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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-27754
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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 of organization) Identification No.)
377 E. BUTTERFIELD ROAD, SUITE 700
LOMBARD, ILLINOIS 60148
(Address and zip code of principal executive offices)
(630) 271-3600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by
non-affiliates on March 15, 2001, based upon the last reported sale price on
that date on the NASDAQ National Market of $9 1/8 per share, was
$57,232,913.
On March 15, 2001, the Registrant had 7,046,050 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.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 15, 2001, (the "Proxy Statement") is incorporated
by reference in Part III of this Form 10-K to the extent stated herein. Except
with respect to information specifically incorporated by reference in this Form
10-K, the Proxy Statement is not deemed to be filed as a part hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Hub Group, Inc. ("Hub Group" or the "Company") is a Delaware corporation
which was incorporated on March 8, 1995. Since its founding as an intermodal
marketing company ("IMC") in 1971, Hub Group has grown to become the largest IMC
in the United States and a full service transportation provider, offering
intermodal, truck brokerage and comprehensive logistics services.
The Company operates through an extensive nationwide network of 27 offices
or "Hubs." Each Hub is strategically located in a market that has a significant
concentration of shipping customers and one or more railheads. Each Hub
functions essentially as a stand-alone business managed locally by an executive
with significant transportation experience. Local management is responsible for
operations, customer service and regional marketing, while corporate management
is responsible for group strategic planning and administration, financial
services, relationships with the railroads and management information systems
support. Hub Group also maintains a National Accounts sales force to provide
centralized marketing of the Company's services to large and geographically
diversified shippers.
On March 18, 1996, Hub Group purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition. Concurrent with the acquisition of
Hub Chicago, Hub Group completed the initial public offering of 4,261,250 shares
of its Class A common stock (the "Class A Common Stock"). Through a series of
acquisitions, Hub Group now owns a 65% partnership interest in Hub Group
Distribution Services ("Hub Distribution"), which performs certain logistics
functions, and wholly-owns each of its other operating subsidiaries (each of the
operating subsidiaries and Hub Distribution are an "Operating Company" and
collectively are the "Operating Companies"). Unless the context otherwise
requires, references to "Hub Group" or the "Company" include Hub Chicago and the
Operating Companies and their respective subsidiaries.
SERVICES PROVIDED
The Company's transportation services can be broadly placed into the
following categories:
INTERMODAL As an IMC, the Company arranges for the movement of its
customers' freight in containers and trailers over long distances. Hub Group
contracts with railroads to provide transportation over the long-haul portion of
the shipment and with local trucking companies, known as "drayage companies,"
for pickup and delivery. In markets where adequate service is not available, the
Company supplements third party drayage services with Company-owned drayage
operations. As part of its intermodal services, the Company negotiates rail and
drayage rates, electronically tracks shipments in transit, consolidates billing
and handles claims for freight loss or damage on behalf of its customers.
The Company uses its Hub network, connected through its proprietary
advanced intermodal management ("AIM") system, to access containers and trailers
owned by leasing companies, railroads and steamship lines. Because each Hub not
only handles its own outbound shipments but also handles inbound shipments from
other Hubs, each Hub is able to track trailers and containers entering its
service area and reuse that equipment to fulfill its customers' outbound
shipping requirements. This effectively allows the Company to "capture"
containers and trailers and keep them within the Hub network without having to
make a capital investment in transportation equipment. The Company also has
exclusive use of the containers in its Premier Service Network.
HIGHWAY SERVICES The Company arranges for the transportation of freight by
truck, providing customers another option for their transportation needs. This
is accomplished by matching customers' needs with carriers' capacity to provide
the appropriate service and price combination. The Company has contracts with a
substantial base of carriers allowing it to meet the varied needs of its
customers. The Company negotiates rates, tracks shipments in transit,
consolidates billing and handles claims for freight loss and damage on behalf of
its customers.
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The Company's brokerage operation also provides customers with specialized
programs. Through the Dedicated Trucking program, certain carriers have
informally agreed to move freight for Hub's customers on a continuous basis.
This arrangement allows Hub to gain control of the trucking equipment to
effectively meet its customer's needs without owning the equipment. Through the
Core Carrier-Plus One program, Hub assumes the responsibility for over-the-road
truckload shipments that the customer's core carriers cannot handle. This
service supplements the customer's core carrier program and helps ensure the
timely delivery of the customer's freight.
LOGISTICS The Company has expanded its service capabilities as customers
increasingly outsource their transportation needs. The Company has established a
Supply Chain Solutions group with logistics expertise at its headquarters in
Lombard. In addition, many of the Hubs have hired experienced logistics
personnel exclusively dedicated to selling Hub's logistics service offering. The
Supply Chain Solutions group acts as a central resource for the Hubs who then
perform the actual logistics services.
The Company currently offers various logistics services, including
comprehensive transportation management, arranging for delivery to multiple
locations at the shipment's destination, third party warehousing,
less-than-truckload consolidation and other customized logistics services, as
well as other non-traditional logistics services such as installation of point
of sale merchandise displays. When providing complete transportation services,
the Company essentially replaces the customer's transportation department. Once
the Company is hired as a single source logistics provider, it negotiates with
intermodal, railcar, truckload and less-than-truckload carriers to move the
customer's product through the supply chain and then dispatches the move for the
customer.
To help manage its logistics business, the Company uses i2 TradeMatrix Plan
and i2 TradeMatrix Fulfill from i2 Technologies, Inc. This sophisticated
transportation management software enables Hub to offer supply chain planning
tools and logistics managing, modeling, optimizing and monitoring tools for its
customers. This software may be used by the Company when offering logistics
management services to customers that ship via multiple modes, including
intermodal, truckload, and less-than-truckload, allowing the Company to optimize
mode and carrier selection and routing for its customers. This software is
integrated with Hub's AIM system.
HUB NETWORK
Over the past 30 years, Hub Group has grown from a single office with two
employees into a network of 25 Hubs in the United States, one Hub in Canada and
one Hub in Mexico. Hub Group also has several satellite sales offices. In
developing this network, the Company has carefully selected each location to
ensure coverage in areas with significant concentrations of shipping customers
and one or more railheads. Hub Group currently has Hubs in the following cities:
Atlanta Houston Milwaukee St. Louis
Baltimore Indianapolis New Orleans Salt Lake City
Boston Kansas City New York City San Francisco
Chicago (3) Los Angeles Pittsburgh Seattle
Cleveland Memphis Portland Toledo
Detroit Mexico City Rochester Toronto
Grand Rapids
The entire Hub network is interactively connected through the Company's AIM
system. This enables Hub Group to move freight into and out of every major city
in the United States and most locations in Canada and Mexico.
Each Hub manages the freight originating in or destined for its service
area. In a typical intermodal transaction, the customer contacts the local Hub
to obtain shipping schedules and a price quote for a particular freight
movement. The local Hub obtains the necessary intermodal equipment, arranges for
it to be delivered to the customer by a drayage company and, after the freight
is loaded, arranges for the transportation of the container or trailer to the
rail ramp. Information is entered into the AIM system by the local Hub. This
information is simultaneously transmitted through the AIM system to the Hub
closest to the point of delivery. Hub's predictive track and trace technology
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then monitors the shipment to ensure that it will arrive as scheduled, alerting
Hub's customer service personnel at the local Hub if there are service delays.
The Hub closest to the point of delivery arranges for and confirms delivery by a
drayage company. This arrangement among the Hubs is transparent to the customer
and allows the customer to maintain its relationship solely with the originating
Hub.
The Company provides brokerage services to its customers in a similar
manner. In a typical brokerage transaction, the customer contacts the local Hub
to obtain transit information and a price quote for a particular freight
movement. The customer then provides appropriate shipping information to the
local Hub. The local Hub makes the delivery appointment and arranges with the
appropriate carrier to pick up the freight. Once it receives confirmation that
the freight has been picked up, the local Hub monitors the movement of the
freight until it reaches its destination and the delivery has been confirmed. If
the carrier notifies Hub Group that after delivering the load it will need
additional freight, the Hub located nearest the destination is notified of the
carrier's availability. Although it is under no obligation to do so, the local
Hub then may attempt, if requested by the carrier, to secure freight for the
carrier.
MARKETING AND CUSTOMERS
The Company believes that fostering long-term customer relationships is
critical to the Company's success. Through these long-term relationships, the
Company is able to better understand its customer's needs and to tailor
transportation services for a specific customer, regardless of the customer's
size or volume. The Company currently has full time marketing representatives at
each Hub with primary responsibility for servicing local and regional accounts.
These sales representatives work from the 27 Hubs and the Company's satellite
sales offices. This network provides a local marketing contact for small and
medium shippers in most major metropolitan areas within the United States.
In 1985, the Company established the National Accounts group to service the
needs of the nation's largest shippers. The Company recognized that although
large shippers originate freight from multiple locations throughout the country,
their logistics function is usually centralized. The Company essentially
mirrored this structure by servicing national accounts from a central location
and parceling out the servicing of individual freight shipments to the
appropriate Hub. There are currently 16 National Accounts sales representatives
who report to the Company's Executive Vice President of National Accounts. The
National Accounts sales representatives regularly call on the nation's largest
shippers to develop business relationships and to expand the Company's
participation in servicing their transportation needs. When a business
opportunity is identified by a National Accounts sales representative, the
Company's market development and pricing personnel and the local Hubs work
together to provide a transportation solution tailored to the customer's needs.
Local Hubs provide transportation services to National Accounts customers. After
the plan is implemented, National Accounts' personnel maintain regular contact
with the shipper to ensure customer satisfaction and to refine the process as
necessary.
This unique combination of local and regional marketing has produced a
large, diverse customer base. The Company services customers in a wide variety
of industries, including automotive, consumer products, printing, paper, retail,
chemicals and electronics.
MANAGEMENT INFORMATION SYSTEMS
A primary component of the Company's business strategy is the continued
improvement of its AIM system and other technology to ensure that the Company
will remain a leader among transportation providers in information processing
for transportation services. The AIM system consists of IBM AS/400 computers
located at a secure offsite data center. All of the Hubs are linked with these
AS/400 computers and each other using a frame relay network. This configuration
provides a real time environment for transmitting data among the Hubs and the
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Company's headquarters using electronic data interchange ("EDI"), electronic
mail and other protocols. It also allows Hub to communicate electronically with
each railroad, certain drayage companies and those customers with EDI
capabilities.
The Company's proprietary AIM system is the primary mechanism used by the
Hubs to handle the Company's intermodal and highway services business. The AIM
system processes customer transportation requests, schedules and tracks
shipments, prepares customer billing, establishes account profiles and retains
critical information for analysis. The AIM system provides connectivity with
each of the major rail carriers, enabling the Company to electronically schedule
and track shipments in a real time environment. In addition, the AIM system's
EDI features offer customers with EDI capability a completely paperless process,
including load tendering, shipment dispatch, shipment tracking, customer billing
and remittance processing. The Company aggressively pursues opportunities to
establish EDI interfaces with its customers and carriers.
The Company's website, www.hubgroup.com, is designed to allow Hub's
customers and vendors to easily do business with Hub online. The Company
launched the Vendor Interface portion of this website in early 2000. Through
Vendor Interface, the Company tenders loads to its drayage partners using the
internet rather than phones or faxes. Vendor Interface also captures event
status information and helps facilitate appropriate payment. Vendor Interface
usage grew steadily in 2000 and Hub currently tenders over 80% of its drayage
loads using Vendor Interface and EDI. Hub launched the Customer Advantage
portion of its website in early 2001. Customer Advantage allows customers to
receive immediate pricing, place orders, track shipments and review historical
shipping data over the internet. Current internet applications are, and future
internet applications will be, integrated with the AIM system.
During 2000, the Company updated and improved the operational software for
its AIM system. The new software is designed to streamline operational
processes, improve the quality of data available to the Company and its
customers, better integrate its various systems and software applications and
reduce inter-Company transactions. The Company is currently testing this new
software and will begin using this new software once testing has been completed.
RELATIONSHIP WITH RAILROADS
A key element of the Company's business strategy is to strengthen its close
working relationship with each of the major intermodal railroads in the United
States. The Company views its relationship with the railroads as a partnership.
