[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004 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
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 October 22, 2004, the registrant had 9,364,337 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.
See notes to unaudited condensed consolidated financial statements.
Our accompanying unaudited condensed consolidated financial statements of Hub Group, Inc. (“we,“us” or “our”) 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, we believe that the disclosures contained herein are adequate to make the information presented not misleading.
The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position and results of operations for the three months and nine months ended September 30, 2004 and 2003.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
Certain prior year amounts have been reclassified to conform to the current year presentation.
During the year ended December 31, 2003 we recorded a severance charge for 165 employees of $876,000. We recorded severance charges of $115,000 for 20 employees during the quarter ended March 31, 2004 and $191,000 for 20 employees during the quarter ended June 30, 2004. An additional severance charge of $184,000 for 35 employees was recorded during the quarter ended September 30, 2004. Total severance charges recorded during the nine months ended September 30, 2004 were $490,000 for 75 employees. All severance payments were made as of September 30, 2004.
In the fourth quarter of 2002, we recorded a $458,000 liability for the remaining lease obligation related to a closed facility. During the quarter ended June 30, 2003 we recorded a liability of $180,000 for the estimated remaining lease obligation and closing costs related to a facility in Detroit. We closed two operating centers during the quarter ended September 30, 2004 and recorded a $118,000 liability for the estimated remaining lease obligations related to the closed facilities. Lease and closing cost payments made during 2004 were $182,000. Payments made in the quarters ended March 31, 2004, June 30, 2004 and September 30. 2004 were $72,000, $45,000 and $65,000, respectively. The liability related to consolidation of facilities at September 30, 2004 is $297,000.
The following table displays the activity and balances of the restructuring reserves for the year ended December 31, 2003 and the nine months ended September 30, 2004 (in thousands):
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. We have 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 our stock at the date of the grant over the amount an employee must pay to acquire the stock. We grant options at fair market value and therefore recognize no compensation expense.
The following table illustrates the effect on the net income and net income per share if we had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands, except per share data):
No options were granted in 2004. The above table is based upon the valuation of option grants using the Black-Scholes pricing model for traded options with an assumed risk-free interest rate of 3.7% in 2003, a stock price volatility factor of 40.0% in 2003, dividend yield of 0 in 2003 and an expected life of the options of six years. Using the foregoing assumptions, the calculated weighted-average fair value of the options granted during the three months ended September 30, 2003 was $4.69 and for the nine months ended September 30, 2003 was $2.60. Because our 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 our 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.
The following is a reconciliation of our earnings per share:
Stock options not included in diluted weighted-average shares because they would have been anti-dilutive were 0 and 731,550 for the three months ending September 30, 2004 and 2003, respectively. Stock options not included in diluted weighted average shares because they would have been anti-dilutive were 7,667 and 881,217 for the nine months ended September 30, 2004 and 2003, respectively.
Property and equipment consist of the following (in thousands):
Our outstanding debt is as follows (in thousands):
On July 6, 2004, we used the net proceeds from our completed public offering, fully described in Note 9, to prepay the $50,000,000 of 9.14% debt as well as the majority of the make-whole payment of $6,804,000. As a result of the pre-payment, we recorded debt extinguishment expenses $7,296,000 (after-tax of approximately $4,232,000) consisting of $6,804,000 in pre-payment penalties and $492,000 related to the write off of deferred financing costs.
On March 25, 2004, at our request, the Credit Agreement was amended to reduce the interest rate, commitment fees and the aggregate Revolving Credit Commitment. The interest rate for both the Revolving Line of Credit and the Term Loan was reduced to LIBOR plus 1.625%. The commitment fees charged on the unused Line of Credit were reduced to .275%. The Revolving Credit Commitment was reduced from $50,000,000 to $35,000,000.
We had $34,000,000 and $43,000,000 of unused and available borrowings under our bank revolving line of credit at September 30, 2004 and December 31, 2003, respectively. We were in compliance with our debt covenants at September 30, 2004.
We have standby letters of credit that expire from 2004 to 2012. As of September 30, 2004, the letters of credit were $1,000,000.
We are a party to litigation incident to our business, including claims for freight lost or damaged in transit, freight improperly shipped or improperly billed and personal injury. Some of the lawsuits to which we are party are covered by insurance and are being defended by our insurance carriers. Some of the lawsuits are not covered by insurance and we are defending them. Management does not believe that the outcome of this litigation will have a material adverse effect on our financial position.
