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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, 2001
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 22, 2002, based upon the last reported sale price on
that date on the NASDAQ National Market of $10.50 per share, was $65,784,054.
On March 22, 2002, the Registrant had 7,046,250 outstanding shares of Class A
common stock, par value $.01 per share, and 662,296 outstanding shares of Class
B common stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 21, 2002, (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
RESTATEMENT INFORMATION
On February 12, 2002, Hub Group, Inc. ("Hub Group" or the "Company")
announced that it had discovered certain accounting irregularities at its 65%
owned subsidiary, Hub Group Distribution Services ("Hub Distribution") that
resulted in a restatement of the Company's net income over a two-year period.
The amount of the overstatement of net income in 1999 and 2000 was $1.4 million
and $1.9 million, respectively, and the Company has restated its financial
statements for these periods accordingly. As the Company did not restate its
results on a quarterly basis, the effect of the restatement for 1999 was booked
in the fourth quarter of 1999 and the effect of the restatement for 2000 was
booked in the fourth quarter of 2000. Similarly, in 2001, the fourth quarter
contains the effect of the required adjustments to properly report the annual
results for 2001. These restated financial statements have been audited by
Arthur Andersen and are included herein.
GENERAL
Hub Group is a Delaware corporation that 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 24 offices
or "Hubs" and Hub Distribution. 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. Corporate management is responsible for group strategic planning and
administration, financial services, relationships with the railroads and
management information systems support. Hub Distribution, which performs certain
specialized logistics services, also functions essentially as a stand-alone
business, with local management responsible for operations, customer service,
marketing, financial services 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.
Through a series of acquisitions, Hub Group now owns a 65% partnership
interest in Hub Distribution and wholly-owns each of its other operating
subsidiaries. Unless the context otherwise requires, references to "Hub Group"
or the "Company" include the Hubs, Hub Distribution and their respective
subsidiaries.
In early 2001, the Company centralized all accounting, other than
accounting for Hub Distribution, at its corporate headquarters in Lombard,
Illinois. The Company also installed and began using a new accounting software
package for the Hubs during 2001 in Lombard. In addition, after two years of
development, the Company implemented its new proprietary Network Management
System. The new software is designed to streamline operational processes,
improve the quality of data available to the Hubs and their customers and better
integrate various systems and software applications.
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.
1
The Company uses its Hub network, connected through its Network Management
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 and handles
claims for freight loss and damage on behalf of its customers.
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 the Company 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, the Company 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 and servicing Hub Group'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.
HUB NETWORK
Over the past 31 years, Hub Group has grown from a single office with two
employees into a network of 22 Hubs in the United States, one Hub in Canada, one
Hub in Mexico and Hub Distribution. 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 Salt Lake City
Baltimore Indianapolis New York City San Francisco
Boston Kansas City Pittsburgh Seattle
Chicago (2) Los Angeles Portland Toledo
Cleveland Memphis Rochester Toronto
Detroit Mexico City St. Louis
The entire Hub network is interactively connected through the Company's Network
Management 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.
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Each Hub manages the freight originating in or destined for its service
area. In a sample intermodal transaction, the customer contacts the local Hub,
known as the selling 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 Network
Management System by the local Hub. This information is simultaneously
transmitted through the Network Management System to the Hub closest to the
point of delivery. The Company's predictive track and trace technology then
monitors the shipment to ensure that it will arrive as scheduled, alerting the
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 selling Hub.
The Company provides brokerage services to its customers in a similar
manner. In a sample 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 and Hub Distribution with primary responsibility for servicing local
and regional accounts. These sales representatives work from the local Hubs, Hub
Distribution 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
most 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 18 National Accounts sales
representatives who report either directly or indirectly to the Company's
Executive Vice President of Marketing. 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, chemicals, consumer products, electronics,
paper, printing, and retail.
MANAGEMENT INFORMATION SYSTEMS
A primary component of the Company's business strategy is the continued
improvement of its Network Management System and other technology to ensure that
the Company will remain a leader among transportation providers in information
processing for transportation services. Hub Group's Network Management System
consists of proprietary software running on IBM AS/400 computers located at a
secure offsite data center. All of the Hubs are linked with these AS/400
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computers and each other using a frame relay network. This configuration
provides a real time environment for transmitting data among the Hubs and the
Company's headquarters. The Company also makes extensive use of electronic data
interchange ("EDI"), allowing each Hub to communicate electronically with each
railroad, certain drayage companies and those customers with EDI capabilities.
The Company's Network Management System is the primary mechanism used by
the Hubs to handle the Company's intermodal and highway services business. The
Network Management System processes customer transportation requests, schedules
and tracks shipments, prepares customer billing, establishes account profiles
and retains critical information for analysis. The Network Management 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 Network Management System's EDI features offer customers with EDI
capability a completely paperless process, including load tendering, shipment
tracking, customer billing and remittance processing. The Company aggressively
pursues opportunities to establish EDI interfaces with its customers and
carriers.
To help manage its logistics business, the Company uses i2 Technologies'
Transportation and Logistics Suite which includes planning and execution
solutions. This sophisticated transportation management software enables Hub
Group 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 Group's Network Management
System and Hub Group's accounting system.
The Company's website, www.hubgroup.com, is designed to allow Hub Group's
customers and vendors to easily do business with Hub Group 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 paperless invoicing for payment. Hub
Group currently tenders over 98% of its drayage loads using Vendor Interface or
EDI. Hub Group 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 through a variety of
reports over the Internet. Current Internet applications are, and future
Internet applications will be, integrated with the Network Management System.
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., K-Line America, Inc. and Maersk Sea-Land.
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 2002. While there can be no assurances that these
contracts will be renewed, the Company has in the past successfully negotiated
4
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 agreements with both the BNSF and NS, the
Company manages, as of March 1, 2002, approximately 5,000 containers owned by
the BNSF and 1,300 containers owned by the NS. These containers are for Hub
Group'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 Group'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's insurance, $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
5
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.
GENERAL
EMPLOYEES As of February 28, 2002, the Company had approximately 1,540
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 its subsidiaries, operates 42
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
On February 19, 2002, a purported class action lawsuit was filed by Riggs
Partners, LLC in the United States District Court for the Northern District of
Illinois, Eastern Division. The complaint names as defendants the Company, the
Company's officers and former officers that signed the Company's recent periodic
reports filed with the Securities and Exchange Commission and the Company's
auditors. The complaint alleges that the defendants violated Section 10(b) and
Rule 10b-5 thereunder and Section 20(a) of the Securities Exchange Act of 1934
by filing or causing to be filed with the Securities and Exchange Commission
periodic reports that contained inaccurate financial statements. The complaint
seeks unspecified compensatory damages, reimbursement of reasonable costs and
expenses, including counsel fees and expert fees, and such other relief as the
court deems just and proper. The Company believes that this suit is without
merit and intends to vigorously defend itself and its officers. An adverse
judgement in this lawsuit could have a material adverse affect on the Company's
financial position and results of operations.
In addition to the suit described above, 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 outcome of
this litigation will 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 2001.
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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 18, 2002 with respect to each person who is an
executive officer of the Company.
Name Age Position
------------------ ----- -----------------------------------------------
Phillip C. Yeager 74 Chairman of the Board of Directors
David P. Yeager 48 Vice Chairman of the Board of Directors and
Chief Executive Officer
Thomas L. Hardin 56 President, Chief Operating Officer and Director
Mark A. Yeager 37 President-Field Operations
Donald G. Maltby 47 President-Hub Online
Jay E. Parker 37 Vice President-Finance, Chief Financial Officer
and Treasurer
Richard M. Rogan 62 Executive Vice President-Marketing
Dennis R. Polsen 48 Vice President and Chief Information Officer
David C. Zeilstra 32 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 City Terminals, Inc. ("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.
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
7
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.
Richard M. Rogan has been Executive Vice President of Marketing since
November 1997 and was President of Hub Highway Services from May 1995 through
February 2002. 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.
Dennis R. Polsen has been the Company's Vice President - Chief Information
Officer since September 2001. From March 2000 through August 2001, Mr. Polsen
was the Company's Vice-President of Application Development. Prior to joining
the Company, Mr. Polsen was Director of Applications for Humana, Inc. from
September 1997 through February 2000 and spent 14 years prior to that
developing, implementing, and directing transportation logistics applications at
Schneider National, Inc. Mr. Polsen received a Bachelor of Business
Administration in May of 1976 from the University of Wisconsin, Milwaukee and a
Masters in Business Administration in May of 1983 from the University of
Wisconsin Graduate School of Business. Mr. Polsen is a past member of the
American Trucking Association.
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 & 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.
DIRECTORS OF THE REGISTRANT
The following three individuals are also on the Company's Board of
Directors: Gary D. Eppen - currently retired and formerly the Ralph and Dorothy
Keller Distinguished Service Professor of Operations Management and Deputy Dean
8
for part-time Masters in Business Administration Programs at the Graduate School
of Business at the University of Chicago; Charles R. Reaves- Chief Executive
Officer of Reaves Enterprises, Inc., a real estate development company and
Martin P. Slark - President, Chief Operating Officer and Director of Molex,
Incorporated, a manufacturer of electronic, electrical and fiber optic
interconnection products and systems.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Class A common stock of the Company ("Class A Common Stock") trades
on the NASDAQ National Market tier of the NASDAQ Stock Market. The Company
normally trades under the symbol "HUBG." On February 19, 2002, the Company
announced that it received a letter from the Nasdaq National Stock Market
("Nasdaq"). This letter informed the Company that due to the Company's plans to
restate its earnings, the Company's public filings made during fiscal 1999,
2000, and 2001 did not satisfy the Company's obligation under Nasdaq's
Marketplace Rule 4310(c)(14). The letter stated that Company's securities could
be subject to delisting should this violation go uncorrected. The Company
requested and held a hearing with Nasdaq on this matter, which automatically
stayed the delisting process. Pending the decision of the hearing panel, the
Company's Class A Common Stock will continue trading on Nasdaq under the symbol
"HUBGE." As a result of filing this Form 10-K with the Securities and Exchange
Commission, the Company believes it is now in full compliance with Marketplace
Rule 4310(c)(14) and the Company will therefore seek Nasdaq approval to again
trade 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 2000 and 2001.
2000 2001
---------- ---------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $20 1/2 $15 1/4 $11.875 $8.00
Second Quarter $15 1/8 $10 1/2 $14.20 $8.00
Third Quarter $14 1/2 $9 9/16 $15.14 $10.60
Fourth Quarter $9 10/16 $6 1/2 $11.19 $8.75
On March 1, 2002, there were approximately 55 stockholders of record of the
Class A Common Stock and, in addition, there were an estimated 1,250 beneficial
owners of the Class A Common Stock whose shares were held by brokers and other
fiduciary institutions. On March 1, 2002, 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,
---------------------------------------------------------------------
RESTATED RESTATED
-----------------------------
2001 2000(2) 1999(2) 1998 1997(1)
--------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenue $1,319,331 $ 1,382,880 $ 1,295,502 $ 1,145,906 $1,064,479
Gross margin 178,963 167,767 159,863 138,334 129,855
Operating income 10,548 13,495 26,453 26,406 33,495
Income before minority interest and taxes 902 2,878 19,928 25,324 32,869
Income before taxes 751 4,547 15,941 15,205 15,874
Net income 443 2,683 9,405 8,908 9,525
Basic earnings per common share $ .06 $ 0.35 $ 1.22 $ 1.16 $ 1.48
Diluted earnings per common share $ .06 $ 0.35 $ 1.21 $ 1.15 $ 1.46
AS OF DECEMBER 31,
---------------------------------------------------------------------
RESTATED RESTATED
-----------------------------
2001 2000 1999 1998 1997(1)
---------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital $ (5,380) $ (5,902) $ 20,202 $ 20,313 $ 15,209
Total assets 416,024 469,373 441,421 304,791 267,826
Long-term debt, excluding current portion 96,059 109,089 131,414 29,589 22,873
Stockholders' equity 32,453 132,397 129,683 119,673 110,462
(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) As a result of a comprehensive review that commenced in the first quarter of
2002, the Company determined that certain items of revenue and expense were
incorrectly reported in previously issued financial statements. The Company has
accordingly restated its financial results for 2000 and 1999. See Note 2 to the
consolidated financial statements.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESTATEMENT
As more fully described in Note 2 of the Notes to Consolidated
Financial Statements, certain information in this filing has been restated to
correct previously issued financial statements. The discussion in this item
reflects those restatements.