Due to the Company's size and relative importance, many railroads have dedicated
support personnel to focus on the Company's day-to-day service requirements. On
a regular basis, senior executives of the Company and each of the railroads meet
to discuss major strategic issues concerning intermodal transportation. Several
of the Company's executive officers, including both the Company's Chairman and
President, are former railroad employees, which makes them well-suited to
understand the railroads' service capabilities.
The Company has contracts with each of the following major railroads:
Burlington Northern Santa Fe Railway Kansas City Southern
Canadian National Norfolk Southern
Canadian Pacific Union Pacific
CSX
The Company also has contracts with each of the following major fourth-party
service providers: Mitsui O.S.K. Lines (America) Inc., Pacer International, Inc.
and K-Line America, Inc..
These contracts govern the transportation services and payment terms
pursuant to which the Company's intermodal shipments are handled by the
railroads. The contracts have staggered renewal terms with the earliest
expiration occurring during 2001. While there can be no assurances that these
contracts will be renewed, the Company has in the past successfully negotiated
extensions of these contracts. Transportation rates are market driven and are
typically negotiated between the Company and the railroads or fourth-party
service providers on a customer specific basis. Consistent with industry
practice, many of the rates negotiated by the Company are special commodity
quotations ("SCQs"), which provide discounts from published price lists based on
competitive market factors and are designed by the railroads or fourth-party
service providers to attract new business or to retain existing business. SCQ
rates are generally issued for the account of a single IMC. SCQ rates apply to
specific customers in specified shipping lanes for a specific period of time,
usually six to 12 months.
The Company also manages a fleet of containers under its Premier Service
Network. This program began with the Burlington Northern and Santa Fe Railway
Company ("BNSF") in May 1998 and in 1999 expanded to include the Norfolk
Southern Corporation ("NS"). Under multi-year agreements with both the BNSF and
NS, the Company manages, as of March 6, 2001, approximately 5,550 containers
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owned by the BNSF and 1,650 containers owned by the NS. These containers are for
Hub's dedicated use on the BNSF and NS rail systems. The BNSF containers and the
NS containers are fully interchangeable across both the BNSF and NS rail
networks.
RELATIONSHIP WITH DRAYAGE COMPANIES
In 1990, the Company instituted its "Quality Drayage Program," which
consists of agreements and rules that govern the framework pursuant to which the
drayage companies perform services for the Company. Participants in the program
commit to provide high quality service along with clean and safe equipment,
maintain a defined on-time performance level and follow specified procedures
designed to minimize freight loss and damage. Whenever possible, the Company
uses the services of drayage companies that participate in its Quality Drayage
Program. However, during periods of high demand for drayage services or at the
request of a customer, the Company will use the services of other drayage
companies. The local Hubs negotiate drayage rates for transportation between
specific origin and destination points. These rates generally are valid, with
minor exceptions for fuel surcharge increases, for a period of one year.
RELATIONSHIP WITH TRUCKLOAD CARRIERS
The Company's brokerage operation has a large and growing number of active
carriers in its database which it uses to transport freight. The local Hubs deal
daily with these carriers on an operational level. Hub Highway Services, a
partnership controlled by the Company, handles the administrative and regulatory
aspects of the carrier relationship. Hub's relationships with its carriers are
important since these relationships determine pricing, load coverage and overall
service.
RISK MANAGEMENT AND INSURANCE
The Company requires all drayage companies participating in the Quality
Drayage Program to carry at least $1.0 million in general liability insurance,
$1.0 million in truckman's auto liability insurance and to obtain, either on
their own or through the Company, $1.0 million in cargo insurance. Railroads,
which are self-insured, provide limited cargo protection, generally up to
$250,000 per shipment. To cover freight loss or damage when a carrier's
liability cannot be established or a carrier's insurance is insufficient to
cover the claim, the Company carries its own cargo insurance with a limit of
$2.0 million per container or trailer and a limit of $20 million per occurrence.
The Company also carries general liability insurance with limits of $1.0 million
per occurrence and $2.0 million in the aggregate with a companion $20.0 million
umbrella policy on this general liability insurance.
GOVERNMENT REGULATION
Hub Highway Services is licensed by the Department of Transportation
("DOT") as a broker in arranging for the transportation of general commodities
by motor vehicle. To the extent that the Hubs perform truck brokerage services,
they do so under the license granted to Hub Highway Services. The DOT prescribes
qualifications for acting in this capacity, including a $10,000 surety bond
which the Company has posted. To date, compliance with these regulations has not
had a material adverse effect on the Company's results of operations or
financial condition. However, the transportation industry is subject to
legislative or regulatory changes that can affect the economics of the industry
by requiring changes in operating practices or influencing the demand for, and
cost of providing, transportation services.
COMPETITION
The transportation services industry is highly competitive. The Company
competes against other IMCs, as well as logistics companies, third party
brokers, over-the-road truckload carriers and railroads that market their own
intermodal services. There is an emerging trend for larger truckload carriers to
enter into agreements with railroads to market intermodal services nationwide.
In addition, many existing and start-up companies are using the internet to
market transportation services. Competition is based primarily on freight rates,
quality of service, reliability, transit time and scope of operations. Several
transportation service companies and truckload carriers, and all of the major
railroads, have substantially greater financial and other resources than the
Company.
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GENERAL
EMPLOYEES As of February 28, 2001, the Company had approximately 1,590
employees. The Company is not a party to any collective bargaining agreement and
considers its relationship with its employees to be satisfactory.
OTHER No material portion of the Company's operations is subject to
renegotiation of profits or termination of contracts at the election of the
federal government. None of the Company's patents and trademarks is believed to
be material to the Company. The Company's business is seasonal to the extent
that certain customer groups, such as retail, are seasonal.
ITEM 2. PROPERTIES
The Company directly, or indirectly through the Operating Companies,
operates 43 offices throughout the United States and in Canada and Mexico,
including the Company's headquarters in Lombard, Illinois and its Company-owned
drayage operations. The office building used by the Hub located in Toledo is
owned, and the remainder are leased. Most office leases have initial terms of
more than one year, and many include options to renew. While some of the
Company's leases expire in the near term, the Company does not believe that it
will have difficulty in renewing them or in finding alternative office space.
The Company believes that its offices are adequate for the purposes for which
they are currently used.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incident to its business,
primarily claims for freight lost or damaged in transit or improperly shipped.
Many of the lawsuits to which the Company is party are covered by insurance and
are being defended by the Company's insurance carriers. Management does not
believe that the litigation to which it is currently a party, if determined
adversely to the Company, would individually or in the aggregate have a
materially adverse effect on the Company's financial position or results of
operations. See Item 1 Business - Risk Management and Insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of 2000.
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EXECUTIVE OFFICERS OF THE REGISTRANT
In reliance on General Instruction G to Form 10-K, information on executive
officers of the Registrant is included in this Part I. The table sets forth
certain information as of March 7, 2001 with respect to each person who is an
executive officer of the Company.
Name Age Position
------------------ ----- -----------------------------------------------
Phillip C. Yeager 73 Chairman of the Board of Directors
David P. Yeager 47 Vice Chairman of the Board of Directors and
Chief Executive Officer
Thomas L. Hardin 55 President, Chief Operating Officer and Director
Mark A. Yeager 36 President-Field Operations
Donald G. Maltby 46 President-Hub Online
Jay E. Parker 36 Vice President-Finance, Chief Financial Officer
and Treasurer
John T. Donnell 61 Executive Vice President-National Accounts
Richard M. Rogan 61 President-Hub Highway Services, Executive
Vice President-Marketing
Daniel L. Sellers 45 Vice President-Information Services and Chief
Information Officer
David C. Zeilstra 31 Vice President, Secretary and General Counsel
Phillip C. Yeager, the Company's founder, has been Chairman of the Board
since October 1985. From April 1971 to October 1985, Mr. Yeager served as
President of Hub Chicago. Mr. Yeager became involved in intermodal
transportation in 1959, five years after the introduction of intermodal
transportation in the United States, as an employee of the Pennsylvania and
Pennsylvania Central Railroads. He spent 19 years with the Pennsylvania and
Pennsylvania Central Railroads, 12 of which involved intermodal transportation.
In 1991, Mr. Yeager was named Man of the Year by the Intermodal Transportation
Association. In 1995, he received the Salzburg Practitioners Award from Syracuse
University in recognition of his lifetime achievements in the transportation
industry. In October 1996, Mr. Yeager was inducted into the Chicago Area
Entrepreneurship Hall of Fame sponsored by the University of Illinois at
Chicago. In March 1997, he received the Presidential Medal from Dowling College
for his achievements in transportation services. In September 1998 he received
the Silver Kingpin award from the Intermodal Association of North America and in
February 1999 he was named Transportation Person of the Year by the New York
Traffic Club. Mr. Yeager graduated from the University of Cincinnati in 1951
with a Bachelor of Arts degree in Economics. Mr. Yeager is the father of David
P. Yeager and Mark A. Yeager.
David P. Yeager has served as the Company's Vice Chairman of the Board
since January 1992 and as Chief Executive Officer of the Company since March
1995. From October 1985 through December 1991, Mr. Yeager was President of Hub
Chicago. From 1983 to October 1985, he served as Vice President, Marketing of
Hub Chicago. Mr. Yeager founded the St. Louis Hub in 1980 and served as its
President from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 and
served as its President from 1975 to 1977. Mr. Yeager received a Masters in
Business Administration degree from the University of Chicago in 1987 and a
Bachelor of Arts degree from the University of Dayton in 1975. Mr. Yeager is the
son of Phillip C. Yeager and the brother of Mark A. Yeager.
Thomas L. Hardin has served as the Company's President since October 1985
and has served as Chief Operating Officer and a director of the Company since
March 1995. From January 1980 to September 1985, Mr. Hardin was Vice
President-Operations and from June 1972 to December 1979, he was General Manager
of the Company. Prior to joining the Company, Mr. Hardin worked for the Missouri
Pacific Railroad where he held various marketing and pricing positions. Mr.
Hardin is the former Chairman of the Intermodal Association of North America.
7
Mark A. Yeager has been the Company's President-Field Operations since
July 1999. From November 1997 through June 1999 Mr. Yeager was Division
President, Secretary and General Counsel. From March 1995 to November 1997,
Mr. Yeager was Vice President, Secretary and General Counsel. From May 1992 to
March 1995, Mr. Yeager served as the Company's Vice President-Quality. Prior to
joining the Company in 1992, Mr. Yeager was an associate at the law firm of
Grippo & Elden from January 1991 through May 1992 and an associate at the law
firm of Sidley & Austin from May 1989 through January 1991. Mr. Yeager received
a Juris Doctor degree from Georgetown University in 1989 and a Bachelor of Arts
degree from Indiana University in 1986. Mr. Yeager is the son of Phillip C.
Yeager and the brother of David P. Yeager.
Donald G. Maltby has served as President - Hub Online, the Company's
e-commerce division, since February 2000. From July 1990 through January 2000,
Mr. Maltby served as the President of the Company's Hub in Cleveland. Prior to
joining Hub Group, Mr. Maltby served as President of Lyons Transportation, a
wholly-owned subsidiary of Sherwin Williams Company, from 1988 to 1990. In his
career at Sherwin Williams, which began in 1981 and continued until he joined
the Company in 1990, Mr. Maltby held a variety of management positions,
including Vice-President of Marketing and Sales for their Transportation
Division. Mr. Maltby has been in the Transportation and Logistics industry since
1976. Mr. Maltby received a Masters in Business Administration from Baldwin
Wallace College in 1982 and a Bachelor of Science degree from the State
University of New York in 1976.
Jay E. Parker has been the Company's Vice President of Finance, Chief
Financial Officer and Treasurer since June 1999. From July 1995 through May
1999, Mr. Parker was the Company's Corporate Controller. Prior to joining the
Company, Mr. Parker was the Director of Financial Reporting at Discovery Zone,
Inc. from July 1994 through June 1995 and held various positions, including
Audit Manager, with Arthur Andersen from December 1988 through June 1994. Mr.
Parker received a Masters of Accounting Science from Northern Illinois
University in 1988, became a Certified Public Accountant in 1987 and received a
Bachelor of Science degree in Finance from Northern Illinois University in 1986.
