<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-27754
HUB GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4007085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
377 EAST BUTTERFIELD ROAD, SUITE 700
LOMBARD, ILLINOIS 60148
(Address, including zip code, of principal executive offices)
(630) 271-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
On November 8, 1996, the registrant had 5,261,250 outstanding shares of
Class A common stock, par value $.01 per share, and 662,296 outstanding shares
of Class B common stock, par value $.01 per share.
=============================================================================
<PAGE>
HUB GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: PAGE
HUB GROUP, INC. - REGISTRANT
<S> <C>
Unaudited Condensed Consolidated Balance Sheets - December 31, 1995
and September 30, 1996 3
Unaudited Condensed Consolidated Statements of Operations - Three Months and
Nine Months Ended September 30, 1995 and 1996 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Nine
Months Ended September 30, 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1995 and 1996 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
HUB PARTNERSHIPS - PREDECESSOR
Unaudited Condensed Combined Balance Sheet - December 31, 1995 19
Unaudited Condensed Combined Statements of Operations for the Three Months
Ended September 30, 1995 and the Nine Months Ended September 30, 1995
and the Period January 1, 1996 through March 17, 1996 20
Unaudited Condensed Combined Statement of Equity - Period January 1, 1996
through March 17, 1996 21
Unaudited Condensed Combined Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and the Period January 1, 1996
through March 17, 1996 22
Notes to Unaudited Condensed Combined Financial Statements 23
Management's Discussion and Analysis of Financial Condition and
Results of Operations 24
PART II. OTHER INFORMATION 25
</TABLE>
2
<PAGE>
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2 $ 17,897
Accounts receivable, net
Trade 6,197 108,996
Affiliates 2,376 -
Prepaid expenses 33 925
Other current assets 114 1,310
------ --------
TOTAL CURRENT ASSETS 8,722 129,128
PROPERTY AND EQUIPMENT, net 137 12,398
GOODWILL, net - 27,741
DEFERRED TAX BENEFIT - 9,936
OTHER ASSETS 224 661
------ --------
TOTAL ASSETS $9,083 $179,864
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $5,620 $ 96,321
Affiliates 1,774 -
Other 89 6,521
Accrued expenses
Payroll 286 5,605
Other 149 4,283
Current portion of long-term debt - 2,749
------ --------
TOTAL CURRENT LIABILITIES 7,918 115,479
------ --------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION - 15,177
DEFERRED TAXES - 234
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST - 7,441
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 26 59
Additional paid-in capital 18 52,886
Purchase price in excess of predecessor basis - (25,764)
Tax benefit of purchase price in excess of predecessor basis - 10,306
Retained earnings 1,121 4,046
------ --------
TOTAL STOCKHOLDERS' EQUITY 1,165 41,533
------ --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,083 $179,864
====== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Trade $16,609 $238,584 $ 49,781 $493,158
Affiliates 3,981 - 10,478 3,459
------- -------- -------- --------
Total revenue 20,590 238,584 60,259 496,617
PURCHASED TRANSPORTATION 19,048 209,877 55,665 437,401
------- -------- -------- --------
Net revenue 1,542 28,707 4,594 59,216
COSTS AND EXPENSES:
Salaries and benefits 585 13,888 1,813 28,989
Selling, general and administrative 286 5,073 894 11,018
Depreciation and amortization 4 795 22 1,660
------- -------- -------- --------
Total costs and expenses 875 19,756 2,729 41,667
Operating income 667 8,951 1,865 17,549
------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense - (292) - (631)
Interest income 12 256 66 561
Other, net - 8 - (30)
------- -------- -------- --------
Total other income (expense) 12 (28) 66 (100)
INCOME BEFORE MINORITY INTEREST AND
PROVISION FOR INCOME TAXES 679 8,923 1,931 17,449
------- -------- -------- --------
MINORITY INTEREST - 5,415 - 10,101
------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 679 3,508 1,931 7,348
PROVISION FOR INCOME TAXES - 1,403 - 2,698
------- -------- -------- --------
NET INCOME $ 679 $ 2,105 $ 1,931 $ 4,650
======= ======== ======== ========
PRO FORMA PROVISION FOR ADDITIONAL INCOME
TAXES 272 - 501 241
------- -------- -------- --------
PRO FORMA NET INCOME $ 407 $ 2,105 $ 1,430 $ 4,409
======= ======== ======== ========
PRO FORMA EARNINGS PER SHARE $ 0.24 $ 0.35 $ 0.86 $ 0.93
======= ======== ======== ========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,662 5,989 1,662 4,740
======= ======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1996
(in thousands, except shares)
<TABLE>
<CAPTION>
Tax Benefit
Purchase of Purchase
Price in Price
Common Stock Additional Excess of in Excess of
---------------------- Paid-in Predecessor Predecessor Retained Stockholders'
Shares Amount Capital Basis Basis Earnings Equity
---------- -------- ---------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 300 $ 26 $ 18 $ - $ - $ 1,121 1,165
Net income - - - - 4,650 4,650
Distributions to stockholders (25) (17) - (1,725) (1,767)
Issuance of common stock
in acquisitions 1,662,296 - - - - - -
Retirement of shares acquired (200) - - - - - -
Sale of common stock in
initial public offering, net
of offering costs 4,261,250 59 52,886 - - - 52,945
Acquisition of general
partnership interests - - - (25,764) 10,306 - (15,458)
Purchase of common stock (100) (1) (1) - - - (2)
--------- ---- ------- -------- ------- ------ -------
Balance at September 30, 1996 5,923,546 $ 59 $52,886 $(25,764) $10,306 $4,046 $41,533
========= ==== ======= ======== ======= ====== =======
</TABLE>
See notes to unaudited condensed consolidatedfinancial statements.
