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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 June 30, 1998 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 August 7, 1998, the registrant had 6,991,950 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.
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HUB GROUP, INC.
INDEX
Page
PART I. Financial Information:
Hub Group, Inc. - Registrant
Unaudited Condensed Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997 3
Unaudited Condensed Consolidated Statements of Operations - Three
Months and Six Months Ended June 30, 1998 and 1997 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
Six Months Ended June 30, 1998 5
Unaudited Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1998 and 1997 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II. Other Information 14
2
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
-------------------------
1998 1997
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 15,614 $ 12,056
Accounts receivable, net 139,051 127,673
Deferred taxes -- 1,222
Prepaid expenses and other current assets 3,112 1,961
----------- ----------
Total current assets 157,777 142,912
Property and equipment, net 20,274 19,616
Goodwill, net 116,001 102,151
Deferred taxes 1,503 2,479
Other assets 563 668
----------- ----------
Total assets $ 296,118 $ 267,826
=========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
Trade $ 118,541 $ 102,364
Other 10,582 12,639
Accrued expenses
Payroll 6,208 6,013
Other 2,835 3,259
Deferred taxes 269 --
Current portion of long-term debt 3,996 3,428
----------- ----------
Total current liabilities 142,431 127,703
Long-term debt, excluding current portion 33,357 22,873
Contingencies and commitments
Minority interest 6,148 6,788
Stockholders' equity:
Preferred stock -- --
Common stock 77 77
Additional paid-in capital 109,895 109,878
Purchase price in excess of predecessor basis (25,764) (25,764)
Tax benefit of purchase price in excess of predecessor basis 10,306 10,306
Retained earnings 19,668 15,965
----------- ----------
Total stockholders' equity 114,182 110,462
----------- ----------
Total liabilities and stockholders' equity $ 296,118 $ 267,826
========== ==========
See notes to unaudited condensed consolidated financial statements.
3
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
------------- ------------ ------------- ------------
Revenue $ 283,051 $ 268,200 $ 538,184 $ 519,320
Transportation costs 249,431 235,740 474,117 456,646
------------- ------------ ------------- ------------
Net revenue 33,620 32,460 64,067 62,674
Costs and expenses:
Salaries and benefits 17,577 16,044 34,465 31,297
Selling, general and administrative 7,542 6,996 15,165 13,080
Depreciation and amortization 1,728 1,028 3,230 1,989
------------- ------------ ------------- ------------
Total costs and expenses 26,847 24,068 52,860 46,366
Operating income 6,773 8,392 11,207 16,308
------------- ------------ ------------- ------------
Other income (expense):
Interest expense (735) (523) (1,293) (1,142)
Interest income 226 298 452 561
Other, net 50 26 140 56
------------- ------------ ------------- ------------
Total other income (expense) (459) (199) (701) (525)
Income before minority interest and provision for income taxes 6,314 8,193 10,506 15,783
------------- ------------ ------------- ------------
Minority interest 2,855 4,498 4,336 8,792
------------- ------------ ------------- ------------
Income before provision for income taxes 3,459 3,695 6,170 6,991
Provision for income taxes 1,383 1,478 2,467 2,796
------------- ------------ ------------- ------------
Net income $ 2,076 $ 2,217 $ 3,703 $ 4,195
============= ============ ============= ============
Basic earnings per common share $ 0.27 $ 0.37 $ 0.48 $ 0.71
============= ============ ============= ============
Diluted earnings per common share $ 0.27 $ 0.37 $ 0.48 $ 0.70
============= ============ ============= ============
See notes to unaudited condensed consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 1998
(in thousands, except shares)
Tax Benefit
Purchase of Purchase
Price in Price
Common Stock Additional Excess of in Excess of Total
---------------------- Paid-in Predecessor Predecessor Retained Stockholders'
Shares Amount Capital Basis Basis Earnings Equity
----------- ---------- ------------ -------------- -------------- ---------- -------------