John T. Donnell has been Executive Vice President of National Accounts
since October 1993. From October 1985 through October 1993, Mr. Donnell served
as Vice President of National Accounts. Prior to joining the Company in 1985,
Mr. Donnell worked for Transamerica Leasing as Vice President of Marketing where
he was responsible for marketing 40,000 intermodal trailers to the railroads and
the intermodal marketing industry. Mr. Donnell received a Master of Business
Administration degree from Northwestern University in 1981 and a Bachelor of
Science degree in Marketing from Northeast Louisiana University in 1961.
Richard M. Rogan has been Executive Vice President of Marketing since
November 1997 and President of Hub Highway Services since May 1995. Prior to
joining the Company, Mr. Rogan was Executive Vice President of National Freight,
Inc. from May 1993 to April 1995. Prior to that, Mr. Rogan was with Burlington
Motor Carriers, Inc., where he served as President and Chief Executive Officer
from March 1988 to April 1993 and as an Executive Vice President from July 1985
to February 1988. Mr. Rogan's transportation career spans 25 years and includes
earlier assignments with the Illinois Central Railroad, North American Van Lines
and Schneider National. He received a Bachelor of Business Administration degree
from Loyola University of Chicago in 1962 and a Master of Business
Administration degree from the Wharton School of the University of Pennsylvania
in 1963. He has served on the Board of Directors of the ATA Foundation as well
as the Interstate Truckload Carrier Conference ("ITCC"). He is a past Chairman
of the ITCC Highway Policy Committee and has also served on the Advisory Board
of the Trucking Profitability Strategies Conference at the University of
Georgia.
Daniel L. Sellers has been the Company's Vice President of Information
Services and Chief Information Officer since December 1998. Prior to joining
the Company, Mr. Sellers was Vice President of Information Systems with
Humana, Inc. from February 1997 to December 1998. Prior to that, Mr. Sellers
was Vice President and General Manager of OmniTracs software with Qualcomm, Inc.
from November 1993 to February 1997. Mr. Sellers also worked in the
transportation industry for 15 years with Schneider National, Inc. in a variety
of positions, including as Vice President and Chief Information Officer of
Information Systems. He received a Bachelor of Business Administration from the
University of Cincinnati in 1978 and a Masters in Business Administration from
the University of Wisconsin Graduate School of Business in 1983. Mr. Sellers is
a past member of the American Trucking Association's Management Systems Council.
8
David C. Zeilstra has been the Company's Vice President, Secretary and
General Counsel since July 1999. From December 1996 through June 1999, Mr.
Zeilstra was the Company's Assistant General Counsel. Prior to joining the
Company, Mr. Zeilstra was an associate with the law firm of Mayer, Brown and
Platt from September 1994 through November 1996. Mr. Zeilstra received a Juris
Doctor degree from the Duke University School of Law in 1994 and a Bachelor of
Arts degree from Wheaton College in 1990.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Class A Common Stock of the Company trades on the NASDAQ National
Market tier of The NASDAQ Stock Market ("NASDAQ") under the symbol "HUBG." Set
forth below are the high and low prices for shares of the Class A Common Stock
of the Company for each full quarterly period in 1999 and 2000.
1999 2000
---- ----
HIGH LOW HIGH LOW
-------- --------- -------- -------
First Quarter $23 3/4 $18 7/8 $20 1/2 $15 1/4
Second Quarter $27 7/8 $21 $15 1/8 $10 1/2
Third Quarter $27 1/16 $20 7/16 $14 1/2 $9 9/16
Fourth Quarter $21 $14 11/16 $9 10/16 $6 1/2
On March 7, 2001, there were approximately 40 stockholders of record of the
Class A Common Stock and, in addition, there were an estimated 1,450 beneficial
owners of the Class A Common Stock whose shares were held by brokers and other
fiduciary institutions. On March 7, 2001, there were 11 holders of record of the
Company's Class B common stock (the "Class B Common Stock" together with the
Class A Common Stock, the "Common Stock").
The Company was incorporated in 1995 and has never paid cash dividends on
either the Class A Common Stock or the Class B Common Stock. The declaration and
payment of dividends by the Company are subject to the discretion of the Board
of Directors. Any determination as to the payment of dividends will depend upon
the results of operations, capital requirements and financial condition of the
Company, and such other factors as the Board of Directors may deem relevant.
Accordingly, there can be no assurance that the Board of Directors will declare
or pay dividends on the shares of Common Stock in the future. The certificate of
incorporation of the Company requires that any cash dividends must be paid
equally on each outstanding share of Class A Common Stock and Class B Common
Stock. The Company's credit facility and private placement debt prohibit the
Company from paying dividends on the Common Stock if there has been, or
immediately following the payment of a dividend would be, a default or an event
of default under the credit facility or private placement debt. The Company is
currently in compliance with the covenants contained in the credit facility and
private placement debt.
9
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(in thousands except per share data)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997(1) 1996(2)
------------ ------------- ------------ -------------- --------------
STATEMENT OF OPERATIONS DATA:
Revenue $ 1,384,379 $ 1,296,799 $ 1,145,906 $ 1,064,479 $ 754,243
Gross margin 173,278 162,415 138,334 129,855 91,564
Operating income 18,399 30,134 26,406 33,495 27,925
Income before minority interest and taxes 7,872 23,659 25,324 32,869 27,704
Income before taxes 7,825 18,384 15,205 15,874 11,338
Historical net income 4,617 10,846 8,908 9,525 7,044
Historical basic earnings per common share $ 0.60 $ 1.41 $ 1.16 $ 1.48 $ 1.41
Historical diluted earnings per common share $ 0.60 $ 1.40 $ 1.15 $ 1.46 $ 1.39
Pro forma provision for additional income taxes(3) 241
Pro forma net income $ 6,803
Pro forma basic earnings per common share $ 1.36
Pro forma diluted earnings per common share $ 1.35
AS OF DECEMBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997(1) 1996(2)
------------ ------------- ------------ ------------- ---------------
BALANCE SHEET DATA:
Working capital $ 477 $ 21,912 $ 20,313 $ 15,209 $ 15,877
Total assets 467,245 441,119 304,791 267,826 201,225
Long-term debt, excluding current portion 109,089 131,414 29,589 22,873 28,714
Stockholders' equity 135,772 131,124 119,673 110,462 46,124
(1) In September 1997, the Company issued 1,725,000 shares of Class A common
stock through a secondary offering which resulted in net proceeds of
approximately $54,763,000. These proceeds were used to purchase the remaining
70% minority interest in Hub City Los Angeles, L.P. and Hub City Golden Gate,
L.P.
(2) On March 18, 1996, Hub Group, Inc. purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition through the issuance of 1,000,000
shares of the Company's Class A common stock and 662,296 shares of the Company's
Class B common stock. Hub Chicago has been accounted for similar to the pooling
of interests method of accounting and has been included in all periods presented
on a historical cost basis. Concurrent with the acquisition of Hub Chicago, the
Company completed the initial public offering of 4,261,250 shares of its Class A
common stock, with net proceeds to the Company of approximately $52,945,000.
Coincident with the initial public offering, a selling stockholder sold
1,000,000 shares of the Company's Class A common stock through a secondary
offering. The Company did not receive any net proceeds from the sale of the
shares by the selling stockholder. Concurrent with the initial public offering,
the Company acquired with cash a controlling interest in each of 27 operating
partnerships. On May 2, 1996, the Company acquired the rights to service the
customers of American President Lines Domestic Distribution Services.
(3) Prior to March 18, 1996, the Company was an S corporation and not subject to
federal corporate income taxes. On March 18, 1996, the Company changed its
status from an S corporation to a C corporation. The statement of operations
data reflects a pro forma provision for income taxes as if the Company were
subject to federal and state corporate income taxes for all periods presented.
The pro forma provision reflects a combined federal and state tax rate of 40%.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL STRUCTURE
Hub Group, Inc. (the "Company") was incorporated on March 8, 1995. On
March 18, 1996, Hub Group, Inc. purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition through the issuance of 1,000,000
shares of Class A common stock and 662,296 shares of Class B common stock. Hub
Chicago has been accounted for similar to the pooling of interests method of
accounting and has been included in all periods presented on a historical cost
basis. Concurrent with the acquisition of Hub Chicago in March 1996, Hub Group,
Inc. completed the initial public offering of 4,261,250 shares of its Class A
common stock. Coincident with the initial public offering, a selling stockholder
sold 1,000,000 shares of Hub Group, Inc. Class A common stock through a
secondary offering. In September 1997, Hub Group, Inc. completed a secondary
offering of 1,725,000 shares of Hub Group, Inc.'s Class A common stock.
BUSINESS COMBINATIONS
On April 1, 1998, the Company acquired all of the outstanding stock of
Quality Intermodal Corporation ("Quality"). Quality primarily offered intermodal
and truckload brokerage services with offices in Houston, Dallas, Los Angeles,
Chicago, Atlanta and Philadelphia. The Company absorbed the Quality business
directly into its existing operations.
On August 1, 1998, the Company acquired the rights to service the
customers of Corporate Express Distribution Services ("CEDS") as well as certain
fixed assets. The CEDS business is being operated by Hub Group Distribution
Services ("Hub Distribution"), the Company's niche logistics services provider.
CEDS was a provider of niche logistics services including a pharmaceutical
sample delivery operation.
CALL OPTIONS
On April 1, 1998, the Company exercised its call options to acquire the
remaining 70% minority interests in Hub City Rio Grande, L.P., Hub City Dallas,
L.P., and Hub City Houston, L.P. ("Texas Hubs"). The Company paid $6.2 million
in cash.
On April 1, 1999, Hub Group, Inc. exercised its call options to acquire
the remaining 70% minority interests in Hub City Alabama, L.P., Hub City
Atlanta, L.P., Hub City Boston, L.P., Hub City Canada, L.P., Hub City Cleveland,
L.P., Hub City Detroit, L.P., Hub City Florida, L.P., Hub City Indianapolis,
L.P., Hub City Kansas City, L.P., Hub City Mid-Atlantic, L.P., Hub City
New York/New Jersey, L.P., Hub City New York State, L.P., Hub City Ohio, L.P.,
Hub City Philadelphia, L.P., Hub City Pittsburgh, L.P., Hub City Portland, L.P.,
and Hub City St. Louis, L.P. (collectively referred to as the "April 1999
Purchase"). The Company paid $108.7 million in cash.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUE
Revenue for the Company increased 6.8% to $1,384.4 million in 2000 from
$1,296.8 million in 1999. Early in 2000, the Company's underlying rail and
truckload carriers began passing on significant price increases related to the
increase in the cost of fuel. Accordingly, the Company increased the prices it
charges its customers. Based on the timing and magnitude of these increases,
management estimates that such increases caused the Company's revenue to grow 4%
to 5% for the year. Absent this increase, management estimates that revenue
growth would have ranged from 2% to 3% for the year. Intermodal revenue
increased 3.9% over 1999. Management believes that this slower than historical
growth in intermodal is due in part to a softening economy and the termination
11
of a significant customer contract in November 1999. Truckload brokerage
revenue increased 5.7% over 1999. Logistics revenue increased 29.2% compared to
1999. This increase was primarily due to growth in the Company's supply chain
solutions logistics services revenue.
GROSS MARGIN
Gross margin increased 6.7% to $173.3 million in 2000 from $162.4
million in 1999. Gross margin as a percentage of revenue remained constant at
12.5%.
SALARIES AND BENEFITS
Salaries and benefits increased 14.4% to $96.2 million in 2000 from
$84.1 million in 1999. As a percentage of revenue, salaries and benefits
increased to 6.9% from 6.5% in 1999. The increase in the percentage is primarily
attributed to increased headcount supporting the Company's growing base of
service offerings, information technology initiatives and e-business
initiatives. The additional service offerings include the operational and sales
support of boxcar, flat bed, expedited and certain logistics applications.
Additionally, in the fourth quarter of 2000, the Company recognized a $0.3
million charge related to severance primarily for accounting personnel as part
of a plan to centralize the Company's accounting functions at its corporate
headquarters in 2001.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 22.5% to $46.8
million in 2000 from $38.2 million in 1999. As a percentage of revenue, these
expenses increased to 3.4% from 2.9% in 1999. The increase as a percentage of
revenue is primarily attributed to expenditures related to equipment leases,
data center and data communications costs and rent. The increase in equipment
leases is primarily due to the leasing of computer hardware required to support
both newly developed and future software applications. The increase in data
communication costs and costs associated with the recently outsourced data
center are related to supporting the Company's information technology
initiatives. Rent expense increased as the Company's operating units were
required to obtain larger office space to accommodate operations.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization increased 51.9% to $6.1 million in 2000
from $4.0 million in 1999. This expense as a percentage of revenue increased to
0.4% from 0.3% in 1999. The increase is primarily related to the amortization of
internally developed software for the Company's e-business initiatives.