5
<PAGE>
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,931 $ 4,650
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 22 1,774
Deferred taxes - 604
Minority interest - 10,101
Gain on sale of assets - (58)
Changes in working capital, net of effects of purchase transactions:
Accounts receivable, net (1,670) (24,847)
Prepaid expenses - (31)
Other current assets 31 (472)
Accounts payable 333 20,666
Accrued expenses (113) 4,263
Other assets (8) 264
------- --------
Net cash provided by operations 526 16,914
------- --------
Cash flows from investing activities:
Cash used in acquisitions, net - (37,544)
Purchase of minority interest - (2,554)
Purchases of property and equipment, net (43) (4,340)
------- --------
Net cash used in investing activities (43) (44,438)
------- --------
Cash flows from financing activities:
Proceeds from sale of common stock in initial public offering, net of
offering costs - 52,945
Proceeds from sale of common stock 2 -
Purchase of common stock - (2)
Distributions to shareholders (2,560) (1,767)
Distributions to minority interest - (2,762)
Payments on long-term debt - (4,619)
Proceeds from long-term debt - 1,624
Collection of note receivable - affiliate 51 -
------- --------
Net cash provided by (used in) financing activities (2,507) 45,419
------- --------
Net increase (decrease) in cash (2,024) 17,895
Cash, beginning of period 2,026 2
------- --------
Cash, end of period $ 2 $ 17,897
======= ========
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 1 $ 70
Income taxes 37 957
</TABLE>
6
<PAGE>
HUB GROUP, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Hub Group, Inc. (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial statements have been
condensed or omitted pursuant to those rules and regulations. However, the
Company believes that the disclosures contained herein are adequate to make the
information presented not misleading.
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
NOTE 2. CAPITAL STRUCTURE
On March 8, 1995, the Company was incorporated and issued 100 shares
of Class A common stock to the sole incorporator. On March 18, 1996, the Company
purchased Hub City Terminals, Inc. ("Hub Chicago") in a stock-for-stock
acquisition through issuance of 1,000,000 shares of the Company's Class A common
stock and 662,296 shares of the Company's Class B common stock. Hub Chicago has
been accounted for similar to the pooling of interests method of accounting and
has been included in all periods presented on a historical cost basis.
Concurrent with the acquisition of Hub Chicago in March 1996, the
Company completed the initial public offering of 4,261,250 shares of its Class A
common stock, with net proceeds to the Company of $53.0 million. Coincident with
the initial public offering, a selling stockholder sold 1,000,000 shares of the
Company's Class A common stock through a secondary offering. The Company did not
receive any net proceeds from the sale of the shares by the selling stockholder.
Concurrent with the initial public offering, the Company, through its
new wholly owned subsidiary, Hub Chicago, acquired with cash the general
partnership interests in 26 operating partnerships. In addition, the Company
directly acquired with cash an interest in the Hub Group Distribution Services
partnership (together with the 26 operating partnerships collectively referred
to as "Hub Partnerships"). The combined financial statements of Hub
Partnerships, the predecessor to the majority of the business of the Company,
are included herein. Further reference is made to the Company's Registration
Statement filed on Form S-1 for the historical financial statements of Hub
Chicago and Hub Partnerships. See Note 3. "Business Combinations" for further
discussion of these acquisitions.
NOTE 3. BUSINESS COMBINATIONS
On March 18, 1996, the Company acquired the general partnership
interests in 26 operating partnerships and an interest in the Hub Group
Distribution Services partnership for a total purchase price of approximately
$43,309,000. The purchase price of these acquisitions was allocated to the
assets acquired and liabilities assumed based on the fair value at the date of
acquisition using the purchase method of accounting.
The portion of the difference between fair value and historical cost
of individual assets acquired and liabilities assumed attributable to
partnership interests acquired by the Company from non-control group
stockholders was recorded at fair market value. This resulted in goodwill of
approximately $17,425,000 and an increase in property and equipment of
approximately $96,000. The remaining portion
7
<PAGE>
of the difference between fair value and historical cost attributable to
partnership interests acquired from control group stockholders, approximately
$25,764,000, has been charged to equity as purchase price in excess of
predecessor basis.
On May 2, 1996, the Company purchased the rights to service the
customers of American President Lines Domestic Distribution Services, a division
of APL Land Transport Services, Inc., for a purchase price of approximately
$8,090,000. The total purchase price has been recorded as goodwill under the
purchase method of accounting.
The allocations presented above represent preliminary purchase price
allocations. Goodwill, the cost of purchased businesses in excess of the market
value of net tangible and identifiable assets acquired, is being amortized over
40 years on a straight-line basis. On an ongoing basis, the Company will measure
realizability by the ability of the acquired entities to generate current and
expected future operating income in excess of annual amortization of goodwill.
