 29,589
DEFERRED TAXES 998 556
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 5,186 5,968
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 77 77
Additional paid-in capital 110,181 110,181
Purchase price in excess of predecessor basis (25,764) (25,764)
Tax benefit of purchase price in excess of predecessor basis 10,306 10,306
Retained earnings 26,816 24,873
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 121,616 119,673
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 312,966 $ 304,791
============== =============
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,
---------------------------
1999 1998
------------- -------------
Revenue $ 307,682 $ 255,133
Transportation costs 268,513 224,686
------------- -------------
Net revenue 39,169 30,447
Costs and expenses:
Salaries and benefits 20,846 16,888
Selling, general and administrative 9,123 7,623
Depreciation and amortization 1,814 1,502
------------- -------------
Total costs and expenses 31,783 26,013
Operating income 7,386 4,434
------------- -------------
Other income (expense):
Interest expense (522) (558)
Interest income 302 226
Other, net 17 90
------------- -------------
Total other expense (203) (242)
Income before minority interest and provision for income taxes 7,183 4,192
------------- -------------
Minority interest 3,890 1,481
------------- -------------
Income before provision for income taxes 3,293 2,711
Provision for income taxes 1,350 1,084
------------- -------------
Net income $ 1,943 $ 1,627
============= =============
Basic earnings per common share $ 0.25 $ 0.21
============= =============
Diluted earnings per common share $ 0.25 $ 0.21
============= =============
See notes to unaudited condensed consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARES)
TAX BENEFIT
PURCHASE OF PURCHASE
PRICE IN PRICE
COMMON STOCK ADDITIONAL EXCESS OF IN EXCESS OF TOTAL
------------------------ PAID-IN PREDECESSOR PREDECESSOR RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL BASIS BASIS EARNINGS EQUITY
------------- ---------- ------------ --------------- --------------- ----------- --------------
Balance at December 31, 1998 7,672,246 $ 77 $ 110,181 $ (25,764) $ 10,306 $ 24,873 $ 119,673
Net income - - - - - 1,943 1,943
------------- ---------- ------------ --------------- --------------- ----------- --------------
Balance at March 31, 1999 7,672,246 $ 77 $ 110,181 $ (25,764) $ 10,306 $ 26,816 $ 121,616
============= ========== ============ =============== =============== =========== ==============
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,
--------------------------------
1999 1998
--------------- ---------------
Cash flows from operating activities:
Net income $ 1,943 $ 1,627
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,074 1,779
Deferred taxes 442 1,084
Minority interest 3,890 1,481
Loss on sale of assets 82 37
Changes in working capital:
Accounts receivable, net (13,960) 6,912
Prepaid expenses and other current assets 693 (849)
Accounts payable 8,803 3,148
Accrued expenses (800) (2,496)
Other assets 25 103
--------------- ---------------
Net cash provided by operating activities 3,192 12,826
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment, net (984) (1,503)
--------------- ---------------
Net cash used in investing activities (984) (1,503)
--------------- ---------------
Cash flows from financing activities:
Distributions to minority interest (4,672) (2,904)
Payments on long-term debt (3,572) (769)
Proceeds from issuance of long-term debt 2,141 -
--------------- ---------------
Net cash used in financing activities (6,103) (3,673)
--------------- ---------------
Net increase (decrease) in cash (3,895) 7,650
Cash and cash equivalents, beginning of period 15,178 12,056
--------------- ---------------
Cash and cash equivalents, end of period $ 11,283 $ 19,706
=============== ===============
Supplemental disclosures of cash flow information Cash paid for:
Interest $ 304 $ 458
Income taxes 150 54
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.
NOTE 2. BUSINESS COMBINATIONS
On April 1, 1998, the Company acquired all the outstanding
stock of Quality Intermodal Corporation for $4,080,000 in cash and $5,950,000
through the issuance of a three-year note, bearing interest at an annual rate of
5.6%. The acquisition was recorded using the purchase method of accounting
resulting in goodwill of $9,458,000.
On August 1, 1998, the Company acquired the rights to service the
customers of Corporate Express Distribution Services as well as certain fixed
assets for $750,000 in cash. The acquisition was recorded using the purchase
method of accounting resulting in goodwill of $432,000.
Results of operations from acquisitions recorded under the purchase
method of accounting are included in the Company's financial statements from
their respective dates of acquisition. The 1998 purchase price allocations
presented are preliminary.