Additionally, in the fourth quarter of 2000, the Company recognized $0.5 million
in additional depreciation due primarily to a change in estimated useful lives
of various assets that will no longer be used once the new operating system is
completed.
AMORTIZATION OF GOODWILL
Amortization of goodwill increased 13.3% to $5.7 million from $5.1
million in 1999. The expense as a percentage of revenue remained constant at
0.4%. The $0.6 million increase in expense over 1999 is attributable to having a
full year of amortization of the goodwill associated with the purchase of the
remaining 70% minority interests in connection with the April 1999 Purchase.
OTHER INCOME (EXPENSE)
Interest expense increased to $11.4 million in 2000 from $8.6 million
in 1999. The increase in interest expense is due primarily to having a full year
of the debt required to fund the purchase of the remaining 70% minority
interests in connection with the April 1999 Purchase.
Interest income decreased to $0.8 million in 2000 from $0.9 million in
1999. The primary cause for this decrease is the Company's increased
concentration of cash balances to reduce debt and minimize related interest
expense.
12
Other income decreased to $0.1 million in 2000 from $1.2 million in
1999. This decrease is primarily attributed to $1.0 million of non-recurring
income recognized in 1999 upon execution of a confidential agreement with one of
the Company's vendors.
MINORITY INTEREST
Minority interest decreased to $0.0 million in 2000 from $5.3 million
in 1999. Minority interest as a percentage of income before minority interest
and provision for income taxes was 0.6% in 2000 compared to 22.3% in 1999. The
decrease in the percentage is attributed to the lack of income for Hub
Distribution and the purchase of the remaining 70% minority interests in
connection with the April 1999 Purchase.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased 57.4% to $3.2 million in 2000
compared to $7.5 million in 1999. The Company provided for income taxes using an
effective rate of 41.0% in both years.
NET INCOME
Net income decreased 57.4% to $4.6 million in 2000 from $10.8 million
in 1999.
EARNINGS PER COMMON SHARE
Basic earnings per common share decreased 57.4% to $0.60 in 2000 from
$1.41 in 1999. Diluted earnings per common share decreased 57.1% to $0.60 in
2000 from $1.40 in 1999.
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE
Revenue for the Company increased 13.2% to $1,296.8 million in 1999
from $1,145.9 million in 1998. Intermodal revenue increased 6.2% over 1998.
Management believes that the service disruption from the split-up of Conrail
which began on June 1, 1999, negatively impacted intermodal revenue growth.
Truckload brokerage revenue increased 19.3% over 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 88.3% compared to 1998. This increase was primarily
due to the increase in revenue from the Company's niche logistics services
performed by Hub Distribution.
GROSS MARGIN
Gross margin increased 17.4% to $162.4 million in 1999 from $138.3
million in 1998. Gross margin as a percentage of revenue increased to 12.5% from
12.1% in 1998. Management believes the primary cause of this increase is the
growth in niche logistics services, which earns a higher gross margin percentage
of revenue than does the Company's core intermodal and brokerage service
offerings.
SALARIES AND BENEFITS
Salaries and benefits increased 16.0% to $84.1 million in 1999 from
$72.5 million in 1998. As a percentage of revenue, salaries and benefits
increased to 6.5% from 6.3% in 1998. The increase in the percentage is primarily
attributed to the increased headcount supporting the Company's information
technology initiatives and growth in niche logistics services. The Company's
niche logistics services requires a higher level of salaries and benefits as
compared to revenue than does the Company's core intermodal and brokerage
service offerings.
13
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 16.3% to $38.2
million in 1999 from $32.9 million in 1998. These expenses as a percentage of
revenue remained constant at 2.9%. While the percentage of revenue is consistent
with the prior year, the $5.3 million increase in expenses is primarily
attributed to information systems, travel and outside services. The Company's
increased information systems expenditures related to consulting, Year 2000
remediation and validation, and enhancements to the Company's operating system.
Travel and related expenses increased due primarily to a national sales meeting
held in 1999 that was not held in the previous year and increased expenditures
to support growth in the Company's niche logistics services. Outside service
expenditures relate to contracted temporary labor and other services to handle
increased business for niche logistics services and outside sales commissions.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization increased 9.5% to $4.0 million in 1999
from $3.7 million in 1998. This expense as a percentage of revenue remained
constant at 0.3%.
AMORTIZATION OF GOODWILL
Amortization of goodwill increased 74.1% to $5.1 million in 1999 from
$2.9 million in 1998. The expense as a percentage of revenue increased to 0.4%
from 0.3% in 1998. The increase in expense is primarily attributable to the
amortization of the goodwill associated with the purchase of the remaining 70%
minority interests in connection with the April 1999 Purchase.
IMPAIRMENT OF PROPERTY AND EQUIPMENT
In the second quarter of 1999, a $0.9 million pretax charge was
recorded relating to certain operating software applications. Specifically, $0.7
million of this charge was attributable to a write-down of the Visual Movement
software previously used primarily for brokerage. The Visual Movement software
is no longer being used by the Company and was replaced with enhancements to the
Company's proprietary intermodal operating software during the second quarter of
1999. These enhancements allow for greater network visibility of loads. The
remaining $0.2 million impairment loss related to the write-down of a logistics
software program. The fair value was determined based on the estimated future
cash flows attributable to the single customer using this program. The Company
installed a new software package in 1999 that provides enhanced functionality
for its operational applications.
OTHER INCOME (EXPENSE)
Interest expense increased to $8.6 million in 1999 from $2.5 million in
1998. The increase in interest expense is due primarily to the additional debt
required to fund the purchase of the remaining 70% minority interests in
connection with the April 1999 Purchase. In addition, debt increased as a result
of the acquisition of Quality and the purchase of the minority interests in the
Texas Hubs in April 1998.
Interest income decreased to $0.9 million in 1999 from $1.0 million in
1998. The primary cause for this decrease is the Company's increased
concentration of its cash balances to reduce debt and minimize interest expense
on borrowings.
Other income of $1.2 million in 1999 is primarily due to non-recurring
income recognized upon execution of an agreement with one of the Company's
vendors.
MINORITY INTEREST
Minority interest decreased 47.9% to $5.3 million in 1999 from $10.1
million in 1998. Minority interest as a percentage of income before minority
interest and provision for income taxes was 22.3% in 1999 compared to 40.0% in
14
1998. The decrease in the percentage is primarily attributed to the purchase of
the remaining 70% minority interests in connection with the April 1999 Purchase
as well as the purchase of minority interests in the Texas Hubs in April 1998.
PROVISION FOR INCOME TAXES
The provision for income taxes increased 19.7% to $7.5 million compared
to $6.3 million in 1998. The Company provided for income taxes using an
effective rate of 41.0% in 1999 versus 41.4% in 1998.
NET INCOME
Net income increased 21.8% to $10.8 million in 1999 from $8.9 million
in 1998. Historical net income as a percentage of revenue remained constant at
0.8%.
EARNINGS PER COMMON SHARE
Basic earnings per common share increased 21.6% to $1.41 from $1.16 in
1998. Diluted earnings per common share increased 21.7% to $1.40 in 1999 from
$1.15 in 1998.
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 year ended December 31,
2000, was approximately $41.4 million, which resulted primarily from an increase
in accounts payable and accrued expenses of $27.3 million, non-cash charges of
$16.0 million and net income of $4.6 million, offset by a $5.5 million increase
in accounts receivable and a $0.8 million increase in prepaid expenses and other
current assets, all of which were primarily related to the overall growth of the
Company.
Net cash used in investing activities for the year ended December 31,
2000, was $26.6 million related to capital expenditures. The capital
expenditures were principally made to enhance the Company's information system
capabilities. The most significant projects were Customer Advantage, a web-based
system used to transact business with our customers, and a customized operating
system.
The net cash used in financing activities for the year ended December
31, 2000, was $16.6 million. This was primarily comprised of $10.0 million of
voluntary payments on the Company's line of credit and $6.2 million of scheduled
payments on the Company's term debt, installment notes and capital leases.
The Company maintains a multi-bank credit facility. The facility is
comprised of $50.0 million in term debt and a $50.0 million revolving line of
credit. At December 31, 2000, there was $42.0 million of outstanding term debt
and $24.0 million outstanding and $26.0 million unused and available under the
line of credit. Borrowings under the line of credit are unsecured and have a
five-year term that began on April 30, 1999, with a floating interest rate based
upon the LIBOR (London Interbank Offered Rate) or Prime Rate. The term debt has
quarterly payments ranging from $1,250,000 to $2,000,000 with a balloon payment
of $19.0 million due on March 31, 2004.
On November 7, 2000, the Company amended its unsecured $50.0 million
term debt and the $50.0 million five-year revolving line of credit agreement.
The amendment increases the borrowing rate ranges of both the term note and
revolving line of credit. Under the amended line of credit, the Company can
borrow, at its option, at the prime rate plus 0.25% to 1.25% or at a rate
established at the bank's discretion on a day-to-day basis. The Company may also
borrow for 30, 60, 90 or 180 day periods at LIBOR plus 1.50% to 2.75% based on
the Company's funded debt to EBITDAM (earnings before interest expense, income
taxes, depreciation, amortization and minority interest) ratio. Under the
amended term debt, the Company can borrow at the prime rate plus 0.25% to 1.50%
on a day-to-day basis or may borrow for 30, 60, 90 or 180 day periods at LIBOR
plus 1.75% to 3.00% based on the Company's funded debt to EBITDAM ratio. The
credit facility also contains certain financial covenants which were amended.
15
These covenants require that the Company maintain required levels of EBITDAM,
funded debt to EBITDAM and fixed charge coverage ratios. The amendment has an
additional financial covenant that limits capital expenditures for 2001. The
Company was in compliance with the financial covenants that were effective as of
December 31, 2000.
On February 26, 2001, the Company executed a second amendment of its
unsecured $50.0 million term debt and the $50.0 million five-year revolving line
of credit agreement. The amendment has an additional financial covenant that
limits capital expenditures for 2002. All provisions of the November 7, 2000
amendment remained unchanged.
The Company maintains $50.0 million of private placement debt (the
"Notes"). These Notes are unsecured and have an eight-year average life.
Interest is paid quarterly. These Notes mature on June 25, 2009, with annual
payments of $10.0 million commencing on June 25, 2005.
On February 26, 2001, the Company amended the Notes. The amendment,
effective December 31, 2000, increases the borrowing rate from 8.64% to 9.14%.
The Notes also contain certain financial covenants which were amended. These
covenants require that the Company maintain required levels of funded debt to
EBITDAM and fixed charge coverage ratios. The amendment has an additional
financial covenant that provides limitations on capital expenditures for 2001
and 2002. The Company was in compliance with the financial covenants that were
effective as of December 31, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("Statement 133"),
"Accounting for Derivative Instruments and Hedging Activities". In June 1999,
The FASB issued Statement 137 ("Statement 137"), "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". In June 2000, the FASB issued Statement 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment of
FASB Statement No. 133". Statement 133, as amended, establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. As a
result of Statement 137, the Company will adopt Statement 133, as amended, in
the first quarter of 2001. The application of Statement 133, as amended, will
not have a material effect on the Company's financial position or results of
operations.
In March 2000, the FASB issued Interpretation No. 44
("Interpretation 44"), "Accounting for Certain Transactions involving Stock
Compensation," an interpretation of Accounting Principles Board Opinion No. 25
("Opinion 25"). Interpretation 44 clarifies (a) the definition of "employee" for
purposes of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of previously fixed stock options or awards, and (d)
the accounting for the exchange of stock compensation awards in a business
combination. Interpretation 44 was effective July 1, 2000, but certain
conclusions in Interpretation 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The application of Interpretation
44 did not have a material impact on the Company's financial position or results
of operations.
