================================================================================ 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. ================================================================================
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) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, -------------- ------------- 1999 1998 -------------- ------------- <S> <C> <C> 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 ============== ============= </TABLE> See notes to unaudited condensed consolidated financial statements. 3
HUB GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, --------------------------- 1999 1998 ------------- ------------- <S> <C> <C> 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 ============= ============= </TABLE> 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) <TABLE> <CAPTION> 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 ------------- ---------- ------------ --------------- --------------- ----------- -------------- <S> <C> <C> <C> <C> <C> <C> <C> 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 ============= ========== ============ =============== =============== =========== ============== </TABLE> See notes to unaudited condensed consolidated financial statements. 5
HUB GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, -------------------------------- 1999 1998 --------------- --------------- <S> <C> <C> 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 </TABLE> 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: <TABLE> <CAPTION> 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 ------- ------ --------- ------- ------ ---------- <S> <C> <C> <C> <C> <C> <C> 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 ------- ------ --------- ------- ------ ---------- </TABLE> 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: <TABLE> <CAPTION> MARCH 31, DECEMBER 31, ----------------- ----------------- 1999 1998 ----------------- ----------------- (000'S) <S> <C> <C> 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 ================= ================= </TABLE> 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.