CAPITAL STRUCTURE
Hub Group, Inc. (the "Company") has authorized common stock comprised
of Class A common stock and 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.
CALL OPTIONS
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, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUE
Revenue for the Company decreased 4.6% to $1,319.3 million in 2001 from
$1,382.9 million in 2000. Overall, management believes that a soft economy has
negatively impacted the current year growth. Intermodal revenue decreased 9.9%
from 2000. The decline in intermodal revenue was primarily due to a $71.8
million reduction in demand for intermodal service from the Company's steamship
customers. Two large steamship customers ceased doing business with the Company
in the second quarter of 2001. While one steamship customer has terminated
operations worldwide, the other has changed its method of business. Truckload
brokerage revenue increased 2.7% from 2000. Logistics revenue, which includes
revenue from the Company's supply chain solutions services and revenue from Hub
Group Distribution Services ("Hub Distribution"), increased 17.8% compared to
2000. This increase was primarily due to significant growth from the Company's
supply chain solutions business.
GROSS MARGIN
Gross margin increased 6.7% to $179.0 million in 2001 from $167.8
million in 2000. As a percent of revenue, gross margin increased to 13.6% from
12.1% in 2000. The increase in gross margin as a percent of revenue is primarily
due to the increase in the intermodal gross margin percentage resulting in part
from the loss of the high volume, lower margin steamship business.
SALARIES AND BENEFITS
Salaries and benefits decreased 1.3% to $95.0 million in 2001 from
$96.2 million in 2000. As a percentage of revenue, salaries and benefits
increased to 7.2% from 7.0% in 2000. The increase as a percentage of revenue is
due to the decrease in revenue.
11
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 16.0% to $53.6
million in 2001 from $46.2 million in 2000. As a percentage of revenue, these
expenses increased to 4.1% from 3.3% in 2000. The increase as a percentage of
revenue is primarily attributed to a $4.7 million write-off associated with the
bankruptcy and forced liquidation of a Korean steamship line customer, increased
costs associated with the outsourced data center and the decrease in revenue.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization increased 75.1% to $10.7 million in 2001
from $6.1 million in 2000. This expense as a percentage of revenue increased to
0.8% from 0.4% in 2000. The increase in depreciation and amortization is due in
part to the depreciation of software applications placed into service throughout
2000 and 2001. Additionally, during the first half of the year, the Company
recognized $1.5 million in additional depreciation due primarily to a change in
estimated useful lives for various assets. Of this amount, $0.9 million relates
to various assets, that in December 2000, were determined to be no longer useful
once the Company's new operating system was completed. The remaining $0.6
million of additional depreciation relates to the Company's decision to
accelerate depreciation for a piece of communications software that was replaced
with a more stable and cost effective software application during the second
quarter of 2001.
AMORTIZATION OF GOODWILL
Amortization of goodwill remained constant at $5.7 million in both 2001
and 2000.
IMPAIRMENT OF PROPERTY AND EQUIPMENT
The $3.4 million impairment charge in 2001 was due to Hub
Distribution's exit from its initiative surrounding the home delivery of large
box items purchased over the internet.
OTHER INCOME (EXPENSE)
Interest expense decreased 10.3% to $10.3 million in 2001 from $11.5
million in 2000. The decrease in interest expense is due primarily to carrying a
lower average debt balance this year as compared to the prior year and lower
interest rates.
Interest income decreased to $0.7 million in 2001 from $0.8 million in
2000.
Other income decreased to $0.0 million in 2001 from $0.1 million in
2000.
MINORITY INTEREST
Minority interest increased to $0.2 million in 2001 from $(1.7) million
in 2000. Minority interest represents the 35% minority interest in Hub
Distribution.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased 83.5% to $0.3 million in 2001
compared to $1.9 million in 2000. The Company provided for income taxes using an
effective rate of 41.0% in both years.
NET INCOME
Net income decreased 83.5% to $0.4 million in 2001 from $2.7 million in
2000.
12
EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share decreased 82.9% to $0.06 in
2001 from $0.35 in 2000.
YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUE
Revenue for the Company increased 6.7% to $1,382.9 million in 2000 from
$1,295.5 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
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 4.9% to $167.8 million in 2000 from $159.9
million in 1999. Gross margin as a percentage of revenue decreased to 12.1% from
12.3% in 1999. The primary cause for the decline as a percentage of revenue was
due to lower gross margins at Hub Distribution.
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 7.0% 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 17.5% to $46.2
million in 2000 from $39.4 million in 1999. As a percentage of revenue, these
expenses increased to 3.3% from 3.0% 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.
13
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 $11.5 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.
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 $(1.7) million in 2000 from $4.0 million
in 1999. The decrease is attributed to a net loss at Hub Distribution in 2000
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 71.5% to $1.9 million in 2000
compared to $6.5 million in 1999. The Company provided for income taxes using an
effective rate of 41.0% in both years.
NET INCOME
Net income decreased 71.5% to $2.7 million in 2000 from $9.4 million in
1999.
EARNINGS PER COMMON SHARE
Basic earnings per common share decreased 71.3% to $0.35 in 2000 from
$1.22 in 1999. Diluted earnings per common share decreased 71.1% to $0.35 in
2000 from $1.21 in 1999.
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,
2001, was approximately $27.6 million, which resulted primarily from net income
from operations before non-cash charges of $21.7 million and a net increase in
working capital of $5.9 million. The increase in working capital was primarily
related to a significant reduction in accounts receivable due to improved
collections and lower revenue.
Net cash used in investing activities for the year ended December 31,
2001, was $10.3 million and related to capital expenditures. The capital
expenditures were principally made to enhance the Company's information system
capabilities. The most significant project relates to a customized operating
system.
14
The net cash used in financing activities for the year ended December
31, 2001, was $17.3 million. This was primarily comprised of $5.0 million of
voluntary payments on the Company's line of credit and $12.3 million of
scheduled payments on the Company's term debt, unsecured notes, installment
notes and capital leases.
The Company maintains a multi-bank credit facility (the "Credit
Facility"). The Credit Facility is comprised of term debt and a revolving line
of credit. Borrowings under the revolving 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. Borrowings
and weighted average interest rates on the revolving line of credit were $19.0
million and 4.46% and $24.0 million and 9.23% at December 31, 2001 and 2000,
respectively. There was $31.0 million and $26.0 million unused and available
under the revolving line of credit at December 31, 2001 and 2000, respectively.
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. Borrowings and
weighted average interest rates on the term debt was $35.0 million and 4.66% and
$42.0 million and 9.19% at December 31, 2001 and 2000, respectively.
On November 7, 2000, the Company amended the Credit Facility. 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.
The amended Credit Facility requires that the Company maintain required levels
of net worth and EBITDAM, and ratios of fixed charge coverage and funded debt to
EBITDAM. The amendment has an additional financial covenant that limits capital
expenditures for 2001. On February 26, 2001, the Company executed a second
amendment to its Credit Facility. The amendment has an additional financial
covenant that limits capital expenditures for 2002. On March 30, 2001, the
Company executed a third amendment to its Credit Facility, amending the
definition of EBITDAM slightly, extending the date for adding back certain
non-cash charges. Effective September 30, 2001, the Company executed a fourth
amendment to its Credit Facility, allowing the $4.7 million of customer bad debt
write-off related to a Korean steamship line to be added back for the purpose of
calculating the EBITDAM ratio. All other provisions of the November 7, 2000
amendment remained unchanged. On March 27, 2002, the Company executed a fifth
amendment to its Credit Facility. The amendment waives any historical covenant
violations that resulted from the restatement of the financial statements from
1999 and 2000. In addition, an adjusting entry was made in the fourth quarter of
2001 to properly state the results for 2001 since the Company did not make any
adjustments to 2001 on a quarterly basis. The amendment allows the spreading of
this fourth quarter adjustment pro-rata throughout the year for purposes of
covenant calculations in 2002. The amendment established a minimum borrowing
rate from January 1, 2002 through September 30, 2002. The term debt interest
rate will be a minimum of LIBOR plus 2.75% or at the Prime Rate plus 1.25%. The
revolving credit interest will be a minimum of LIBOR plus 2.50% or at the Prime
Rate plus 1.00%. The Company was in compliance with the financial covenants that
were effective as of December 31, 2001.
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. The
amended agreement requires that the Company maintain required levels of net
worth, ratios of fixed charge coverage and funded debt to EBITDAM. The amendment
has an additional financial covenant that provides limitations on capital
expenditures for 2001 and 2002. On March 30, 2001, the Company executed a second
amendment to the Notes, amending the definition of EBITDAM slightly, and
extending the date for adding back certain non-cash charges. Effective September
30, 2001, the Company executed a third amendment to the Notes, allowing the $4.7
million of customer bad debt write-off related to a Korean steamship line to be
added back for the purpose of calculating EBITDAM. On March 27, 2002, the
15
Company executed a fourth amendment to the Notes. The amendment waives any
historical covenant violations that resulted from the restatement of the
financial statements from 1999 and 2000. In addition, an adjusting entry was
made in the fourth quarter of 2001 to properly state the results for 2001 since
the Company did not make any adjustments to 2001 on a quarterly basis. The
amendment allows the spreading of this fourth quarter adjustment pro-rata
throughout the year for purposes of covenant calculations in 2002. The Company
was in compliance with the financial covenants that were effective as of
December 31, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 30, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 141, "Business Combinations" ("Statement 141"). Under
Statement 141, all business combinations initiated after June 30, 2001 must be
accounted for using the purchase method of accounting. Use of the
pooling-of-interests method is prohibited. Additionally, Statement 141 requires
that certain intangible assets that can be identified and named be recognized as
assets apart from goodwill. Statement 141 was effective for all business
combinations initiated after June 30, 2001.
On June 30, 2001, the FASB issued Statement No. 142, "Goodwill and
Other Intangible Assets" ("Statement 142"). Under Statement 142, goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. Intangible assets that
have finite useful lives will continue to be amortized over their useful lives.
The Company will adopt Statement 142 as of January 1, 2002. As of December 31,
2001, goodwill, net of accumulated amortization, was $208.2 million and
amortization expense for the year ended December 31, 2001 was $5.7 million.
Except as set forth in Outlook, Risks and Uncertainties - Amortization of
Goodwill, the Company has not yet fully determined the impact that Statement 142
will have on the Company's financial condition or results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("Statement 144") which supercedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Statement 144 created one accounting model
for long-lived assets to be disposed of by sale that applies to all long-lived
assets, including discontinued operations, and replaces the provisions of
Accounting Principles Board Opinion No. 30, "Reporting Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions," for
the disposal of segments of a business. Statement 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reporting in continuing operations or in discontinued
operations. The provisions of Statement 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. The Company does not expect this
statement to have a material impact on its statements of financial condition 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
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.