OUTLOOK, RISKS AND UNCERTAINTIES
Except for historical data, the information contained in this Annual
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
16
to those mentioned elsewhere in this section, such risks and uncertainties
include the impact of competitive pressures in the marketplace, including the
entry of new, web-based competitors and direct marketing efforts by the
railroads, the degree and rate of market growth in the intermodal, brokerage and
logistics markets served by the Company, changes in rail and truck capacity,
further consolidation of rail carriers, deterioration in relationships with
existing rail carriers, rail service conditions, changes in governmental
regulation, adverse weather conditions, fuel shortages, changes in the cost of
services from rail, drayage and other vendors and fluctuations in interest
rates.
BUSINESS COMBINATIONS/DIVESTITURES
Management believes that future acquisitions or dispositions made by
the Company could significantly impact financial results. Financial results most
likely to be impacted include but are not limited to revenue, gross margin,
salaries and benefits, selling general and administrative expenses, depreciation
and amortization, interest expense, minority interest, net income and the
Company's debt level. Financial results may be impacted by additional factors as
discussed below.
REVENUE
Management believes that the performance of the railroads, elimination
of fuel surcharges and a more severe or prolonged slow-down of the economy are
the most significant factors that could negatively influence the Company's
revenue growth rate. The service disruptions in the intermodal industry due to
the split-up of Conrail, which began on June 1, 1999, appear to have been
significantly rectified. Should this trend reverse, the Company believes its
intermodal growth rate would likely be negatively impacted. Should there be
further consolidation in the rail industry, causing a similar or more severe
service disruption, the Company believes its intermodal growth rate would likely
be negatively impacted. Should there be another significant service disruption,
the Company expects there may be some customers who would switch from using the
Company's intermodal service to other carriers' over-the-road service. The
Company expects these customers may choose to continue to utilize these carriers
even when intermodal service levels are restored. Starting in the Spring of
2000, the Company has billed its customers on average an additional 5-6% to
cover the costs of fuel surcharges. Should fuel surcharges be eliminated or
reduced significantly, the Company expects that the revenue growth rate could be
negatively impacted. Other factors that could negatively influence the Company's
growth rate include, but are not limited to, the entry of new web-based
competitors, inadequate drayage service and inadequate equipment supply.
GROSS MARGIN
Management expects fluctuations in the gross margin percentage from
quarter-to-quarter caused by changes in business mix, intermodal margins,
highway brokerage margins, logistics business margins, trailer and container
capacity, vendor pricing, intermodal industry growth, intermodal industry
service levels, competition and accounting estimates.
SALARIES AND BENEFITS
It is anticipated that salaries and benefits as a percentage of revenue
could fluctuate from quarter-to-quarter as there are timing differences between
revenue increases and changes in levels of staffing. Should the Company
eliminate positions due to automation resulting from systems enhancements or
centralizing functions, this expense, as a percent of revenue, is likely to be
reduced. Additional factors that could affect the percentage from staying in the
recent historical range are revenue growth rates significantly higher or lower
than forecasted, a management decision to invest in additional personnel to
stimulate new or existing businesses, such as the Company's expedited services
initiative, changes in customer requirements and changes in railroad intermodal
service levels which could result in a lower or higher cost of labor per move.
SELLING, GENERAL AND ADMINISTRATIVE
There are several factors that could cause selling, general and
administrative expenses to increase as a percentage of revenue. As customer
17
expectations and the competitive environment require the development of
web-based business interfaces and the restructuring of the Company's information
systems and related platforms, the Company believes there could be significant
expenses incurred, some of which would not be capitalized. Costs incurred to
formulate the Company's strategy as well as any costs that would be identified
as reengineering or training would be expensed.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Management estimates that as a percentage of revenue depreciation and
amortization of property and equipment will increase significantly in the
future. The most significant factor that will cause an increase in the
percentage is increased software amortization related to improvements in the
Company's information systems. During the first half of 2001, the Company
expects to place in service its new proprietary operating system, a purchased
logistics package and various web applications. Additionally, the Company has
accelerated depreciation due to a change in estimated useful lives of various
assets to be replaced by this new operating system. This change in estimate will
result in additional depreciation of approximately $0.9 million in the first
quarter of 2001. Additional factors that could cause an increase in the
percentage are increased depreciation expense if the Company decided to purchase
rather than lease a greater proportion of assets or accelerating depreciation
due to changes in useful lives of existing assets.
AMORTIZATION OF GOODWILL
Management estimates that amortization of goodwill will likely remain
relatively consistent with the prior year. Additional acquisitions resulting in
the recording of goodwill could cause an increase in the percentage.
IMPAIRMENT OF PROPERTY AND EQUIPMENT
On an ongoing basis, the Company assesses the realizability of its
assets. If, at any point during the year, management determines that an
impairment exists, the carrying amount of the asset is reduced by the
estimated impairment with a corresponding charge to earnings. If it is
determined that an impairment exists, management estimates that the write
down of specific assets could have a material adverse impact on earnings.
OTHER INCOME (EXPENSE)
Management estimates that as a percentage of revenue interest expense
will likely remain relatively consistent with the prior year. Items that could
cause higher debt costs in the future include an increase in the interest rates
as a result of amending the Company's Notes or credit facilities and a reduction
in capitalized interest from placing internally developed software into service.
Such higher costs could be offset by debt repayments anticipated in the year
2001. Factors that could cause interest to fluctuate higher or lower than
forecasted are changes in lending rates, unanticipated debt repayments,
unanticipated working capital needs, unanticipated software development expenses
and unanticipated capital expenditures.
Management estimates that as a percentage of revenue interest income
will likely remain relatively consistent with the prior year. Factors that could
cause a change are the possible use of cash to make debt repayments, fund
working capital needs and fund capital expenditures.
MINORITY INTEREST
Management estimates that minority interest as a percentage of revenue
will likely increase slightly in the future compared to 2000, based on the
expected profitability of Hub Distribution. Acquisitions of entities with a
minority interest, disposition of Hub Distribution or fluctuations in
profitability of Hub Distribution could have a material impact on minority
interest percentages of income before minority interest.
18
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash to be provided by operations, cash
available under its lines of credit and the Company's ability to obtain
additional credit will be sufficient to meet the Company's short-term working
capital and capital expenditure needs. The Company believes that the
aforementioned items are sufficient to meet its anticipated long-term working
capital, capital expenditure and debt repayment needs.
The Company estimates that its capital expenditures will not exceed
$12.0 million and $15.0 million in 2001 and 2002, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest
rates which may adversely affect its results of operations and financial
condition. The Company seeks to minimize the risk from interest rate volatility
through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. The Company
does not use financial instruments for trading purposes.
The Company has both fixed and variable rate debt as described in Note
8. The Company has entered into an interest rate swap agreement designated as a
hedge on a portion of the Company's variable rate debt. The purpose of the swap
is to fix the interest rate on a portion of the variable rate debt and reduce
certain exposures to interest rate fluctuations. At December 31, 2000, the
Company had an interest rate swap with a notional amount of $25.0 million, a
weighted average pay rate of 8.37%, a weighted average receive rate of 9.19% and
a maturity date of September 30, 2002. This swap agreement involves the exchange
of amounts based on the variable interest rate for amounts based on the fixed
interest rate over the life of the agreement, without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an adjustment
of interest expense related to the debt.
The main objective of interest rate risk management is to reduce the
total funding cost to the Company and to alter the interest rate exposure to the
desired risk profile.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Public Accountants 21
Consolidated Balance Sheets - December 31, 2000 and December 31, 1999 22
Consolidated Statements of Operations - Years ended December 31, 2000,
December 31, 1999 and December 31, 1998 23
Consolidated Statements of Stockholders' Equity - Years ended December
31, 2000, December 31, 1999 and December 31, 1998 24
Consolidated Statements of Cash Flows - Years ended December 31, 2000,
December 31, 1999 and December 31, 1998 25
Notes to Consolidated Financial Statements 26
Schedule II - Valuation and Qualifying Accounts S-1
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Hub Group, Inc.:
We have audited the accompanying consolidated balance sheets of Hub
Group, Inc. (a Delaware corporation) as of December 31, 2000 and 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hub Group,
Inc. as of December 31, 2000 and 1999, and the results of its operations and
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule on page S-1 is presented for
purposes of complying with the Securities and Exchange Commissions rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 2001
(except with respect to the
matter discussed in Note 8,
as to which the date is
February 26, 2001)
21
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
DECEMBER 31,
-------------------------------
2000 1999
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 1,865
Accounts receivable, net 195,765 190,221
Deferred taxes 7,933 408
Prepaid expenses and other current assets 3,609 2,771
--------------- --------------
TOTAL CURRENT ASSETS 207,307 195,265
PROPERTY AND EQUIPMENT, net 43,854 24,244
GOODWILL, net 213,907 219,648
OTHER ASSETS 2,177 1,962
--------------- --------------
TOTAL ASSETS $ 467,245 $ 441,119
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 166,743 $ 141,592
Other 8,529 11,246
Accrued expenses
Payroll 9,559 7,936
Other 9,658 6,384
Current portion of long-term debt 12,341 6,195
--------------- --------------
TOTAL CURRENT LIABILITIES 206,830 173,353
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 109,089 131,414
DEFERRED TAXES 15,202 4,469
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 352 759
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares
issued or outstanding in 2000 and 1999. - -
Common stock,
Class A: $.01 par value; 12,337,700 shares authorized; 7,046,050
shares issued and outstanding in 2000, 7,043,950 shares issued and
outstanding in 1999. 70 70
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares
issued and outstanding in 2000 and 1999. 7 7
Additional paid-in capital 110,817 110,786
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 40,336 35,719
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 135,772 131,124
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 467,245 $ 441,119
=============== ==============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Revenue $ 1,384,379 $ 1,296,799 $ 1,145,906
Transportation costs 1,211,101 1,134,384 1,007,572
-------------- -------------- --------------
Gross margin 173,278 162,415 138,334
Costs and expenses:
Salaries and benefits 96,201 84,082 72,465
Selling, general and administrative 46,840 38,232 32,885
Depreciation and amortization of property and equipment 6,097 4,014 3,666
Amortization of goodwill 5,741 5,069 2,912
Impairment of property and equipment - 884 -
-------------- -------------- --------------
Total costs and expenses 154,879 132,281 111,928
Operating income 18,399 30,134 26,406
-------------- -------------- --------------
Other income (expense):
Interest expense (11,442) (8,592) (2,480)
Interest income 779 926 1,014
Other, net 136 1,191 384
-------------- -------------- --------------
Total other expense (10,527) (6,475) (1,082)
Income before minority interest and provision for income taxes 7,872 23,659 25,324
-------------- -------------- --------------
Minority interest 47 5,275 10,119
-------------- -------------- --------------
Income before provision for income taxes 7,825 18,384 15,205
Provision for income taxes 3,208 7,538 6,297
-------------- -------------- --------------
Net income $ 4,617 $ 10,846 $ 8,908
============== ============== ==============
Basic earnings per common share $ 0.60 $ 1.41 $ 1.16
============== ============== ==============
Diluted earnings per common share $ 0.60 $ 1.40 $ 1.15
============== ============== ==============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 2000
(in thousands, except shares)
TAX BENEFIT
PURCHASE OF PURCHASE
CLASS A & B 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 January 1, 1998 7,653,246 $ 77 $ 109,878 $ (25,764) $ 10,306 $ 15,965 $ 110,462
Net income - - - - - 8,908 8,908
Exercise of non-qualified
stock options 19,000 - 303 - - - 303
------------ -------- ------------ --------------- -------------- ------------ --------------
Balance at December 31, 1998 7,672,246 77 110,181 (25,764) 10,306 24,873 119,673
Net income - - - - - 10,846 10,846
Exercise of non-qualified
stock options 34,000 - 605 - - - 605
------------ -------- ------------ --------------- -------------- ------------ --------------
Balance at December 31, 1999 7,706,246 77 110,786 (25,764) 10,306 35,719 131,124
Net income - - - - - 4,617 4,617
Exercise of non-qualified
stock options 2,100 - 31 - - - 31
------------ -------- ------------ --------------- -------------- ------------ --------------
Balance at December 31, 2000 7,708,346 $ 77 $ 110,817 $ (25,764) $ 10,306 $ 40,336 $ 135,772
============ ======== ============ =============== ============== ============ ==============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
24
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Cash flows from operating activities:
Net income $ 4,617 $ 10,846 $ 8,908
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 6,875 5,013 4,743
Amortization of goodwill 5,741 5,069 2,913
Impairment of property and equipment - 884 -
Deferred taxes 3,208 1,754 6,008
Minority interest 47 5,275 10,119
Loss on sale of assets 128 205 135
Changes in working capital, net of effects of purchase transactions:
Accounts receivable, net (5,544) (42,117) (11,978)
Prepaid expenses and other current assets (838) 3,265 (4,018)
Accounts payable 22,434 21,416 8,933
Accrued expenses 4,897 1,649 2,758
Other assets (215) (1,458) 167
------------ ------------ -----------
Net cash provided by operating activities 41,350 11,801 28,688
------------ ------------ -----------
Cash flows from investing activities:
Cash used in acquisitions, net - - (3,989)
Purchases of minority interest - (108,710) (6,730)
Purchases of property and equipment, net (26,613) (11,234) (3,975)
------------ ------------ -----------
Net cash used in investing activities (26,613) (119,944) (14,694)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from sale of common stock 31 605 303
Distributions to minority interest (454) (10,484) (10,939)
Payments on long-term debt (16,206) (50,930) (28,843)
Proceeds from issuance of long-term debt 27 155,639 28,607
------------ ------------ -----------
Net cash provided by/(used in) financing activities (16,602) 94,830 (10,872)
------------ ------------ -----------
Net increase/(decrease) in cash and cash equivalents (1,865) (13,313) 3,122
Cash and cash equivalents, beginning of period 1,865 15,178 12,056
------------ ------------ -----------
Cash and cash equivalents, end of period $ - $ 1,865 $ 15,178
------------ ------------ -----------
Supplemental disclosures of cash flow information Cash paid for:
Interest $ 12,520 $ 8,293 $ 2,343
Income taxes 567 2,474 2,680
Non-cash financing activity:
Acquisition purchase price adjustment of note payable $ - $ 150 $ -
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
HUB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BUSINESS: Hub Group, Inc. (the "Company") provides intermodal transportation
services utilizing primarily third party arrangements with railroads and drayage
companies. The Company also arranges for transportation of freight by truck
and performs logistics services.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Hub Group, Inc. and all entities in which the Company has more than
a 50% equity ownership or otherwise exercises unilateral control. All
significant intercompany balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS: The Company considers as cash equivalents all highly
liquid instruments with an original maturity of three months or less. Checks
outstanding, net, of approximately $23,494,000 and $13,638,000 at December 31,
2000 and 1999, respectively, are included in accounts payable.
