- --------------------------------------------------------------------------------SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.Washington, DC 20549
FORM 10-K
(Mark One)[X]
Annual Report Pursuant to SectionANNUAL REPORT PURSUANT TO SECTION 13or 15(d) of the Securities Exchange Act ofOR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934For the fiscal year ended December 31,
2002 OR2003 or[ ]
Transition Report Pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13or 15(d) of the Securities Exchange Act ofOR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934Commission
File No.file number: 0-27754------------------HUB GROUP, INC.
(Exact(Exact name of registrant as specified in its charter)
DELAWARE 36-4007085 (State or other jurisdiction (I.R.S. Employer of incorporation of organization) Identification No.)
| Delaware | 36-4007085 |
|---|---|
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
Securities registered pursuant to Section 12(b)12 (b) of the Act: None
Securities registered pursuant to Section 12(g)12 (g) of the Act:
CLASS
Indicate by check mark whether the Registrantregistrant (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 (ormonths(or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to 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 filersfliers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant'sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part IIIPartIII of thisthe Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X
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The aggregate market value of the Registrant's voting stock held by non-affiliates on June 28, 2002,30, 2003, based upon the last reported sale price on that date on the NASDAQ National Market of $9.25$8.75 per share, was $58,033,761.$54,074,522.
On March 12, 2003,2004, the Registrantregistrant had 7,046,2507,436,277 outstanding shares of Class A common stock, par value $.01 per share, and 662,296 outstanding shares of 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 13, 2003,2004, (the "Proxy Statement") is incorporated by reference in Part III of thisthe 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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Hub Group, Inc. ("(“Hub Group"Group” or the "Company"“Company”) is a Delaware corporation that was incorporated on March 8, 1995. Since its founding as an intermodal marketing company ("IMC"(“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 operateshas traditionally operated through an extensivea nationwide network of 22 officesoperation centers or "Hubs" and“Hubs,” with each Hub Group Distribution Services ("HGDS" or "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 essentiallyfunctioning as a stand-alone business managed locally by an executivea local executive. Effective February 1, 2004, the Company realigned its network. Each Hub field office will be managed as a part of Hub’s national network, with significant transportation experience. Local management is responsibleindividuals at the local Hubs reporting directly or indirectly to either the Company’s Executive Vice President 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.intermodal, highway, logistics or sales. The Company believes these changes will enable it to compete more effectively as a network.
The Company also operates through Hub Group Distribution Services, LLC (“HGDS” or “Hub Distribution”). Hub Distribution, which performs certain specialized logistics services, is responsible for its own operations, customer service, marketing 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, including the purchase of the remaining
35% partnership interest in Hub Distribution on August 14, 2002 for $4 million,
Hub Group now wholly-owns Hub Distribution and 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.
SERVICES PROVIDED
The Company'sCompany’s transportation services can be broadly placed into the following categories:
INTERMODAL
Intermodal As an IMC, the Company arranges for the movement of its customers'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“drayage companies,"” for pickup and delivery. In markets where adequate service is not available, the Company supplements third party drayage services with Company-owned drayage operations. As part of its intermodal services, the Company negotiates rail and drayage rates, electronically tracks shipments in transit, consolidates billing and handles claims for freight loss or damage on behalf of its customers.
The Company uses its Hub network, connected through its proprietary 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, eachEach Hub is able to track trailers and containers entering its service area and reuse that equipment to fulfill its customers'customers’ outbound shipping requirements. This effectively allows the Company to "capture"“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
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'customers’ needs with carriers'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'sCompany’s brokerage operation also provides customers with specialized programs. Through the Dedicated Trucking program, certain carriers have informally agreed to move freight for Hub'sHub’s customers on a continuous basis. This arrangement allows the Company to effectively meet its customer'scustomer’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'scustomer’s core carriers cannot handle. This service supplements the customer'scustomer’s core carrier program and helps ensure the timely delivery of the customer'scustomer’s freight.
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LOGISTICS
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 expertiseLogistics Centers of Excellence at its headquarters in
Downers Grove. In addition, many ofcertain Hub locations. These locations, which service customers throughout the Hubscountry, have hired experienced logistics personnel exclusively dedicated to selling and servicing Hub Group'sGroup’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'sshipment’s destination, third party warehousing,airfreight services, boxcar, mode optimization, carrier management, less-than-truckload consolidation and other customized logistics services. When providing complete transportation services, the Company essentially replaces the customer'scustomer’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'scustomer’s product through the supply chain and then dispatches the move for the customer.
DISTRIBUTION SERVICES
Distribution ServicesHub Distribution offers non-traditional logistics services such as installation of point of sale merchandise displays and delivery of sample pharmaceuticals to sales representatives.
HUB NETWORK
Over the past 32 years,
Hub Group currently has Hubsoperating centers in the following cities:
Atlanta Houston New York City San Francisco
Baltimore Indianapolis Pittsburgh Seattle
Boston Kansas City Portland Toledo
Chicago Los Angeles Rochester Toronto
Cleveland Memphis St. Louis
Detroit Milwaukee Salt Lake City
metropolitan areas:
| Atlanta | Indianapolis | Pittsburgh | Seattle | ||||
| Baltimore | Kansas City | Portland | Toledo | ||||
| Boston | Los Angeles | Rochester | Toronto | ||||
| Chicago | Memphis | St. Louis | |||||
| Cleveland | Milwaukee | Salt Lake City | |||||
| Houston | New York City | San Francisco | |||||
The entire Hub network is interactively connected through the Company'sCompany’s proprietary 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.
Each Hub manages the freight originating in or destined for its service area. In a sampletypical 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.to place an order. 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'sCompany’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 selling Hub closest to the point of deliverythen arranges for and confirms delivery by a drayage company. This arrangement amongcompany at destination. After unloading, the Hubsempty equipment is transparent tomade available for reloading by the customer and
allowslocal operating center in the customer to maintain its relationship solely with the selling Hub.delivery market.
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'scarrier’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'sCompany’s success. Through these long-term relationships, the
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customer'scustomer’s needs and to tailor transportation services for a specific customer, regardless of the customer'scustomer’s size or volume. The Company currently has full time marketing representatives at each Hub and Hub Distribution with primary responsibility for servicing local, regional and regionalnational accounts. These sales representatives work from the local Hubs, Hub Distribution and the Company'sCompany’s satellite sales offices. This network provides a local marketing contact for small, medium and mediumlarge shippers in most major metropolitan areas within the United States.
In 1985,
As part of the Company establishedCompany’s network realignment, all salespeople, including the Company’s former 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 14 National Accounts sales
representatives whonow report, either directly or indirectly, to the Company'sCompany’s Executive Vice President of Marketing.Sales. 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, to refine the process as necessary and attempt to sell additional
services to the customer.
In October 2002, the Company established a joint marketing relationship
with TMM Logistics, a wholly owned subsidiary of Grupo TMM. The agreement calls
for TMM Logistics to provide all sales support and operational execution within
Mexico and Hub Group to furnish the same capabilities in Canada and the United
States. A newly formed division of Hub Group, called Hub Mexico, provides joint
marketing, door-to-door oversight, coordination and pricing support.
This unique combination of local and regionalCompany’s marketing has produced a large, diverse customer base. The Company services customers in a wide variety of industries, including automotive chemicals,components, consumer and electronic products, electronics, paper, printing, manufactured products and retail.
MANAGEMENT INFORMATION SYSTEMS
The Company has a joint marketing relationship with TMM Logistics, a wholly owned subsidiary of Grupo TMM. TMM Logistics provides sales support and operational execution within Mexico and Hub Group furnishes the same capabilities in Canada and the United States.
A primary component of the Company'sCompany’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'sGroup’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 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'sCompany’s headquarters. The Company also makes extensive use of electronic data interchange ("EDI"(“EDI”), allowing each Hub to communicate electronically with each railroad, certain drayage companies and those customers with EDI capabilities.
The Company'sCompany’s Network Management System is the primary mechanism used by the Hubs to handle the Company'sCompany’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'sSystem’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 specialized software that 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'sGroup’s Network Management System and Hub Group'sGroup’s accounting system.
The Company'sCompany’s website, www.hubgroup.com, is designed to allow Hub Group'sGroup’s customers and vendors to easily do business with Hub Group online. Through
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RELATIONSHIP WITH RAILROADS
A key element of the Company'sCompany’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'sCompany’s size and relative importance, many railroads have dedicated support personnel to focus on the Company'sCompany’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'sCompany’s executive officers, including both the Company'sCompany’s Chairman and President, are former railroad employees, which makes them well-suited to understand the railroads'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
| 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'sCompany’s intermodal shipments are handled by the railroads. The contracts have staggered renewal terms with the earliest expiration occurring during 2003.2004. While there can be no assurances that these contracts will be renewed, the Company has in the past successfully negotiated extensions of these contracts. Transportation rates are market driven and are typically negotiated between the Company and the railroads or fourth-party service providers on a customer specific basis. Consistent with industry practice, many of the rates negotiated by the Company are special commodity quotations ("SCQs"(“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 beganNetwork with the Burlington Northern and Santa Fe Railway Company ("BNSF"(“BNSF”) in May 1998 and in 1999 expanded to include the Norfolk Southern Corporation ("NS"(“NS”). Under agreements with both the BNSF and NS, the Company manages, as of March 1, 2003,February 24, 2004, approximately 4,9005,477 containers owned by the BNSF and 1,3001,275 containers owned by the NS. These containers are for Hub Group'sGroup’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 COMPANIESThese arrangements are discussed in Note 10 to the consolidated financial statements.
The Company has a "Quality“Quality Drayage Program,"” which consists of agreements and rules that govern the framework pursuant to which certain 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. The local Hubs negotiateCompany negotiates drayage rates for transportation between specific origin and destination points. These rates
generally are valid,
The Company'sCompany’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 ServicesThe Company’s corporate headquarters handles the administrative and regulatory aspects of the carrier relationship. Hub 5
Group'sGroup’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'struckman’s auto liability insurance and to obtain, either on
their own or through the Company's insurance, $1.0 milliona minimum of $100,000 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'scarrier’s liability cannot be established or a carrier'scarrier’s insurance is insufficient to cover the claim, the Company carries its own cargo insurance with a limit of $1.0 million per container or trailer and a limit of $20.0 million in the aggregate. 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 $25.0 million umbrella policy on this general liability insurance.
GOVERNMENT REGULATION
Hub Highway Services is licensed by the Department of Transportation ("DOT"(“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'sCompany’s results of operations or financial condition. However, the transportation industry is subject to legislative or regulatory changes that can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services.
COMPETITION
The transportation services industry is highly competitive. The Company competes against other IMCs, as well as logistics companies, third party brokers, over-the-road truckload carriers and railroads that market their own intermodal services. There is an emerging trend forCertain larger truckload carriers to
enterhave entered 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:
Employees:As of February 28, 2003,29, 2004, the Company had approximately 1,4051,197 employees. The Company is not a party to any collective bargaining agreement and considers its relationship with its employees to be satisfactory.
OTHER:
Other:No material portion of the Company'sCompany’s operations is subject to renegotiation of profits or termination of contracts at the election of the federal government. None of the Company'sCompany’s trademarks are believed to be material to the Company. The Company'sCompany’s business is seasonal to the extent that certain customer groups, such as retail, are seasonal.
ITEM
The Company directly, or indirectly through its subsidiaries, operates 3831 offices throughout the United States and in Canada, including the Company'sCompany’s headquarters in Downers Grove, 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'sCompany’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
The court also granted the
motion of the Company's former auditors. The Court's order required plaintiffs
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to file any amended complaint by November 22, 2002. The plaintiffs did not file
an amended complaint by this date and agreed that they would not appeal the
court's order of October 23, 2002 dismissing the lawsuit. The suit is therefore
terminated.
In addition, the Company is a party to litigation incident to its business, including claims for freight lost or damaged in transit, improperly shipped or improperly warehoused.billed. Some of the lawsuits to which the Company is party are covered by insurance and are being defended by the Company'sCompany’s insurance carriers. Some of the lawsuits are not covered by insurance and are being defended by the Company. Management does not believe that the outcome of this litigation will have a materially adverse effect on the Company'sCompany’s financial position or results of operations. See Item 1 Business -— Risk Management and Insurance.
ITEM
There were no matters submitted to a vote of the Company'sCompany’s security holders during the fourth quarter of 2002.
EXECUTIVE OFFICERS OF THE REGISTRANT2003.
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 12, 20031, 2004 with respect to each person who is an executive officer of the Company.