16
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 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. Other factors that could negatively influence the Company's growth
rate include, but are not limited to, the elimination of fuel surcharges, the
entry of new web-based competitors, inadequate drayage service and inadequate
equipment supply.
Hub Distribution's largest customer, for which Hub Distribution
installs point-of-purchase displays, has notified the Company of a significant
change in its strategy related to its displays. This has already resulted in a
significant decrease in revenue during the first quarter of 2002. Should this
customer continue with this strategy, management believes the revenue for this
customer will continue at significantly lower levels than those experienced in
2001.
GROSS MARGIN
Management expects fluctuations in the gross margin percentage from
quarter-to-quarter caused by various factors including, but not limited to,
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. Factors that could affect the percentage from staying in the recent
historical range include, but are not limited to, 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
Management believes there are several factors that could cause selling,
general and administrative expenses to increase as a percentage of revenue. As
customer 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.
17
Management believes the fees for professional services incurred during
the first quarter of 2002 related to the investigation and restatement related
to Hub Distribution's financial statements will range between $800,000 and
$900,000 on a pre-minority interest, pre-tax basis. Management believes
additional fees will be incurred during the second quarter and management
estimates these additional fees will range from $150,000 to $400,000 on a
pre-minority interest, pre-tax basis.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Management estimates that depreciation and amortization of property and
equipment will increase in the future. The most significant factor that will
cause an increase in depreciation and amortization expense is increased software
amortization related to improvements in the Company's information systems.
During 2001, the Company placed in service its proprietary operating system, an
operational accounting system, and other related applications. Additional
factors that could cause an increase in depreciation expense include, but are
not limited to, 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
With the adoption of Statement 142 effective January 1, 2002, as
indicated in the Recent Accounting Pronouncements, the Company's goodwill will
no longer be amortized but will be subject to periodic impairment reviews. As
required, the Company will have an independent valuation performed during 2002
to determine if a transitional impairment charge is necessary.
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 interest expense will likely decrease from
the prior year. Factors that could cause interest to fluctuate higher or lower
than forecasted include, but are not limited to, changes in lending rates,
unanticipated debt repayments, unanticipated working capital needs,
unanticipated software development expenses and unanticipated capital
expenditures.
Management estimates that interest income will likely remain relatively
consistent with the prior year. Factors that could cause a change include, but
are not limited to, the possible use of cash to make debt repayments, fund
working capital needs and fund capital expenditures.
MINORITY INTEREST
Management estimates that minority interest will likely remain
relatively consistent with the prior year, 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.
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
$15.0 million in 2002.
18
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
9. 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, 2001, 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 5.34% 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, 2001 and December 31, 2000 22
Consolidated Statements of Operations - Years ended December 31, 2001,
December 31, 2000 and December 31, 1999 23
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2001, December 31, 2000 and December 31, 1999 24
Consolidated Statements of Cash Flows - Years ended December 31, 2001,
December 31, 2000 and December 31, 1999 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. and Hub Group, Inc.:
We have audited the accompanying consolidated balance sheets of Hub
Group, Inc. (a Delaware corporation) as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2001 (2000
and 1999 as restated - see Note 2). 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.
The selected quarterly financial data included in Note 20 contains
information that we did not audit, and, accordingly, we do not express an
opinion on that data. We were unable to review the quarterly financial data
in accordance with standards established by the American Institute of Certified
Public Accountants because the Company did not restate its results on a
quarterly basis (see Note 2).
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, 2001 and 2000, and the results of its operations and
cash flows for each of the three years in the period ended December 31, 2001, 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
March 27, 2002
21
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Restated
--------------
December 31,
------------------------------
2001 2000
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ -
Accounts receivable, net 149,765 192,969
Deferred taxes 11,147 9,277
Prepaid expenses and other current assets 3,840 4,537
--------------- --------------
TOTAL CURRENT ASSETS 164,752 206,783
PROPERTY AND EQUIPMENT, net 39,098 43,854
GOODWILL, net 208,166 213,907
OTHER ASSETS 1,507 2,177
MINORITY INTEREST 2,501 2,652
--------------- --------------
TOTAL ASSETS $ 416,024 $ 469,373
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 135,588 $ 172,010
Other 1,275 8,529
Accrued expenses
Payroll 11,195 9,559
Other 14,020 10,246
Current portion of long-term debt 8,054 12,341
--------------- --------------
TOTAL CURRENT LIABILITIES 170,132 212,685
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 96,059 109,089
DEFERRED TAXES 17,380 15,202
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares
issued or outstanding in 2001 and 2000 - -
Common stock,
Class A: $.01 par value; 12,337,700 shares authorized; 7,046,250
shares issued and outstanding in 2001, 7,046,050 shares issued and
outstanding in 2000 70 70
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares
issued and outstanding in 2001 and 2000 7 7
Additional paid-in capital 110,819 110,817
Purchase price in excess of predecessor basis, net of tax benefit of $10,306 (15,458) (15,458)
Retained earnings 37,404 36,961
Accumulated other comprehensive loss (389) -
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 132,453 132,397
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 416,024 $ 469,373
=============== ==============
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)
RESTATED
-----------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Revenue $ 1,319,331 $ 1,382,880 $ 1,295,502
Transportation costs 1,140,368 1,215,113 1,135,639
-------------- -------------- --------------
Gross margin 178,963 167,767 159,863
Costs and expenses:
Salaries and benefits 94,982 96,201 84,082
Selling, general and administrative 53,613 46,233 39,361
Depreciation and amortization of property and equipment 10,678 6,097 4,014
Amortization of goodwill 5,741 5,741 5,069
Impairment of property and equipment 3,401 - 884
-------------- -------------- --------------
Total costs and expenses 168,415 154,272 133,410
Operating income 10,548 13,495 26,453
-------------- -------------- --------------
Other income (expense):
Interest expense (10,345) (11,532) (8,642)
Interest income 693 779 926
Other, net 6 136 1,191
-------------- -------------- --------------
Total other expense (9,646) (10,617) (6,525)
Income before minority interest and provision for income taxes 902 2,878 19,928
-------------- -------------- --------------
Minority interest 151 (1,669) 3,987
-------------- -------------- --------------
Income before provision for income taxes 751 4,547 15,941
Provision for income taxes 308 1,864 6,536
-------------- -------------- --------------
Net income $ 443 $ 2,683 $ 9,405
============== ============== ==============
Basic earnings per common share $ 0.06 $ 0.35 $ 1.22
============== ============== ==============
Diluted earnings per common share $ 0.06 $ 0.35 $ 1.21
============== ============== ==============
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, 2001
(in thousands, except shares)
RESTATED
---------------------------------
2001 2000 1999
--------------- ---------------- ----------------
Class A & B Common Stock Shares
Beginning of year 7,708,346 7,706,246 7,672,246
Exercise of non-qualified stock options 200 2,100 34,000
--------------- ---------------- ----------------
End of year 7,708,546 7,708,346 7,706,246
--------------- ---------------- ----------------
Class A & B Common Stock Amount
Beginning of year $ 77 $ 77 $ 77
--------------- ---------------- ----------------
End of year 77 77 77
--------------- ---------------- ----------------
Additional Paid-in Capital
Beginning of year 110,817 110,786 110,181
Exercise of non-qualified stock options 2 31 605
--------------- ---------------- ----------------
End of year 110,819 110,817 110,786
--------------- ---------------- ----------------
Purchase Price in Excess of Predecessor Basis, Net of Tax
Beginning of year (15,458) (15,458) (15,458)
--------------- ---------------- ----------------
End of year (15,458) (15,458) (15,458)
--------------- ---------------- ----------------
Retained Earnings
Beginning of year 36,961 34,278 24,873
Net income 443 2,683 9,405
--------------- ---------------- ----------------
End of year 37,404 36,961 34,278
--------------- ---------------- ----------------
Accumulated Other Comprehensive Loss
Beginning of year - - -
Other comprehensive loss (389) - -
--------------- ---------------- ----------------
End of year (389) - -
--------------- ---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY $ 132,453 $ 132,397 $ 129,683
=============== ================ ================
Comprehensive Income
Net income $ 443 $ 2,683 $ 9,405
Cumulative effect of adopting Statement 133, net of tax of $55 79 - -
Unrealized interest rate swap loss net of tax benefit of ($325) (468) - -
--------------- ---------------- ----------------
Other comprehensive loss (389) - -
--------------- ---------------- ----------------
Total comprehensive income $ 54 $ 2,683 $ 9,405
=============== ================ ================
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)
RESTATED
---------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2001 2000 1999
--------------- ---------------- ----------------
Cash flows from operating activities:
Net income $ 443 $ 2,683 $ 9,405
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 11,248 6,875 5,013
Amortization of goodwill 5,741 5,741 5,069
Impairment of property and equipment 3,401 - 884
Deferred taxes 308 1,864 1,754
Minority interest 151 (1,669) 3,987
Loss on sale of assets 426 128 205
Changes in working capital:
Accounts receivable, net 43,204 (4,044) (40,821)
Prepaid expenses and other current assets 697 (1,188) 2,687
Accounts payable (43,676) 26,446 22,671
Accrued expenses 5,021 4,729 2,405
Other assets 670 (215) (1,458)
--------------- ---------------- ----------------
Net cash provided by operating activities 27,634 41,350 11,801
--------------- ---------------- ----------------
Cash flows from investing activities:
Purchases of minority interest - - (108,710)
Purchases of property and equipment, net (10,319) (26,613) (11,234)
--------------- ---------------- ----------------
Net cash used in investing activities (10,319) (26,613) (119,944)
--------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from sale of common stock 2 31 605
Distributions to minority interest - (454) (10,484)
Net payments on long-term debt (17,317) (16,206) (50,930)
Proceeds from issuance of long-term debt - 27 155,639
--------------- ---------------- ----------------
Net cash (used in) provided by financing activities (17,315) (16,602) 94,830
Net decrease in cash and cash equivalents - (1,865) (13,313)
Cash and cash equivalents, beginning of period - 1,865 15,178
--------------- ---------------- ----------------
Cash and cash equivalents, end of period $ - $ - $ 1,865
=============== ================ ================
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 10,143 $ 12,520 $ 8,293
Income taxes - 567 2,474
Non-cash activity:
Unrealized loss on derivative instrument $ 389 $ - $ -
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 the Company 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 $12,320,000 and $23,494,000 at December 31,
2001 and 2000, respectively, are included in accounts payable.
RECEIVABLES: The Company's reserve for uncollectible accounts receivable was
approximately $4,020,000 and $3,088,000 at December 31, 2001 and 2000,
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. 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 $21,517,000 and
$15,774,000 as of December 31, 2001 and 2000, respectively.
DEFERRED FINANCING COSTS: The Company has deferred financing costs related to
its debt. The accumulated amortization related to the deferred financing costs
was $1,108,000 and $632,000 as of December 31, 2001 and 2000, respectively.
The amortization expense related to deferred financing costs was $476,000,
$387,000 and $245,000 for the years ending December 31, 2001, 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 2001, 2000 and 1999. 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. Revenue for the installation
business is recognized on the date the services are performed.
26
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
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
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expense during the reporting period. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS:
On June 30, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 141, "Business Combinations" ("Statement 141"). Under
Statement 141, all business combinations initiated after June 30, 2001 must be
accounted for using the purchase method of accounting. Use of the
pooling-of-interests method is prohibited. Additionally, Statement 141 requires
that certain intangible assets that can be identified and named be recognized as
assets apart from goodwill. Statement 141 was effective for all business
combinations initiated after June 30, 2001.