In connection with the purchase of the partnership interests in each
of the Hub Partnerships, approximately $10,306,000 has been recorded as a
deferred tax benefit (utilizing an assumed effective tax rate of 40%),
representing the tax effect of the difference between goodwill for income tax
purposes of approximately $43,189,000 and goodwill for financial reporting
purposes of approximately $17,425,000. The corresponding credit is recorded as
an increase in equity in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
The following summarizes the effects of businesses acquired and
accounted for as purchases in 1996 as if they had been acquired as of January 1,
1995:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
(000's)
Revenue as reported $ 60,259 $496,617
Revenue of purchased business for period
prior to acquisitions, net of eliminations 597,170 184,660
-------- --------
Pro forma revenue $657,429 $681,277
-------- --------
Net income as reported $ 1,931 $ 4,650
Net income (loss) of purchased businesses for
period prior to acquisition 580 (261)
Adjustment for goodwill amortization (286) (95)
-------- --------
Pro forma net income $ 2,225 $ 4,294
-------- --------
Earnings per share as reported $ 0.86 $ 0.93
Effect of purchased businesses prior to
acquisitions (0.44) (0.19)
-------- --------
Pro forma earnings per share $ 0.42 $ 0.74
-------- --------
</TABLE>
8
<PAGE>
Business acquisitions which involved the use of cash were accounted as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 1996
------------------
(000's)
<S> <C>
Accounts receivable $75,576
Prepaid expenses 861
Other current assets 724
Property and equipment 9,309
Goodwill 25,515
Deferred tax benefit 10,306
Other assets 701
Accounts payable (74,693)
Accrued expenses (5,190)
Long-term debt (20,921)
Minority interest (102)
Purchase price in excess of predecessor basis 25,764
Tax benefit of purchase price in excess of predecessor basis (10,306)
------
Cash used in acquisitions $37,544
-------
</TABLE>
NOTE 4. PURCHASE OF MINORITY INTEREST
On August 1, 1996, the Company purchased the remaining 70% minority
interest in Hub City Tennessee, L.P. for approximately $2,554,000. The entire
purchase price was recorded as goodwill.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
(000's)
<S> <C> <C>
Land $ - $ 92
Building and improvements - 827
Leasehold improvements 17 551
Computer equipment and software 478 6,495
Furniture and equipment 221 2,861
Transportation equipment and automobiles 29 3,471
----- -------
745 14,297
Less: Accumulated depreciation and amortization (608) (1,899)
----- -------
PROPERTY AND EQUIPMENT, net $ 137 $12,398
</TABLE>
9
<PAGE>
NOTE 6. INCOME TAXES
The Company records income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
Company to compute deferred taxes based upon the amount of taxes payable in
future years, after considering known changes in tax rates and other statutory
provisions that will be in effect in those years. Prior to March 18, 1996, the
Company was a non-taxable Subchapter S corporation. The pro forma provision for
additional income taxes for the nine months ended September 30, 1995 and 1996
assumes that the Company operated as a taxable corporation since January 1,
1995.
The reconciliation of the Company's effective tax rate to the federal
statutory tax rate is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1995 1996
--------------- --------------
<S> <C> <C>
U.S. federal statutory rate 34.0% 34.0%
State taxes, net of federal benefit 6.0% 6.0%
Income earned as non-taxable Subchapter S corporation
prior to March 18, 1996 (40.0) (3.3)
----- ----
Net effective rate 0.0% 36.7%
----- ----
</TABLE>
The following is a summary of the Company's provision for income taxes:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1995 1996
-------------- --------------
(000's)
<S> <C> <C>
Current $ - $2,094
Federal - 370
State and local - 2,464
------ ------
-
Deferred - 199
Federal - 35
------ ------
State and local - 234
------ ------
Total provision $ - $2,698
------ ------
</TABLE>
See Note 3. "Business Combinations" for discussion of deferred taxes recorded
pursuant to acquisitions.
10
<PAGE>
NOTE 7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Fair value approximates book value at the balance sheet date.
<TABLE>
<CAPTION>
September 30,
1996
-------------
(000's)
<S> <C>
Installment notes payable due through 2000, monthly installments
ranging from $234 - $10,929, including interest, ranging from
2.9% to 12%, collateralized by certain equipment $ 2,293
Unsecured balloon notes, interest compounded annually at 5.45%,
interest and principal due March, 2001 9,282
Mortgage note payable due in 1998 with monthly installments of
$2,381, including interest at 8.5%, collateralized by certain
property 209
Note payable due in three annual installments of $2,000,000
beginning on May 1, 1997, interest is due at the time the
principal is paid at 6% compounded annually 6,000
Capital lease obligations, collateralized by certain equipment 142
-------
Total long-term debt 17,926
Less current position (2,749)
-------
$15,177
-------
</TABLE>
NOTE 8. STOCK-BASED COMPENSATION PLAN
Concurrent with the initial public offering the Company adopted a
Long-Term Incentive Plan (the "Incentive Plan"). Under the Incentive Plan, stock
options, and 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. Concurrent with the adoption of the
Incentive Plan the Company granted 326,500 options to key employees and 36,000
options to non-employee directors. All options granted have an exercise price of
$14.00 per share, the initial public offering price. The options granted to key
employees vest ratably over a five-year period and expire 10 years after the
date they were granted. The options granted to the non-employee directors vest
ratably over a three-year period and expire 10 years after the date of grant.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." The Company is required to adopt this standard no
later than December 31, 1996. This Statement encourages companies to recognize
expense for stock options at an estimated fair value based on an option pricing
model. If expense is not recognized for stock options, pro forma footnote
disclosure is required of what net income and earnings per share would have been
under the Statement's approach to valuing and expensing stock options. Certain
other new disclosures will be required. The Company will implement the
provisions of this statement in 1996, but has decided that it will not recognize
the expense related to stock options in the financial statements. The impact of
this new Statement has not yet been completely evaluated.
11
<PAGE>
NOTE 9. EQUITY
<TABLE>
<CAPTION>
December 31, 1995
--------------------------
Issued and
Authorized Outstanding
------------ -------------
<S> <C> <C>
Preferred stock, $.01 par value 2,000,000 --
Common stock, no par value 200 200
Class A common stock, $.01 par value 12,337,700 100
Class B common stock, $.01 par value 662,300 --
September 30, 1996
--------------------------
Issued and
Authorized Outstanding
------------ -------------
Preferred stock, $.01 par value 2,000,000 --
Class A common stock, $.01 par value 12,337,700 5,261,250
Class B common stock, $.01 par value 662,300 662,296
</TABLE>
12
<PAGE>
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS COMBINATIONS
On March 18, 1996, Hub Group, Inc. (the "Company") acquired the
general partnership interests in 26 operating partnerships and an interest in
the Hub Group Distribution Services partnership (collectively referred to as
"Hub Partnerships") for a total purchase price of approximately $43,309,000. On
May 2, 1996, the Company purchased the rights to service the customers of
American President Lines Domestic Distribution Services ("APLDDS"), a division
of APL Land Transport Services, Inc., for a purchase price of approximately
$8,090,000. The purchase price of these acquisitions was allocated to the assets
acquired and liabilities assumed based on the fair value on the date of
acquisition using the purchase method of accounting. Prior to the acquisitions,
the Company's business was comprised of the operations of its wholly owned
subsidiary, Hub City Terminals, Inc. ("Hub Chicago").