NAME AGE POSITION
- ------------------------- --- -------------------------------------------
Phillip C. Yeager 75 Chairman of the Board of Directors
David P. Yeager 49 Vice Chairman of the Board of Directors and
Chief Executive Officer
Thomas L. Hardin 57 President, Chief Operating Officer and
Director
Mark A. Yeager 38 President- Field Operations
Thomas M. White 45 Senior Vice President, Chief Financial
Officer and
Treasurer
Richard M. Rogan 63 Executive Vice President-Marketing
Dennis R. Polsen 49 Vice President and Chief Information
Officer
David C. Zeilstra 33
| Name | Age | Position | |||
|---|---|---|---|---|---|
| Phillip C. Yeager | 76 | Chairman of the Board of Directors | |||
| David P. Yeager | 50 | Vice Chairman of the Board of Directors and Chief Executive Officer | |||
| Thomas L. Hardin | 58 | President, Chief Operating Officer and Director | |||
| Mark A. Yeager | 39 | President- Field Operations | |||
| Thomas M. White | 46 | Senior Vice President, Chief Financial Officer and Treasurer | |||
| James B. Gaw | 53 | Executive Vice President-Sales | |||
| Daniel F. Hardman | 55 | Executive Vice President-Intermodal | |||
| Christopher R. Kravas | 38 | Executive Vice President-Strategy and Yield Management | |||
| Donald G. Maltby | 49 | Executive Vice President-Logistics | |||
| David L. Marsh | 36 | Executive Vice President-Highway | |||
| Dennis R. Polsen | 50 | Executive Vice President of Information Services | |||
| Terri A. Pizzuto | 45 | Vice President-Finance | |||
| David C. Zeilstra | 34 | Vice President, Secretary and General Counsel | |||
Phillip C. Yeager, the Company'sCompany’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"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'sCompany’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.
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Thomas L. Hardin has served as the Company'sCompany’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'sCompany’s President-Field Operations since July 1999. From November 1997 through June 1999 Mr. Yeager was Division President, Secretary and General Counsel. From March 1995 to November 1997, Mr. Yeager was Vice President, Secretary and General Counsel. From May 1992 to March 1995, Mr. Yeager served as the Company'sCompany’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.
Thomas M. White has been the Company'sCompany’s Senior Vice President, Chief Financial Officer and Treasurer since June 2002. Prior to joining the Company, Mr. White was a Managing Partner-Business Process Outsourcing at Arthur Andersen, LLP. Mr. White worked for Arthur Andersen, LLP for 23 years, holding various positions including Managing Partner of the Kansas City, Missouri office and Omaha, Nebraska office. Mr. White received a Masters in Science and Industrial Administration from Purdue University in 1985 and a Bachelor of Business Administration from Western Michigan University in 1979. Mr. White is a CPA and a member of the American Institute of Certified Public Accountants.
Richard M. Rogan
James B. Gaw has been the Company’s Executive Vice President of MarketingPresident-Sales since November 1997 andFebruary 2004. From December 1996 through January 2004, Mr. Gaw was President of Hub Highway Services from May 1995North Central, located in Milwaukee. From 1990 through February 2002. Prior to joining the Company, Mr. Roganlate 1996, he was Executive Vice President and General Manager of National Freight, Inc. from May 1993 to April 1995. Prior to that,Hub Chicago. Mr. Rogan was with Burlington Motor Carriers, Inc., where he servedGaw joined Hub Chicago as President
and Chief Executive Officer from March 1988 to April 1993 and as an Executive
Vice President from July 1985 to FebruarySales Manager in 1988. Mr. Rogan'sGaw’s entire career has been spent in the transportation career spans 25industry, including 13 years of progressive leadership positions at Itofca, an intermodal marketing company, and includes earlier assignments with the Illinois Central
Railroad, North American Van Lines and Schneider National. HeFlex Trans. Mr. Gaw received a Bachelor of Science degree from Elmhurst College in 1973.
Daniel F. Hardman has been the Company’s Executive Vice President-Intermodal since February 2004. Mr. Hardman has been employed by Hub Group since 1982, serving as President of Hub Chicago, the largest Hub office, from December 1992 to January 2004. From 1982 to late 1992, Mr. Hardman held various positions with Hub Group, including General Manager of Sales and Vice President for Hub Chicago and President of Hub Charlotte. Mr. Hardman is a former director of the Intermodal Transportation Association and is presently a member of the Chicago Traffic Club and the Chicago Intermodal Transportation Association. Mr. Hardman is a 1991 graduate of the Certificate Program in Business Administration degree from Loyolathe University of ChicagoIllinois.
Christopher R. Kravas has been the Company’s Executive Vice President-Strategy and Yield Management since December 2003. From February 2002 through November 2003, Mr. Kravas served as President of Hub Highway Services. From February 2001 through December 2001, Mr. Kravas was Vice President-Enron Freight Markets. Mr. Kravas joined Enron after it acquired Webmodal, an intermodal business he founded. Mr. Kravas was Chief Executive Officer of Webmodal from July 1999 through February 2001. From 1989 through June 1999 Mr. Kravas worked for the Burlington Northern Santa Fe Railway in 1962various positions in the intermodal business unit and finance department. Mr. Kravas received a Bachelor of Arts degree in 1987 from Indiana University and a MasterMasters in Business Administration in 1994 from the University of Chicago.
Donald G. Maltby has been the Company’s Executive Vice President – Logistics since February 2004. Mr. Maltby previously served as President of Hub Online, the Company’s e-commerce division from February 2000 through January 2004. Mr. Maltby also served as President of the Company’s Hub in Cleveland from July 1990 through January 2000 and from April 2002 to January 2004. 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, holding various executive and management positions. Mr. Maltby received a Masters in Business Administration from Baldwin Wallace College in 1982 and a Bachelor of Science degree from the Wharton SchoolState University of New York in 1976.
David L. Marsh has been the Company’s Executive Vice President – Highway since February 2004. Mr. Marsh previously served as President of Hub Ohio from January 2000 through January 2004. Mr. Marsh joined the Company in March 1991 and became General Manager with Hub Indianapolis in 1993, a position he held through December 1999. Prior to joining Hub Group, Mr. Marsh worked for Carolina Freight Corporation, an LTL carrier, starting in January 1990. Mr. Marsh received a Bachelor of Science degree in Marketing and Physical Distribution from Indiana University-Indianapolis in December 1989. Mr. Marsh has been a member of the UniversityAmerican Society of Pennsylvania in 1963. He hasTransportation and Logistics, the Indianapolis Traffic Club, the Council for Logistics Management and served onas an advisor to the Board of DirectorsIndiana University-Indianapolis internship program for transportation and logistics. Mr. Marsh was honored as the Indiana Transportation Person 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.Year for 1999.
Dennis R. Polsen has been the Company'sCompany’s Executive Vice President -of Information Services since February 2004. From September 2001 to January 2004, Mr. Polsen was Vice President — Chief Information Officer since September 2001. Fromand from March 2000 through August 2001, Mr. Polsen was the Company's Vice-PresidentCompany’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.
Terri A. Pizzuto has been the Company’s Vice President of Finance since July 2002. Prior to joining the Company, Ms. Pizzuto was a Partner in the Assurance and Business Advisory Group at Arthur Andersen LLP. Ms. Pizzuto worked for Arthur Andersen LLP for 22 years holding various positions and serving numerous transportation companies. Ms. Pizzuto received a Bachelor of Science in Accounting from the University of Illinois in 1981. Ms. Pizzuto is a CPA and a member of the American Institute of Certified Public Accountants.
David C. Zeilstra has been the Company'sCompany’s Vice President, Secretary and General Counsel since July 1999. From December 1996 through June 1999, Mr. Zeilstra was the Company'sCompany’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
In addition to Phillip C. Yeager, David P. Yeager and Thomas L. Hardin, the following three individuals are also on the Company'sCompany’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 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.
8
The Class A common stock of the Company ("(“Class A Common Stock"Stock”) trades on the NASDAQ National Market tier of the NASDAQ Stock Market under the symbol "HUBG."“HUBG.” Set forth below are the high and low closing prices for shares of the Class A Common Stock of the Company for each full quarterly period in 20012002 and 2002.
2001 2002
----------------- -----------------
HIGH LOW HIGH LOW
------ ----- ------ -----
First Quarter $11.88 $8.00 $11.28 $7.55
Second Quarter $14.20 $8.00 $11.20 $9.01
Third Quarter $15.14 $10.60 $9.70 $4.18
Fourth Quarter $11.19 $8.75 $8.19 $4.752003.
| 2002 | 2003 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | High | Low | |||||||||||
| First Quarter | $ | 11 | .28 | $ | 7 | .55 | $ | 6 | .67 | $ | 4 | .13 | ||
| Second Quarter | $ | 11 | .20 | $ | 9 | .01 | $ | 9 | .37 | $ | 6 | .27 | ||
| Third Quarter | $ | 9 | .70 | $ | 4 | .18 | $ | 11 | .95 | $ | 8 | .68 | ||
| Fourth Quarter | $ | 8 | .19 | $ | 4 | .75 | $ | 22 | .00 | $ | 10 | .86 | ||
On March 5, 2003,9, 2004, there were approximately 98202 stockholders of record of the Class A Common Stock and, in addition, there were an estimated 1,5201,204 beneficial owners of the Class A Common Stock whose shares were held by brokers and other fiduciary institutions. On March 5, 2003,9, 2004, there were 11 holders of record of the Company'sCompany’s Class B common stock (the "Class“Class B Common Stock"Stock” together with the Class A Common Stock, the "Common Stock"“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'sCompany’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
Selected Financial Data
(in thousands except per share data)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2002 (1) 2001 2000 1999 1998
---------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenue $1,335,660 $1,319,331 $ 1,382,880 $ 1,295,502 $ 1,145,906
Gross margin 162,812 178,963 167,767 159,863 138,334
Operating income 11,141 10,548 13,495 26,453 26,406
Income before minority interest and taxes 2,015 902 2,878 19,928 25,324
Income before income taxes 2,539 751 4,547 15,941 15,205
Net income 1,498 443 2,683 9,405 8,908
Basic earnings per common share $ .19 $ .06 $ 0.35 $ 1.22 $ 1.16
Diluted earnings per common share $ .19 $ .06 $ 0.35 $ 1.21 $ 1.15
AS OF DECEMBER 31,
---------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital (deficiency) $ (7,109) $ (5,380) $ (5,902) $ 20,202 $ 20,313
Total assets 399,262 416,024 469,373 441,421 304,791
Long-term debt, excluding current portion 94,027 96,059 109,089 131,414 29,589
Stockholders' equity 134,340 132,453 132,397 129,683 119,673
| Years Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002(1) | 2001 | 2000 | 1999 | |||||||||
| Statement of Operations Data: | |||||||||||||
| Revenue | $1,359,614 | $1,335,660 | $1,319,331 | $1,382,880 | $1,295,502 | ||||||||
| Gross margin | 170,682 | 162,812 | 178,963 | 167,767 | 159,863 | ||||||||
| Operating income | 24,295 | 11,141 | 10,548 | 13,495 | 26,453 | ||||||||
| Income before minority interest and taxes | 16,895 | 2,015 | 902 | 2,878 | 19,928 | ||||||||
| Income before income taxes | 16,895 | 2,539 | 751 | 4,547 | 15,941 | ||||||||
| Net income | 8,430 | 1,498 | 443 | 2,683 | 9,405 | ||||||||
| Basic earnings per common share | $ 1.09 | $ 0.19 | $ 0.06 | $ 0.35 | $ 1.22 | ||||||||
| Diluted earnings per common share | $ 1.07 | $ 0.19 | $ 0.06 | $ 0.35 | $ 1.21 | ||||||||
| As of December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||
| Balance Sheet Data: | |||||||||||||
| Working capital (deficiency) | $ (9,631) | $ (7,109) | $ (5,380) | $ (5,902) | $ 20,202 | ||||||||
| Total assets | 389,567 | 399,262 | 416,024 | 469,373 | 441,421 | ||||||||
| Long-term debt, excluding current portion | 67,017 | 94,027 | 96,059 | 109,089 | 131,414 | ||||||||
| Stockholders' equity | 143,035 | 134,340 | 132,453 | 132,397 | 129,683 | ||||||||
(1) As of January 1, 2002, the Company adopted Financial Accounting Standards Board Statement No. 142, "Goodwill“Goodwill and Other Intangible Assets ("Assets” (“Statement 142"142”)". Under Statement 142, goodwill is no longer amortized. Amortization expense for the years ended December 31, 2001, 2000 1999 and 19981999 was $5,741,000, $5,741,000 $5,069,000 and $2,912,000,$5,069,000, respectively. The per share effect of amortization expense related to goodwill, net of tax was $0.44, $0.44 $0.39 and $0.22$0.39 for the years ended December 31, 2001, 2000 and 1999, and 1998,
respectively.
10
ITEM
Hub Group, Inc. (the "Company"“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.