On June 30, 2001, the FASB issued Statement No. 142, "Goodwill and
Other Intangible Assets" ("Statement 142"). Under Statement 142, goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment. Intangible assets that
have finite useful lives will continue to be amortized over their useful lives.
The Company will adopt Statement 142 as of January 1, 2002. As of December 31,
2001, goodwill, net of accumulated amortization, is $208.2 million and
amortization expense for the year ended December 31, 2001 is $5.7 million.
The Company has not yet fully determined the impact that Statement 142
will have on the Company's financial condition or results of operations.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("Statement 144") which supercedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Statement 144 created one accounting model
for long-lived assets to be disposed of by sale that applies to all long-lived
assets, including discontinued operations, and replaces the provisions of
Accounting Principles Board Opinion No. 30, "Reporting Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions", for
the disposal of segments of a business. Statement 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reporting in continuing operations or in discontinued
operations. The provisions of Statement 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. The Company does not expect this
statement to have a material impact on its statements of financial condition or
results of operations.
RECLASSIFICATIONS: Certain items previously reported have been reclassified to
conform with the 2001 presentation.
27
NOTE 2. RESTATEMENT
The Company has restated its consolidated financial statements for 2000
and 1999. In the unaudited quarterly financial data, as shown in Note 20, the
fourth quarter of 2000 has been restated. Except as otherwise stated, all
information presented in the consolidated financial statements and related notes
reflects all such restatements.
As a result of a comprehensive review that commenced in the first
quarter of 2002, the Company determined that certain items of revenue and
expense were incorrectly reported in previously issued financial statements for
2000 and 1999 related to its 65% owned subsidiary, Hub Group Distribution
Services ("Hub Distribution"). These items principally related to revenue,
transportation costs and selling, general and administrative expense. The
Company is still investigating the causes for the incorrect accounting at Hub
Distribution.
The restatement also includes a restatement of minority interest equal
to 35% of the adjustments in revenue, transportation costs and selling, general
and administrative expense. Additionally, the Company recorded additional
interest expense owed to its bank group based upon variable interest rate
pricing tied to its restated cash flow leverage ratio.
The adjustments to minority interest resulted in a receivable balance
due from the minority shareholder. The Hub Distribution partnership agreement
requires all income and losses be allocated to the partners based on ownership.
Should Hub Distribution be liquidated in the future, the partnership agreement
requires that the minority shareholder bring its capital account to zero through
payment to the partnership.
A summary of the restatement by category is as follows:
CUMULATIVE RESTATEMENT
THROUGH DECEMBER 31, 2000
-------------------------
(000's)
Revenue $ (2,796)
Transportation costs (5,267)
Selling, general and administrative expense (522)
Interest expense (140)
Minority interest 3,004
-------------------------
Total $ (5,721)
-------------------------
28
The effect of such restatement discussed above on the statement of operations
line items is shown in the following table:
As Previously As
REPORTED RESTATEMENT RESTATED
-------------------------------------------------
FISCAL 1999
Revenue $ 1,296,799 $ (1,297) $ 1,295,502
Transportation costs 1,134,384 1,255 1,135,639
-------------------------------------------------
Gross margin 162,415 (2,552) 159,863
Costs and expenses:
Salaries and benefits 84,082 - 84,082
Selling, general and administrative 38,232 1,129 39,361
Depreciation and amortization of property and equipment 4,014 - 4,014
Amortization of goodwill 5,069 - 5,069
Impairment of property and equipment 884 - 884
-------------------------------------------------
Total costs and expenses 132,281 1,129 133,410
-------------------------------------------------
Operating income 30,134 (3,681) 26,453
-------------------------------------------------
Other income (expense):
Interest expense (8,592) (50) (8,642)
Interest income 926 - 926
Other, net 1,191 - 1,191
-------------------------------------------------
Total other expense (6,475) (50) (6,525)
Income before minority interest and provision for income taxes 23,659 (3,731) 19,928
Minority interest 5,275 (1,288) 3,987
-------------------------------------------------
Income before provision for income taxes 18,384 (2,443) 15,941
Provision for income taxes 7,538 (1,002) 6,536
-------------------------------------------------
Net income $ 10,846 $ (1,441) $ 9,405
=================================================
FISCAL 2000
Revenue $ 1,384,379 $ (1,499) $ 1,382,880
Transportation costs 1,211,101 4,012 1,215,113
-------------------------------------------------
Gross margin 173,278 (5,511) 167,767
Costs and expenses:
Salaries and benefits 96,201 - 96,201
Selling, general and administrative 46,840 (607) 46,233
Depreciation and amortization of property and equipment 6,097 - 6,097
Amortization of goodwill 5,741 - 5,741
Impairment of property and equipment - - -
-------------------------------------------------
Total costs and expenses 154,879 (607) 154,272
-------------------------------------------------
Operating income 18,399 (4,904) 13,495
-------------------------------------------------
Other income (expense):
Interest expense (11,442) (90) (11,532)
Interest income 779 - 779
Other, net 136 - 136
-------------------------------------------------
Total other expense (10,527) (90) (10,617)
Income before minority interest and provision for income taxes 7,872 (4,994) 2,878
Minority interest 47 (1,716) (1,669)
-------------------------------------------------
Income before provision for income taxes 7,825 (3,278) 4,547
Provision for income taxes 3,208 (1,344) 1,864
-------------------------------------------------
Net income $ 4,617 $ (1,934) $ 2,683
=================================================
29
NOTE 3. CAPITAL STRUCTURE
The Company has authorized common stock comprised of Class A common
stock and 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.
NOTE 4. EARNINGS PER SHARE
The following is a reconciliation of the Company's Earnings Per Share:
RESTATED RESTATED
------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------------- ------------------------- -------------------------
(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 $443 7,708 $0.06 $2,683 7,708 $0.35 $9,405 7,693 $1.22
------ ------ --------- ------ ------ --------- ------ ------ ---------
EFFECT OF DILUTIVE SECURITIES
Stock options - 8 - - 8 - - 67 -
------ ------ --------- ------ ------ --------- ------ ------ ---------
HISTORICAL DILUTED EPS
Income available to
common stockholders
plus assumed exercises $443 7,716 $0.06 $2,683 7,716 $0.35 $9,405 7,760 $1.21
------ ------ --------- ------ ------ --------- ------ ------ ---------
NOTE 5. PURCHASES OF MINORITY INTEREST
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,
------------------------------------
2001 2000
----------------- -----------------
(000'S)
Building and improvements $ 57 $ 57
Leasehold improvements 2,126 2,111
Computer equipment and software 49,373 46,396
Furniture and equipment 7,542 7,635
Transportation equipment and automobiles 3,690 3,678
----------------- -----------------
62,788 59,877
Less: Accumulated depreciation and amortization (23,690) (16,023)
----------------- -----------------
PROPERTY AND EQUIPMENT, net $ 39,098 $ 43,854
================= =================
30
Depreciation expense was $11,248,000, $6,875,000 and $5,013,000 for
2001, 2000 and 1999, respectively. Depreciation expense for 2000 included
approximately $500,000 of additional depreciation due to the change in estimated
useful lives of various assets that were no longer used once the new operating
system was completed.
NOTE 7. IMPAIRMENT OF PROPERTY AND EQUIPMENT
On March 30, 2001, a $3.4 million pretax charge was recorded due to the
impairment of Hub Distribution's e-Logistics software ("e-software"). This
e-software was used to process orders relating to the home delivery of large box
items purchased over the internet. Management made the decision to exit the
internet home delivery business and in conjunction with this decision, all
customer contracts associated with the internet home delivery business were
terminated as of March 30, 2001. Consequently, the e-software's fair value was
reduced to zero based on the lack of any future cash flows attributable to Hub
Distribution's e-Logistics initiative. The Company does not intend to use the
software in the future.
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 8. INCOME TAXES
The following is a reconciliation of the Company's effective tax rate to the
federal statutory tax rate:
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
RESTATED RESTATED
--------------------- ---------------------
2001 2000 1999
-------------------- --------------------- ---------------------
U.S. federal statutory rate 34.0% 34.0% 35.0%
State taxes, net of federal benefit 3.9 3.9 4.1
Goodwill amortization 1.1 1.1 0.5
Other 2.0 2.0 1.4
-------------------- --------------------- ---------------------
Net effective rate 41.0% 41.0% 41.0%
-------------------- --------------------- ---------------------
The following is a summary of the Company's provision for income taxes:
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
RESTATED RESTATED
--------------------- ---------------------
2001 2000 1999
-------------------- --------------------- ---------------------
(000'S)
Current
Federal $ - $ - $ 4,280
State and local - - 502
-------------------- --------------------- ---------------------
- - 4,782
-------------------- --------------------- ---------------------
Deferred
Federal 276 1,672 1,570
State and local 32 192 184
-------------------- --------------------- ---------------------
308 1,864 1,754
-------------------- --------------------- ---------------------
Total provision $ 308 $ 1,864 $ 6,536
-------------------- --------------------- ---------------------
31
The following is a summary of the Company's deferred tax assets and
liabilities:
YEARS ENDED DECEMBER 31,
-----------------------------------------
RESTATED
--------------------
2001 2000
------------------- --------------------
(000'S)
Reserve for uncollectible accounts receivable $ 1,537 $ 1,093
Accrued compensation 163 -
Net operating loss carryforward 9,500 7,956
Subsequent adjustment reserve 430 472
Other reserves 749 197
------------------- --------------------
Current deferred tax asset 12,379 9,718
Accrued compensation 1,636 938
Net operating loss carryforward 2,307 -
Other 31 98
Income tax basis in excess of financial basis of goodwill 7,678 8,511
------------------- --------------------
Long-term deferred tax asset 11,652 9,547
------------------- --------------------
Total deferred tax asset $ 24,031 $ 19,265
------------------- --------------------
Receivables $ (1,232) $ (441)
------------------- --------------------
Current deferred tax liability (1,232) (441)
Property and equipment (9,929) (7,453)
Goodwill (19,103) (17,296)
------------------- --------------------
Long-term deferred tax liability (29,032) (24,749)
------------------- --------------------
Total deferred tax liability $ (30,264) $ (25,190)
------------------- --------------------
The Company had federal net operating loss carryforwards of
approximately $16,971,000 at December 31, 2001. These federal net operating loss
carryforwards expire as follows:
(In thousands)
- ------------------------------------------------------------------------------
2020 $ 227
2021 16,744
The Company had federal tax credits of approximately $1,070,000 at
December 31, 2001. The portion of the federal tax credits that have expiration
dates, expire as follows:
(In thousands)
- ------------------------------------------------------------------------------
2019 $ 177
2020 508
32
NOTE 9. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Fair value approximates book value at the balance sheet dates.