The acquired businesses' revenues are many multiples of the revenue of
Hub Chicago. As a result, consolidated revenues and operating expenses
increased dramatically in the period subsequent to March 17, 1996, as compared
to the prior year. This relationship will continue for the remainder of 1996.
Additionally, purchased transportation costs and operating costs as a percentage
of revenue may differ from historical trends for Hub Chicago.
As a result of the APLDDS acquisition, the Company acquired the right
to service APLDDS customers. However, the Company did not assume any assets or
liabilities associated with that business. Furthermore, the Company was not
obligated to hire any of the more than 200 employees in the APLDDS organization.
The APLDDS business was absorbed directly into the operations of Hub Chicago and
Hub Partnerships and management believes the associated incremental operating
costs are significantly less than APLDDS historical operating costs. Management
is unable to track the incremental purchased transportation and operating costs
attributable to the acquired APLDDS business. Consequently, discussion of
results of operations excluding acquisitions will be limited to comparisons of
revenue. Discussion of pro forma financial data reflect results of operations
as if the Company had acquired Hub Partnerships and APLDDS as of January 1,
1995.
RESULTS OF OPERATIONS
REVENUE
Actual revenue totaled $238.6 million for the three months ended
September 30, 1996, representing a 1058.7% increase over the comparable period
in 1995. Without the acquisitions, revenue totaled $20.6 million for the three
months ended September 30, 1996, representing no change over the comparable
period in 1995. Actual revenue for the nine months ended September 30, 1996, of
$496.6 million represents an increase of 724.1% over the comparable period in
1995. Without the acquisitions, Company revenues totaled $60.7 million for the
nine months ended September 30, 1996 for an increase of 0.5% over the comparable
period in 1995. The lack of a more substantial increase in revenue without
acquisitions is attributed principally to the relocation of a significant
customer's distribution center. It should be noted that the distribution center
was relocated to a site that is now being served by one of the partnerships that
is part of Hub Partnerships.
Pro forma consolidated revenues increased 7.1% to $238.6 million and
3.6% to $681.3 million for the three and nine month periods ended September 30,
1996, versus $222.8 million and $657.4 million in the comparable periods in
1995, respectively. It should be noted that the business acquired from APLDDS
on May 2, 1996, had
13
<PAGE>
been experiencing significant decline in 1995 and the first quarter of 1996.
Management believes the Company has successfully transitioned greater than 90%
of the APLDDS business that existed on May 2, 1996.
Excluding the APLDDS acquisition, Hub Chicago and Hub Partnerships
combined revenues increased 18.8% to $215.4 million and 15.9% to $602.4 million
for the three and nine month periods ending September 30, 1996, compared to
$181.4 million and $519.6 million for the comparable periods in 1995,
respectively. The increases were primarily attributable to strong growth in the
truckload brokerage and logistics sectors. Intermodal revenues, excluding the
APLDDS acquisition, increased moderately.
Management believes that the truckload brokerage business will show an
increase in the fourth quarter of 1996 compared to the fourth quarter of 1995.
Management believes the logistics business growth rate will decline somewhat
when comparing 1996 to 1995 for the fourth quarter. This is due to the fourth
quarter of 1995 being the only quarter in 1995 that experienced revenue from the
new logistics business. Management estimates that in 1997 revenue growth will
decline from current levels. This estimate is based on management's opinion that
the dramatic growth in the truckload brokerage and logistics businesses
experienced in 1996 provides too large of a revenue base to sustain the same
growth rate in 1997. Furthermore, management cannot predict an acquisition
similar to APLDDS in 1997. Finally, management expects to maintain its moderate
levels of growth in intermodal revenue, excluding the acquired revenue from
APLDDS.
NET REVENUE
Actual net revenue as a percentage of revenue increased for the three
and nine month periods ended September 30, 1996, to 12.0% and 11.9% from 7.5%
and 7.6% for the comparable periods in 1995, respectively. This is primarily a
reflection of the lower net revenue as a percentage of revenue that is
experienced by Hub Chicago as compared to Hub Partnerships. Hub Chicago has a
larger proportion of high volume/low margin accounts than does Hub Partnerships.
Pro forma net revenue as a percentage of revenue increased to 12.0%
and 11.6% for the three and nine month periods ended September 30, 1996, from
11.3% and 11.0% for the comparable periods in 1995, respectively. On a pro forma
basis, net revenue as a percentage of revenue, for the APLDDS business was 6.9%
and 4.1% for the first nine months of 1995 and for the period January 1, 1996
through May 1, 1996, respectively. Management believes that it is experiencing a
net revenue percentage that has modestly improved from the levels experienced by
APLDDS for the transitioned APLDDS business. The lower pro forma percentages
experienced by APLDDS causes the current year percentages to compare favorably
to the prior year percentages. This favorable pro forma comparison is partially
offset by the lower net revenue percentage experienced by the new logistics
business that started late in 1995.
Historically, the Company contracted for all its drayage needs with
100% of the attendant costs being classified as purchased transportation. As the
Company sets up its own drayage operations, the salaries and benefits for non-
driver employees as well as general and administrative expenses are classified
below the net revenue line as operating expenses. Assuming that the Company
meets its drayage needs at or below the previously contracted cost, the
classification of a portion of the cost below the net revenue line will cause
net revenue as a percentage of revenue to increase.