During the fourth quarter of 2003, the Board of Directors authorized the purchase of up to 500,000 shares of our Class A Common Stock from time to time. The timing of the program will be determined by financial and market conditions. Since the program was initiated, we purchased 116,700 shares for $3,059,000. A summary of purchases in 2004 follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(1) We announced on November 3, 2003 that the Board of Directors had authorized the purchase of up to 500,000 shares of our Class A Common Stock from time to time. There is no expiration date for the Plan.
We completed a public offering of Class A common stock priced at $33.00 per share, before underwriting discounts and commissions, on July 2, 2004. We sold 1,800,000 shares and selling stockholders sold 385,000 shares. The net proceeds of $55,871,000 were used to prepay the $50,000,000 of 9.14% debt on July 6, 2004 as well as the majority of the make-whole payment of $6,804,000. As a result of the pre-payment, we recorded debt extinguishment expenses of $7,296,000 (after-tax of approximately $4,232,000) consisting of $6,804,000 in pre-payment penalties and $492,000 related to the write off of deferred financing costs during the third quarter of 2004.
The information contained in this quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” and variations of these words and similar expressions are intended to identify these forward-looking statements. 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. We assume no liability to update any such forward-looking statements contained in this quarterly report. Factors that could cause our actual results to differ materially include:
• the degree and rate of market growth in the intermodal, truck brokerage and logistics markets served by us; • deterioration in our relationships with existing railroads; • changes in rail service conditions or adverse weather conditions; • further consolidation of railroads; • the impact of competitive pressures in the marketplace, including entry of new competitors, direct marketing efforts by the railroads or marketing efforts of asset-based carriers; • changes in rail, drayage and trucking company capacity; • equipment shortages; • changes in the cost of services from rail, drayage, truck or other vendors; • labor unrest in the rail, drayage or trucking company communities; • general economic and business conditions; • fuel shortages or prices; • increases in interest rates; • decrease in demand for our distribution services; • changes in homeland security or terrorist activity; • difficulties in maintaining or enhancing our information technology systems; • changes to or new governmental regulation; • loss of several of our largest customers; and • inability to recruit and retain key personnel.
Hub Group, Inc. (“we,” “us” or “our”) is the largest intermodal marketing company (“IMC”) in North America and a full service transportation provider offering intermodal, truck brokerage or highway services and comprehensive logistics services. These service offerings are referred to as the Core Transportation business. The Core Transportation business operates through a nationwide network of operating centers. We also operate Hub Group Distribution Services (“HGDS” or “Hub Distribution”). Hub Distribution performs certain specialized services, predominately installation of point of purchase displays, and is responsible for its own operations, customer service, marketing and management information systems support.
As an IMC, we arrange for the movement of our customers’ freight in containers and trailers over long distances. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for local pickup and delivery. As part of the intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.
We also arrange for the transportation of freight by truck, providing customers with another option for their transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combinations. As part of our highway services, we negotiate rates, track shipments in transit and handle claims for freight loss or damage on behalf of our customers.
Our logistics service consists of complex transportation management services, including load consolidation, mode optimization and carrier management. These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of their transportation needs.
We have full time marketing representatives throughout North America who service local, regional and national accounts. We believe that fostering long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation services to them.
One of our primary goals is to grow our gross margin. We have achieved growth through an increase in revenue from our existing Core Transportation customers as well as from winning new customers. Our top 50 customers’ revenue, which represents about 53% of our Core Transportation revenue, has increased by approximately 9.6% when comparing the nine months ended September 30, 2004 to September 30, 2003. During the year we severed relationships with certain low profitability customers impeding our intermodal revenue growth.
Revenue growth resulted primarily from price increases and fuel surcharges during the third quarter of 2004 versus the third quarter of 2003. The price increase resulted from rate increases from our carriers.
We use various performance indicators to manage our business. We closely monitor gains and losses for our Top 50 customers and evaluate on-time performance, costs per load by location and daily sales outstanding by location. Vendor cost changes and vendor service issues are also monitored closely.
We closed two operating centers in the third quarter of 2004. This has caused us to incur severance charges related to the downsizing of staff and charges to terminate building as well as equipment leases.
Intermodal capacity remains tight. There is a very limited supply of equipment in various key cities around the country.
We opened up a drayage operation in Northern California during the third quarter of 2004 to supplement existing drayage capacity in that important market. We believe that our drayage operations, which are in Chicago, Kansas City, St. Louis, Atlanta and now Stockton, California, give us a competitive advantage as we seek to provide reliable, cost effective intermodal services to our customers.