YEARS ENDED DECEMBER 31,
------------------------------
2001 2000
-------------- --------------
(000'S)
Installment notes payable due through 2001, monthly installments ranging from
$1,587 to $7,112, including interest at 9.3%, collateralized
by certain equipment $ - $ 75
Bank line of credit (see below) 19,000 24,000
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, 2001 and 2000, the weighted
average interest rate was 4.66% and 9.19%, respectively 35,000 42,000
Unsecured notes, mature on June 25, 2009 with annual payments
of $10,000,000 commencing on June 25, 2005; interest is paid quarterly
at a fixed rate of 9.14% during 2001 and 2000 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
Capital lease obligations, collateralized by certain equipment 113 130
-------------- --------------
Total long-term debt 104,113 121,430
Less current portion (8,054) (12,341)
-------------- --------------
$ 96,059 $ 109,089
-------------- --------------
Aggregate principal payments, in thousands, due subsequent to
December 31, 2001, are as follows:
2002 $ 8,054
2003 8,041
2004 38,016
2005 10,002
2006 and thereafter 40,000
-----------
$ 104,113
-----------
The Company maintains a multi-bank credit facility (the "Credit
Facility"). The Credit Facility is comprised of term debt and a revolving line
of credit. Borrowings under the revolving 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. Borrowings
and weighted average interest rates on the revolving line of credit were $19.0
million and 4.46% and $24.0 million and 9.23% at December 31, 2001and 2000,
respectively. There was $31.0 million and $26.0 million unused and available
under the revolving line of credit at December 31, 2001 and 2000, respectively.
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. Borrowings and
weighted average interest rates on the term debt was $35.0 million and 4.66% and
$42.0 million and 9.19% at December 31, 2001 and 2000, respectively.
On November 7, 2000, the Company amended the Credit Facility. 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
33
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.
The amended Credit Facility requires that the Company maintain required levels
of net worth and EBITDAM, and ratios of fixed charge coverage and funded debt to
EBITDAM. The amendment has an additional financial covenant that limits capital
expenditures for 2001. On February 26, 2001, the Company executed a second
amendment to its Credit Facility. The amendment has an additional financial
covenant that limits capital expenditures for 2002. On March 30, 2001, the
Company executed a third amendment to its Credit Facility, amending the
definition of EBITDAM slightly, extending the date for adding back certain
non-cash charges. Effective September 30, 2001, the Company executed a fourth
amendment to its Credit Facility, allowing the $4.7 million of customer bad debt
write-off related to a Korean steamship line to be added back for the purpose of
calculating the EBITDAM ratio. All other provisions of the November 7, 2000
amendment remained unchanged. On March 27, 2002, the Company executed a fifth
amendment to its Credit Facility. The amendment waives any historical covenant
violations that resulted from the restatement of the financial statements from
1999 and 2000. In addition, an adjusting entry was made in the fourth quarter of
2001 to properly state the results for 2001 since the Company did not make any
adjustments to 2001 on a quarterly basis. The amendment allows the spreading of
this fourth quarter adjustment pro-rata throughout the year for purposes of
covenant calculations in 2002. The amendment established a minimum borrowing
rate from January 1, 2002 through September 30, 2002. The term debt interest
rate will be a minimum of LIBOR plus 2.75% or at the Prime Rate plus 1.25%. The
revolving credit interest will be a minimum of LIBOR plus 2.50% or at the Prime
Rate plus 1.00%. The Company was in compliance with the financial covenants that
were effective as of December 31, 2001.
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. The
amended agreement requires that the Company maintain required levels of net
worth, ratios of fixed charge coverage and funded debt to EBITDAM. The amendment
has an additional financial covenant that limits capital expenditures for 2001
and 2002. On March 30, 2001, the Company executed a second amendment to the
Notes, amending the definition of EBITDAM slightly and extending the date for
adding back certain non-cash charges. Effective September 30, 2001, the Company
executed a third amendment to the Notes, allowing the $4.7 million of customer
bad debt write-off related to a Korean steamship line to be added back for the
purpose of calculating EBITDAM. On March 27, 2002, the Company executed a fourth
amendment to the Notes. The amendment waives any historical covenant violations
that resulted from the restatement of the financial statements from 1999 and
2000. In addition, an adjusting entry was made in the fourth quarter of 2001 to
properly state the results for 2001 since the Company did not make any
adjustments to 2001 on a quarterly basis. The amendment allows the spreading of
this fourth quarter adjustment pro-rata throughout the year for purposes of
covenant calculations in 2002. The Company was in compliance with the financial
covenants that were effective as of December 31, 2001.
The Company has authorized the issuance of standby letters of credit
totaling $925,000, which automatically renew annually.
NOTE 10. CAPITALIZED INTEREST AND INTEREST EXPENSE
Capitalized interest on qualifying assets under development and total
interest were as follows:
YEARS ENDED DECEMBER 31,
---------------------------------------------
RESTATED RESTATED
------------- -------------
2001 2000 1999
------------- ------------- -------------
(000'S)
Capitalized interest $ 365 $ 836 $ 201
Interest expensed 10,345 11,532 8,642
------------- ------------- -------------
Total Interest Incurred $ 10,710 $ 12,368 $ 8,843
------------- ------------- -------------
34
NOTE 11. RENTAL EXPENSE AND LEASE COMMITMENTS
Minimum annual rental commitments, in thousands, at December 31, 2001,
under noncancellable operating leases, principally for real estate and
equipment, are payable as follows:
2002 $ 11,467
2003 8,191
2004 4,470
2005 2,273
2006 1,595
2007 and thereafter 9,059
-----------
$ 37,055
-----------
Total rental expense was approximately $15,157,000, $13,230,000 and
$8,840,000 for 2001, 2000 and 1999, 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.
NOTE 12. STOCK-BASED COMPENSATION PLAN
In 1996, 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. In 1997, 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,
-----------------------------------
RESTATED RESTATED
---------- ----------
2001 2000 1999
--------- ---------- ----------
Net income as reported (000's) 443 2,683 9,405
Net income (loss) pro forma
for Statement 123 (000's) (288) 1,869 8,918
Basic earnings per common share
pro forma for Statement 123 $ (0.04) $ 0.24 $ 1.16
Diluted earnings per common share
pro forma for Statement 123 $ (0.04) $ 0.24 $ 1.15
35
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,
--------------------------------------------
2001 2000 1999
----------- ----------- -----------
Dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 4.50% 6.25% 6.25%
Volatility factor 40.00% 40.00% 40.00%
Expected life in years 6.0 6.0 6.0
Information regarding these option plans for 2001, 2000 and 1999 is as follows:
2001 2000 1999
--------------------------------- ---------------------------------- ---------------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------------- -------------- ----------------- -------------- ------------------ --------------
Options outstanding,
beginning of year 877,800 $ 17.07 892,800 $ 17.86 469,300 $ 16.58
Options exercised (200) 10.43 (2,100) 14.00 (34,000) 14.00
Options granted 106,000 10.15 100,000 13.32 480,000 18.85
Options forfeited (32,050) 17.64 (112,900) 20.11 (22,500) 17.97
----------------- -------------- ----------------- -------------- ------------------ --------------
Options outstanding,
end of year 951,550 $ 16.28 877,800 $ 17.07 892,800 $ 17.86
Weighted average fair
value of options
granted during the year $ 4.66 $ 6.53 $ 9.25
Options exercisable at
year end 520,900 355,300 220,400
Option price range at end
of year $ 8.06 to $28.16 $ 8.31 to $28.16 $14.00 to $28.16
Option price for exercised
shares $ 10.43 $ 14.00 $ 14.00
Options available for
grant at end of year 188,450 262,400 249,500
The following table summarizes information about options outstanding at December
31, 2001:
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
- ---------------- ----------- ------------------ ------------- ----------- ---------------
$ 8.06 to $14.00 455,300 6.06 $ 12.72 278,300 $ 13.89
$17.66 to $19.94 477,750 7.83 $ 18.78 219,400 $ 18.91
$21.06 to $28.16 38,500 6.35 $ 25.44 23,200 $ 25.47
---------- ------------------ ------------- ----------- ---------------
$ 8.06 to $28.16 951,550 6.96 $ 16.28 520,900 $ 16.52
36
NOTE 13. 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,
----------------------------------------
RESTATED RESTATED
------------ ------------
2001 2000 1999
------------ ------------ ------------
Intermodal Services $ 904,999 $ 1,004,434 $ 966,804
Brokerage Services 213,153 207,617 196,433
Logistics Services 201,179 170,829 132,265
------------ ------------ ------------
Total Revenue $ 1,319,331 $ 1,382,880 $ 1,295,502
------------ ------------ ------------
NOTE 14. EMPLOYEE BENEFIT PLANS
The Company has two profit-sharing plans and trusts under section
401(k) of the Internal Revenue Code. Qualified contributions made by employees
to the plan are partially matched by the Company. The Company expensed
approximately $1,365,000 related to these plans in 2001. Prior to 2001, for
every dollar the employee contributed, the Company had contributed an additional
$.20 up to $100. In addition, prior to 2001, the Company, at its discretion,
typically had made profit sharing contributions. Historically, the Company had
contributed an amount equal to 3% of each participant's compensation up to a
maximum of $5,100. The Company's contributions to these plans were approximately
$1,684,000 and $1,645,000 for 2000 and 1999, respectively.
The Company provides a deferred compensation plan that permits certain
officers and certain management employees to defer portions of their
compensation. Contributions made by employees to the plan are partially matched
by the Company. The Company expensed $472,000 and $274,000 related to this plan
in 2001 and 2000, respectively.
NOTE 15. RELATED PARTY TRANSACTIONS
The Class B Common ("Class B") stockholders, some of whom are officers
of the Company, as well as officers ofvthe Company who are not Class B
stockholders, received approximately 33% of minority interest distributions of
income from the Company 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.
A shareholder of the Company is the owner of 20% of the Class A
membership interest of SmartOffices Services, LLC ("SmartOffices"). SmartOffices
is in the business of selling office supplies to various companies. The Company
spent $334,200 and $166,200 buying various office supplies from SmartOffices in
2001 and 2000, respectively.
NOTE 16. LEGAL MATTERS
On February 19, 2002, a purported class action lawsuit was filed by
Riggs Partners, LLC in the United States District Court for the Northern
District of Illinois, Eastern Division. The complaint names as defendants the
Company, the Company's officers and former officers that signed the Company's
recent periodic reports filed with the Securities and Exchange Commission and
the Company's auditors. The complaint alleges that the defendants violated
37
Section 10(b) and Rule 10b-5 thereunder and Section 20(a) of the Securities
Exchange Act of 1934 by filing or causing to be filed with the Securities and
Exchange Commission periodic reports that contained inaccurate financial
statements. The complaint seeks unspecified compensatory damages, reimbursement
of reasonable costs and expenses, including counsel fees and expert fees, and
such other relief as the court deems just and proper. The Company believes that
this suit is without merit and intends to vigorously defend itself and its
officers. An adverse judgement in this lawsuit could have a material adverse
affect on the Company's financial position and results of operations.
In addition to the suit described above, the Company is a party to
routine litigation incident to its business, primarily claims for freight
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 outcome of
this litigation will have a materially adverse effect on the Company's financial
position or results of operations.
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 was to
result in the reduction of 56 accounting-related positions from the operating
companies. All affected employees were informed of this decision in mid-November
2000. In connection with this plan, the Company recorded a pre-tax charge of
$250,000 that is included in salaries and benefits expense in the fourth quarter
of 2000. During 2001, $206,000 was paid related to the accounting restructuring
and thirty-one employees were terminated. The remaining $44,000 of the accrual
was reversed in 2001, thereby reducing salaries and benefits expense.
NOTE 18. DERIVATIVE FINANCIAL INSTRUMENT
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("Statement 133"), "Accounting for
Derivative Instruments and Hedging Activities." On January 1, 2001, the Company
adopted Statement 133 and recorded the fair value of its interest rate swap of
$79,000, net of related income taxes of $55,000, as an asset. The transition
adjustment to record the asset was included in other comprehensive income.