Management expects fluctuations in the net revenue percentage from
quarter-to-quarter caused by changes in business mix, changes in truckload
margins, changes in logistics business margins, changes in trailer capacity,
changes in intermodal industry growth and changes in accounting estimates.
SALARIES AND BENEFITS
Actual salaries and benefits increased to $13.9 million and $29.0
million in the three and nine month periods ended September 30, 1996, from $0.6
million and $1.8 million in the comparable periods in 1995, respectively. Pro
forma salaries and benefits increased to $13.9 million and $41.0 million in the
three and nine month periods ended September 30, 1996, from $12.7 million and
$36.7 million in the comparable periods in 1995,
14
<PAGE>
respectively. The salaries and benefits incurred by APLDDS in servicing their
customers were lower as a percentage of revenue than experienced by the Company.
APLDDS was a division of APL Land Transport Services, Inc. ("APL") and
consequently received much of its support services from APL and was assessed a
management fee. This had the effect of deflating salaries and benefits while
inflating selling, general and administrative expenses. For the nine months
ended September 30, 1995 and for the period January 1, 1996 through May 1, 1996,
salaries and benefits as a percentage of revenue for APLDDS were 3.8% and 4.8%,
respectively. Pro forma salaries and benefits as a percentage of revenue
increased to 5.8% and 6.0% for the three and nine month periods ended September
30, 1996 from 5.7% and 5.6% in the comparable periods in 1995, respectively,
which is partially attributed to the historical cost structure of APLDDS. Also
contributing to the increase was the Company's investment in additional
personnel in 1996 to handle new truckload brokerage and logistics business, to
expand the local and national sales forces and to provide financial and
administrative services required for continued growth.
It is anticipated that the percentage could fluctuate from quarter-to-
quarter as there are timing differences between revenue increases and changes in
levels of staffing. Factors that could affect the percentage from staying in the
recent historical range are revenue growth rates significantly higher or lower
than forecasted, a management decision to invest in additional personnel to
stimulate new or existing businesses or changes in customer requirements that
result in a higher cost of labor per move.
SELLING, GENERAL AND ADMINISTRATIVE
Actual selling, general and administrative expenses increased to $5.1
million and $11.0 million for the three and nine month periods ended September
30, 1996, from $0.3 million and $0.9 million in the comparable periods in 1995,
respectively. Pro forma selling, general and administrative expenses decreased
to $5.1 million and $17.1 million for the three and nine month periods ended
September 30, 1996, from $7.3 million and $21.4 million in the comparable
periods in 1995, respectively. As a percentage of revenue these pro forma
expenses were 2.1% and 2.5% for the three and nine month periods ended September
30, 1996, and 3.3% for both of the comparable periods in 1995. As explained in
"Salaries and Benefits," APLDDS received much of its support services through a
management fee allocation from APL. This caused the APLDDS historical selling,
general and administrative expenses to be inflated. For the nine months ended
September 30, 1996, and for the period January 1, 1996, through May 1, 1996,
selling, general and administrative expenses as a percentage of revenue for
APLDDS were 6.7% and 6.0%, respectively. Also contributing to the decrease in
the pro forma percentages was the leverage that the Company generated on its
strong revenue growth in 1996.
DEPRECIATION AND AMORTIZATION
Actual depreciation and amortization expense increased to $0.8 million
and $1.7 million for the three and nine month periods ended September 30, 1996,
from negligible amounts in the comparable periods in 1995. Pro forma
depreciation and amortization increased to $0.8 million and $2.4 million for the
three and nine month periods ended September 30, 1996, from $0.7 and $2.2
million in the comparable periods in 1995, respectively. As a percentage of
revenue, pro forma depreciation and amortization was 0.3% and 0.4% for the three
and nine month periods ended September 30, 1996, and 0.3% for both of the
comparable periods in 1995.
Management estimates that as a percentage of revenue, depreciation and
amortization will remain at current levels or increase in the future. Factors
that could cause an increase in the percentage are increased leasehold
improvement amortization as operating companies transition to larger facilities,
increased software amortization on planned implementation of new packages in the
truckload brokerage and logistics businesses and increased goodwill amortization
that would arise if the Company exercised any of its options to purchase the
remaining minority interest in any of its operating companies.
OTHER INCOME (EXPENSE)
Actual interest expense was $0.3 million and $0.6 million for the
three and nine month periods ended September 30, 1996, compared to no interest
expense in both of the comparable periods in 1995. All of the interest expensed
in 1996 was incurred subsequent to March 17, 1996. Pro forma interest expense
was $0.3 million and
15
<PAGE>
$1.0 million for the three and nine month periods ended September 30, 1996, and
$0.3 and $0.9 for the comparable periods in 1995, respectively.
There are three primary components of interest expense. First are the
five-year balloon notes assumed or issued in conjunction with the acquisition of
Hub Partnerships. Interest expense on these notes began to decline in third
quarter of 1996 as discretionary payments were made. Management estimates
interest will continue to decline on a quarterly basis as it relates to these
notes as the various operating companies continue to make discretionary
principal payments. The annual rate of interest on these balloon notes is 5.45%.
The second component to interest expense relates to the notes issued
in conjunction with the acquisition of APLDDS. Interest expense will decline
from current levels for these notes in May of 1997 and 1998 coincident with
required principal payment terms. The notes will be completely paid off in May
of 1999. The annual rate of interest on these notes is 6.0%.
The third primary component of interest expense relates to borrowing
for tractors as the Company continues its strategy of starting small drayage
operations to service portions of its own business in those areas where it is
needed to enhance customer service (see "Liquidity and Capital Resources").
Interest expense related to this component will continue to increase as the
Company continues expansion. The current annual rate of interest on these loans
is determined at the time of each tractor purchase at a rate equal to 3.0% over
the two-year Treasury note rate.