Year Ended December 31, 2003, Compared to Year Ended December 31, 2002
Revenue for the Company increased 1.8% to $1,359.6 million in 2003 from $1,335.7 million in 2002. Intermodal revenue decreased slightly to $972.5 million from $973.2 million. Truckload brokerage revenue decreased 6.7% to $194.9 million from $209.0 million in 2002 due primarily to a strategic decision to support logistics customer growth with traditional brokerage resources as well as a decrease in volume. Supply chain solutions logistics revenue increased 90.7% to $138.4 million from $72.5 million due primarily to increased volume from both new and existing customers. In addition, the revenue of Hub Group Distribution Services “HGDS” decreased 33.6% to $53.8 million in 2003 from $81.0 million in 2002 due primarily to the decrease in the installation business for a significant customer, transferring logistics business to other Hub locations in 2002 and the loss of a logistics customer.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Gross margin increased to $170.7 million in 2003 from $162.8 million in 2002. As a percent of revenue, gross margin increased to 12.6% from 12.2% in 2002. The increase in margin as a percentage of revenue is primarily due to changes in business mix and as a result of the Company’s margin enhancement initiatives.
Salaries and benefits decreased 3.7% to $90.0 million in 2003 from $93.5 million in 2002. As a percentage of revenue, salaries and benefits decreased to 6.6% from 7.0% in 2002 due primarily to a decrease in headcount and an increase in revenue.
Selling, general and administrative expenses decreased 2.5% to $45.7 million in 2003 from $46.8 million in 2002. As a percentage of revenue, these expenses decreased to 3.4% in 2003 from 3.5% in 2002. The selling, general and administrative expense decreased primarily due to decreases in equipment lease expense, automotive expenses, telephone expenses, temporary labor services and meals and entertainment expenses, offset by increases in insurance and outside service expenses. Equipment lease expense decreased by approximately $1.0 million due primarily to equipment lease buy-outs. Automotive and meals and entertainment expenses decreased by approximately $0.9 million due to changes in policies and cost reduction efforts. Temporary labor services decreased by approximately $0.4 million due to staffing efficiencies. Telephone expenses decreased by approximately $0.4 million due to decreases in headcount. Insurance expense increased by approximately $1.1 million due to increased premiums. Outside services expense increased by approximately $0.8 million related to litigation involving various matters, including disputes with three former Hub Presidents, a former customer and the National Labor Relations Board.
Depreciation and amortization decreased 5.4% to $10.8 million in 2003 from $11.4 million in 2002. This expense as a percentage of revenue decreased to 0.8% from 0.9% in 2002. The decrease in depreciation expense in 2003 is due primarily to 2002 accelerated depreciation and amortization of leasehold improvements and furniture related to office relocations.
Interest expense decreased 18.6% to $7.7 million in 2003 from $9.5 million in 2002. 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 remained consistent at $0.2 million in 2003 and 2002.
There was no minority interest in 2003 compared to a $0.5 million benefit in 2002 as a result of the Company’s purchase of the remaining 35% interest in HGDS in August of 2002. See Note 4 to the Consolidated Financial Statements.
The provision for income taxes increased to $8.5 million in 2003 compared to $1.0 million in 2002. The Company provided for income taxes using an effect rate of 50.1% in 2003 compared to 41.0% in 2002. The increase in the effective rate was primarily the result of Illinois legislation enacted on June 20, 2003 which eliminated the Illinois Research and Development and Training Expense credits, and the use of any credit carry forwards for any year ending on or after December 31, 2003.
Net income increased to $8.4 million in 2003 from $1.5 million in 2002.
Basic and diluted earnings per common share increased to $1.09 and $1.07, respectively, in 2003 compared to $0.19 in 2002.
Year Ended December 31, 2002, COMPARED TO YEAR ENDED DECEMBERCompared to Year Ended December 31, 2001
REVENUE
Revenue for the Company increased 1.2% to $1,335.7 million in 2002 from $1,319.3 million in 2001. The Company estimates that the West Coast port lockout negatively impacted revenue by between $7.0 and $9.0 million during the fourth quarter of 2002. Intermodal revenue increased 1.1% and truckload brokerage
revenue increased 8.3%3.6% over 2001 primarily due to increased volume. The increase in intermodal revenue is partially offset by a $32.8 million reduction in demand from the Company'sCompany’s steamship customers when comparing the first quarter of 2002 with the first quarter of 2001. These customers ceased doing business with the Company early in the second quarter of 2001. Truckload brokerage revenue decreased 1.6% due primarily to a strategic decision to support logistics customer growth with traditional brokerage resources. Supply chain solutions logistics services revenue increased 21.1% to $109.2 million in 2002 from $90.2 million in
200127.8% as a result of adding new customers and increased business from existing customers. HGDS revenue decreased 27.1%27.0% to $80.9$81.0 million in 2002 from $110.9 million in 2001. HGDS experienced a significant revenue decline due to the loss of a large logistics customer as well as a temporary decrease in their installation business from a large customer during the first and second quarter of 2002.
GROSS MARGIN
Certain prior year amounts have been reclassified to conform to the current year presentation.
Gross margin decreased to $162.8 million in 2002 from $179.0 million in 2001. As a percent of revenue, gross margin decreased to 12.2% from 13.6% in 2001. Intermodal gross margin, as a percentage of revenue, decreased due to changes in customer mix, competitive pricing, and increased transportation costs as compared to 2001. In addition, the Company revised its estimates of accrued transportation costs resulting in an increase in gross margin for the year ended December 31, 2002 of $1.6 million.
SALARIES AND BENEFITS
Salaries and benefits decreased 1.6% to $93.5 million in 2002 from $95.0 million in 2001. As a percentage of revenue, salaries and benefits decreased to 7.0% from 7.2% in 2001. Salaries and benefits include a severance charge of $0.5 million in 2002 related to the termination of employees during the fourth quarter. The decrease as a percentage of revenue is due to a decrease in headcount and the increase in revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased 12.7% to $46.8 million in 2002 from $53.6 million in 2001. As a percentage of revenue, these expenses decreased to 3.5% in 2002 from 4.1% in 2001. The decrease as a percentage of revenue is primarily attributed to a $4.7 million write-off in 2001 associated with the bankruptcy and forced liquidation of a Korean steamship line customer and a decrease in costs associated with the outsourcing of our data center. During 2002, the Company incurred $1.4 million of expenses for professional fees related to the investigation and restatement of HGDS'sHGDS’s results of operations for the years ended December 31, 2000 and 1999. During the fourth quarter of 2002, the Company recorded a charge of $0.5 million related to a liability for the remaining lease obligation associated with a closed facility.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Depreciation and amortization increased 6.5% to $11.4 million in 2002 from $10.7 million in 2001. This expense as a percentage of revenue increased to 0.9% from 0.8% in 2001. The increase in depreciation expense in 2002 is due primarily to new software applications placed in service throughout 2002 and accelerated 11
AMORTIZATION OF GOODWILL
As
There was no impairment charge in 2002. The $3.4 million impairment charge in 2001 was due to HGDS'sHGDS’s exit from its initiative surrounding the home delivery of large box items purchased over the internet.
OTHER INCOME (EXPENSE)
Interest expense decreased 8.6% to $9.5 million in 2002 from $10.3 million in 2001. 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 $0.2 million in 2002 from $0.7 million in 20002001 primarily as a result of lower customer finance charges.
MINORITY INTEREST
Minority interest was a $0.5 million benefit in 2002 compared with a $0.2 million charge in 2001. Minority interest represented the 35% interest in HGDS prior to the Company'sCompany’s purchase of this interest in August 2002. See Note 4 to the Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
The provision for income taxes increased to $1.0 million in 2002 compared to $0.3 million in 2001. The Company provided for income taxes using an effective rate of 41.0% in 2002 and 2001.
NET INCOME
Net income increased to $1.5 million in 2002 from $0.4 million in 2001.
EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share increased to $0.19 in 2002 from $0.06 in 2001.
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
HGDS, 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
12
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.
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 decreased to a charge of $0.2 million in 2001 compared to
a benefit of $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.
13
NET INCOME
Net income decreased to $0.4 million in 2001 from $2.7 million in 2000.
EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share decreased to $0.06 in 2001 from
$0.35 in 2000.
The Company has funded its operations and capital expenditures through cash flows from operations and bank borrowings.borrowings.
Cash provided by operating activities for the year ended December 31, 2002,2003, was approximately $12.6$31.5 million, which resulted primarily from net income from operations and non-cash charges of $16.9 million and a net decrease in working
capital of $5.8$19.0 million. The decrease in working capital was primarily related
to reduced accounts payable and accrued expenses offset by a reduction in
accounts receivable due to improved collection efforts.
Net cash used in investing activities for the year ended December 31, 2002,2003, was $10.5$4.4 million and related to the purchase of the minority interest in HGDS
and capital expenditures. The capital expenditures were principally made to enhance the Company'sCompany’s information system capabilities.
The net cash used in financing activities for the year ended December 31, 2002,2003, was $2.0$27.1 million. This was primarily comprised of $6.0$19.0 million of borrowingspayments on the Company'sCompany’s line of credit and $8.0$8.1 million of scheduled payments on the Company'sCompany’s term debt and capital leases.
The Company does not believe its working capital deficit impairs its ability to meet obligations as they become due. The Company had $43.0 million of available borrowings under the revolving line of credit as of December 31, 2003.
The Company maintains a multi-bank credit facility (the "Credit
Facility"“Credit Facility”). The Credit Facility is comprised of term debt and a revolving line of credit. The revolving line of credit has a term that expires on June 24, 2005 and bears interest at a maximum of LIBOR plus 3.0% or Prime plus 1.5%. Borrowings and weighted average interest rates on the revolving line of credit were $6.0 million and 3.13% and $25.0 million and 4.18% and $19.0 million and 4.46% at December 31, 20022003 and 2001,2002, respectively. There was $24.3$43.0 million and $31.0$24.0 million unused and available under the revolving line of credit at December 31, 20022003 and 2001,2002, respectively. The term debt has quarterly payments ranging from $1.2 million
toof $2.0 million with a balloon payment of $9.0 million due on June 24, 2005. Interest on the term debt is a maximum of LIBOR plus 3.25% or Prime plus 1.75%. Borrowings and weighted average interest rates on the term debt were $19.0 million and 3.41% and $27.0 million and 4.40% and $35.0 million and 4.66% at December 31, 2003 and 2002.
During 2002, and 2001,
respectively.
Thethe Credit Facility was amended three times during 2002. On March 27,
2002, the Credit Facility was amended to waive any historical covenant violations, that resulted from the restatement of the Company's financial
statements from 1999 and 2000 and the adjustment made to the Company's financial
statements in the fourth quarter of 2001. The amendment also revised the minimum
borrowing rate from January 1, 2002 through September 30, 2002. On August 14,
2002, the Credit Facility was amended to waive the Company's non-compliance as
of June 30, 2002 with certain covenants relating to the fixed charge coverage
ratio, minimum earnings before interest, taxes, depreciation and minority
interest and cash flow leverage ratio. The amendment modified certainrevise financial covenants for the quarters ending September 30, 2002levels and December 31, 2002. On
October 15, 2002, the Credit Facility was amended to modify the fixed charge
coverage ratio, minimum earnings before interest, taxes, depreciation,
amortization and minority interest and the cash flow leverage ratio for all
periods subsequent to December 31, 2002. In addition, the capital expenditure
limitation was reduced to $9.0 million for the year ended December 31, 2003. The
amendment also providedprovide that loans under the Credit Facility areAgreement be secured by substantially all assets of the Company. The Credit Facility, as amended, provides for certain financial covenants including a fixed charge coverage ratio, minimum earnings before interest, taxes, depreciation, amortization, minority interest and certain other charges (EBITDAM) and a cash flow leverage ratio. The Company was in compliance with its debt covenants as of December 31, 2002. Subsequent to December 31, 2002, the Company extended the expiration date
of the Credit Facility to June 24, 2005, modified the definition of EBITDAM2003 and set covenants through the end of the extended term. The modified covenants are
consistent with the covenants of the private placement debt for the same time
period.2002.
The Company maintains $50.0 million of private placement debt (the "Notes"“Notes”). These Notes have an eight-year average life and bear interest at 9.14% which is paid quarterly. These Notes mature on June 25, 2009, with annual payments of $10.0 million commencing on June 25, 2005. The Notes were amended three times during 2002. The amendments were made currently with the changes to
14
the Credit Facility discussed above and the revisions were similar to the amendments made to the Credit Facility. The Notes, as amended, through October
15, 2002, provide for certain financial covenants including a fixed charge coverage ratio and a cash flow leverage ratio. The loans are secured by substantially all assets of the Company. The Company was in compliance with the covenants as of December 31, 2003 and 2002.
As of December 31, 2002,2003, the Company has standby letters of credit totaling $725,000$975,000 that expire from 20032004 to 2012. At December 31, 2001,2002, the Company had standby letters of credit totaling $925,000.
$975,000.