The following table summarizes our revenue by business line:
The following table includes certain items in the consolidated statement of operations as a percentage of revenue:
Three Months Ended September 30, 2004 Compared to the Three Months Ended September 30, 2003
Revenue generated by our Core Transportation business lines, intermodal, truckload brokerage and logistics increased 5.6%. Intermodal revenue increased 5.9% due primarily to price increases and fuel surcharges offset by a 2% decrease in volume. Truckload brokerage revenue increased 4.5% due primarily to an increase in revenue per load from fuel surcharges and price increases. Logistics revenue increased 5.4% due primarily to price increases. The increased logistics revenue is partially attributable to the transfer of the time sensitive delivery of pharmaceutical samples from Hub Distribution to this business line during the quarter. HGDS revenue increased 49.1% due primarily to an increase in the installation business. Our total revenue increased 6.7% to $362.1 million in 2004 from $339.5 million in 2003.
Gross margin increased 10.5% to $48.0 million in 2004 from $43.5 million in 2003. The majority of the increase relates to our Core Transportation business. As a percent of revenue, gross margin increased to 13.3% in 2004 from 12.8% in 2003 due primarily to more effective yield management. We proactively passed along rate increases to our customers for fuel and increased costs from our transportation suppliers. We also increased our margins by eliminating business where we do not receive adequate returns. This has caused a decline in intermodal volume.
As a percentage of revenue, salaries and benefits decreased to 6.1% from 6.6% in 2003. Salaries and benefits decreased to $22.0 million in 2004 from $22.5 million in 2003. This was due primarily to a decrease in headcount. Headcount as of September 30, 2004 was 1,172 while headcount for September 30, 2003 was 1,250. In late 2003, we stopped issuing new stock options and began issuing restricted stock which vests over three years. As a result, salaries and benefits include a $0.5 million charge related to restricted stock in the three months ended September 30, 2004. Severance costs during the three months ended September 30, 2004 were $0.2 million compared with $0.5 million for the three months ended September 30, 2003.
Selling, general and administrative expenses decreased to $9.0 million in 2004 from $11.0 million in 2003. As a percentage of revenue, these expenses decreased to 2.5% in 2004 from 3.3% in 2003. The decrease in selling, general and administrative expenses is primarily attributed to a decrease in equipment leases, legal expenses, travel and entertainment expense and office supplies primarily due to cost savings initiatives. Equipment lease expense decreased due to lease buy-outs.
Depreciation and amortization increased to $3.1 million in 2004 from $2.7 million in 2003. This expense as a percentage of revenue remained constant at 0.8%. The increase in depreciation and amortization is due primarily to more computer equipment being depreciated in 2004 as a result of lease buy-outs.
Interest expense decreased to $0.6 million in 2004 from $1.9 million in 2003. The decrease in interest expense is due primarily to carrying a lower average debt balance this year as compared to the prior year and the extinguishment of the private placement debt during the quarter. The debt extinguishment expenses of $7.3 million include a $6.8 million pre-payment penalty associated with paying off the $50 million of 9.14% debt and the $0.5 million write off of deferred financing costs.
The provision for income taxes increased to $2.8 million in 2004 compared to $2.5 million in 2003. We provided for income taxes using an effective rate of 43.9% in 2004 and an effective rate of 46.6% in the third quarter of 2003. The decrease in the effective rate from 2003 to 2004 is related to the effect of 2003 tax law changes. Further, in 2004 we wrote off $0.1 million related to deferred tax assets that were no longer realizable due to the closing of two operating centers.
Net income increased to $3.6 million in 2004 from $2.9 million in 2003 due primarily to higher gross margin and lower selling, general and administrative expenses, partially offset by the one time debt extinguishment expenses of $7.3 million. Excluding the debt extinguishment expenses, adjusted net income for the 2004 quarter would have been $7.8 million. A tabular reconciliation of the differences between the adjusted financial results for the three months ended September 30, 2004 and our financial results determined in accordance with generally accepted accounting principles in the United States of America (“GAAP”) are contained in the table below.
Basic earnings per share remained constant at $0.37 in 2004 and 2003 and diluted earnings per share decreased to $0.34 in 2004 from $0.37 in 2003. The weighted average diluted shares outstanding increased 31% from 7,897,000 at September 30, 2003 to 10,324,000 at September 30, 2004 due primarily to our follow on offering. Excluding the debt extinguishment expenses, adjusted basic earnings per share would have been $0.80 and adjusted diluted earnings per share would have been $0.75.
a) Fees and expenses related to our early extinquishment of 9.14% debt 1) Pre-payment penalty of $6,804 2) Write-off of related deferred financing costs of $492b) Income taxes at 42.0%
Note: The purpose of this statement is to reflect as adjusted earnings excluding the one time costs associated with prepaying our debt.