Actual interest income was $0.3 million and $0.6 million for the three
and nine month periods ended September 30, 1996, compared to virtually none and
$0.1 million for the comparable periods in 1995, respectively. Pro forma
interest income was $0.3 million and $0.6 million for the three and nine month
periods ended September 30, 1996, and $0.2 million and $0.5 million for the
comparable periods in 1995, respectively.
Management estimates that interest income will likely decrease from
current levels. Factors that could cause such a decrease are the possible use of
cash to make payments on the balloon notes, to make payments on the APLDDS
notes, to make down payments on tractors, to fund working capital needs for
those operating companies starting their own Company-owned drayage operations,
to fund the purchase of the remaining minority interest in any of its operating
companies and to increase the Company's capital investment in an international
joint venture.
MINORITY INTEREST
Actual minority interest was $5.4 million and $10.1 million for the
three and nine month periods ended September 30, 1996, compared to zero in the
comparable periods in 1995. On a pro forma basis, minority interest was $5.4
million and $11.1 million for the three and nine month periods ended September
30, 1996, and $3.0 million and $8.2 million for the comparable periods in 1995,
respectively. As management estimates that 20% of the acquired APLDDS business
has accrued to Hub Chicago, minority interest as a percentage of income before
minority interest of 56% was applied to pro forma income before minority
interest for APLDDS for the nine months ended September 30, 1995, and the period
January 1, 1996, through May 1, 1996. To calculate the 56% minority interest
factor, it was estimated that the minority interest will accrue its 70%
ownership in Hub Partnerships which operate 80% of the APLDDS business.
On a pro forma basis, minority interest as a percentage of income
before minority interest was 60.7% and 60.9% for the three and nine month
periods ended September 30, 1996, and 70.3% and 69.0% for the comparable periods
in 1995, respectively. The 1995 percentages are heavily influenced by the loss
that was experienced by APLDDS. Due to the dispersion of the APLDDS business
between Hub Chicago and Hub Partnerships, the 1995 pro forma minority interest
as a percentage of income before minority interest is less than the percentage
applicable to the rest of the Company. Since APLDDS incurred a loss in 1995, the
pro forma minority interest percentage for the Company was driven upward.
Factors that could have a material impact and result in minority
interest percentages of income before minority interest found outside the
historical range are the exercise of any of the Company's options to purchase
the
16
<PAGE>
remaining minority interest in any of its operating companies and
disproportionate changes in the profitability of businesses between those which
are owned 100% by the Company and those which are owned less than 100% by the
Company. The Company owns 100% of Hub Chicago, Hub City Tennessee, L.P. ("Hub
Tennessee") and the new logistics business. The Company also owns 50% of an
international joint venture. The Company owns 30% of all the operating companies
that make up Hub Partnerships with the exception of Hub Tennessee and Hub
Distribution. The Company owns approximately 21% of Hub Distribution.
INCOME TAXES
Income taxes were $1.4 million and $2.7 million for the three and nine
month periods ended September 30, 1996. The Company had no provision for income
taxes prior to March 18, 1996, as the Company was a non-taxable subchapter S
corporation. The Company is providing for income taxes at an effective rate of
40% for all income subsequent to March 17, 1996.
PRO FORMA PROVISION FOR ADDITIONAL INCOME TAXES
Additional pro forma income taxes were none and $0.2 million in the
three and nine month periods ended September 30, 1996, versus $0.3 million and
$0.5 million in the comparable periods in 1995, respectively. Additional pro
forma provision for income taxes are shown to provide an assumed effective
federal and state income tax provision at a rate of 40% of income before taxes
for any periods which include activity prior to March 18, 1996.
PRO FORMA NET INCOME
Pro forma net income (pro forma only regarding income taxes) increased
to $2.1 million and $4.4 million for the three and nine month periods ended
September 30, 1996, versus $0.4 million and $1.4 million for the comparable
periods in 1995, respectively. Pro forma net income (pro forma not only for
income taxes but also for the acquisitions of Hub Partnerships and APLDDS)
increased to $2.1 million and $4.3 million for the three and nine month periods
ended September 30, 1996, from $0.8 million and $2.2 million for the comparable
periods in 1995, respectively. These increases in pro forma numbers, which give
effect to the Company's acquisitions, equate to increases of 176.6% and 93.0%,
respectively. The large increases are the result of the significant losses
incurred by APLDDS before being acquired by the Company. Management expects that
net income growth rates after May of 1997 will be significantly less than the
pro forma net income growth rates experienced since May of 1996.
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share (pro forma only to provide income taxes)
increased to $0.35 and $0.93 for the three and nine month periods ended
September 30, 1996, from $0.24 and $0.86 in the comparable periods in 1995,
respectively. Pro forma earnings per share (pro forma not only to provide for
income taxes but also for the Company's acquisitions) increased to $0.35 and
$0.74 for the three and nine month periods ended September 30, 1996, from $0.14
and $0.42 in the comparable periods in 1995, respectively. These increases in
pro forma numbers, which give effect to the Company's acquisitions, equate to
increases of 150.0% and 76.2%, respectively. The large increases are the result
of the significant losses incurred by APLDDS before being acquired by the
Company. Management expects that earnings per share growth rates after May of
1997 will be significantly less than the pro forma net income growth rates
experienced since May of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1996, the Company had four significant
transactions that affected liquidity. The transactions were the initial public
offering of the Company's Class A common stock, the subsequent acquisitions of
Hub Partnerships and APLDDS and the purchase of the remaining 70% minority
interest in Hub Tennessee. These items represented a cash inflow of $53.0
million and cash outflows of $35.5 million, $2.0 million and $2.6 million,
respectively. Related to the acquisitions, the Company assumed long-term debt,
including current portions, of $20.9 million, approximately $12.4 million of
which are five-year balloon notes due in March of 2001,
17
<PAGE>
bearing interest at an annual rate of 5.45%. Approximately $6.0 million bears
interest at 6% and is due in three equal annual installments beginning in May of
1997. Immediately prior to the initial public offering and Hub Partnership
acquisition, Hub Chicago issued five-year balloon notes, due in March 2001, to
its shareholders for approximately $663,000, bearing interest at an annual rate
of 5.45%. The acquisitions resulted in the recognition of a $10.3 million
deferred tax asset, which will offset cash payments for taxes ratably over the
next 15 years. The resulting $28.1 million of goodwill from the acquisitions and
the minority interest purchase represents an annual tax deductible expense to be
recognized ratably over the next 15 years. For book purposes, goodwill is being
amortized over 40 years.