The Company has an interest rate swap that matures on September 30,
2002 with a notional amount of $25.0 million, a weighted average pay rate of
8.37% and weighted average receive rates of 5.34% and 9.19% at December 31, 2001
and 2000, respectively. Under the Credit Facility, the Company was required to
enter into this interest rate swap agreement designated as a hedge on a portion
of the Company's variable rate debt. The Company uses this interest rate swap to
manage its exposure to changes in interest rates for its floating rate debt.
This interest rate swap qualifies as a cash flow hedge. The interest rate
differential to be received or paid on the swap is recognized in the
consolidated statements of operations as a reduction or increase in interest
expense, respectively. The Company recorded incremental interest
expense/(interest income) of $312,000, $(217,000) and $52,000 for this swap in
2001, 2000 and 1999, respectively. In accordance with the new derivative
requirements, the effective portion of the change in the fair value of the
derivative instrument is recorded in the consolidated balance sheets as a
component of current assets or liabilities and other comprehensive income. The
ineffective portion of the change in the fair value of the derivative
instrument, along with the gain or loss on the hedged item, is recorded in
earnings and reported in the consolidated statements of operations, on the same
line as the hedged item.
For the twelve months ended December 31, 2001, the Company adjusted its
derivative financial instrument to fair value which resulted in an unrealized
loss of $468,000, net of the related income tax benefit of $325,000. This
adjustment is included in other comprehensive loss.
NOTE 19. BAD DEBT WRITE-OFF
During September 2001, the Company recognized bad debt expense which is
included in selling, general and administrative expense in the accompanying
consolidated statements of operations in the amount of $4.7 million related to a
Korean steamship line customer ("Customer"). The Customer filed for
reorganization under the Corporate Reorganization Act of Korea in May 2001 and
was subsequently forced into liquidation by the Korean courts. According to
court filings, the Customer does not have adequate funds to pay its secured
creditors. The Company, as an unsecured creditor, was notified by the trustee
appointed by the court during September 2001 that it should not expect to
recover any funds from the Customer.
38
NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
As indicated in Note 2, the Company has restated earnings in 2000. The
Company did not restate each quarter of 2000 and has reflected the full impact
of the 2000 restatement in the fourth quarter of 2000. In addition, an entry was
made in the fourth quarter of 2001 to properly state 2001. The Company did not
restate the first, second or third quarter of 2001 and reflected the full
impact of the adjustment in the fourth quarter of 2001. The following table
sets forth selected quarterly financial data for each of the quarters in 2001
and 2000 (in thousands, except per share amounts):
QUARTERS
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- ------------- ------------- -------------
Year Ended December 31, 2001:
Revenue $ 345,935 $ 318,023 $ 323,046 $ 332,327
Gross margin 46,036 45,331 44,571 43,025
Operating income 1,148 5,224 539 3,637
Net income/(loss) (676) 1,065 (1,112) 1,166
Basic earnings/(loss) per share $ (0.09) $ 0.14 $ (0.14) $ 0.15
Diluted earnings/(loss) per share $ (0.09) $ 0.14 $ (0.14) $ 0.15
QUARTERS
--------------------------------------------------------
RESTATED
-------------- ------------- ------------- -------------
FIRST SECOND THIRD FOURTH
-------------- ------------- ------------- -------------
Year Ended December 31, 2000:
Revenue $ 328,568 $ 344,329 $ 354,797 $ 355,186
Gross margin 39,465 44,583 44,223 39,496
Operating income/(loss) 2,334 6,689 4,934 (462)
Net income/(loss) (317) 2,298 1,564 (862)
Basic earnings/(loss) per share $ (0.04) $ 0.30 $ 0.20 $ (0.11)
Diluted earnings/(loss) per share $ (0.04) $ 0.30 $ 0.20 $ (0.11)
39
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 21, 2002, 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 21, 2002, 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 21, 2002, 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 21,
2002, 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.
40
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, 2001 and December 31,
2000
Consolidated Statements of Operations - Years ended December 31,
2001, December 31, 2000 and December 31, 1999
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2001, December 31, 2000 and December 31, 1999
Consolidated Statements of Cash Flows - Years ended December 31,
2001, December 31, 2000 and December 31, 1999
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
The Company filed a Report on Form 8-K on February 13, 2002,
reporting in Item 5 that the Company discovered certain accounting
irregularities at its Hub Group Distribution Services subsidiary and included a
copy of the press release issued by the Company on February 12, 2002.
PERIODIC REPORTS
Upon written request, the Company's annual report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 2001, and its quarterly reports on Form 10-Q will be furnished to
stockholders free of charge; write to: Public Relations Department, Hub Group,
Inc., 377 E. Butterfield Road, Suite 700, Lombard, Illinois 60148.
41
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 27, 2002 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 27, 2002
- ----------------------
Phillip C. Yeager
/S/ DAVID P. YEAGER Vice Chairman, Chief Executive Officer and Director March 27, 2002
- --------------------
David P. Yeager
/S/ THOMAS L. HARDIN President, Chief Operating Officer and Director March 27, 2002
- ---------------------
Thomas L. Hardin
/S/ JAY E. PARKER Vice President-Finance and Chief Accounting Officer March 27, 2002
- ------------------
Jay E. Parker (Principal Financial and Accounting Officer)
/S/ CHARLES R. REAVES Director March 27, 2002
- ----------------------
Charles R. Reaves
/S/ MARTIN P. SLARK Director March 27, 2002
- --------------------
Martin P. Slark
/S/ GARY D. EPPEN Director March 27, 2002
- ------------------
Gary D. Eppen
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
2001 $ 3,088,000 $ 7,132,000 $(6,200,000) $ 4,020,000
2000 as restated 2,134,000 2,766,000 (1,812,000) 3,088,000
1999 691,000 2,321,000 (878,000) 2,134,000
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
10.16 Amendment to $100 million Credit Agreement among the Registrant,
Hub City Terminals, Inc. and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 10.16 to the Registrant's
report on Form 10-Q dated and filed April 19, 2001, File No.
000-27754)
10.17 Amendment to $50 million Note Purchase Agreement among the
Registrant, Hub City Terminals, Inc. and various purchasers
(incorporated by reference to Exhibit 10.17 to the Registrant's
report on Form 10-Q dated and filed April 19, 2001, File No.
000-27754)
10.18 Amendment to $100 million Credit Agreement among the Registrant,
Hub City Terminals, Inc. and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 10.18 to the Registrant's
report on Form 10-Q dated and filed November 13, 2001, File No.
000-27754)
10.19 Amendment to $50 million Note Purchase Agreement among the
Registrant, Hub City Terminals, Inc. and various purchasers
(incorporated by reference to Exhibit 10.19 to the Registrant's
report on Form 10-Q dated and filed November 13, 2001, File No.
000-27754)
10.20 Amendment to $100 million Credit Agreement among the Registrant,
Hub City Terminals, Inc. and Harris Trust and Savings Bank dated
March 27, 2002
10.21 Amendment to $50 million Note Purchase Agreement among the
Registrant, Hub City Terminals, Inc. and various purchasers dated
March 27, 2002
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
99.1 Letter from the Company to the Securities and Exchange Commission
dated March 27, 2002 regarding the Company's auditors, Arthur
Andersen
HUB GROUP, INC.
HUB CITY TERMINALS, INC.
AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank LaSalle Bank National Association
Chicago, Illinois Chicago, Illinois
U.S. Bank National Association National City Bank
Des Plaines, Illinois Cleveland, Ohio
Firstar Bank, N.A.
Milwaukee, Wisconsin
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
April 30, 1999 (the "CREDIT AGREEMENT"), as amended and currently in effect, by
and among Hub Group, Inc. (the "PUBLIC HUB COMPANY"), Hub City Terminals, Inc.
for itself and as successor by merger to Hub Holdings, Inc. ("HUB CHICAGO";
together with the Public Hub Company, the "BORROWERS") and you (the "LENDERS").
All capitalized terms used herein without definition shall have the same
meanings herein as such terms have in the Credit Agreement.
Substantially concurrently herewith, the Hub Group is restating
earnings for their 1999 and 2000 fiscal years and adjusting earnings for their
2001 fiscal year. As a result of such restatements and adjustments, (i) the Hub
Group will have been in default of their obligations under Section 7.8 (Fixed
Charge Coverage Ratio) for the fiscal quarters ending March 31, 2000, September
30, 2000 and December 31, 2000, Section 7.9 (Minimum EBITDAM) for the fiscal
quarters ending September 30, 2000 and December 31, 2000 and Section 7.10 (Cash
Flow Leverage Ratio) for the fiscal quarters ending June 30, 2000, September 30,
2000, December 31, 2000 and September 30, 2001 (collectively, the "RESTATEMENT
DEFAULTS") and (ii) the Borrowers have underpaid interest on the Loans during
the third fiscal quarter of 1999, the second and fourth fiscal quarters of 2000
and the second fiscal quarter of 2001 due to the Applicable Margins being set at
inappropriate status levels. The Borrowers have requested that the Lenders waive
the Restatement Defaults and make certain other amendments to the Credit
Agreement, and the Lenders are willing to do so under the terms and conditions
set forth in this amendment (herein, the "AMENDMENT").
1. AMENDMENTS.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 below, the Credit Agreement shall be and hereby is amended as follows:
1.01. Each of Sections 7.8, 7.9 and 7.10 of the Credit Agreement shall be
and hereby is amended by adding the following sentence immediately at the end
thereof:
"Notwithstanding anything contained in this Agreement to the
contrary, for purposes of computing the Hub Group's compliance
with this Section, the Hub Group's adjustment of earnings for
the 2001 fiscal year (which was an aggregate EBITDAM
adjustment of $1,800,000 for such year) shall be treated as if
such adjustment had occurred evenly in each fiscal quarter of
such year (I.E. $450,000 per fiscal quarter)."
1.02. The definition of "APPLICABLE MARGIN" appearing in Section 4.1 of
the Credit Agreement shall be amended by inserting the following new sentence at
the end thereof:
"Notwithstanding anything herein to the contrary, the
Applicable Margin in effect from January 1, 2002 through
September 30, 2002 shall not be less than the Applicable
Margin for Level III Status."
2. WAIVER.
The Borrowers acknowledge that prior to giving effect to this
Amendment, the Borrowers are in default of their obligations under Sections 7.8,
7.9 and 7.10 of the Credit Agreement by reason of the Restatement Defaults. Upon
the effectiveness of this Amendment as hereinafter set forth, the Lenders hereby
waive the Restatement Defaults. The foregoing waiver is expressly limited to the
matters stated herein.
3. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
3.01. The Borrowers, the Guarantors and the Required Lenders shall
have executed and delivered this Amendment.
3.02. The Senior Note Offering shall have been modified by written
instrument (the "SENIOR NOTE AMENDMENT") in form and substance reasonably
satisfactory to the Agent to effect a waiver and modification of the terms and
conditions thereof such that the same are no more burdensome on the Borrowers
than the corresponding provisions of the Credit Agreement after giving effect to
the modifications contemplated by this Amendment.
3.03. The Borrowers shall have paid to the Agent, for the benefit of the
Lenders, the difference in interest that the Borrowers should have paid to the
Lenders in the third fiscal quarter of 1999, the second and fourth fiscal
quarters of 2000 and the second fiscal quarter of 2001 had the Applicable
Margins been set at the appropriate status levels during such periods.