Nine Months Ended September 30, 2004 Compared to the Nine Months Ended September 30, 2003
Revenue generated by our Core Transportation business lines, intermodal, truckload brokerage and logistics increased 5.1% to $1.01 billion. Intermodal revenue increased 4.3% due primarily to a 1.3% increase in volume, price increases and fuel surcharge. Truckload brokerage revenue increased 4.3% due primarily to an increase in revenue per load related to price increases and fuel surcharge. Logistics revenue increased 11.5% due primarily to price increases and to increased volume. A portion of the volume increase resulted from the inclusion of the pharmaceutical delivery business previously handled by HGDS. HGDS revenue decreased 24.9% due primarily to a decrease in the installation business. Our total revenue increased 3.9% to $1.04 billion in 2004 from $1.0 billion in 2003.
Gross margin increased 3.5% to $133.5 million. We proactively passed along rate increases for fuel and increased costs from our transportation suppliers. We also increased our Core Transportation margins by eliminating business where we do not receive adequate returns. Core Transportation related gross margin dollar increases were partially offset by decreases in gross margin dollars at HGDS. As a percent of revenue, gross margin decreased slightly to 12.8% in 2004 from 12.9% in 2003 primarily as a result of fewer higher margin projects at HGDS.
Salaries and benefits decreased to $66.6 million in 2004 from $68.7 million in 2003. As a percentage of revenue, salaries and benefits decreased to 6.4% from 6.9% in 2003. This was due primarily to a decrease in headcount. In late 2003, we stopped issuing new stock options and began issuing restricted stock which vests over three years. As a result, salaries and benefits include a $1.6 million charge related to restricted stock in the nine months ended September 30, 2004. Severance costs during the nine months ended September 30, 2004 were $0.5 million compared with $0.8 million for the nine months ended September 30, 2003.
Selling, general and administrative expenses decreased to $29.6 million in 2004 from $34.9 million in 2003. As a percentage of revenue, these expenses decreased to 2.8% in 2004 from 3.5% in 2003. Equipment lease expense decreased by $1.9 million due primarily to lease buy-outs. Telephone expense decreased by $0.6 million due primarily to a reduction in headcount. Outside services expense decreased by $1.0 million due primarily to lower legal fees incurred during 2004. Rent and office expense decreased by $0.5 million due primarily to a reduction in offices and cost savings initiatives. Outside sales commissions decreased by $0.4 million.
Depreciation and amortization increased to $8.8 million in 2004 from $7.9 million in 2003. This expense as a percentage of revenue remained constant at 0.8%. The increase in depreciation and amortization is due primarily to more computer equipment being depreciated in 2004 as a result of lease buy-outs.
Interest expense decreased to $4.0 million in 2004 from $6.0 million in 2003. The decrease in interest expense is due primarily to carrying a lower average debt balance this year as compared to the prior year and the extinguishment of the private placement debt during July of 2004. The debt extinguishment expenses include the $6.8 million pre-payment penalty associated with paying off the $50 million of 9.14% debt and the $0.5 million write off of deferred financing costs.
The provision for income taxes increased to $7.7 million in 2004 compared to $5.9 million in 2003. We provided for income taxes using an effective rate of 42.7% for the nine months ended September 30, 2004 and an effective rate of 50.4% for the nine months ended September 30, 2003. The effective rate in 2003 included a write off of $0.8 million of deferred tax assets related to the Illinois Research and Development credit. During 2004, we wrote off of $0.1 million of deferred tax assets that were no longer realizable due to the closing of two operating centers.
Net income increased to $10.3 million in 2004 from $5.8 million in 2003 due primarily to higher gross margin and lower selling, general and administrative expenses, partially offset by debt extinguishment expenses. Excluding the debt extinguishment expenses, adjusted net income for the nine months ended September 30, 2004 would have been $14.6 million. A tabular reconciliation of the differences between the adjusted financial results for the nine months ended September 30, 2004 and our financial results determined in accordance with generally accepted accounting principles in the United States of America (“GAAP”) are contained in the table below.
Basic earnings per share increased to $1.22 in 2004 from $0.75 in 2003 and diluted earnings per share increased to $1.14 in 2004 from $0.74 in 2003. The weighted average diluted shares outstanding increased 15.5% from 7,814,000 at September 30, 2003 to 9,029,000 at September 30, 2004. Excluding the debt extinguishment expenses adjusted basic earnings per share would have been $1.72 and adjusted diluted earnings per share would have been $1.61.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying consolidated financial statements. We have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Note 1 of the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2003, includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of the more significant accounting policies and estimates.