The Company expects to continue to pay down the balloon notes from
time to time as cash availability permits. The first payments, totaling $3.9
million, were made in the third quarter of 1996.
The Company maintains a bank line of credit for $5.0 million, which
bears interest at the prime rate less 1/2%. As of September 30, 1996, the unused
and available portion of this credit line was $5.0 million. Although there are
no assurances, management believes it can obtain a significant additional line
of credit, if necessary.
Capital expenditures are principally used to enhance or expand the
Company's computer system and network capabilities and, most recently, to
acquire a number of tractors to support company-owned drayage operations. Part
of the Company's strategy is to supplement third party drayage operations with
company-owned tractors to service portions of the Company's intermodal business
in those locations where drayage service is limited or where customers require
an enhanced level of service which cannot be competitively accommodated by a
third-party provider.
As of September 30, 1996, the Company owns 61 tractors which are a
part of Company-owned drayage operations for the operating companies located in
Missouri, Michigan, New Jersey and Illinois. The Company-owned drayage operation
in Missouri has been functioning since 1994. The Michigan operations started in
the second quarter of 1996, and the New Jersey and Illinois operations started
in the third quarter of 1996. Of the 61 tractors in operation at September 30,
1996, 40 were acquired in 1996 at a cost of approximately $65,000 each. Ten of
these tractors were purchased with cash with the remainder financed at a rate of
3% over the two-year Treasury rate after an initial down payment of 10%.
Management is considering additional sites for Company-owned tractors, and it is
anticipated that Company-owned drayage operations, in total, will require the
acquisition of approximately 22 tractors in the fourth quarter of 1996 and 125
in 1997. The Company will purchase up to 30 of these tractors with cash with the
remainder being financed. Management estimates that each start-up of a company-
owned drayage operation requires working capital of $0.3 million to $0.4 million
above and beyond the cost of acquiring the tractors. Management estimates that
an additional three to five locations may start Company-owned drayage operations
by the end of 1997. Management intends to carefully evaluate existing and new
drayage operations before committing to these or any future locations.
The Company will have the continuing option, exercisable any time
after the local in-charge executive currently associated with an operating
company ceases to be an employee, to purchase the remaining minority interest in
that operating company upon approval by the independent members of the Company's
Board of Directors. The future exercise of such options could result in the need
for significant funds. Those funds may come from existing cash, third-party debt
or other financing or any combination thereof.
The Company believes that existing cash, cash provided by operations
and cash available under a line of credit and its other financing commitment
will be sufficient to meet the Company's short-term working capital and capital
expenditure needs. The company also believes that the aforementioned items are
sufficient to meet its anticipated long-term working capital, capital
expenditure and debt repayment needs through the year 1998.
CERTAIN FACTORS THAT MAY AFFECT OPERATING RESULTS
This document contains forward looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those projected. In addition to those mentioned elsewhere in this document, such
risks and uncertainties include the impact of competitive pressures in the
marketplace, the degree and rate of market growth in the markets served by the
Company, changes in industry-wide capacity, further consolidation of rail
carriers, changes in governmental regulation, changes in the cost of services
from vendors and fluctuations in interest rates.
18
<PAGE>
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------
1995
--------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $10,949
Accounts receivable, net
Trade 74,406
Affiliate 1,774
Prepaid expenses 832
Other current assets 1,641
-------
TOTAL CURRENT ASSETS 89,602
PROPERTY AND EQUIPMENT, net 8,994
OTHER ASSETS 366
-------
TOTAL ASSETS $98,962
=======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $64,212
Affiliate 2,376
Other 3,323
Accrued expenses
Payroll 4,125
Other 1,115
Current portion of long-term debt 681
-------
TOTAL CURRENT LIABILITIES 75,832
-------
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 1,007
CONTINGENCIES AND COMMITMENTS
MANDATORILY REDEEMABLE COMMON STOCK 10,386
EQUITY:
Common stock, $0-$100 par value 1,943
Additional paid-in capital 500
Treasury stock (32)
Partnership capital 129
Retained earnings 9,197
-------
TOTAL STOCKHOLDERS' EQUITY 11,737
-------
TOTAL LIABILITIES AND EQUITY $98,962
=======
</TABLE>
See notes to unaudited condensed combined financial statements.
19
<PAGE>
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months January 1
Ended Ended through
September 30, September 30, March 17,
1995 1995 1996
------------- ------------- ---------
<S> <C> <C> <C>
REVENUE:
Trade $ 164,789 $469,840 $142,413
Affiliate 6,128 16,862 3,992
--------- -------- --------
Total revenue 170,917 486,702 146,405
PURCHASED TRANSPORTATION 149,384 427,857 128,405
--------- -------- --------
Net revenue 21,533 58,845 18,000
COSTS AND EXPENSES:
Salaries and benefits 10,709 29,684 9,807
Selling, general and administrative 3,741 11,937 3,393
Depreciation and amortization 989 1,553 553
--------- -------- --------
Total costs and expenses 15,439 43,174 13,753
Operating income 6,094 15,671 4,247
--------- -------- --------
INTEREST AND OTHER INCOME 146 684 159
--------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAX 6,240 16,355 4,406
PROVISION FOR INCOME TAXES (3) 222 126
--------- -------- --------
NET INCOME $ 6,243 $ 16,133 $ 4,280
========= ======== ========
</TABLE>
See notes to unaudited condensed combined financial statements.