The Company has ongoing commitments under various contractual and commercial obligations at December 31, 2002,2003, as follows (in millions):
| Payments Due by Year | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | 2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | |||||||||
| Long-term debt including interest | $ 92 | .0 | $ 13 | .3 | $ 31 | .4 | $ 13 | .2 | $ 12 | .3 | $ 11 | .4 | $ 10 | .4 | |
| Operating leases | 30 | .9 | 8 | .6 | 5 | .9 | 3 | .9 | 3 | .4 | 2 | .9 | 6 | .2 | |
| Total | $122 | .9 | $ 21 | .9 | $ 37 | .3 | $ 17 | .1 | $ 15 | .7 | $ 14 | .3 | $ 16 | .6 | |
Interest commitments included above are based upon outstanding debt and interest rates currently in effect at December 21, 2003. Approximately $25.0 million of the outstanding debt at December 31, 2003 was variable rate debt and the remaining $50.0 million was fixed rate debt.
The Company'sCompany’s significant accounting policies are discussed in the notes to the consolidated financial statements. The application of certain of these policies and the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant judgments or rely on an estimation process 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. The Company bases it estimates on historical experience, current events and other assumptions that it believes are reasonable. Significant estimates include the allowance for doubtful accounts, cost of purchased transportation and services and reserves for pricing and billing adjustments. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company'sCompany’s results of operations for the period in which the actual amounts became known. The accounting policies that can have a significant impact upon the results of operations, financial position and footnote disclosures of the Company are as follows:
ALLOWANCE FOR UNCOLLECTIBLE TRADE ACCOUNTS:
Allowance for Uncollectible Trade Accounts:In the normal course of business, the Company extends credit to customers after a review of each customer'scustomer’s credit history. An allowance for uncollectible trade accounts has been established through an analysis of the accounts receivable aging, an assessment of collectibility based on historical trends and an evaluation of the current economic conditions. Actual collections of accounts receivable could differ from management'smanagement’s estimates due to changes in future economic, industry or customer financial condition.
VALUATION OF LONG-LIVED ASSETS:
Valuation of Long-lived Assets:The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets many not be recoverable. An estimate of undiscounted cash flows produced by the asset or appropriate group of assets is compared to the carrying value to determine whether impairment exists. The estimate of future cash flows involves considerable management judgment and is based upon assumptions about anticipated future operating performance. The actual cash flow could differ from management'smanagement’s estimates due to changes in business conditions, operating performance and economic conditions.
VALUATION OF GOODWILL:
Valuation of Goodwill: As of January 1, 2002, the Company adopted Financial Accounting Standards Board Statement No. 142, "Goodwill“Goodwill and Other Intangible Assets" ("Assets” (“Statement 142"142”). Under Statement 142, goodwill and intangible assets that have indefinite useful lives are no longer amortized. In accordance with Statement 142, the Company reviews goodwill for impairment on an annual basis or whenever events ofor changes in circumstances indicate the carrying amount of goodwill may not be recoverable. The Company utilizes a third-party independent valuation firm to assist in performing the necessary valuations to be used in the impairment testing. The valuations are based on market capitalization, discounted cash flow analysis or a combination of both methodologies. The assumptions used by the Company in the above valuations include expectations 15
management'smanagement’s estimates due to changes in business conditions, operating performance and economic conditions. Should estimates differ materially from actual results, the Company may be required to record impairment charges in the future.
DEFERRED INCOME TAXES:
Deferred Income Taxes:Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. An assessment is made as to the likelihood that deferred tax assets will be recoverable. As part of this assessment, management has considered tax-planning strategies that it believes to be prudent and feasible to allow for the realization of deferred tax assets. In the event the probability of realizing the deferred tax assets do not meet the more likely than not threshold in the future, a valuation allowance would be established for the deferred tax assets deemed unrecoverable.
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,“Outlook, Risks and Uncertainties"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, marketing efforts of asset based carriers, 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, the threat of war or the
commencement of a warchanges in the Middle Easthomeland security and fluctuations in interest rates.
BUSINESS COMBINATIONS/DIVESTITURES
Management believes that future acquisitions or dispositions made by the Company could significantly impact financial results. Financial results most likely to be impacted include, but are not limited to, revenue, gross margin, salaries and benefits, selling general and administrative expenses, depreciation and amortization, interest expense, net income and the Company'sCompany’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'sCompany’s revenue growth rate. Should there be further consolidation in the rail industry causing a service disruption, the Company believes its intermodal growth ratebusiness would likely be negatively impacted. Should there be another significant service disruption similar to the lock out of West Coast dock workers in 2002, the Company expects there may be some customers who would switch from using the Company'sCompany’s intermodal service to other carriers'
over-the-road service.transportation services. The Company expects these customers may choose to continue to utilize these carriersother services even when intermodal service levels are restored. Other factors that could negatively influence the Company'sCompany’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.
GROSS MARGIN
The Company expects that supply chain solutions revenue will continue to increase; however, the Company estimates the growth rate may not continue at the same level that was experienced in 2003.
Hub Distribution’s largest customer, for which Hub Distribution installs point-of-purchase displays, has notified the Company of a significant change in its volume as compared to prior years. This has already resulted in a significant decrease in revenue during the first quarter of 2004. Should these volume levels continue, management believes the revenue for this customer will be at lower levels than those experienced in 2003, which could negatively impact gross margin and profitability.
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, fuel costs, intermodal industry growth, intermodal industry service levels, competition and accounting estimates. Unlike the Company'sCompany’s other service offerings, the Company'sCompany’s distribution services are comprised of certain higher margin projects. There can be no assurance these higher margin projects will continue in the future.
SALARIES AND BENEFITS
It is anticipated
Management estimates that salaries and benefits as a percentage of revenue could fluctuate from quarter-to-quarter as there are timing differences between 16
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 increasefluctuate 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'sCompany’s information systems and related platforms, the Company believes there could be significant expenses incurred, some of which would not be capitalized. Costs incurredOther factors that could cause selling, general and administrative expense to formulate the Company's strategy as well as any costs that would be identified
as reengineering or training would be expensed.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENTfluctuate include, but are not limited to, changes in insurance premiums and litigation expense.
Management estimates that depreciation and amortization of property and equipment will increase in the future.2004. The most significant factorfactors that could cause an increase in depreciation and amortization expense isare increased software amortization related to improvements in the Company'sCompany’s information systems.systems, lease buyouts and other purchases of computer equipment. 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
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)
Factors that could cause interest expense 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash to be provided by operations, cash available under its linesthe line of credit and the Company'sCompany’s ability to obtain additional credit will be sufficient to meet the Company'sCompany’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 willshould not exceed $9.0$5.0 million in 2003.
ITEM2004.
During the fourth quarter of 2003, the Board of Directors authorized the purchase of up to 500,000 shares of the Company’s Class A Common Stock from time to time. The timing of the program will be determined by the financial and market conditions. Since January 1, 2004 through March 11, 2004 the Company has purchased 96,500 shares at a cost of $2.8 million. Further, employees exercised options during 2004 which resulted in cash proceeds of approximately $2.1 million for the Company.
The Company is exposed to market risk related to changes in interest rates on its bank line of credit and term notes which may adversely affect its results
17
The Company has both fixed and variable rate debt as described in Note 8 to the Consolidated Financial Statements. The Company had an interest rate swap designated as a hedge on a portion of the Company'sCompany’s variable rate debt that matured September 30, 2002. The purpose of the swap was to fix the interest rate on a portion of the variable rate debt and reduce certain exposures to interest rate fluctuations. As of December 31, 2002,2003, the Company did not have any interest rate swap agreements outstanding. A ten percent increase in market interest rates would not have a material impact on the results of operations for the year ended December 31, 2002.2003.
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.
18
ITEM
| INDEX TO FINANCIAL STATEMENTS | |||
|---|---|---|---|
| AND FINANCIAL STATEMENT SCHEDULE | |||
| Report of Independent Auditors | 20 | ||
| Predecessor Auditor Opinion | 21 | ||
| Consolidated Balance Sheets - December 31, 2003 and December 31, 2002 | 22 | ||
| Consolidated Statements of Operations - Years ended December 31, 2003, | |||
| December 31, 2002 and December 31, 2001 | 23 | ||
| Consolidated Statements of Stockholders' Equity - Years ended December 31, 2003, | |||
| December 31, 2002 and December 31, 2001 | 24 | ||
| Consolidated Statements of Cash Flows - Years ended December 31, 2003, | |||
| December 31, 2002 and December 31, 2001 | 25 | ||
| Notes to Consolidated Financial Statements | 26 | ||
| Schedule II - Valuation and Qualifying Accounts | S- | 1 | |
The Board of Directors and Stockholders of Hub Group, Inc.:
We have audited the consolidated balance sheetsheets of Hub Group, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders'stockholders’ equity, and cash flows for the yearyears then ended. Our audit also included the financial statement schedule listed in the index at Item 15(a) for the yearyears ended December 31, 2003 and 2002. These financial statements and schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Hub Group, Inc. as of December 31, 2001, and for each of the two
years in the periodyear ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those statements in their report dated March 27, 2002 and included an explanatory paragraph which disclosed that the selected quarterly financial data included in Note 1920 contained information that they did not audit and were unable to review 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.
We conducted our auditaudits 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 consolidated financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hub Group, Inc. at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the yearyears then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2003 and 2002, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective on January 1, 2002, the Company changed its method of accounting for goodwill to conform with Statement of Financial Accounting Standards (Statement) 142, "Goodwill“Goodwill and Other Intangible Assets"Assets”.
As discussed above, the consolidated financial statements of Hub Group, Inc. as of December 31, 2001, and for each of the two years in the periodyear ended December 31, 2001 were audited by other auditors who have ceased operations. As described in Note 1, these consolidated financial statements have been revised to include the transitional disclosures required by Statement 142, "Goodwill“Goodwill and Other Intangible Assets"Assets”, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 1 with respect to 2001 and 2000 included (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense, including any related tax effects, recognized in those periods related to goodwill as a result of initially applying Statement 142, to the Company'sCompany’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings-per-share amounts. In our opinion, the disclosures for 2001 and 2000 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole.
ERNST & YOUNG LLP
Chicago, Illinois
February 16, 2004
except for Note 19, 2003
20
PREDECESSOR AUDITOR (ARTHUR ANDERSENas to which the date is
March 11, 2004
Note: This is a copy of the audit report previously issued by Arthur Andersen LLP ("ANDERSEN"(“Andersen”) IN CONNECTION WITH HUB GROUP, INC.'S FORMin connection with Hub Group, Inc.‘s Form 10-K FILING
FOR THE FISCAL YEAR ENDED DECEMBERfiling for the fiscal year ended December 31, 2001. THE INCLUSION OF THIS PREVIOUSLY
ISSUED ANDERSEN REPORT IS PURSUANT TO THE " TEMPORARY FINAL RULE AND FINAL RULE
REQUIREMENTS FOR ARTHUR ANDERSENThe inclusion of this previously issued Andersen report is pursuant to the ” temporary final rule and final rule requirements for Arthur Andersen LLP AUDITING CLIENTS," ISSUED BY THEauditing clients,” issued by the U.S. SECURITIES AND EXCHANGE COMMISSION IN MARCHSecurities and Exchange Commission in March 2002. NOTE THAT THIS PREVIOUSLY
ISSUED ANDERSEN REPORT INCLUDES REFERENCES TO CERTAIN FISCAL YEARS, WHICH ARE
NOT REQUIRED TO BE PRESENTED IN THE ACCOMPANYING CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBERNote that this previously issued Andersen report includes references to certain fiscal years, which are not required to be presented in the accompanying consolidated financial statements, as of and for the years ended December 31, 2001 ANDand 2000. THIS AUDIT
REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSENThis audit report has not been reissued by Arthur Andersen LLP IN CONNECTION WITH THIS
FILING ON FORMin connection with this filing on Form 10-K.