3.04. The Borrowers shall have paid to the Agent, for the ratable benefit
of the Lenders which have executed and delivered to counsel for the Agent a
counterpart of this Amendment no later than 5:00 p.m. (Chicago time) on March
2
27, 2002, an amendment fee in an amount equal to 0.2% of such executing Lenders'
Revolving Credit Commitments and outstanding Term Loans (the "AMENDMENT FEE"),
such Amendment Fee to be fully earned and due and payable to such executing
Lenders upon such Lenders' execution of this Amendment
3.05. The Agent shall have received copies, executed or certified (as may
be appropriate), of the resolutions or consents of the board of directors or
other governing body of the Borrowers authorizing the execution, delivery and
performance of this Amendment and the Senior Note Amendment, indicating the
authorized signers of this Amendment and the Senior Note Amendment and the
specimen signatures of such signers.
3.06. Legal matters incident to the execution and delivery of this
Amendment and the Senior Note Amendment shall be reasonably satisfactory to the
Agent and its counsel.
4. CONDITION SUBSEQUENT.
As soon as possible, but not later than April 10, 2002, the Borrowers
shall furnish to the Agent a copy of the consolidated balance sheet of the Hub
Group as of the close of the 2001 fiscal year and the consolidated statements of
income, retained earnings and cash flows of the Hub Group for such period, and
accompanying notes thereto, each in reasonable detail showing in comparative
form the figures for the previous fiscal year, accompanied by an unqualified
opinion thereon of Arthur Andersen LLP or another firm of independent public
accountants of recognized national standing, to the effect that the financial
statements have been prepared in accordance with GAAP and present fairly in
accordance with GAAP the consolidated financial condition of the Hub Group as of
the close of such fiscal year and the results of their operations and cash flows
for the fiscal year then ended, and otherwise in conformity with Section 7.5(b)
of the Credit Agreement. The Borrowers acknowledge and agree that the failure to
deliver such financial statements and audit report by April 10, 2002 shall
constitute an immediate Event of Default.
5. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment,
the Borrowers hereby represent to the Lenders that as of the date hereof, the
representations and warranties set forth in Section 5 of the Credit Agreement
are and remain true and correct in all material respects (except to the extent
the same expressly relate to an earlier date and except that for purposes of
this paragraph the representations contained in Section 5.5 shall be deemed to
refer to the most recent financial statements of the Public Hub Company
delivered to the Lenders) and the Borrowers are in full compliance with all of
the terms and conditions of the Credit Agreement after giving effect to this
Amendment and no Default or Event of Default (other than the Restatement
Defaults) has occurred and is continuing under the Credit Agreement or shall
result after giving effect to this Amendment.
3
6. MISCELLANEOUS.
6.01. Each Borrower and each Guarantor acknowledges and agrees that,
except as modified by this Amendment, all of the Loan Documents to which it is a
party remain in full force and effect for the benefit and security of, among
other things, the Obligations as modified hereby. Each Borrower and each
Guarantor further acknowledges and agrees that all references in such Loan
Documents to the Obligations shall be deemed a reference to the Obligations as
so modified. Each Borrower and each Guarantor further agrees to execute and
deliver any and all instruments or documents as may be reasonably required by
the Agent or the Required Lenders to confirm any of the foregoing.
6.02. Except as specifically amended hereby, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as
specifically amended hereby.
6.03. This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
6.04. The Borrowers agree to pay, jointly and severally, all reasonable
out-of-pocket costs and expenses incurred by the Agent in connection with the
preparation, execution and delivery of this Amendment and the documents and
transactions contemplated hereby, including the reasonable fees and expenses of
counsel for the Agent with respect to the foregoing.
4
Dated as of March 27, 2002.
HUB GROUP, INC., a Borrower
HUB CITY TERMINALS, INC., a Borrower
By
David P. Yeager
Chief Executive Officer for each of the above
Companies
5
GUARANTORS' CONSENT
The undersigned heretofore executed and delivered to the Lenders the
Guaranty Agreement. The undersigned hereby consent to the Amendment to the
Credit Agreement as set forth above and confirm that the Guaranty Agreement and
all of the obligations of the undersigned thereunder remain in full force and
effect. The undersigned further agree that their consent to any further
amendments to the Credit Agreement shall not be required as a result of this
consent having been obtained, except to the extent, if any, required by the
Guaranty Agreement.
HUB CHICAGO HOLDINGS, INC., a Guarantor
By
David P. Yeager
Chief Executive Officer
HLX COMPANY, L.L.C., a Guarantor
By
David P. Yeager
Vice Chairman and Chief Executive Officer
QSSC, INC.
QUALITY SERVICES, L.L.C.,
QUALITY SERVICES OF KANSAS, L.L.C.
QUALITY SERVICES OF NEW JERSEY, L.L.C.
Q.S. OF ILLINOIS, L.L.C.
Q.S. OF GEORGIA, L.L.C.
By
David P. Yeager
Chief Executive Officer for each of the above
Guarantors
HUB GROUP ALABAMA, LLC
HUB GROUP ATLANTA, LLC
HUB GROUP BOSTON, LLC
HUB GROUP CANADA, L.P.
HUB GROUP CLEVELAND, LLC
HUB GROUP DETROIT, LLC
HUB GROUP FLORIDA, LLC
HUB GROUP GOLDEN GATE, LLC
HUB GROUP INDIANAPOLIS, LLC
HUB GROUP KANSAS CITY, LLC
HUB GROUP LOS ANGELES, LLC
HUB GROUP MID ATLANTIC, LLC
HUB GROUP NEW ORLEANS, LLC
HUB GROUP NEW YORK STATE, LLC
HUB GROUP NEW YORK-NEW JERSEY, LLC
HUB GROUP NORTH CENTRAL, LLC
HUB GROUP OHIO, LLC
HUB GROUP PHILADELPHIA, LLC
HUB ROUP PITTSBURGH, LLC
HUB GROUP PORTLAND, LLC
HUB GROUP ST. LOUIS, LLC
HUB GROUP TENNESSEE, LLC
HUB CITY TEXAS, L.P.
HUB GROUP TRANSPORT, LLC
HUB GROUP ASSOCIATES, INC.
HUB FREIGHT SERVICES, INC.
By
David P. Yeager
Chief Executive Officer for each of the above
Guarantors
2
Accepted and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK
By
Name:______________________________________
Title:_____________________________________
U.S. BANK NATIONAL ASSOCIATION
By
Name:______________________________________
Title:_____________________________________
FIRSTAR BANK, N.A.
By
Name:______________________________________
Title:_____________________________________
LASALLE BANK NATIONAL ASSOCIATION
By
Name:______________________________________
Title:_____________________________________
NATIONAL CITY BANK
By
Name:______________________________________
Title:_____________________________________
================================================================================
HUB GROUP, INC.
and
HUB CITY TERMINALS, INC.
-----------------------------------
FOURTH AMENDMENT
Dated as of March 27, 2002
to
NOTE PURCHASE AGREEMENTS
Dated as of June 15, 1999
-----------------------------------
Re: $50,000,000 8.64% Senior Notes
Due June 25, 2009
================================================================================
FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENTS
THIS FOURTH AMENDMENT dated as of March 27, 2002 (the or this "Fourth
Amendment") to the Note Purchase Agreements each dated as of June 15, 1999, as
amended by the First Amendment to Note Purchase Agreements dated as of February
26, 2001, the Second Amendment to Note Purchase Agreements dated as of March 30,
2001 and the Third Amendment to Note Purchase Agreements dated as of November 8,
2001, is among HUB GROUP, INC., a Delaware corporation ("Public Hub Company"),
HUB CITY TERMINALS, INC., a Delaware corporation, for itself and as successor by
merger to Hub Holdings, Inc. ("Hub Chicago"; Public Hub Company and Hub Chicago
being individually referred to herein as an "Obligor" and collectively as the
"Obligors"), and each of the institutions which is a signatory to this Fourth
Amendment (collectively, the "Noteholders").
RECITALS:
A. The Obligors and each of the Noteholders have heretofore entered
into separate and several Note Purchase Agreements each dated as of June 15,
1999 (as amended by the First Amendment to Note Purchase Agreements dated as of
February 26, 2001, the Second Amendment to Note Purchase Agreements dated as of
March 30, 2001 and the Third Amendment to Note Purchase Agreements dated as of
November 8, 2001, collectively, the "Note Purchase Agreements"). The Obligors
have heretofore issued the $50,000,000 8.64% Senior Notes Due June 25, 2009 (the
"Notes") dated June 25, 2000 pursuant to the Note Purchase Agreements.
B. The Obligors and the Noteholders now desire to amend the Note
Purchase Agreements in the respects, but only in the respects, hereinafter set
forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Purchase Agreements unless herein defined or the
context shall otherwise require.
D. All requirements of law have been fully complied with and all other
acts and things necessary to make this Fourth Amendment a valid, legal and
binding instrument according to its terms for the purposes herein expressed have
been done or performed.
NOW, THEREFORE, upon the full and complete satisfaction of the
conditions precedent to the effectiveness of this Fourth Amendment set forth in
Section 4.1 hereof, and in consideration of good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Obligors and the
Noteholders do hereby agree as follows:
SECTION 1. AMENDMENTS.
Section 1.1. Each of Section 10.2 and 10.3 to the Note Purchase
Agreements shall be amended by adding the following sentence immediately at the
end of each such Section:
2
"Notwithstanding anything contained in this Agreement to the
contrary, for purposes of computing the Public Hub Company and
its Restricted Subsidiaries' compliance with this Section, the
Public Hub Company and its Restricted Subsidiaries's
adjustment of earnings for the 2001 fiscal year (which was an
aggregate earnings adjustment of $1,800,000 for such year)
shall be treated as if such adjustment had occurred evenly in
each fiscal quarter of such year (i.e. $450,000 per fiscal
quarter)."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
Section 2.1. To induce the Noteholders to execute and deliver this
Fourth Amendment (which representations shall survive the execution and delivery
of this Fourth Amendment), the Obligors, jointly and severally, represent and
warrant to the Noteholders that:
(a) this Fourth Amendment has been duly authorized, executed
and delivered by each Obligor and this Fourth Amendment constitutes the
legal, valid and binding obligation, contract and agreement of each
Obligor enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(b) the Note Purchase Agreements, as amended by this Fourth
Amendment, constitute the legal, valid and binding obligations,
contracts and agreements of the Obligors enforceable against them in
accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors'
rights generally;
(c) the execution, delivery and performance by the Obligors
of this Fourth Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body
or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its certificate of incorporation or
bylaws, (2) any order of any court or any rule, regulation or order of
any other agency or government binding upon it, or (3) any provision of
any material indenture, agreement or other instrument to which any
Obligor is a party or by which any Obligor's properties or assets are
or may be bound, including, without limitation, the Credit Agreement
dated as of April 30, 1999, among the Obligors, the Lenders party
thereto and Harris Trust and Savings Bank, individually and as Agent,
and all amendments, supplements and modifications thereto, or (B)
result in a breach or constitute (alone or with due notice or lapse of
time or both) a default under any indenture, agreement or other
instrument referred to in clause (iii)(A)(3) of this Section 2.1(c);
(d) as of the date hereof and after giving effect to this
Fourth Amendment, no Default or Event of Default has occurred which is
continuing;
3
(e) all the representations and warranties contained in
Section 5 of the Note Purchase Agreements (other than those contained
in Sections 5.3, 5.4(a), 5.4(b) and 5.9) are true and correct in all
material respects with the same force and effect as if made by the
Obligors on and as of the date hereof (other than any representation
and warranty that expressly relates to a specified earlier date, which
was true and correct in all material respects as of such date);
provided, that, notwithstanding any reference in Sections 5.4(c) and
5.4(d) of the Note Purchase Agreements to the Restricted Subsidiaries
listed on Schedule 5.4 to the Note Purchase Agreements, the
representations and warranties hereby made by the Obligors with
reference to Sections 5.4(c) and 5.4(d) of the Note Purchase Agreements
shall relate to the Restricted Subsidiaries existing on the date
hereof;
(f) the statements and information furnished to the
Noteholders in connection with the negotiation of this Amendment do
not, taken as a whole, and other than financial projections or
forecasts, contain any untrue statements of a material fact or omit a
material fact necessary to make the material statements contained
herein or therein not misleading, the Noteholders acknowledging that as
to any projections furnished to the Noteholders, the Obligors and the
Constituent Company Guarantors only represent that the same were
prepared on the basis of information and estimates the Obligors
believed to be reasonable; and
(g) all tax returns with respect to any income tax or other
material tax required to be filed by the Obligors and the Restricted
Subsidiaries in any jurisdiction have, in fact, been filed, and all
taxes, assessments, fees and other governmental charges upon the
Obligors or the Restricted Subsidiaries or upon any of their respective
properties, income or franchises, which are shown to be due and payable
in such returns, have been paid. The Obligors do not know of any
proposed additional tax assessment against the Obligors or any
Restricted Subsidiary for which adequate provision in accordance with
GAAP has not been made. Adequate provisions in accordance with GAAP for
taxes on the books of the Obligors and each Restricted Subsidiary have
been made for all open years, and for its current fiscal period.