RECEIVABLES: The Company's reserve for uncollectible accounts receivable was
approximately $2,675,000 and $2,134,000 at December 31, 2000 and 1999,
respectively.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation
of property and equipment is computed using the straight-line and various
accelerated methods at rates adequate to depreciate the cost of applicable
assets over their expected useful lives: buildings and improvements, 15 to 40
years; leasehold improvements, the shorter of useful life or lease term;
computer equipment and software, 3 to 5 years; furniture and equipment, 3 to 10
years; and transportation equipment and automobiles, 3 to 12 years. Direct costs
related to internally developed software projects are capitalized and amortized
over their expected useful life on a straight-line basis not to exceed five
years, commencing when the asset is placed into service. Interest is capitalized
on qualifying assets under development for internal use. Maintenance and repairs
are charged to operations as incurred and major improvements are capitalized.
The cost of assets retired or otherwise disposed of and the accumulated
depreciation thereon are removed from the accounts with any gain or loss
realized upon sale or disposal charged or credited to operations.
GOODWILL: Goodwill is amortized on the straight-line method over 40 years. On an
ongoing basis, the Company estimates the future undiscounted cash flows before
interest of the operating units to which goodwill relates in order to evaluate
impairment. If impairment exists, the carrying amount of the goodwill is reduced
by the estimated shortfall of cash flows. The Company has not experienced any
impairment of goodwill. Accumulated goodwill amortization was $15,774,000 and
$10,032,000 as of December 31, 2000 and 1999, respectively.
CONCENTRATION OF CREDIT RISK: The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company places its cash and temporary
investments with high quality financial institutions. At times, such investments
may be in excess of the FDIC insurance limit. Temporary investments are valued
at the lower of cost or market and at the balance sheet dates approximate fair
market value. The Company primarily serves customers located throughout the
United States with no significant concentration in any one region. No one
customer accounted for more than 10% of revenue in 1998, 1999 or 2000. The
Company reviews a customer's credit history before extending credit. In
addition, the Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its trade accounts receivable risk is
limited.
REVENUE RECOGNITION: Revenue represents sales of services to customers.
Revenue is recognized based on relative transit time.
INCOME TAXES: The Company accounts for certain income and expense items
differently for financial reporting and income tax purposes. Deferred tax assets
and liabilities are determined based on the difference between the financial
26
statement and tax bases of assets and liabilities applying enacted statutory tax
rates in effect for the year in which the differences are expected to reverse.
EARNINGS PER COMMON SHARE: In accordance with Statement of Financial Accounting
Standards No. 128 ("Statement 128"), "Earnings per Share", basic earnings per
common share are based on the average quarterly weighted average number of Class
A and Class B shares of common stock outstanding. Diluted earnings per common
share are adjusted for the assumed exercise of dilutive stock options. In
computing the per share effect of assumed exercise, funds which would have been
received from the exercise of options, including tax benefits assumed to be
realized, are considered to have been used to purchase shares at current market
prices, and the resulting net additional shares are included in the calculation
of weighted average shares outstanding.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenue and expense during the reporting
period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("Statement 133"),
"Accounting for Derivative Instruments and Hedging Activities". In June 1999,
The FASB issued Statement 137 ("Statement 137"), "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". In June 2000, the FASB issued Statement 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment of
FASB Statement No. 133". Statement 133, as amended, establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. As a
result of Statement 137, the Company will adopt Statement 133, as amended, in
the first quarter of 2001. The application of Statement 133, as amended, will
not have a material effect on the Company's financial position or results of
operations.
In March 2000, the FASB issued Interpretation No. 44 ("Interpretation
44"), "Accounting for Certain Transactions involving Stock Compensation," an
interpretation of Accounting Principles Board Opinion No. 25 ("Opinion 25").
Interpretation 44 clarifies (a) the definition of "employee" for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of previously fixed stock options or awards, and (d)
the accounting for the exchange of stock compensation awards in a business
combination. Interpretation 44 was effective July 1, 2000, but certain
conclusions in Interpretation 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The application of Interpretation
44 did not have a material impact on the Company's financial position or results
of operations.
RECLASSIFICATIONS: Certain items previously reported have been reclassified to
conform with the 2000 presentation.
NOTE 2. CAPITAL STRUCTURE
On March 8, 1995, Hub Group, Inc. was incorporated and issued 100
shares of Class A common stock to the sole incorporator. On March 18, 1996, Hub
Group, Inc. purchased Hub City Terminals, Inc. ("Hub Chicago") in a
stock-for-stock acquisition through the issuance of 1,000,000 shares of the
Company's Class A common stock and 662,296 shares of the Company's Class B
common stock. The rights of holders of Class A common stock and Class B common
stock are identical, except each share of Class B common stock entitles its
holder to 20 votes, while each share of Class A common stock entitles its holder
to one vote. Hub Chicago has been accounted for similar to the pooling of
interests method of accounting.
In September 1997, the Company completed a secondary offering of
1,725,000 shares of its Class A common stock. The net proceeds of the offering
were approximately $54.8 million.
27
NOTE 3. BUSINESS COMBINATIONS
On April 1, 1998, the Company acquired all the outstanding stock of
Quality Intermodal Corporation for $4,080,000 in cash and a $6,100,000
three-year note, bearing interest at an annual rate of 5.6%. The acquisition was
recorded using the purchase method of accounting resulting in preliminary
goodwill of $9,458,000. The purchase price was subsequently adjusted resulting
in goodwill of $9,608,000.
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.
Business acquisitions which involved the use of cash were accounted for as
follows:
YEAR ENDED
DECEMBER 31,
1998
---------------
(000'S)
Accounts receivable $ 8,453
Prepaid expenses and other current assets 57
Property and equipment 398
Goodwill 9,890
Other assets 3
Accounts payable (7,486)
Accrued expenses (641)
Long-term debt (6,685)
---------------
Cash used in acquisitions, net $ 3,989
---------------
NOTE 4. EARNINGS PER SHARE
The following is a reconciliation of the Company's Earnings Per Share:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------ ------------------------ -------------------------
(000'S) (000'S) (000'S)
-------------- --------------- --------------
Per-Share Per-Share Per-Share
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------- ------ --------- ------ ------ ----------
HISTORICAL BASIC EPS
Income available to
common stockholders $4,617 7,708 $0.60 $10,846 7,693 $1.41 $8,908 7,657 $1.16
------ ------ --------- ------- ------ --------- ------ ------ ----------
EFFECT OF DILUTIVE SECURITIES
Stock options - 8 - - 67 - - 72 -
------ ------ --------- ------- ------ --------- ------ ------ ----------
HISTORICAL DILUTED EPS
Income available to
common stockholders
plus assumed exercises $4,617 7,716 $0.60 $10,846 7,760 $1.40 $8,908 7,729 $1.15
------ ------ --------- ------- ------ --------- ------ ------ ----------
28
NOTE 5. PURCHASES OF MINORITY INTEREST
On April 1, 1998, the Company purchased the remaining 70% minority
interests in Hub City Dallas, L.P., Hub City Houston, L.P. and Hub City Rio
Grande, L.P. for approximately $6,152,000 in cash. The purchase price was
subsequently adjusted, resulting in goodwill of $6,730,000.
On April 1, 1999, the Company purchased the remaining 70% minority
interests in Hub City Alabama, L.P., Hub City Atlanta, L.P., Hub City Boston,
L.P., Hub City Canada, L.P., Hub City Cleveland, L.P., Hub City Detroit, L.P.,
Hub City Florida, L.P., Hub City Indianapolis, L.P., Hub City Kansas City, L.P.,
Hub City Mid-Atlantic, L.P., Hub City New York/New Jersey, L.P., Hub City New
York State, L.P., Hub City Ohio, L.P., Hub City Philadelphia, L.P., Hub City
Pittsburgh, L.P., Hub City Portland, L.P., and Hub City St. Louis, L.P. for
approximately $108,710,000 in cash (collectively referred to as the "April 1999
Purchase"). 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.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
YEARS ENDED DECEMBER 31,
---------------------------
2000 1999
------------- ------------
(000'S)
Building and improvements $ 57 $ 56
Leasehold improvements 2,111 1,526
Computer equipment and software 46,396 23,795
Furniture and equipment 7,635 6,365
Transportation equipment and automobiles 3,678 4,742
------------- ------------
59,877 36,484
Less: Accumulated depreciation and amortization (16,023) (12,240)
------------- ------------
PROPERTY AND EQUIPMENT, net $ 43,854 $ 24,244
============= ============
Depreciation expense was $6,875,000, $5,013,000 and $4,743,000 for
2000, 1999 and 1998, respectively. Depreciation expense for 2000 includes
approximately $500,000 in additional depreciation due to the change in estimated
useful lives of various assets that will no longer be used once the new
operating system is completed.
NOTE 7. INCOME TAXES
The following is a reconciliation of the Company's effective tax rate to the
federal statutory tax rate:
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
U.S. federal statutory rate 34.0% 35.0% 34.4%
State taxes, net of federal benefit 3.9 4.1 5.3
Goodwill amortization 1.1 0.5 0.5
Other 2.0 1.4 1.2
---------- ---------- ----------
Net effective rate 41.0% 41.0% 41.4%
---------- ---------- ----------
29
The following is a summary of the Company's provision for income taxes:
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
(000'S)
Current
Federal $ - $ 5,177 $ 250
State and local - 607 39
---------- ---------- ----------
- 5,784 289
---------- ---------- ----------
Deferred
Federal 2,878 1,570 5,206
State and local 330 184 802
---------- ---------- ----------
3,208 1,754 6,008
---------- ---------- ----------
Total provision $ 3,208 $ 7,538 $ 6,297
---------- ---------- ----------
The following is a summary of the Company's deferred tax assets and liabilities:
YEARS ENDED DECEMBER 31,
----------------------------
2000 1999
------------- -------------
(000'S)
Reserve for uncollectible accounts receivable $ 1,093 $ 875
Accrued compensation - 98
Net operating loss carryforward 6,612 -
Subsequent adjustment reserve 472 -
Other reserves 197 -
------------- -------------
Current deferred tax asset 8,374 973
Accrued compensation 938 490
Other 98 55
Income tax basis in excess of financial basis of goodwill 8,511 9,345
------------- -------------
Long-term deferred tax asset 9,547 9,890
------------- -------------
Total deferred tax asset $ 17,921 $ 10,863
------------- -------------
Prepaids $ (13) $ (170)
Receivables (428) (395)
------------- -------------
Current deferred tax liability (441) (565)
Property and equipment (7,453) (132)
Goodwill (17,296) (14,227)
------------- -------------
Long-term deferred tax liability (24,749) (14,359)
------------- -------------
Total deferred tax liability $ (25,190) $ (14,924)
------------- -------------
30
NOTE 8. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Fair value approximates book value at the balance sheet dates.