To the Board of Directors and Stockholders of 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'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'sCompany’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
| December 31, | |||||
|---|---|---|---|---|---|
| 2003 | 2002 | ||||
| ASSETS | |||||
| CURRENT ASSETS: | |||||
| Cash and cash equivalents | $ — | $ — | |||
| Accounts receivable | |||||
| Trade, net | 126,794 | 126,736 | |||
| Other | 9,472 | 13,715 | |||
| Deferred taxes | 4,676 | 3,221 | |||
| Prepaid expenses and other current assets | 4,578 | 4,732 | |||
| TOTAL CURRENT ASSETS | 145,520 | 148,404 | |||
| PROPERTY AND EQUIPMENT, net | 27,855 | 34,209 | |||
| GOODWILL, net | 215,175 | 215,175 | |||
| OTHER ASSETS | 1,017 | 1,474 | |||
| TOTAL ASSETS | $ 389,567 | $ 399,262 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| CURRENT LIABILITIES: | |||||
| Accounts payable | |||||
| Trade | $ 118,830 | $ 124,980 | |||
| Other | 1,713 | 3,226 | |||
| Accrued expenses | |||||
| Payroll | 14,999 | 10,275 | |||
| Other | 11,592 | 8,971 | |||
| Current portion of long-term debt | 8,017 | 8,061 | |||
| TOTAL CURRENT LIABILITIES | 155,151 | 155,513 | |||
| LONG-TERM DEBT, EXCLUDING CURRENT PORTION | 67,017 | 94,027 | |||
| DEFERRED TAXES | 24,364 | 15,382 | |||
| STOCKHOLDERS' EQUITY: | |||||
| Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares | |||||
| issued or outstanding in 2003 and 2002 | — | — | |||
| Common stock, | |||||
| Class A: $.01 par value; 12,337,700 shares authorized; 7,410,700 shares | |||||
| issued and 7,390,500 outstanding in 2003 and 7,046,250 issued and | |||||
| outstanding in 2002 | 74 | 70 | |||
| Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued | |||||
| and outstanding in 2003 and 2002 | 7 | 7 | |||
| Additional paid-in capital | 115,820 | 110,819 | |||
| Purchase price in excess of predecessor basis, net of tax benefit of $10,306 | (15,458 | ) | (15,458 | ) | |
| Retained earnings | 47,332 | 38,902 | |||
| Unearned compensation | (4,448) | - | |||
| Treasury stock, at cost (20,200 shares) | (292) | - | |||
| TOTAL STOCKHOLDERS' EQUITY | 143,035 | 134,340 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 389,567 | $ 399,262 | |||
The accompanying notes to consolidated financial statements are an integral part of these statements.
22
| Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||||
| Revenue | $1,359,614 | $1,335,660 | $1,319,331 | ||||||
| Transportation costs | 1,188,932 | 1,172,848 | 1,140,368 | ||||||
| Gross margin | 170,682 | 162,812 | 178,963 | ||||||
| Costs and expenses: | |||||||||
| Salaries and benefits | 89,980 | 93,476 | 94,982 | ||||||
| Selling, general and administrative | 45,650 | 46,824 | 53,613 | ||||||
| Depreciation and amortization of property and equipment | 10,757 | 11,371 | 10,678 | ||||||
| Amortization of goodwill | — | — | 5,741 | ||||||
| Impairment of property and equipment | — | — | 3,401 | ||||||
| Total costs and expenses | 146,387 | 151,671 | 168,415 | ||||||
| Operating income | 24,295 | 11,141 | 10,548 | ||||||
| Other income (expense): | |||||||||
| Interest expense | (7,691 | ) | (9,453 | ) | (10,345 | ) | |||
| Interest income | 160 | 230 | 693 | ||||||
| Other, net | 131 | 97 | 6 | ||||||
| Total other expense | (7,400 | ) | (9,126 | ) | (9,646 | ) | |||
| Income before minority interest and provision for income taxes | 16,895 | 2,015 | 902 | ||||||
| Minority interest | — | (524 | ) | 151 | |||||
| Income before provision for income taxes | 16,895 | 2,539 | 751 | ||||||
| Provision for income taxes | 8,465 | 1,041 | 308 | ||||||
| Net income | $ 8,430 | $ 1,498 | $ 443 | ||||||
| Basic earnings per common share | $ 1.09 | $ 0.19 | $ 0.06 | ||||||
| Diluted earnings per common share | $ 1.07 | $ 0.19 | $ 0.06 | ||||||
| Basic weighted average number of shares outstanding | 7,712 | 7,709 | 7,708 | ||||||
| Diluted weighted average number of shares outstanding | 7,865 | 7,714 | 7,716 | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
23
| Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||||
| Class A and B Common Stock Shares Outstanding | |||||||||
| Beginning of year | 7,708,546 | 7,708,546 | 7,708,346 | ||||||
| Exercise of non-qualified stock options | 37,266 | - | 200 | ||||||
| Issuance of restricted stock | 327,184 | - | - | ||||||
| Purchase of treasury shares | (20,200 | ) | - | - | |||||
| Ending balance | 8,052,796 | 7,708,546 | 7,708,546 | ||||||
| Class A and B Common Stock Amount | |||||||||
| Beginning of year | $ 77 | $77 | $77 | ||||||
| Issuance of restricted stock and exercise of stock options | 4 | - | - | ||||||
| Ending balance | 81 | 77 | 77 | ||||||
| Additional Paid-in Capital | |||||||||
| Beginning of year | 110,819 | 110,819 | 110,817 | ||||||
| Exercise of non-qualified stock options | 377 | - | 2 | ||||||
| Issuance of restricted stock awards | 4,624 | - | - | ||||||
| Ending balance | 115,820 | 110,819 | 110,819 | ||||||
| Purchase Price in Excess of Predecessor Basis, Net of Tax | |||||||||
| Beginning of year | (15,458 | ) | (15,458 | ) | (15,458 | ) | |||
| Ending balance | (15,458 | ) | (15,458 | ) | (15,458 | ) | |||
| Retained Earnings | |||||||||
| Beginning of year | 38,902 | 37,404 | 36,961 | ||||||
| Net income | 8,430 | 1,498 | 443 | ||||||
| Ending balance | 47,332 | 38,902 | 37,404 | ||||||
| Unearned Compensation | |||||||||
| Beginning of year | - | - | - | ||||||
| Issuance of restricted stock awards | (4,628) | - | - | ||||||
| Compensation expense related to restricted stock awards | 180 | - | - | ||||||
| Ending balance | 4,448 | - | - | ||||||
| Treasury Stock | |||||||||
| Beginning of year | - | - | - | ||||||
| Purchase of treasury shares | (292 | ) | - | - | |||||
| Ending balance | (292 | ) | - | - | |||||
| Accumulated Other Comprehensive (Loss) Income | |||||||||
| Beginning of year | - | (389 | ) | - | |||||
| Other comprehensice income (loss) | - | 389 | (389 | ) | |||||
| Ending balance | - | - | (389 | ) | |||||
| Total stockholders' equity | $143,035 | $134,340 | $132,453 | ||||||
| Comprehensive Income | |||||||||
| Net Income | $8,430 | $1,498 | $443 | ||||||
| Cumulative effect of adopting Statement 133, net of tax | - | - | 79 | ||||||
| Unrealized interest rate swap income (loss), net of taxes | - | 389 | (468 | ) | |||||
| Other comprehensive income (loss) | - | 389 | (389 | ) | |||||
| Total comprehensive income | $8,430 | $1,887 | 54 | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
24
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| Cash flows from operating activities: | |||||||
| Net income | $ 8,430 | $ 1,498 | $ 443 | ||||
| Adjustments to reconcile net income to net cash provided | |||||||
| by operating activities: | |||||||
| Depreciation and amortization of property and equipment | 10,797 | 11,476 | 11,248 | ||||
| Amortization of goodwill | - | - | 5,741 | ||||
| Impairment of property and equipment | - | - | 3,401 | ||||
| Compensation expense related to restricted stock awards | 180 | - | - | ||||
| Deferred taxes | 7,672 | 5,928 | 308 | ||||
| Minority interest | - | (524 | ) | 151 | |||
| (Gain) loss on sale of assets | (59 | ) | (33 | ) | 426 | ||
| Other assets | 457 | 33 | 670 | ||||
| Changes in working capital: | |||||||
| Accounts receivable, net | 4,185 | 9,314 | 43,204 | ||||
| Prepaid expenses and other current assets | 154 | (892 | ) | 697 | |||
| Accounts payable | (7,663 | ) | (8,657 | ) | (43,676 | ) | |
| Accrued expenses | 7,345 | (5,580 | ) | 5,021 | |||
| Net cash provided by operating activities | 31,498 | 12,563 | 27,634 | ||||
| Cash flows from investing activities: | |||||||
| Purchase of minority interest | - | (4,000 | ) | - | |||
| Purchases of property and equipment, net | (4,384 | ) | (6,538 | ) | (10,319 | ) | |
| Net cash used in investing activities | (4,384 | ) | (10,538 | ) | (10,319 | ) | |
| Cash flows from financing activity: | |||||||
| Proceeds from stock options exercised | 232 | - | 2 | ||||
| Purchase of treasury stock | (292 | ) | - | - | |||
| Net (payments) borrowings on revolver | (19,000 | ) | 6,000 | (5,000 | ) | ||
| Payments on long-term debt | (8,054 | ) | (8,025 | ) | (12,317 | ) | |
| Net cash used in provided by financing activities | (27,114 | ) | (2,025 | ) | (17,315 | ) | |
| Net increase (decrease) in cash and cash equivalents | - | - | - | ||||
| Cash and cash equivalents beginning of period | - | - | - | ||||
| Cash and cash equivalents end of period | $ - | $ - | $ - | ||||
| Supplemental disclosures of cash flow information | |||||||
| Cash paid for: | |||||||
| Interest | $ 6,355 | $ 8,283 | $ 10,143 | ||||
| Income taxes | 441 | - | - | ||||
| Non-cash activity: | |||||||
| Unrealized income on derivative instrument | $ - | $ 389 | $ (389 | ) | |||
The accompanying notes to consolidated financial statements are an integral part of these statements.
25
Business: Hub Group, Inc. (the "Company"“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 and installation services.
PRINCIPLES OF CONSOLIDATION:
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:
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, of approximately $4,259,000$11,493,280 and $12,320,000$4,259,000 at December 31, 20022003 and 2001,2002, respectively, are included in accounts payable trade.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS:- -trade.
Accounts Receivable and Allowance for Uncollectible Accounts: The Company carries its accounts receivable at face amount less an allowance for uncollectible accounts. The allowance for uncollectible accounts is determined through an analysis of the accounts receivable aging, an assessment of collectibility based on historical trends and an evaluation of current economic conditions. The Company'sCompany’s reserve for uncollectible accounts was approximately $5,362,000$5,264,000 and $4,020,000$5,362,000 at December 31, 2003 and 2002, and 2001, respectively. The
Company does not generally charge interest on past due accounts receivables. Recoveries of receivables previously charged off are recorded when received.
PROPERTY AND EQUIPMENT:
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 the 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 128 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. The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event that the undiscounted future cash flows resulting from the use of the asset group is less than the carrying amount, an impairment loss equal to the excess of the assets carrying amount over its fair value is recorded. See Note 6 for impairment charges recorded in 2001.
GOODWILL:
Goodwill: Goodwill represents the excess of purchase price over the fair market value of net assets acquired in connection with the Company'sCompany’s business combinations. As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards Board Statement No. 142, "Goodwill“Goodwill and Other Intangible Assets"
("Assets” (“Statement 142"142”). Under Statement 142, goodwill and intangible assets that have indefinite useful lives are no longer amortized. Accumulated goodwill amortization was $21,517,000 as of December 31, 20022003 and 2001.
2002.
In connection with the adoption of SFASStatement 142, the Company completed the required transitional and annual goodwill impairment testing. This testing usedas of January 1, 2002. The annual impairment test performed as of November 1 uses discounted cash flow and market capitalization methodologies to determine a fair market value of the reporting units. The results of the testing in 2003 and 2002 indicated no impairment. The impairment testing was based on the Company'sCompany’s estimates of the value of the reporting units, future operating performance and discount rates. Should the estimates differ materially from actual results, the Company may be required to record impairment charges in future periods. The Company will continue to test the value of its goodwill for any impairment at least annually as of November 1 and impairment, if any, will be recorded as expense in the period of impairment. The following table presents net income for 2003 and 2002 in comparison to 2001, and 2000, exclusive of amortization expense recognized in the
26
previous years2001 related to goodwill which is no longer being amortized. Amounts are in thousands except per share information:
YEARS ENDED DECEMBER 31,
-----------------------------------
2002 2001 2000
------------ ----------- ----------
Net income as reported $ 1,498 $ 443 $ 2,683
Add back amortization of goodwill, net of tax - 3,387 3,387
------------ ----------- ----------
Adjusted net income $ 1,498 $ 3,830 $ 6,070
============ =========== ==========
Basic and diluted earnings per share, as reported $ 0.19 $ 0.06 $ 0.35
Add back amortization of goodwill, net of tax - 0.44 0.44
------------ ----------- ----------
Adjusted basic and diluted earnings per share $ 0.19 $ 0.50 $ 0.79
============ =========== ==========
DEFERRED FINANCING COSTS:
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| Net income as reported | $ 8,430 | $ 1,498 | $ 443 | ||||
| Add back amortization of goodwill, net of tax | - | - | 3,387 | ||||
| Adjusted net income | $ 8,430 | $ 1,498 | $ 3,830 | ||||
| Basic earnings per share, as reported | $ 1.09 | $ 0.19 | $ 0.06 | ||||
| Add back amortization of goodwill, net of tax | - | - | 0.44 | ||||
| Adjusted basic earnings per share | $ 1.09 | $ 0.19 | $ 0.50 | ||||
| Diluted earnings per share, as reported | $ 1.07 | $ 0.19 | $ 0.06 | ||||
| Add back amortization of goodwill, net of tax | - | - | 0.44 | ||||
| Adjusted diluted earnings per share | $ 1.07 | $ 0.19 | $ 0.50 | ||||
Deferred Financing Costs: Deferred financing costs are amortized over the term of the related debt. The accumulated amortization related to the deferred financing costs was $1,808,000$2,464,000 and $1,108,000$1,808,000 as of December 31, 20022003 and 2001,2002, respectively. The amortization expense related to deferred financing costs was $656,000, $700,000 $476,000 and $387,000$476,000 for the years ending December 31, 2003, 2002 2001 and 2000,2001, respectively. Deferred financing costs net of accumulated amortization included in prepaid expenses and other current assets were $1,592,327$590,000 and $810,000 at December 31, 2002.