NOTE 3. EARNINGS PER SHARE
The following is a reconciliation of the Company's Earnings per Share:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
--------------------------- ----------------------------
(000'S) (000'S)
--------------- ---------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------- ------ --------- ------- ------ ----------
BASIC EARNINGS PER SHARE
Income available to
common stockholders $1,943 7,672 $0.25 $1,627 7,653 $0.21
------- ------ --------- ------- ------ ----------
EFFECT OF DILUTIVE SECURITIES
Stock options - 59 - 105 -
------- ------ --------- ------- ------ ----------
DILUTED EARNINGS PER SHARE
Income available to
common stockholders
plus assumed exercises $1,943 7,731 $0.25 $1,627 7,758 $0.21
------- ------ --------- ------- ------ ----------
7
NOTE 4. PURCHASES OF MINORITY INTEREST
On April 1, 1998, the Company purchased the remaining 70% minority
interest in Hub City Dallas, L.P., Hub City Houston, L.P. and Hub City Rio
Grande, L.P. for approximately $6,730,000 in cash.
As the amount paid for each of the purchases of minority interest
equaled the basis in excess of the fair market value of assets acquired and
liabilities assumed, the amount paid was recorded as goodwill.
On March 22, 1999, the Company's remaining call options, to purchase
the remaining 70% minority interest in its Hub operating companies, were
triggered and the Company exercised these options in April 1999. The purchase
price, estimated at approximately $107,600,000, is being financed with unsecured
senior debt.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31, DECEMBER 31,
----------------- -----------------
1999 1998
----------------- -----------------
(000'S)
Building and improvements $ 53 $ 53
Leasehold improvements 1,329 1,206
Computer equipment and software 16,146 15,816
Furniture and equipment 6,138 5,722
Transportation equipment and automobiles 5,080 5,318
----------------- -----------------
28,746 28,115
Less: Accumulated depreciation and amortization (10,044) (9,004)
----------------- -----------------
PROPERTY AND EQUIPMENT, net $ 18,702 $ 19,111
================= =================
NOTE 6. SUBSEQUENT EVENT
On March 22, 1999, the Company's remaining call options, to purchase
the remaining 70% minority interest in its Hub operating companies, were
triggered and the Company exercised these options in April 1999. The purchase
price, estimated at approximately $107,600,000, is being financed with unsecured
senior debt.
On April 30, 1999, the Company closed on a new bank facility with
Harris which replaced the previous facility. The new facility is comprised of
$50 million in term debt and a $50 million revolving line of credit. The
facility is unsecured and has a five-year term 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 million on March 31, 2004. Additionally, the Company drew down on
a bridge facility with Harris on April 30, 1999. The bridge facility has a
three-month term and bears interest at the bank's prime rate plus 1%. This
bridge facility of $40 million will be replaced by the issuance of private
placement debt which is expected to close in May 1999. The $50 million in
private placement debt is expected to have an eight-year average life with a
coupon interest rate of 8.64%.
8
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUE
Revenue for Hub Group, Inc. ("Hub Group" or the "Company") increased
20.6% to $307.7 million from $255.1 million in 1998. Intermodal revenue
increased 10.7% to $229.9 million from $207.7 million in 1998. Management
believes this increase was partially a result of the significant improvement
over the last several months in the service level of the rail intermodal
industry. Truckload brokerage revenue increased 33.8% to $45.5 million from
$34.0 million in 1998. The Company has successfully grown truckload brokerage by
cross-selling to its intermodal customers and employing dedicated and
experienced personnel in each Hub. Logistics revenue increased 140.0% to $32.4
million from $13.5 million in 1998. This increase is primarily due to the
increase in revenue from Hub Group Distribution Services ("Hub Distribution")
which offers niche logistic services.
NET REVENUE
Net revenue increased to $39.2 million from $30.4 million in 1998. As a
percentage of revenue, net revenue increased to 12.7% of revenue from 11.9% in
1998. This increase is principally attributed to the growth at Hub Distribution
which earns a higher net revenue percentage of revenue than does the Company's
core intermodal and brokerage service offerings.
SALARIES AND BENEFITS
Salaries and benefits increased 23.4% to $20.8 million from $16.9
million in 1998. As a percentage of revenue, salaries and benefits increased to
6.8% of revenue from 6.6% in 1998. The increase in the percentage is primarily
attributable to the growth at Hub Distribution. Hub Distribution's business
requires a higher level of salaries and benefits as compared to revenue than
does the Company's core intermodal and brokerage service offerings.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 19.7% to $9.1
million from $7.6 million in 1998. These expenses, as a percentage of revenue,
remained constant at 3.0%. The increase in spending is primarily attributed to
expenditures made related to information systems, rent and equipment leases. The
Company's information systems expenditures relate to consulting, Year 2000
remediation and validation, and enhancements to the Company's operating system.
Rent expense increased due to the expansion of some of Hub's operating
facilities. Equipment lease expense continues to increase as the Company
utilizes operating leases for its information systems hardware.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased 20.8% to $1.8 million
from the $1.5 million in 1998. This expense as a percentage of revenue remained
constant at 0.6%. The increase in expense is primarily attributable to increased
goodwill amortization related to the purchase of the 70% minority interests in
Hub City Dallas, L.P., Hub City Houston, L.P. and Hub City Rio Grande, L.P., as
well as the acquisition of Quality Intermodal Corporation in April 1998.