20
<PAGE>
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED STATEMENT OF EQUITY
For the period January 1, 1996 through March 17, 1996
(in thousands, except shares)
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-in Treasury Partnership Retained
Shares Amount Capital Stock Capital Earnings Equity
------ ------- ---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 84,763 $ 1,814 $ 629 $(32) $129 $ 9,197 $ 11,737
Net income 4,280 4,280
Distributions (1,745) (629) 32 (13,477) (15,819)
------ ------- ----- ---- ---- -------- --------
BALANCE AT MARCH 17, 1996 84,763 $ 69 $ - $ - $129 $ - $ 198
====== ======= ===== ==== ==== ======== ========
</TABLE>
See notes to unaudited condensed combined financial statements.
21
<PAGE>
HUB PARTNERSHIPS
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months January 1
Ended through
September 30, March 17,
1995 1996
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,133 $ 4,280
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,553 553
Loss on sale of property and equipment 53 3
Changes in working capital:
Accounts receivable, net (2,058) 604
Prepaid expenses (388) (29)
Other current assets (776) 918
Accounts payable 4,201 4,783
Accrued expenses 1,485 (140)
Other assets (37) (407)
-------- --------
Net cash provided by operations 20,166 10,565
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net (3,376) (775)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,404 13,594
Proceeds from sale of common stock 145 -
Distributions (17,941) (26,207)
Payments on long-term debt (775) (361)
-------- --------
Net cash used in financing activities (17,167) (12,974)
-------- --------
Net increase (decrease) in cash (377) (3,184)
Cash, beginning of period 14,805 10,949
-------- --------
Cash, end of period $ 14,428 $ 7,765
======== ========
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 98 $ 56
Income taxes 276 130
</TABLE>
See notes to unaudited condensed combined financial statements.
22
<PAGE>
HUB PARTNERSHIPS
NOTES TO UNAUDITED CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed combined financial statements of
26 Subchapter S corporations and the Hub Group Distributions Services
partnership (collectively referred to as "Hub Partnerships" or the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations. However, the Company believes
that the disclosures contained herein are adequate to make the information
presented not misleading.
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
NOTE 2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The unaudited condensed combined financial statements of Hub
Partnerships are presented herein to reflect the financial condition and results
of operations of the Hub Partnerships as of and for the periods in which the Hub
Partnerships were the predecessor to the business acquired by Hub Group, Inc on
March 18, 1996, as necessary to disclose the financial statements of the
business acquired by Hub Group, Inc. pursuant to the rules and regulations of
the Securities and Exchange Commission.
NOTE 3. SPECIAL DISTRIBUTION
Immediately prior to March 18, 1996, the Company distributed
substantially all of its equity, including retained earnings through March 17,
1996, to its shareholders in the form of cash and notes. The notes are five-
year balloon notes bearing interest at an annual rate of 5.45%. Interest is
compounded annually with all principal and interest due in March of 2001.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1995
------------
(000's)
<S> <C>
Land $ 92
Building and improvements 1,376
Leasehold improvements 674
Computer equipment and software 8,562
Furniture and equipment 3,418
Transportation equipment and automobiles 2,353
------------
16,475
(7,481)
------------
Less: Accumulated depreciation and amortization
PROPERTY AND EQUIPMENT, net $ 8,994
------------
</TABLE>
23
<PAGE>
HUB PARTNERSHIPS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS COMBINATIONS
On March 18, 1996, Hub Group, Inc. acquired the general partnership
interest in 26 operating partnerships and an interest in the Hub Group
Distribution Services partnership (collectively referred to as "Hub
Partnerships"). The unaudited condensed combined financial statements of the Hub
Partnerships are presented herein to reflect the financial condition and results
of operations of the Hub Partnerships as of and for the periods in which the Hub
Partnerships were the predecessor to the business acquired by Hub Group, Inc. on
March 18, 1996.
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
Since the acquisition of the Hub Partnerships by Hub Group, Inc. on
March 18, 1996, results of operations for the Hub Partnerships have been
consolidated with those of Hub Group, Inc. As no activity is reported for the
Hub Partnerships for the third quarter of 1996, management feels that a
discussion of period to period changes is not meaningful.
24
<PAGE>
PART II. OTHER INFORMATION
None.
25
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly authorized this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUB GROUP, INC.
DATE: November 8, 1996 /s/ William L. Crowder
-----------------------------
William L. Crowder
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Unaudited Condensed Consolidated Statements of Operations and Unaudited
Condensed Consolidated Balance Sheets and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 17897
<SECURITIES> 0
<RECEIVABLES> 110148
<ALLOWANCES> 1152
<INVENTORY> 0
<CURRENT-ASSETS> 129128
<PP&E> 14297
<DEPRECIATION> 1899
<TOTAL-ASSETS> 179864
<CURRENT-LIABILITIES> 115479
<BONDS> 0
<COMMON> 59
0
0
<OTHER-SE> 41474
<TOTAL-LIABILITY-AND-EQUITY> 179864
<SALES> 0
<TOTAL-REVENUES> 238584
<CGS> 0
<TOTAL-COSTS> 209877
<OTHER-EXPENSES> 19756
<LOSS-PROVISION> 197
<INTEREST-EXPENSE> 292
<INCOME-PRETAX> 3508
<INCOME-TAX> 1403
<INCOME-CONTINUING> 8951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2105
<EPS-PRIMARY> .35
<EPS-DILUTED> 0
</TABLE>