FAIR VALUE OF FINANCIAL INSTRUMENTS: 2003 and 2002, respectively. Deferred financing costs net of accumulated amortization included in other assets were $614,000 and $783,000 at December 31, 2003 and 2002, respectively.
Fair Value of Financial Instruments:The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value at December 31, 20022003 due to their short-term nature. The carrying value of the Company'sCompany’s term debt and revolving line of credit approximates fair value due to their variable interest rates. The fair value of the Notes, estimated using discounted cash flow analysis based on the Company'sCompany’s incremental borrowing rate for similar instruments, approximates the carrying value at December 31, 2002.
CONCENTRATION OF CREDIT RISK:2003.
Concentration of Credit Risk: The Company'sCompany’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. 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 2003, 2002 2001 and 2000.2001. The Company reviews a customer'scustomer’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.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company accounts for derivatives in
accordance with Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivatives and Hedging Activities" as amended (Statement 133).
Under Statement 133, any derivatives are recorded on the balance sheet at fair
value. Changes in the fair value of derivatives are recorded in earnings or
other comprehensive income, based on hedge type. Gains or losses on derivative
instruments are reclassified into earnings in the period in which earnings are
impacted by the underlying hedged item. Any ineffective portion of hedges is
recognized in earnings in the current period. As of December 31, 2002, the
Company was not a party to any derivative contracts.
REVENUE RECOGNITION:
Revenue represents sales of services to customers.Recognition: Revenue is recognized at the time 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the sales price is fixed and determinable and 4) collectibility is reasonably assured. In accordance with EITF 91-9, revenue and related transportation servicescosts are provided.recognized based on relative transit time. Further, the Company reports its revenue on a gross basis in accordance with the criteria in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. The Company is the primary obligor as the Company is responsible for logistics customers is recognized onproviding the dateservice desired by the customer. The customer views the Company as responsible for fulfillment including the acceptability of the service. Services requirements may include, for example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick up and delivery and tracing shipments in transit. The Company has discretion in setting sales prices and as a result, the amount Hub earns varies. In addition, the Company has the discretion to select its vendors from multiple suppliers for the services are performed.
INCOME TAXES:ordered by customers. Finally, the Company has credit risk for its receivables. These three factors, discretion in setting prices, discretion in selecting vendors and credit risk, further support reporting revenue on a gross basis.
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: 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.options and for restricted stock. In computing the per share effect of the assumed exercise of stock options, 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. STOCK BASED COMPENSATION:The dilutive effect of restricted stock is computed using the treasury method.
Stock Based Compensation: Statement of Financial Accounting Standards No. 123 (“Statement 123”), “Accounting for Stock-Based Compensation,” as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company currently utilizeshas chosen to account for stock-based compensation for options using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, in accounting“Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation expense for stock based compensation plans. APB No.
27
25 requires the use of the intrinsic value method which measures compensation
costsoptions is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount thean employee must pay to acquire the stock. The Company grants options at fair market value and therefore recognizes no compensation expense.
The following table illustrates the effect on the net income and net income per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting
Standards No. 123, ("Statement 123"), "Accounting for Stock-based Compensation."
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| Net income as reported | $ 8,430 | $ 1,498 | $ 443 | ||||
| Add: Total stock-based employee compensation included in reported net income, net of related tax effects | 106 | - | - | ||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (818 | ) | (640 | ) | (731 | ) | |
| Net Income (loss), pro forma | $ 7,718 | $ 858 | $ (288 | ) | |||
| Earnings (loss) per share: | |||||||
| Basic - as reported | $ 1.09 | $ 0.19 | $ 0.06 | ||||
| Basic - pro forma | $ 1.00 | $ 0.11 | $ (0.04 | ) | |||
| Diluted - as reported | $ 1.07 | $ 0.19 | $ 0.06 | ||||
| Diluted - pro forma | $ 0.98 | $ 0.11 | $ (0.04 | ) | |||
The pro forma disclosure is not likely to be indicative of pro forma results which may be expected in future yearsperiods because of the fact that options vest over several years, pro forma compensation expense is recognized as the options vest and additional awards may also be granted. The Company'sCompany’s stock based compensation plans are further discussed further in Note 11.
USE OF ESTIMATES:
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. Significant estimates include the allowance for doubtful accounts, cost of purchased transportation and services and reserves for pricing and billing adjustments. Actual results could differ from those estimates.
RECLASSIFICATIONS:
Reclassifications: Certain prior year amounts have been reclassified to conform with the current year presentation.
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. The Company has authorized 2,000,000 shares of preferred stock.
The following is a reconciliation of the Company'sCompany’s earnings per share:
| Year Ended | Year Ended | Year Ended | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2003 | December 31, 2002 | December 31, 2001 | |||||||||||||||||
| (000's) | (000's) | (000's) | |||||||||||||||||
| Per-Share | Per-Share | Per-Share | |||||||||||||||||
| Income | Shares | Amount | Income | Shares | Amount | Income | Shares | Amount | |||||||||||
| Basic EPS | |||||||||||||||||||
| Income available to | |||||||||||||||||||
| common stockholders | $8,430 | 7,712 | $1.09 | $1,498 | 7,709 | $0.19 | $443 | 7,708 | $0.06 | ||||||||||
| Effect of Dilutive Securities | |||||||||||||||||||
| Stock options and | |||||||||||||||||||
| restricted stock | - | 153 | - | - | 5 | - | - | 8 | - | ||||||||||
| Diluted EPS | |||||||||||||||||||
| Income available to | |||||||||||||||||||
| common stockholders | |||||||||||||||||||
| plus assumed exercises | |||||||||||||||||||
| and restricted stock | $8,430 | 7,865 | $1.07 | $1,498 | 7,714 | $0.19 | $443 | 7,716 | $0.06 | ||||||||||
Stock options that were not included in diluted weighted average shares because they would have been anti-dilutive were 752,113 and 988,375 for the years ended December 31, 2003 and 2002 respectively.
HGDS was a 65% owned partnership until August of 2002 when Hubthe Company purchased the minority partners'partners’ interest in HGDS. Pursuant to the HGDS
Partnership Agreement, each of the partners had a legal obligation to the
partnership for any deficit balance in their respective capital accounts.
Accordingly, there was a debit balance reflected in minority interest in the
accompanying consolidated balance sheets related to the minority partner's
deficit capital account balance of approximately $2.5 million at December 31,
2001. Management believed that the balance in the minority account was
collectable at December 31, 2001. Hub had a legal right to pursue the minority
partner for the deficit balance in the capital account. In August of 2002, the Company entered into a settlement agreement and release with the minority partner that resulted in the relinquishment of the minority partner'spartner’s 35% interest in HGDS and release of the minority partner'spartner’s claims against the Company in exchange for $4.0 million$4,000,000 in cash and release of Hub'sthe Company’s claims against the minority partner including the $3.0 million$3,000,000 balance in minority interest. The acquisition resulted in goodwill of approximately $7.0 million.
$7,000,000.
| Years Ended December 31, | |||||
|---|---|---|---|---|---|
| 2003 | 2002 | ||||
| Building and improvements | $ 57 | $ 57 | |||
| Leasehold improvements | 608 | 1,582 | |||
| Computer equipment and software | 51,927 | 52,095 | |||
| Furniture and equipment | 6,085 | 8,234 | |||
| Transportation equipment and automobiles | 1,221 | 2,127 | |||
| 59,898 | 64,095 | ||||
| Less: Accumulated depreciation and amortization | (32,043 | ) | (29,886 | ) | |
| Property and Equipment, net | $ 27,855 | $ 34,209 | |||
Depreciation expense, which includes depreciation of assets under capital leases, was $10,797,000, $11,476,000 and $11,248,000 for 2003, 2002 and $6,875,000 for 2002, 2001, respectively.
During the year ended December 31, 2003, the Company wrote-off the cost and 2000, respectively. Depreciation expense for 2000 included approximately
$500,000 of additionalaccumulated depreciation due to the change in estimated useful lives
of various assets that were no longer used once the new operating system was
completed.
associated with fully depreciated retired assets.
On March 30, 2001, a $3.4 million$3,400,000 pretax charge was recorded due to the impairment of HGDS'sHGDS’s e-Logistics software ("e-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'se-software’s fair value was reduced to zero based on the lack of any future cash flows attributable to Hub Distribution'sDistribution’s e-Logistics initiative. The Company does not intend to use the software in the future.
The following is a reconciliation of the Company'sCompany’s effective tax rate to the federal statutory tax rate:
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| U.S. federal statutory rate | 35.0 | % | 34.0 | % | 34.0 | % | |
| State taxes, net of federal benefit | 4.5 | (7.4 | ) | 3.9 | |||
| Goodwill amortization | - | - | 1.1 | ||||
| Nondeductible expenses | 1.9 | 14.8 | - | ||||
| Legislative elimination of Illinois Credits | 4.7 | - | - | ||||
| Other | 4.0 | (0.4 | ) | 2.0 | |||
| Net effective rate | 50.1 | % | 41.0 | % | 41.0 | % | |
The Company and its subsidiaries file both unitary and separate company state income tax returns. The 2002 state tax benefit shown above is a result of the tax benefit of the net operating losses incurred on a separate company basis exceeding the tax expense incurred on the Company'sCompany’s unitary state filing.
The following is a summary of the Company'sCompany’s provision for income taxes:
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| Current | |||||||
| Federal | $ 343 | $(2,092 | ) | $ - | |||
| State and local | 595 | - | - | ||||
| 938 | (2,092 | ) | - | ||||
| Deferred | |||||||
| Federal | 6,565 | 3,321 | 276 | ||||
| State and local | 962 | (188 | ) | 32 | |||
| 7,527 | 3,133 | 308 | |||||
| Total provision | $ 8,465 | $ 1,041 | $308 | ||||
The following is a summary of the Company'sCompany’s deferred tax assets and liabilities:
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | ||||||
| Reserve for uncollectible accounts receivable | $ 1,823 | $ 1,751 | |||||
| Accrued compensation | 2,659 | 2,514 | |||||
| Other reserves | 1,356 | 1,149 | |||||
| Current deferred tax assets | 5,838 | 5,414 | |||||
| Net operating loss and tax credit carryforwards | 8,502 | 13,340 | |||||
| Other | 69 | 1 | |||||
| Income tax basis in excess of financial basis of goodwill | 5,840 | 6,845 | |||||
| Long-term deferred tax assets | 14,411 | 20,186 | |||||
| Total deferred tax assets | $ 20,249 | $ 25,600 | |||||
| Prepaids | - | $ (33 | ) | ||||
| Receivables | (1,162 | ) | (2,160 | ) | |||
| Current deferred tax liabilities | (1,162 | ) | (2,193 | ) | |||
| Property and equipment | (8,985 | ) | (9,937 | ) | |||
| Goodwill | (29,790 | ) | (25,631 | ) | |||
| Long-term deferred tax liabilities | (38,775 | ) | (35,568 | ) | |||
| Total deferred tax liabilities | $(39,937 | ) | $(37,761 | ) | |||
Management believes it is more likely than not that the deferred tax assets will be realized and as a result no valuation allowance has been recorded.