SECTION 3. WAIVER.
Section 3.1. Upon and by virtue of this Fourth Amendment becoming
effective as herein contemplated, the failure of the Public Hub Company and its
Restricted Subsidiaries to comply with the obligations under Section 10.3 (Cash
Flow Leverage Ratio) for the fiscal quarters ending March 31, 2000, September
30, 2000, December 31, 2000 and September 30, 2001 which failures constitute
Events of Default under the Note Purchase Agreements shall be deemed to have
been waived by the Noteholders. The Obligors understand and agree that the
waiver contained in this Section 3.1 pertains only to the matters and to the
extent herein described and not to any other actions of the Obligors under, or
matters arising in connection with, the Note Purchase Agreements or to any
rights which the Noteholders have arising by virtue of any such other actions or
matters.
4
SECTION 4. CONDITIONS TO EFFECTIVENESS OF THIS FOURTH AMENDMENT.
Section 4.1. This Fourth Amendment shall not become effective until,
and shall become effective when, each and every one of the following conditions
shall have been satisfied:
(a) executed counterparts of this Fourth Amendment, duly
executed by the Obligors and the holders of at least 51% of the
outstanding principal of the Notes, shall have been delivered to the
Noteholders;
(b) the Noteholders shall have received a copy of the
resolutions of the Board of Directors of each Obligor authorizing the
execution, delivery and performance by such Obligor of this Fourth
Amendment, certified by such Obligor's Secretary or an Assistant
Secretary;
(c) the representations and warranties of the Obligors set
forth in Section 2 hereof are true and correct on and with respect to
the date hereof;
(d) the Noteholders shall have received an amendment fee in
an amount equal to 0.40% times the aggregate outstanding principal
amount of the Notes held by such Noteholder; and
(e) the Noteholders shall have received a true, correct and
complete copy of the Amendment to the Bank Credit Agreement dated the
date hereof.
Upon receipt of all of the foregoing, this Fourth Amendment shall become
effective as of March 27, 2002.
SECTION 5. CONDITION SUBSEQUENT.
Section 5.1. As soon as possible, but not later than April 10, 2002,
the Obligors shall furnish to the Noteholders a copy of the consolidated balance
sheet of the Public Hub Company as of the close of the 2001 fiscal year and the
consolidated statements of income, retained earnings and cash flows of the
Public Hub Company for such period, and accompanying notes thereto, each in
reasonable detail showing in comparative form the figures for the previous
fiscal year, accompanied by an unqualified opinion thereon of Arthur Andersen
LLP or another firm of independent public accountants of recognized national
standing, to the effect that the financial statements have been prepared in
accordance with GAAP and present fairly in accordance with GAAP the consolidated
financial condition of the Public Hub Company as of the close of such fiscal
year and the results of their operations and cash flows for the fiscal year then
ended, and otherwise in conformity with Section 7.1(b) of the Note Purchase
Agreements. The Obligors acknowledge and agree that the failure to deliver such
financial statements and audit report by April 10, 2002 shall constitute and
immediate Event of Default.
5
SECTION 6. PAYMENT OF NOTEHOLDERS' COUNSEL FEES AND EXPENSES.
Section 6.1. The Obligors agrees to pay upon demand, the reasonable
fees and expenses of Chapman and Cutler, counsel to the Noteholders, in
connection with the negotiation, preparation, approval, execution and delivery
of this Fourth Amendment.
SECTION 7. MISCELLANEOUS.
Section 7.1. This Fourth Amendment shall be construed in connection
with and as part of each of the Note Purchase Agreements, and except as modified
and expressly amended by this Fourth Amendment, all terms, conditions and
covenants contained in the Note Purchase Agreements and the Notes are hereby
ratified and shall be and remain in full force and effect.
Section 7.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Fourth Amendment may refer to the Note Purchase Agreements without making
specific reference to this Fourth Amendment but nevertheless all such references
shall include this Fourth Amendment unless the context otherwise requires.
Section 7.3. The descriptive headings of the various Sections or parts
of this Fourth Amendment are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
SECTION 7.4. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH ILLINOIS LAW.
Section 7.5. The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and this Fourth
Amendment may be executed in any number of counterparts, each executed
counterpart constituting an original, but all together only one agreement.
[Signature Pages Begin on Next Page]
6
IN WITNESS WHEREOF, the Obligors and the Noteholders have caused this
instrument to be executed as of March 27, 2002.
HUB GROUP, INC.
HUB CITY TERMINALS, INC.
By ______________________________________
David P. Yeager
Chief Executive Officer for each of the
above Companies
Consented, Accepted and Agreed
as of March 27, 2002
HUB CHICAGO HOLDINGS, INC., a Constituent
Company Guarantor
By ______________________________________
David P. Yeager
Chief Executive Officer for each of the
above Companies
HLX COMPANY, L.L.C., a Constituent
Company Guarantor
By ______________________________________
David P. Yeager
Vice Chairman and Chief Executive
Officer
QSSC, INC.
QUALITY SERVICES, L.L.C.,
QUALITY SERVICES OF KANSAS, L.L.C.
QUALITY SERVICES OF NEW JERSEY, L.L.C.
Q.S. OF ILLINOIS, L.L.C.
Q.S. OF GEORGIA, L.L.C.
By ______________________________________
David P. Yeager
Chief Executive Officer for each of the
above Constituent Company Guarantors
HUB GROUP ALABAMA, LLC (formerly known as
Hub City Alabama, L.P.)
HUB GROUP ATLANTA, LLC (formerly known as
Hub City Atlanta, L.P.)
HUB GROUP BOSTON, LLC (formerly known as
Hub City Boston, L.P.)
HUB GROUP CANADA, L.P.
HUB GROUP CLEVELAND, LLC (formerly known
as Hub City Cleveland, L.P.)
HUB GROUP DETROIT, LLC (formerly known as
Hub City Detroit, L.P.)
HUB GROUP FLORIDA, LLC (formerly known as
Hub City Florida, L.P.)
HUB GROUP GOLDEN GATE, LLC (formerly
known as Hub City Golden Gate, L.P.)
HUB GROUP INDIANAPOLIS, LLC (formerly
known as Hub City Indianapolis, L.P.)
HUB GROUP KANSAS CITY, LLC (formerly
known as Hub City Kansas City, L.P.)
HUB GROUP LOS ANGELES, LLC (formerly
known as Hub City Los Angeles, L.P.)
HUB GROUP MID ATLANTIC, LLC (formerly
known as Hub City Mid Atlantic, L.P.)
HUB GROUP NEW ORLEANS, LLC (formerly
known as Hub City New Orleans, L.P.)
HUB GROUP NEW YORK STATE, LLC (formerly
known as Hub City New York State, L.P.)
HUB GROUP NEW YORK-NEW JERSEY, LLC
(formerly known as Hub City New
York-New Jersey, L.P.)
HUB GROUP NORTH CENTRAL, LLC (formerly
known as Hub City North Central, L.P.)
HUB GROUP OHIO, LLC (formerly known as
Hub City Ohio, L.P.)
HUB GROUP PHILADELPHIA, LLC (formerly
known as Hub City Philadelphia, L.P.)
HUB GROUP PITTSBURGH, LLC (formerly known
as Hub City Pittsburgh, L.P.)
HUB GROUP PORTLAND, LLC (formerly known
as Hub City Portland, L.P.)
HUB GROUP ST. LOUIS, LLC (formerly known
as Hub City St. Louis, L.P.)
HUB GROUP TENNESSEE, LLC (formerly known
as Hub City Tennessee, L.P.)
HUB CITY TEXAS, L.P.
HUB GROUP TRANSPORT, LLC
By ______________________________________
David P. Yeager
Chief Executive Officer for each of the
above Constituent Company Guarantors
Consented, Accepted and Agreed as of March 27, 2002:
BAYSTATE HEALTH SYSTEM, INC.
By: David L. Babson & Company Inc. as
Investment Adviser
By________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
C.M. LIFE INSURANCE COMPANY
By: David L. Babson & Company Inc. as
Investment Sub-Adviser
By________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By: David L. Babson & Company Inc., as
Investment Adviser
By________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
INVESTORS PARTNER LIFE INSURANCE COMPANY
By______________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
JOHN HANCOCK LIFE INSURANCE COMPANY
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
JOHN HANCOCK VARIABLE LIFE INSURANCE
COMPANY
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
MELLON BANK, N.A., solely in its
capacity as Trustee for the Bell
Atlantic Master Trust (as directed by
John Hancock Life Insurance Company),
and not in its individual capacity
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
RELIASTAR LIFE INSURANCE COMPANY
By: ING INVESTMENT MANAGEMENT LLC,
as agent
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
RELIASTAR LIFE INSURANCE COMPANY OF NEW
YORK
By: ING INVESTMENT MANAGEMENT LLC,
as agent
By_____________________________________
Name:
Title:
Consented, Accepted and Agreed as of March 27, 2002:
UNITED OF OMAHA LIFE INSURANCE COMPANY
By_____________________________________
Name:
Title:
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
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated March 27, 2002 included in this Form 10-K, into the Company's previously filed Registration Statement File No. 333-33006 on Form S-8, Registration Statement File No. 333-06327 on Form S-8, and Registration Statement File No. 333-48185 on Form S-8. ARTHUR ANDERSEN LLP Chicago, Illinois March 27, 2002
Hub Group, Inc.
377 E. Butterfield Road
Suite 700
Lombard, Illinois 60148
March 27, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
To Whom It May Concern:
In accordance with requirements of the Securities and Exchange Commission (the
"SEC"), Hub Group, Inc. ("Hub Group") hereby represents to the SEC that Arthur
Andersen, LLP ("Andersen") has represented to Hub Group that the audit was
subject to Andersen's quality control system for the U.S. accounting and
auditing practice to provide reasonable assurance that the engagement was
conducted in compliance with professional standards and that there was
appropriate continuity of Andersen personnel working on audits, availability of
national office consultation and availability of personnel at foreign affiliates
of Andersen to conduct the relevant portions of the audit.
Yours sincerely,
/s/ David C. Zeilstra
David C. Zeilstra
Vice President, Secretary and General Counsel
Hub Group, Inc.