9
OTHER INCOME (EXPENSE)
Other income (expense) netted to $(0.2) million in 1999 compared to
$(0.2) million in 1998. Interest expense decreased to $(0.5) million from
$(0.6). Interest income increased to $0.3 million from $0.2 million in 1998.
MINORITY INTEREST
Minority interest increased 162.7% to $3.9 million from $1.5 million in
1998. Minority interest as a percentage of income before minority interest and
provision for income taxes increased to 54.2% from 35.3% in 1998. The increase
is due to disproportionate changes in the profitability of businesses which are
owned 100% by the Company and those which are owned less than 100% by the
Company.
INCOME TAXES
The provision for income taxes increased 24.5% to $1.4 million from
$1.1 million in 1998. The Company is providing for income taxes at an effective
rate of 41% in 1999.
NET INCOME
Net income increased 19.4% to $1.9 million from $1.6 million in 1998.
EARNINGS PER SHARE
Earnings per share increased 19.0% to $0.25 from $0.21 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the unused and available portion of the line of
credit with Cass Bank and Trust Company was $5.0 million. At March 31, 1999,
there was $20.5 million outstanding and $15.5 million unused and available under
the line of credit with Harris Trust and Savings Bank ("Harris"). On April 30,
1999, the Company borrowed approximately an additional $108 million through
senior unsecured debt to pay for its purchase of the limited partnership
interests in the remaining limited partnerships which had a minority interest
ownership.
On April 30, 1999, the Company closed on a new bank facility with
Harris which replaced the previous facility. The new facility is comprised of
$50 million in term debt and a $50 million revolving line of credit. The
facility is unsecured and has a five-year term 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 $17 million on March 31, 2004. Additionally, the Company drew down on
a bridge facility with Harris on April 30, 1999. The bridge facility has a
three-month term and bears interest at the bank's prime rate plus 1%. This
bridge facility of $40 million will be replaced by the issuance of private
placement debt which is expected to close in May 1999. The $40 million in
private placement debt is expected to have an eight-year average life with a
coupon interest rate of 8.64%.
OUTLOOK, RISKS AND UNCERTAINTIES
This "Outlook, Risks and Uncertainties" section contains statements
regarding expectations, hopes, beliefs, intentions or strategies regarding the
future which are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and involve risks and uncertainties
described below that could cause actual results to differ materially from those
projected. 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, the degree and rate of market growth in the markets served by the
10
Company, changes in industry-wide capacity, further consolidation of rail
carriers, changes in governmental regulation, changes in the cost of services
from vendors and fluctuations in interest rates.
YEAR 2000
In 1999, through March 31, the Company has expensed approximately
$526,000 related to Year 2000.
NET REVENUE
As described above, the increase in the Company's net revenue
percentage is principally attributed to the growth in Hub Distribution which
earns a higher net revenue percentage of revenue than does the Company's core
intermodal and brokerage service offerings. A significant portion of the
increase in Hub Distribution's business is due to an increase in its high-margin
project-oriented service offerings. Management does not expect this large volume
of project-oriented business to be sustainable in future quarters. Therefore,
net revenue as a percentage of revenue will likely decline in future quarters
from the 12.7% level which existed in the first quarter of 1999.
DEPRECIATION AND AMORTIZATION
The purchase of the remaining limited partnership interests held by
minority interests in April of 1999 for approximately $108 million (the "Limited
Partnership Purchases") was recorded using the purchase method of accounting
resulting in goodwill of approximately $108 million. This transaction will
significantly increase the amount of goodwill amortization expensed by the
Company for periods subsequent to March 31, 1999.
OTHER INCOME (EXPENSE)
The Limited Partnership Purchases were financed with debt with a
weighted average interest rate of approximately 8.25%. A significant portion of
this debt bears interest at a floating rate based on the bank's prime rate or
the London Interbank Offering Rate. This transaction will significantly increase
the amount of interest expensed by the company for periods subsequent to March
31, 1999.
MINORITY INTEREST
The Limited Partnership Purchases will cause minority interest expense
to decrease significantly in periods subsequent to March 31, 1999. The only
minority interest to be recognized after March 31, 1999, will be the 35%
minority interest in Hub Distribution.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes its cash from operations and from the revolving
line of credit will be sufficient to meet its debt obligations as they become
due.
11
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.
12
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 10, 1999 /s/ William L. Crowder
----------------------
William L. Crowder
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit No.
10.9 $100 million Credit Agreement dated as of April 30, 1999 among the
Registrant, Hub City Terminals, Inc., Hub Holdings, Inc. and Harris
Trust and Savings Bank.
10.10 $40 million Bridge Credit Agreement dated as of April 30, 1999 among
the Registrant, Hub City Terminals, Inc., Hub Holdings, Inc. and
Harris Trust and Savings Bank.