The Company had federal net operating loss carryforwards of approximately $23,495,000$14,480,000 at December 31, 2002.2003. These federal net operating loss carryforwards expire as follows:
(In thousands)
2020 $ 5,530
2021 6,190
2022 11,775
30
| (In thousands) | |||
| 2021 | $ | 2,962 | |
| 2022 | 11,518 | ||
The Company had federal tax credits of approximately $1,130,000 at December 31, 2002.2003. The portion of the federal tax credits that have expiration dates expire as follows:
(In thousands)
2019 $ 139
2020 543
2021 448
| (In thousands) | |||
| 2019 | $ | 139 | |
| 2020 | 543 | ||
| 2021 | 448 | ||
The Company'sCompany’s outstanding debt is as follows (in thousands):
| Years Ended December 31, | |||||
|---|---|---|---|---|---|
| 2003 | 2002 | ||||
| Bank line of credit | $ 6,000 | $ 25,000 | |||
| Term notes with quarterly payments of $2,000,000 with a balloon | |||||
| payment of $9,000,000 due June 24, 2005; Interest is due quarterly | |||||
| at a floating rate | 19,000 | 27,000 | |||
| Notes due 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% | 50,000 | 50,000 | |||
| Capital lease obligations collateralized by certain equipment | 34 | 88 | |||
| Total long-term debt | 75,034 | 102,088 | |||
| Less current portion | (8,017 | ) | (8,061 | ) | |
| $ 67,017 | $ 94,027 | ||||
Aggregate principal payments, in thousands, due subsequent to December 31, 2002,2003, are as follows:
2003 $ 8,061
2004 8,007
2005 46,009
2006 10,007
2007 10,004
2008 and thereafter 20,000
-----------
$ 102,088
===========
| 2004 | $ 8,017 | ||
| 2005 | 27,007 | ||
| 2006 | 10,003 | ||
| 2007 | 10,003 | ||
| 2008 | 10,003 | ||
| 2009 and thereafter | 10,001 | ||
| $ 75,034 | |||
The Company maintains a multi-bank credit facility (the "Credit
Facility"“Credit Facility”). The Credit Facility is comprised of term debt and a revolving line of credit. The revolving line of credit has a term that expires on June 24, 2005 and bears interest at a maximum of LIBOR plus 3.0% or Prime plus 1.5%. Borrowings and weighted average interest rates on the revolving line of credit were $25.0 million$6,000,000 and 4.18%3.13% and $19.0 million$25,000,000 and 4.46%4.18% at December 31, 20022003 and 2001,2002, respectively. There was $24.3 million$43,000,000 and $31.0 million$24,000,000 unused and available under the revolving line of credit at December 31, 20022003 and 2001,2002, respectively. The term debt has quarterly payments ranging from $1.2 million to
$2.0 millionof $2,000,000 with a balloon payment of $9.0 million$9,000,000 due on June 24, 2005. Interest on the term debt is a maximum of LIBOR plus 3.25% or Prime plus 1.75%. Borrowings and weighted average interest rates on the term debt were $27.0
million$19,000,000 and 4.40%3.41% and $35.0 million$27,000,000 and 4.66%4.40% at December 31, 2003 and 2002, and 2001,
respectively.
The
During 2002, the Credit Facility was amended three times during 2002. On March 27,
2002, the Credit Facility was amended to waive any historical covenant violations, that resulted from the restatement of the Company's financial
statements from 1999 and 2000 and the adjustment made to the Company's financial
statements in the fourth quarter of 2001. The amendment also revised the minimum
borrowing rate from January 1, 2002 through September 30, 2002. On August 14,
2002, the Credit Facility was amended to waive the Company's non-compliance as
of June 30, 2002 with certain covenants relating to the fixed charge coverage
ratio, minimum earnings before interest, taxes, depreciation and minority
interest and cash flow leverage ratio. The amendment modified certainrevise financial covenants for the quarters ending September 30, 2002levels and December 31, 2002. On
October 15, 2002, the Credit Facility was amended to modify the fixed charge
coverage ratio, minimum earnings before interest, taxes, depreciation,
31
amortization and minority interest and the cash flow leverage ratio for all
periods subsequent to December 31, 2002. In addition, the capital expenditure
limitation was reduced to $9.0 million for the year ended December 31, 2003. The
amendment also providedprovide that loans under the Credit Facility areAgreement be secured by substantially all assets of the Company. The Credit Facility, as amended, provides for certain financial covenants including a fixed charge coverage ratio, minimum earnings before interest, taxes, depreciation, amortization, minority interest and certain other charges (EBITDAM) and a cash flow leverage ratio. The Company was in compliance with its debt covenants as of December 31, 2002. Subsequent to December 31, 2002, the Company extended the expiration date
of the Credit Facility to June 24, 2005, modified the definition of EBITDAM2003 and set covenants through the end of the extended term. The modified covenants are
consistent with the covenants of the private placement debt for the same time
period.2002.
The Company maintains $50.0 million$50,000,000 of private placement debt (the "Notes"“Notes”). These Notes have an eight-year average life and bear interest at 9.14% which is paid quarterly. These Notes mature on June 25, 2009, with annual payments of $10.0 million$10,000,000 commencing on June 25, 2005. The Notes were amended three times during 2002. The amendments were made currently with the changes to
the Credit Facility discussed above and the revisions were similar to the amendments made to the Credit Facility. The Notes, as amended, through October
15, 2002, provide for certain financial covenants including a fixed charge coverage ratio and a cash flow leverage ratio. The loans are secured by substantially all assets of the Company. The Company was in compliance with the covenants as of December 31, 2003 and 2002.
As of December 31, 2002,2003, the Company has standby letters of credit totaling $725,000$975,000 that expire from 20032004 to 2012. At December 31, 2001,2002, the Company had standby letters of credit totaling $925,000.
$975,000.
Capitalized interest on qualifying assets under development and total interest were as follows:
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| Capitalized interest | $ 12 | $ 28 | $ 365 | ||||
| Interest expensed | 7,691 | 9,453 | 10,345 | ||||
| Total interest incurred | $ 7,703 | $ 9,481 | $ 10,710 | ||||
Minimum annual rental commitments, in thousands, at December 31, 2002,2003, under noncancellable operating leases, principally for real estate and equipment, are payable as follows:
2003 $ 11,965
2004 7,647
2005 4,646
2006 3,148
2007 2,789
2008 and thereafter 9,066
$ 39,261follows (in thousands):
| 2004 | $ 8,581 | ||
| 2005 | 5,928 | ||
| 2006 | 3,876 | ||
| 2007 | 3,395 | ||
| 2008 | 2,937 | ||
| 2009 and thereafter | 6,214 | ||
| $ 30,931 | |||
Total rental expense included in selling general and administrative expense was approximately $15,492,000, $15,157,000,$12,526,000, $14,043,000 and $13,230,000$13,008,000 for 2003, 2002 and 2001, respectively. Additional rental expense of $1,694,000, $1,835,000 and 2000,$2,149,000 was included in transportation costs for 2003, 2002 and 2001, 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. HubThe Company's policy is to straight-line rental expense in accordance with Statement of Financial Accounting Standards No. 13, paragraph 15 and Financial Accounting Standards Board Technical Bulletin 85-3.
The Company incurs user charges for its use of a fleet of dedicated containers which are included in transportation costs. Such charges included in
transportation costs, were $28,451,000 and $27,751,000 for the year ended December 31, 2002.2003 and 2002, respectively. Under the agreements, the Company has the ability to return the containers. As a result, no minimum commitment has been included in the table above.
In 1996, the Company adopted a Long-Term Incentive Plan (the "1996“1996 Incentive Plan"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“1997 Incentive Plan"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 32
"1999“1999 Incentive Plan"Plan”). The number of shares of Class A Common Stock reserved for issuance under the 1999 Incentive Plan was 600,000. In 2002, the Company adopted a fourth Long-Term Incentive Plan (the "2002“2002 Incentive Plan"Plan”). The number of shares of Class A Common Stock reserved for issuance under the 2002 Incentive Plan was 600,000. In 2003, the Company amended its 2002 Incentive Plan to add an additional 500,000 shares of Class A Common Stock. The Company will submit the 2002 Incentive Plan, as amended, to the shareholders for their approval at the Company’s 2004 annual meeting. Under the 1996, 1997, 1999 and 2002 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.
Information regarding these option plans for 2003, 2002 2001 and 20002001 is as follows:
| 2003 | 2002 | 2001 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted Avg. | Weighted Avg. | Weighted Avg. | |||||||||||
| Shares | Exercise Price | Shares | Exercise Price | Shares | Exercise Price | ||||||||
| Options outstanding, | |||||||||||||
| beginning of year | 1,402,050 | $ 12.43 | 951,550 | $ 16.28 | 877,800 | $ 17.07 | |||||||
| Options exercised | (37,266) | 6.23 | -- | -- | (200) | 10.43 | |||||||
| Options granted | 193,500 | 5.84 | 537,000 | 6.04 | 106,000 | 10.15 | |||||||
| Options forfeited | (139,350) | 15.10 | (86,500) | 15.14 | (32,050) | 17.64 | |||||||
| Options outstanding, | |||||||||||||
| end of year | 1,418,934 | $ 11.43 | 1,402,050 | $ 12.43 | 951,550 | $ 16.28 | |||||||
| Weighted average fair | |||||||||||||
| value of options | |||||||||||||
| granted during the year | $ 2.58 | $ 2.65 | $ 4.66 | ||||||||||
| Options exercisable at | |||||||||||||
| year end | 786,975 | 615,250 | 520,900 | ||||||||||
| Option price range at end | |||||||||||||
| of year | $4.86 to | $28.16 | $4.87 to | $28.16 | $8.06 to | $28.16 | |||||||
| Option price for exercised | |||||||||||||
| shares | $ 6.23 | $ -- | $ 10.43 | ||||||||||
| Option available for | |||||||||||||
| grant at end of year | 456,616 | 337,950 | 188,450 | ||||||||||
The following table summarizes information about options outstanding at December 31, 2002:
| 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 | ||||||
| $ 4.86 to $ 5.20 | 438,667 | 8.99 | $ 5.13 | 103,004 | $ 5.19 | ||||||
| $ 5.54 to $ 9.70 | 253,367 | 8.55 | $ 7.53 | 68,071 | $ 7.81 | ||||||
| $10.43 to $ 14.00 | 353,000 | 3.59 | $ 13.46 | 294,900 | $ 13.84 | ||||||
| $17.66 to $ 28.16 | 373,900 | 5.66 | $ 19.55 | 321,000 | $ 19.67 | ||||||
| $ 4.86 to $ 28.16 | 1,418,934 | 6.69 | $ 11.43 | 786,975 | $ 14.57 | ||||||
For purposes of determining the pro forma effect of these options as discussed in Note 1, 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, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| Dividend yield | 0 | .00% | 0 | .00% | 0 | .00% | |
| Risk-free interest rate | 3 | .50% | 3 | .40% | 4 | .50% | |
| Volatility factor | 40 | .00% | 40 | .00% | 40 | .00% | |
| Expected life in years | 6 | .0 | 6 | .0 | 6 | .0 | |
During the fourth quarter of 2003, the Company granted 316,504 shares of restricted stock to certain employees and 10,680 shares of restricted stock to outside directors with a weighted average grant date fair value of $14.10. The stock vests over a three year period. Compensation expense recorded related to the restricted stock was approximately $180,000 during 2003.
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".segments. Under the enterprise wide disclosure requirements of Statement 131, the Company reports revenue, in thousands, for Intermodal Services, Brokerage Services, Logistics Services and Distribution Services as follows:
| Years Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2001 | |||||
| Intermodal Services | $ 972,589 | $ 973,164 | $ 939,357 | ||||
| Brokerage Services | 194,866 | 208,959 | 212,254 | ||||
| Logistics Services | 138,362 | 72,544 | 56,777 | ||||
| Distribution Services | 53,797 | 80,993 | 110,943 | ||||
| Total Revenue | $1,359,614 | $1,335,660 | $1,319,331 | ||||
The Company has one profit-sharing plan and trust in 2003 and two profit-sharing plans and trusts in 2002 and 2001 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 $1,148,000, $1,291,000 and $1,365,000 related to these plans in 2003, 2002 and 2001, respectively. 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 for 2000.
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 $742,000, $654,000 $472,000 and $274,000$472,000 related to this plan in 2003, 2002 and 2001, and 2000, respectively. In addition, the Company pays interest on the deferred compensation balance.
An officer of the Company iswas the owner of 20% of the Class A membership interest of SmartOffices Services, LLC ("SmartOffices"(“SmartOffices”). SmartOffices is in the business of selling office supplies to various companies. The Company spent $249,300, $290,400 $334,200 and $166,200$334,200 buying various office supplies from SmartOffices in 2003, 2002 2001 and 2000,2001, respectively. The shareholderofficer sold this 20% interest in SmartOffices subsequent to December 31, 2002.
during March 2003.
The court also granted the
motion of the Company's former auditors. The Court's order required plaintiffs
to file any amended complaint by November 22, 2002. The plaintiffs did not file
an amended complaint by this date and agreed that they would not appeal the
court's order of October 23, 2002 dismissing the lawsuit. The suit is therefore
terminated.
In addition, the Company is a party to litigation incident to its business, including claims for freight lost or damaged in transit, improperly shipped or improperly warehoused. Some of the lawsuits to which the Company is party are covered by insurance and are being defended by the Company'sCompany’s insurance carriers. Some of the lawsuits are not covered by insurance and are being defended by the Company. Management does not believe that the outcome of this litigation will have a materially adverse effect on the Company'sCompany’s financial position or results of operations. See Item 1 Business -– Risk Management and Insurance.
In the fourth quarter of 2002 the Company recorded a restructuring charge of approximately $932,000 consisting of a severance charge for 74 34
have beenwere made as of December 31, 2002. Approximately $450,000 of lease obligation remained as of December 31, 2002. Lease payments made during 2003 were $177,000 and the lease obligation is $281,000 at December 31, 2003.