YEARS ENDED DECEMBER 31,
------------------------
2000 1999
----------- -----------
(000'S)
Installment notes payable due through 2001, monthly installments ranging from
$1,587 to $7,112, including interest of 9.3%, collateralized by certain
equipment $ 75 $ 748
Bank lines of credit (see below) 24,000 34,000
Unsecured term notes, with quarterly payments ranging from $1,250,000 to
$2,000,000 with a balloon payment of $19,000,000 due March 31, 2004;
interest is due quarterly at a floating rate based upon
LIBOR (London Interbank Offered Rate) or Prime rate (see below). At
December 31, 2000, the interest rate was 9.19% 42,000 47,500
Unsecured notes, mature on June 25, 2009 with annual payments
of $10,000,000 commencing on June 25, 2005; interest is paid quarterly
at 9.14% 50,000 50,000
Unsecured notes payable due in one balloon payment of $5,225,000 on
April 1, 2001; interest is due annually and is paid at 5.6% 5,225 5,225
Capital lease obligations, collateralized by certain equipment 130 136
----------- -----------
Total long-term debt 121,430 137,609
Less current portion (12,341) (6,195)
----------- -----------
$ 109,089 $ 131,414
----------- -----------
Aggregate principal payments, in thousands, due subsequent to
December 31, 2000, are as follows:
2001 $ 12,341
2002 8,035
2003 8,038
2004 43,014
2005 and thereafter 50,002
-----------
$ 121,430
-----------
On April 30, 1999, the Company closed on an unsecured $50.0 million
five-year revolving line of credit and $50 million of term debt with a bank. On
November 7, 2000 and February 26, 2001, the Company amended the debt agreement
to provide generally less restrictive financial covenants. In consideration for
the amendments, the interest rate was increased 0.25% and a limitation on
capital expenditures was added for the years 2001 and 2002.
The Company can borrow, at its option, under the amended $50 million
revolving line of credit at the prime rate plus 0.25% to 1.25% or at a rate
established at the bank's discretion on a day-to-day basis. The Company may also
borrow for 30, 60, 90 or 180 day periods at LIBOR plus 1.50% to 2.75% based on
the Company's funded debt to EBITDAM (earnings before interest expense, income
taxes, depreciation, amortization and minority interest) ratio. The amended
credit facility also contains certain financial covenants which, among others,
requires that the Company maintain required levels of EBITDAM and net worth and
ratios of fixed charge coverage and funded debt to EBITDAM. In addition, there
are limitations on additional indebtedness, capital expenditures, acquisitions
and minority interest purchases. The Company was in compliance with these
covenants at December 31, 2000. Advances and weighted average interest rates on
this line of credit were $24.0 million and 9.23% and $34.0 million and 8.82% at
December 31, 2000 and 1999, respectively. There was $26.0 million and $16.0
million unused and available under the line of credit at December 31, 2000 and
1999, respectively.
The amended $50 million of term debt is unsecured and has a floating
interest rate. The Company can borrow at the prime rate plus 0.25% to 1.50% on a
day-to-day basis or may borrow for 30, 60, 90 or 180 day periods at LIBOR plus
31
1.75% to 3.00% based on the Company's funded debt to EBITDAM ratio. The amended
unsecured term notes share the same financial covenants as noted above for the
line of credit.
On April 30, 1999, under the term notes and the $50.0 million line of
credit debt agreement, the Company was required to enter into an interest rate
swap agreement designated as a hedge on a portion of the Company's variable rate
debt. The purpose of the swap was to fix the interest rate on a portion of the
variable rate debt and reduce certain exposures to interest rate fluctuations.
At December 31, 2000, the Company had an interest rate swap with a notional
amount of $25.0 million, a weighted average pay rate of 8.37%, a weighted
average receive rate of 9.19% and a maturity date of September 30, 2002. This
swap agreement involves the exchange of amounts based on the variable interest
rate for amounts based on the fixed interest rate over the life of the
agreement, without an exchange of the notional amount upon which the payments
are based. The differential to be paid or received as interest rates change is
accrued and recognized as an adjustment of interest expense related to the debt.
On June 25, 1999, the Company closed on $50.0 million of private
placement debt. On February 26, 2001 the Company amended the debt agreement to
provide generally less restrictive financial covenants effective December 31,
2000. In consideration for the amendments, the interest rate was increased 0.50%
and a limitation on capital expenditures was added for the years 2001 and 2002.
These notes are unsecured and have an eight-year average life with a coupon
interest rate of 8.64% through December 31, 2000 and 9.14% thereafter. Interest
is paid quarterly. The notes contain certain financial covenants which, among
others, requires that the Company maintain required levels of net worth and
ratios of fixed charge coverage and funded debt to EBITDAM. In addition, there
are limitations on additional indebtedness, capital expenditures, acquisitions
and minority interest purchases. The Company was in compliance with these
covenants at December 31, 2000.
On April 21, 2000, the Company authorized the issuance of a standby
letter of credit for $1,000,000, which automatically renews each November 1.
NOTE 9. CAPITALIZED INTEREST AND INTEREST EXPENSE
Capitalized interest on qualifying assets under construction and total
interest were as follows:
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
(000'S)
Capitalized interest $ 836 $ 201 $ -
Interest expensed 11,442 8,592 2,480
---------- ---------- ----------
Total interest incurred $ 12,278 $ 8,793 $ 2,480
---------- ---------- ----------
NOTE 10. RENTAL EXPENSE AND LEASE COMMITMENTS
Minimum annual rental commitments, in thousands, at December 31, 2000,
under noncancellable operating leases, principally for real estate and
equipment, are payable as follows:
2001 $ 11,630
2002 8,849
2003 5,321
2004 2,899
2005 1,819
2006 and thereafter 9,791
-----------
$ 40,309
-----------
Total rental expense was approximately $13,230,000, $8,840,000 and
$7,487,000 for 2000, 1999 and 1998, respectively. Many of the leases contain
renewal options and escalation clauses which require payments of additional rent
to the extent of increases in the related operating costs.
32
NOTE 11. STOCK-BASED COMPENSATION PLAN
Concurrent with the initial public offering the Company adopted a
Long-Term Incentive Plan (the "1996 Incentive Plan"). The number of shares of
Class A Common Stock reserved for issuance under the 1996 Incentive Plan was
450,000. Concurrent with the secondary offering the Company adopted a second
Long-Term Incentive Plan (the "1997 Incentive Plan"). The number of shares of
Class A Common Stock reserved for issuance under the 1997 Incentive Plan was
150,000. For the purpose of attracting and retaining key executive and
managerial employees, in 1999 the Company adopted a third Long-Term Incentive
Plan (the "1999 Incentive Plan"). The number of shares of Class A Common Stock
reserved for issuance under the 1999 Incentive Plan was 600,000. Under the 1996,
1997 and 1999 Incentive Plans, stock options, stock appreciation rights,
restricted stock and performance units may be granted for the purpose of
attracting and motivating key employees and non-employee directors of the
Company. The options granted to non-employee directors vest ratably over a
three-year period and expire 10 years after the date of grant. The options
granted to employees vest over a range of three to five years and expire 10
years after the date of grant.
The Company currently utilizes Accounting Principles Board Opinion No.
25 in its accounting for stock options. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 ("Statement 123"), "Accounting for Stock-based Compensation." The
accounting method as provided in the pronouncement is not required to be
adopted; however, it is encouraged. The Company provides the disclosure below in
accordance with Statement 123. Had the Company accounted for its stock options
in accordance with Statement 123, pro forma net income and pro forma earnings
per share would have been:
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Net income as reported (000's) 4,617 10,846 8,908
Net income pro forma
for Statement 123 (000's) 3,805 10,359 8,501
Basic earnings per common share
pro forma for Statement 123 $ 0.49 $ 1.35 $ 1.11
Diluted earnings per common share
pro forma for Statement 123 $ 0.49 $ 1.33 $ 1.10
The pro forma disclosure is not likely to be indicative of pro forma results
which may be expected in future years 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.
For purposes of determining the pro forma effect of these options, the
fair value of each option is estimated on the date of grant based on the
Black-Scholes single-option pricing model assuming:
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 6.25% 6.25% 5.10%
Volatility factor 40.00% 40.00% 40.00%
Expected life in years 6.0 6.0 6.0
33
Information regarding these option plans for 2000, 1999 and 1998 is as follows:
2000 1999 1998
--------------------------------- ---------------------------------- ---------------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------------- -------------- ----------------- -------------- ------------------ --------------
Options outstanding,
beginning of year 892,800 $ 17.86 469,300 $ 16.58 401,800 $ 15.86
Options exercised (2,100) 14.00 (34,000) 14.00 (19,000) 14.00
Options granted 100,000 13.32 480,000 18.85 161,500 21.91
Options forfeited (112,900) 20.11 (22,500) 17.97 (75,000) 24.85
----------------- -------------- ----------------- -------------- ------------------ --------------
Options outstanding,
end of year 877,800 $ 17.07 892,800 $ 17.86 469,300 $ 16.58
Weighted average fair
value of options
granted during the year $ 6.53 $ 9.25 $ 10.30
Options exercisable at
year end 335,300 220,400 137,200
Option price range at end
of year $ 8.31 to $28.16 $14.00 to $28.16 $14.00 to $28.16
Option price for exercised
shares $ 14.00 $ 14.00 $ 14.00
Options available for
grant at end of year 262,400 249,500 107,000
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ -----------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES CONTRACTUAL LIFE PRICE OF SHARES PRICE
- ---------------- ----------- ------------------ ------------- ----------- ---------------
$ 8.31 to $14.00 333,000 6.08 $ 13.50 218,200 $ 14.00
$17.66 to $19.94 506,000 8.84 $ 18.78 121,600 $ 18.99
$21.06 to $28.16 38,500 7.35 $ 25.44 15,500 $ 25.49
---------- ------------------ ------------- ----------- ---------------
$ 8.31 to $28.16 877,800 7.72 $ 17.07 355,300 $ 16.21
NOTE 12. BUSINESS SEGMENT
The Company has no separately reportable segments in accordance with
Statement of Financial Accounting Standards No. 131 ("Statement 131")
"Disclosure About Segments of an Enterprise and Related Information". Under the
enterprise wide disclosure requirements of Statement 131, the Company reports
revenue, in thousands, for Intermodal Services, Brokerage Services, and
Logistics Services as follows:
YEARS ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Intermodal Services $ 1,004,434 $ 967,033 $ 910,396
Brokerage Services 207,617 196,434 164,706
Logistics Services 172,328 133,332 70,804
------------ ------------ ------------
Total Revenue $ 1,384,379 $ 1,296,799 $ 1,145,906
------------ ------------ ------------
NOTE 13. PROFIT-SHARING PLAN
The Company has two profit-sharing plans and trusts under section
401(k) of the Internal Revenue Code. Generally, for every dollar the employee
contributes, the Company has contributed an additional $.20 up to $100. In
addition, the Company, at its discretion, typically has made profit sharing
34
contributions. Historically, the Company has contributed an amount equal to 3%
of each participant's compensation up to a maximum of $5,100. The Company's
contributions to the Plan were approximately $1,684,000, $1,645,000 and
$1,458,000 for 2000, 1999 and 1998, respectively.