In the normal course of business, we extend credit to customers after a review of each customer’s credit history. An allowance for uncollectible trade accounts has been established through an analysis of the accounts receivable aging, an assessment of collectibility based on historical trends and an evaluation of the current economic conditions. To be more specific, we reserve every account balance that has aged over one year, certain customers in bankruptcy and account balances specifically identified as uncollectible. In addition, we have a general reserve based upon historical trends. The allowance is reported on the balance sheet in net accounts receivable. Actual collections of accounts receivable could differ from management’s estimates due to changes in future economic, industry or customer financial conditions.
Revenue is recognized at the time 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the sales price is fixed and determinable and 4) collectibility is reasonably assured. In accordance with EITF 91-9, revenue and related transportation costs are recognized based on relative transit time. Further, we report revenue on a gross basis in accordance with the criteria in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. We are the primary obligor and are responsible for providing the service desired by the customer. The customer views us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick up and delivery and tracing shipments in transit. We have discretion in setting sales prices and as a result, our earnings vary. In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by customers. Finally, we have credit risk for our receivables. These three factors, discretion in setting prices, discretion in selecting vendors and credit risk, further support reporting revenue on the gross basis.
Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We have not recorded a valuation reserve on the recorded amount of net deferred tax assets as we believe that future earnings will more likely than not be sufficient to fully utilize the assets. In the event the probability of realizing the deferred tax assets does not meet the more likely than not threshold in the future, a valuation allowance would be established for the deferred tax assets deemed unrecoverable.
We review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. We utilize a third-party independent valuation firm to assist in performing the necessary valuations to be used in the impairment testing. These valuations are based on market capitalization, discounted cash flow analysis or a combination of both methodologies. The assumptions used in the valuations include expectations regarding future operating performance, discount rates, control premiums and other factors which are subjective in nature. Actual cash flows from operations could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions. Should estimates differ materially from actual results, we may be required to record impairment charges in the future. A prolonged downturn in HGDS’s business could adversely affect the value of its assets.
We have funded operations and capital expenditures through cash flows from operations and bank borrowings.
Cash provided by operating activities for the nine months ended September 30, 2004, was approximately $20.8 million, which resulted primarily from net income from operations of $10.3 million, non-cash charges of $18.5 million offset by decreases in working capital of $8.0 million. The decrease in working capital relates partially to paying vendors more quickly.
Net cash used in investing activities for the nine months ended September 30, 2004, was $2.4 million and related to expenditures made to enhance our information system capabilities, purchase of tractors used in our Quality Services operations and purchase of office equipment. We expect capital expenditures to be in the range of $4 million to $5 million for the year ended December 31, 2004.
The net cash used in financing activities for the nine months ended September 30, 2004, was $18.4 million. Our sale of 1,800,000 shares at a price of $33.00, after underwriting discounts and commissions, generated $55.9 million. Uses of cash related primarily to payments on our debt and the purchase of treasury stock. We generated cash from stock options being exercised.
On March 25, 2004, at our request, our Credit Agreement was amended to reduce the interest rate, commitment fees and the aggregate Revolving Credit Commitment. The interest rate for both the Revolving Line of Credit and the Term Loan was reduced to LIBOR plus 1.625%. The commitment fees charged on the unused Line of Credit were reduced to .275%. The Revolving Credit Commitment was reduced from $50 million to $35 million.
Our unused and available borrowings under our bank revolving line of credit at September 30, 2004 and December 31, 2003 are $34 million and $43 million, respectively. We were in compliance with our debt covenants at September 30, 2004.
We have standby letters of credit that expire from 2004 to 2012. As of September 30, 2004 our letters of credit were $1 million.
Our contractual cash obligations as of September 30, 2004 are minimum rental commitments. Minimum annual rental commitments, at September 30, 2004, under noncancellable operating leases, principally for real estate and equipment, are payable as follows (in thousands):
During 2004, in connection with the realignment, we revised our revenue classifications by transportation mode. Accordingly, the 2003 and 2002 revenue amounts have been reclassified to conform to the current year presentation (in millions):
As a result of eliminating the $50 million of private placement debt, we will no longer be required to pay the related interest which historically has been approximately $1.2 million per quarter. We will continue to have interest expense related to our deferred compensation plan.
We are exposed to market risk related to changes in interest rates on our bank line of credit which may adversely affect our results of operations and financial condition.
As of September 30, 2004, an evaluation was carried out under the supervision and with the participation of our 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 as of September 30, 2004. 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.
(c) Note 8 of the Company’s Notes to Unaudited Condensed Consolidated Financial Statements is incorporated herein by reference.
(a) A list of exhibits included as part of this report is set forth in the Exhibit Index incorporated herein by reference.
(b) Reports on Form 8-K
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.
Exhibit No. Description