During the quarter ended June 30, 2003, the Company recorded a liability of $180,000 for the estimated remaining lease obligation and closing costs related to a facility in Detroit. Approximately $80,000 of the lease obligation remains as of December 31, 20022003 as lease and will be reduced by future leaseclosing cost payments required undermade during the agreement.
Inperiod ended December 31, 2003 were $100,000.
During 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,year ended December 31, 2003 the Company recorded a pre-taxseverance charge for 165 employees of $250,000 that is included in salaries and benefits expense in the fourth quarter$876,000. Severance payments of 2000. During 2001, $206,000$801,000 were made as of December 31, 2003. The Company’s accrued severance at December 31, 2003 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.
$75,000.
The Company had an interest rate swap that matured on September 30, 2002 with a notional amount of $25.0 million, a weighted average pay ratewhich was accounted for under Statement of 8.37%Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and a weighted average receive rate of 5.34% at December 31, 2001.Hedging Activities". 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'sCompany’s variable rate debt. The Company used this interest rate swap to manage its exposure to changes in interest rates for its floating rate debt. This interest rate swap qualified as a cash flow hedge. The interest rate differential received or paid on the swap was recognized in the consolidated statements of operations as a reduction or increase in interest expense, respectively. The Company recorded incremental interest expense/(income)expense of $698,000 $312,000 and $(217,000)$312,000 for this swap in 2002 2001, and 2000,2001, respectively. The effective portion of the change in the fair value of the derivative instrument was 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, was
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, 2002, the Company adjusted its derivative financial instrument to fair value which resulted in an unrealized income of $389,000, net of the related income tax expense of $153,000. 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. These adjustments are included in other comprehensive income (loss).
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 and includes $4.7 million related to a Korean steamship line customer ("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.
During the fourth quarter of 2001.2003, the Board of Directors authorized the purchase of up to 500,000 shares of the Company’s Class A Common Stock from time to time. The timing of the program will be determined by financial and market conditions. During the fourth of quarter of 2003, the Company purchased 20,200 shares for $292,000. As of March 11, 2004, the Company purchased an additional 96,500 shares for $2,763,000 since December 31, 2003.
The following table sets forth selected quarterly financial data for each of the quarters in 20022003 and 20012002 (in thousands, except per share amounts):
35
QUARTERS
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- ------------- ------------- -------------
Year Ended December 31, 2002:
Revenue $ 305,299 $ 327,595 $ 356,666 $ 346,100
Gross margin 41,009 36,596 42,281 42,926
Operating income (loss) 3,227 (897) 4,513 4,298
Net income (loss) 940 (2,227) 1,379 1,406
Basic earnings (loss) per share $ 0.12 $ (0.29) $ 0.18 $ 0.18
Diluted earnings (loss) per share $ 0.12 $ (0.29) $ 0.18 $ 0.18
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 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| First | Second | Third | Fourth | ||||||
| Year Ended December 31, 2003: | |||||||||
| Revenue | $329,284 | $331,651 | $339,484 | $359,195 | |||||
| Gross margin | 42,050 | 43,460 | 43,461 | 41,711 | |||||
| Operating income | 4,373 | 5,914 | 7,196 | 6,812 | |||||
| Net income | 1,359 | 1,547 | 2,886 | 2,638 | |||||
| Basic earnings per share | $ 0.18 | $ 0.20 | $ 0.37 | $ 0.34 | |||||
| Diluted earnings per share | $ 0.18 | $ 0.20 | $ 0.37 | $ 0.33 | |||||
| Quarters | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| First | Second | Third | Fourth | ||||||
| Year Ended December 31, 2002: | |||||||||
| Revenue | $305,299 | $ 327,595 | $356,666 | $346,100 | |||||
| Gross margin | 41,009 | 36,596 | 42,281 | 42,926 | |||||
| Operating income (loss) | 3,227 | (897 | ) | 4,513 | 4,298 | ||||
| Net income (loss) | 940 | (2,227 | ) | 1,379 | 1,406 | ||||
| Basic earnings (loss) per share | $ 0.12 | $ (0.29 | ) | $ 0.18 | $ 0.18 | ||||
| Diluted earnings (loss) per share | $ 0.12 | $ (0.29 | ) | $ 0.18 | $ 0.18 | ||||
During the first quarter of 2002, the Company revised its estimate of accrued transportation costs resulting in an increase in pretax income of approximately $2.8 million in the quarter. For the year ended December 31, 2002, this revised estimate resulted in an increase in pre-tax income of $1.6 million since a portion of the increase would have been recognized in the last three quarters of 2002.
36
ITEM
None.
PART III
ITEM 10. DIRECTORS
As of December 31, 2002.
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 13, 2004, 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.
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 13, 2004, sets forth certain information with respect to the compensation of management of the Registrant and is incorporated herein by reference.
The section entitled “Ownership of the Capital Stock of the Company” and “Equity Compensation Plan Information” appearing in the Registrant’s proxy statement for the annual meeting of stockholders to be held on May 13, 2004, sets forth certain information with respect to the ownership of the Registrant’s Common Stock and equity compensation plans and is incorporated herein by reference.
The section entitled “Certain Transactions” appearing in the Registrant’s proxy statement for the annual meeting of stockholders to be held on May 13, 2004, 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.
The section entitled “Principal Accountant Fees and Services” appearing in the Registrant’s proxy statement for the annual meeting of stockholders to be held on May 13, 2004, sets forth certain information with respect to certain fess paid by the Company to its principal accountant for services and it is incorporated herein by reference.
(a)(1) FINANCIAL STATEMENTSFinancial Statements
The following consolidated financial statements of the Registrant are included under Item 8 of this Form 10-K:
Reports of Independent Auditors
Consolidated Balance Sheets -— December 31, 2003 and December 31, 2002
Consolidated Statements of Operations — Years ended December 31, 2003, December 31, 2002 and December 31, 2001
Consolidated Statements of Operations -Stockholders’ Equity — Years ended December 31, 2002,2003, December 31, 20012002 and December 31, 2000
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2002, December 31, 2001 and December 31, 2000
Consolidated Statements of Cash Flows -— Years ended December 31, 2002,2003, December 31, 20012002 and December 31, 20002001
Notes to Consolidated Financial Statements
(A)
(a) (2) FINANCIAL STATEMENT SCHEDULESFinancial 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)
(a) (3) EXHIBITSExhibits
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
(b) Reports on Form 8-K
None.
PERIODIC REPORTS
The Company furnished a report on Form 8-K on November 4, 2003 reporting in Item 9 that it was attaching as an exhibit a press release containing operating results for the third quarter of 2003.
Periodic Reports
Upon written request, the Company'sCompany’s annual report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2002,2003, and its quarterly reports on Form 10-Q will be furnished to stockholders free of charge; write to: Public Relations Department, Hub Group, Inc., 3050 Highland Parkway, Suite 100, Downers Grove, Illinois 60515. 38
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 12, 2003 HUB GROUP, INC.
By /S/ DAVID P. YEAGER
| Date: March 12, 2004 | 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 12, | |||
| Phillip C. Yeager | 2004 | ||||
| /s/David P.Yeager | Vice Chairman, Chief Executive Officer and Director | March 12, | |||
| David P. Yeager | 2004 | ||||
| /s/Thomas L. | President, Chief Operating Officer and Director | March 12 | |||
| Thomas L. Hardin | 2004 | ||||
| /s/Thomas M. White | Senior Vice President-Chief Financial Officer and Treasurer | March 12, | |||
| Thomas M. White | (Principal Financial and Accounting Officer) | 2004 | |||
| /s/Charles R. Reaves | Director | March 12, | |||
| Charles R. Reaves | 2004 | ||||
| /s/Martin P.Slark | Director | March 12, | |||
| Martin P. Slark | 2004 | ||||
| /s/Gary D. Eppen | Director | March 12, | |||
| Gary D. Eppen | 2004 | ||||
SCHEDULE II
| Balance at | Charged to | Deductions | Balance at | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Beginning | Costs & | and | End | ||||||
| of Year | Expenses | Adjustments (a) | of Year | ||||||
| Year Ended December 31: | |||||||||
| Allowance for uncollectible trade accounts | |||||||||
| 2003 | $5,362,000 | $ 722,000 | $ (820,000 | ) | $5,264,000 | ||||
| 2002 | 4,020,000 | 1,761,000 | (419,000 | ) | 5,362,000 | ||||
| 2001 | 3,088,000 | 7,132,000 | (6,200,000 | ) | 4,020,000 | ||||
| (a) | For the year ended December 31, 2002, deductions and adjustments includes a $1.1 million adjustment to increase the reported allowance for uncollectible accounts receivable for the years presented in the schedule. This adjustment did not affect the amount of “Trade accounts receivable, net” reported in the Company’s Consolidated Balance Sheets or operating results in the Consolidated Statements of Operations for those years. |
| 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 10.9 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 (incorporated by reference to Exhibit 10.13 to the Registrant's report | |||
| on Form 10-K dated March 15, 2001 and filed March 16, 2001, File No. 000-27754) | |||
| 10.14 | Amendment to $50 million Note Purchase Agreement among the Registrant, Hub City Terminals, | ||
| Inc. and various purchasers (incorporated by reference to Exhibit 10.14 to the Registrant's report on | |||
| Form 10-K dated March 15, 2001 and filed March 16, 2001, File No. 000-27754) | |||
| 10.15 | Letter from the Registrant to Daniel L. Sellers dated December 24, 1998 (incorporated by reference | ||
| to Exhibit 10.15 to the Registrant's report on Form 10-K dated March 15, 2001 and filed March 16, | |||
| 2001, File No. 000-27754) | |||
| 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 (incorporated by reference to Exhibit 10.20 to | |||
| the Registrant's report on Form 10-K dated and filed March 28, 2002, File No. 000-27754) | |||
| 10.21 | Amendment to $50 million Note Purchase Agreement among the Registrant, Hub City Terminals, | ||
| Inc. and various purchasers dated March 27, 2002 (incorporated by reference to Exhibit 10.21 to the | |||
| Registrant's report on Form 10-K dated and filed March 28, 2002, File No. 000-27754) | |||
| 10.22 | Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and | ||
| Harris Trust and Savings Bank dated August 13, 2002 (incorporated by reference to Exhibit 10.22 to | |||
| the Registrant's report on Form 10-Q dated and filed August 15, 2002, File No. 000-27754) | |||
| 10.23 | Amendment to $50 million Note purchase Agreement among the Registrant, Hub City Terminals, | ||
| Inc. and various purchasers dated August 14, 2002 (incorporated by reference to Exhibit 10.23 to | |||
| the Registrant's report on Form 10-Q dated and filed August 15, 2002, File No. 000-27754) | |||
| 10.24 | Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and | ||
| Harris Trust and Savings Bank dated October 15, 2002 (incorporated by reference to Exhibit 10.24 | |||
| to the Registrant's report on Form 10-Q dated and filed November 5, 2002, File No. 000-27754) | |||
| 10.25 | Amendment to $50 million Note Purchase Agreement among the Registrant, Hub City Terminals, | ||
| Inc. and various purchasers dated October 15, 2002 (incorporated by reference to Exhibit 10.25 to | |||
| the Registrant's report on Form 10-Q dated and filed November 5, 2002, File No. 000-27754) | |||
| 10.26 | Security Agreement among the Registrant, Hub City Terminals, Inc., Harris Trust and Savings Bank | ||
| and various Note Holders dated October 15, 2002 (incorporated by reference to Exhibit 10.26 to the | |||
| Registrant's report on Form 10-Q dated and filed November 5, 2002, File No. 000-27754) | |||
| 10.27 | Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and | ||
| Harris Trust and Savings Bank dated February 28, 2003 (incorporated by reference to Exhibit 10.27 | |||
| to the Registrant's report on Form 10-K dated March 12, 2003 | |||
| 10.28 | Letter from the Registrant to Thomas M. White | ||
| 21 | Subsidiaries of the Registrant | ||
| 23.1 | Consent of Ernst & Young LLP | ||
| 31.1 | Certification of David P. Yeager, Vice Chairman and Chief Executive Officer, Pursuant to Rule | ||
| 13a-14(a) under the Securities Exchange Act of 1934, filed under Exhibit of 31 of Item 601 of Regulation S-K | |||
| 31.2 | Certification of Thomas M. White, Senior Vice President-Chief Financial Officer and | ||
| Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed under Exhibit 31 of | |||
| Item 601 of Regulation S-K | |||
| 32.1 | Certification of David P. Yeager and Thomas M. White, Chief Executive Officer and Chief | ||
| Financial Officer, respectively, Pursuant to 18 U.S.C. Section 1350, filed under Exhibit | |||
| 32 of Item 601 of Regulation S-K | |||
| 99.1 | Letter from the Company to the Securities and Exchange Commission dated March | ||
| regarding the Company's auditors, Arthur Andersen (incorporated by reference to Exhibit 99.1 to | |||
| the Registrant's report on Form 10-K dated and filed March | |||
| 99.2 | Hub Group's Code of Business Conduct and | ||