NOTE 14. RELATED PARTY TRANSACTIONS
The Class B Common Stock ("Class B") stockholders, some of whom are
officers of the Company, as well as officers of the Company who are not Class B
stockholders, received approximately 33% of minority interest distributions
of income from the Company up until the remaining 70% minority interests were
purchased in connection with the April 1999 Purchase. Furthermore, these
parties received approximately $66,268,000 when the Company acquired minority
interests in Hub City Los Angeles, L.P., Hub City Golden Gate, L.P., Hub Group
Distribution Services, Hub City Dallas, L.P., Hub City Houston, L.P., Hub City
Rio Grande, L.P., Hub City Alabama, L.P., Hub City Atlanta, L.P., Hub City
Boston, L.P., Hub City Canada, L.P., Hub City Cleveland, L.P., Hub City
Detroit, L.P., Hub City Florida, L.P., Hub City Indianapolis, L.P., Hub City
Kansas, L.P., Hub City Mid-Atlantic, L.P., Hub City New York/New Jersey, L.P.,
Hub City New York State, L.P., Hub City Ohio, L.P., Hub City Philadelphia, L.P.,
Hub City Pittsburgh, L.P., Hub City Portland, L.P. and Hub City St. Louis, L.P.
NOTE 15. LEGAL MATTERS
In the ordinary course of conducting its business, the Company becomes
involved in various lawsuits related to its business. The Company does not
believe that the ultimate resolution of these matters will be material to its
business, financial position or results of operations.
NOTE 16. IMPAIRMENT OF PROPERTY AND EQUIPMENT
In the second quarter of 1999, a $0.9 million pretax charge was
recorded relating to certain operating software applications. Specifically, $0.7
million of this charge was attributable to a write-down of the Visual Movement
software previously used primarily for brokerage. The Visual Movement software
is no longer being used by the Company and was replaced with enhancements to the
Company's proprietary intermodal operating software during the second quarter of
1999. These enhancements allow for greater network visibility of loads. The
remaining $0.2 million impairment loss related to the write-down of a logistics
software program. The fair value was determined based on the estimated future
cash flows attributable to the single customer using this program. The Company
installed a new software package in 1999 that provides enhanced functionality
for its operational applications.
NOTE 17. RESTRUCTURING CHARGE
In the fourth quarter of 2000, management approved a plan to
restructure the Company's accounting functions and centralize them at its
corporate headquarters in Lombard, Illinois. This centralization plan will
result in the reduction of 56 accounting-related employees from the operating
companies. All affected employees were informed in mid-November 2000. In
connection with this plan, the Company recorded a pretax charge of $250,000
classified as salaries and benefits in the fourth quarter of 2000. These costs
are expected to be paid during the first half of 2001 and have been included in
accrued payroll expenses.
35
NOTE 18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for
each of the quarters in 2000 and 1999 (in thousands, except per share amounts):
QUARTERS
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- ------------- ------------- -------------
Year Ended December 31, 2000:
Revenue $ 328,568 $ 344,329 $ 354,797 $ 356,685
Gross margin 39,465 44,583 44,223 45,007
Operating income 2,334 6,689 4,934 4,442
Net income/(loss) (317) 2,298 1,564 1,072
Basic earnings/(loss) per share $ (0.04) $ 0.30 $ 0.20 $ 0.14
Diluted earnings/(loss) per share $ (0.04) $ 0.30 $ 0.20 $ 0.14
QUARTERS
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- ------------- ------------- -------------
Year Ended December 31, 1999:
Revenue $ 307,682 $ 319,448 $ 333,337 $ 336,332
Gross margin 39,169 39,045 41,493 42,708
Operating income 7,386 5,848 8,578 8,322
Net income 1,943 2,638 3,199 3,066
Basic earnings per share $ 0.25 $ 0.34 $ 0.42 $ 0.40
Diluted earnings per share $ 0.25 $ 0.34 $ 0.41 $ 0.40
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors" and "Ownership of the Capital
Stock of the Company" appearing in the Registrant's proxy statement for the
annual meeting of stockholders to be held on May 15, 2001, sets forth certain
information with respect to the directors of the Registrant and Section 16
compliance and is incorporated herein by reference. Certain information with
respect to persons who are or may be deemed to be executive officers of the
Registrant is set forth under the caption "Executive Officers of the Registrant"
in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Compensation of Directors and Executive Officers"
appearing in the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 15, 2001, sets forth certain information with
respect to the compensation of management of the Registrant and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Ownership of the Capital Stock of the Company"
appearing in the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 15, 2001, sets forth certain information with
respect to the ownership of the Registrant's Common Stock and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" appearing in the Registrant's
proxy statement for the annual meeting of stockholders to be held on May 15,
2001, sets forth certain information with respect to certain business
relationships and transactions between the Registrant and its directors and
officers and it is incorporated herein by reference.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant
are included under Item 8 of this Form 10-K:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 2000 and December 31,
1999
Consolidated Statements of Operations - Years ended December 31,
2000, December 31, 1999 and December 31, 1998
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2000, December 31, 1999 and December 31, 1998
Consolidated Statements of Cash Flows - Years ended December 31,
2000, December 31, 1999 and December 31, 1998
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
The remaining financial statements and statement schedule for
which provision is made in Regulation S-X are set forth in the Index immediately
preceding such financial statements and statement schedule and are incorporated
herein by reference.
(A)(3) EXHIBITS
The exhibits included as part of this Form 10-K are set forth in
the Exhibit Index immediately preceding such Exhibits and are incorporated
herein by reference.
(B) REPORTS ON FORM 8-K
None.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 15, 2001 HUB GROUP, INC.
By /S/ DAVID P. YEAGER
--------------------
David P. Yeager
Chief Executive Officer and
Vice Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:
Title Date
/S/ PHILLIP C. YEAGER Chairman and Director March 15, 2001
- ----------------------
Phillip C. Yeager
/S/ DAVID P. YEAGER Vice Chairman, Chief Executive Officer and Director March 15, 2001
- --------------------
David P. Yeager
/S/ THOMAS L. HARDIN President, Chief Operating Officer and Director March 15, 2001
- ---------------------
Thomas L. Hardin
/S/ JAY E. PARKER Vice President-Finance and Chief Accounting Officer March 15, 2001
- ------------------
Jay E. Parker (Principal Financial and Accounting Officer)
/S/ CHARLES R. REAVES Director March 15, 2001
- ----------------------
Charles R. Reaves
/S/ MARTIN P. SLARK Director March 15, 2001
- --------------------
Martin P. Slark
/S/ GARY D. EPPEN Director March 15, 2001
- ------------------
Gary D. Eppen
39
SCHEDULE II
HUB GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning Costs & End
of Year Expenses Deduction of Year
----------- ----------- ------------ -----------
Year Ended December 31:
Allowance for uncollectible accounts receivable
2000 $ 2,134,000 $ 2,353,000 $(1,812,000) $ 2,675,000
1999 691,000 2,321,000 (878,000) 2,134,000
1998 303,000 1,523,000 (1,135,000) 691,000
S-1
INDEX TO EXHIBITS
NUMBER EXHIBIT
- ------ -------
2.1 Purchase Agreement among the Registrant, American President
Companies, Ltd. and APL Land Transport Services, Inc.
(incorporated by reference to the Registrants report on Form 8-K
dated May 2, 1996 and filed May 17, 1996, File No. 0-27754)
2.2 Purchase and Sale Agreement among Hub Holdings, Inc. and Hub City
North Central, Inc. (incorporated by reference to Exhibit 2.2 to
the Registrants report on Form 10-K dated March 26, 1997 and
filed March 27, 1997, File No. 000-27754)
3.1 Amended Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 and 3.3 to the
Registrant's registration statement on Form S-1, File
No. 33-90210)
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit
3.2 to the Registrant's registration statement on Form S-1, File
No. 33-90210)
10.1 Form of Amended and Restated Limited Partnership Agreement
(incorporated by reference to Exhibit 10.1 to the Registrants
report on Form 10-K dated March 26, 1997 and filed March 27,
1997, File No 000-27754)
10.2 Amended and Restated Limited Partnership Agreement of Hub City
Canada, L.P. (incorporated by reference to Exhibit 10.2 to the
Registrants report on Form 10-K dated March 26, 1997 and filed
March 27, 1997, File No 000-27754)
10.3 Form of Non-Competition Agreement (incorporated by reference to
Exhibit 10.3 to the Registrants report on Form 10-K dated March
26, 1997 and filed March 27,1997, File No 000-27754)
10.4 Purchase and Sale Agreement between the Registrant and the
Stockholders of Hub City Terminals, Inc. (incorporated by
reference to Exhibit 10.3 to the Registrant's registration
statement on Form S-1, File No. 33-90210)
10.5 Hub Group Distribution Services Purchase and Sale Agreement
(incorporated by reference to Exhibit 10.5 to the Registrant's
report on Form 10-K dated March 26, 1997 and filed March 27,
1997, File No. 000-27754)
10.6 Management Agreement (incorporated by reference to Exhibit 10.6
to the Registrant's report on Form 10-K dated March 26, 1997 and
filed March 27, 1997, File No. 000-27754)
10.7 Stockholders' Agreement (incorporated by reference to Exhibit
10.7 to the Registrant's report on Form 10-K dated March 26, 1997
and filed March 27, 1997, File No. 000-27754)
10.8 Credit Agreement dated as of September 27, 1997, among the
Registrant, Hub City Terminals, Inc., Hub Holdings, Inc. and
Harris Trust and Savings Bank (incorporated by reference to
Exhibit 10.8 to the Registrant's report on Form 10-Q dated and
filed November 13, 1997, File No. 000-27754)
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
(incorporated by reference to Exhibit 10.9 to the Registrant's
report on Form 10-Q dated and filed May 10, 1999, File
No. 000-27754)
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 (incorporated by reference
to Exhibit 10.10 to the Registrant's report on Form 10-Q dated
and filed May 10, 1999, File No. 000-27754)
10.11 $50 million Note Purchase Agreement dated as of June 25, 1999,
among the Registrant, Hub City Terminals, Inc., Hub Holdings,
Inc. and various purchasers (incorporated by reference to Exhibit
10.11 to the Registrant's report on Form 10-Q dated and filed
August 16, 1999, File No. 000-27754)
10.12 Amendment to $100 million Credit Agreement among the Registrant,
Hub City Terminals, Inc. and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 10.12 to the Registrant's
report on Form 10-Q dated and filed November 13, 2000, File No.
000-27754)
10.13 Amendment to $100 million Credit Agreement among the Registrant,
Hub City Terminals, Inc. and Harris Trust and Savings Bank
10.14 Amendment to $50 million Note Purchase Agreement among the
Registrant, Hub City Terminals, Inc. and various purchasers
10.15 Letter from the Registrant to Daniel L. Sellers dated
December 24, 1998
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
EXHIBIT 21
Subsidiaries of Hub Group, Inc.
SUBSIDIARIES JURISDICTION OF INCORPORATION/ORGANIZATION
Hub City Terminals, Inc. Delaware
Hub Group Atlanta, LLC Delaware
Hub Group Boston, LLC Delaware
Hub Group Canada, LP Delaware
Hub Group Cleveland, LLC Delaware
Hub Group Detroit, LLC Delaware
Hub Group Florida, LLC Delaware
Hub Group Golden Gate, LLC Delaware
Hub Group Indianapolis, LLC Delaware
Hub Group Kansas City, LLC Delaware
Hub Group Los Angeles, LLC Delaware
Hub Group Mid-Atlantic, LLC Delaware
Hub Group New Orleans, LLC Delaware
Hub Group New York State, LLC Delaware
Hub Group New York-New Jersey, LLC Delaware
Hub Group North Central, LLC Delaware
Hub Group Ohio, LLC Delaware
Hub Group Pittsburgh, LLC Delaware
Hub Group Portland, LLC Delaware
Hub Group St. Louis, LLC Delaware
Hub Group Tennessee, LLC Delaware
Hub City Texas, L.P. Delaware
Hub Group Associates, Inc. Illinois
Hub Highway Services Illinois
Hub Group Distribution Services Illinois
Q.S. of Illinois, LLC Michigan
Q.S.S.C., Inc. Delaware
Quality Services L.L.C. Missouri
Quality Services of Kansas, L.L.C. Kansas
Quality Services of New Jersey, L.L.C. New Jersey
Q.S. of Georgia, L.L.C. Georgia
HLX Company, L.L.C. Delaware
Hub Chicago Holdings, Inc. Delaware