Balance at December 31, 1997 7,653,246 $ 77 $ 109,878 $ (25,764) $ 10,306 $ 15,965 $ 110,462
Net income - - - - - 3,703 3,703
Exercise of non-qualified
stock options 1,000 - 17 - - - 17
=========== ========= ============ ============== ============== =========== =============
Balance at June 30, 1998 7,654,246 $ 77 $ 109,895 $ (25,764) $ 10,306 $ 19,668 $ 114,182
=========== ========= ============ ============== ============== =========== =============
See notes to unaudited condensed consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30,
----------------------------
1998 1997
------------ --------------
Cash flows from operating activities:
Net income $ 3,703 $ 4,195
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,782 2,517
Deferred taxes 2,467 608
Minority interest 4,336 8,792
Loss/(Gain) on sale of assets 26 (9)
Changes in working capital, net of effects of purchase transactions:
Accounts receivable, net (2,680) (842)
Prepaid expenses and other current assets (1,094) 125
Accounts payable 6,637 11,039
Accrued expenses (625) 3,488
Other assets 120 (660)
------------- -------------
Net cash provided by operating activities 16,672 29,253
------------- -------------
Cash flows from investing activities:
Cash used in acquisitions, net (3,239) --
Purchases of minority interest (6,152) (1,575)
Purchases of property and equipment, net (2,781) (4,502)
------------ -------------
Net cash used in investing activities (12,172) (6,077)
------------ -------------
Cash flows from financing activities:
Proceeds from sale of common stock in initial public offering, net -- (45)
Proceeds from sale of common stock 17 58
Distributions to minority interest (4,976) (8,204)
Payments on long-term debt (19,660) (5,981)
Proceeds from issuance of long-term debt 23,677 3,441
------------ -------------
Net cash provided by (used in) financing activities (942) (10,731)
------------ -------------
Net increase/(decrease) in cash 3,558 12,445
Cash and cash equivalents, beginning of period 12,056 13,893
============ =============
Cash and cash equivalents, end of period $ 15,614 $ 26,338
============ =============
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 818 $ 157
Income taxes 65 464
See notes to unaudited condensed consolidated financial statements.
6
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. Business Combinations
On October 31, 1997, the Company acquired the remaining 50% interest in
its international logistics joint venture, HLX Company, LLC for $300,000. The
acquisition was recorded using the purchase method of accounting resulting in
goodwill of $466,000.
On April 1, 1998, the Company acquired all the outstanding stock of
Quality Intermodal Corporation ("Quality") for $4,080,000 in cash and $6,300,000
through the issuance of a three-year note, bearing interest at an annual rate of
5.6%. The acquisition was recorded using the purchase method of accounting
resulting in goodwill of $8,963,000.
Results of operations from acquisitions recorded under the purchase
method of accounting are included in the Company's financial statements from
their respective dates of acquisition. The purchase price allocations presented
are preliminary.
Business acquisitions which involved the use of cash were accounted for as
follows:
Six Months
Ended June 30,
1998
--------------
(000's)
Accounts receivable $ 8,698
Prepaid expenses and other current assets 57
Property and equipment 420
Goodwill 8,963
Other assets 15
Accounts payable (7,483)
Accrued expenses (396)
Long-term debt (7,035)
--------------
Cash used in acquisitions, net $ 3,239
--------------
7
NOTE 3. Earnings per Share
The following is a reconciliation of the Company's Earnings per Share:
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
---------------------------- --------------------------
(000's) (000's)
--------------- --------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
Basic Earnings per Share
Income available to
common stockholders $2,076 7,654 $0.27 $2,217 5,926 $0.37
------ ----- ------ ------ ----- ------
Effect of Dilutive Securities
Stock options - 85 - - 106 -
------ ----- ------ ------ ----- ------
Diluted Earnings per Share
Income available to
common stockholders
plus assumed exercises $2,076 7,739 $0.27 $2,217 6,032 $0.37
------ ----- ------ ------ ----- ------
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
--------------------------- --------------------------
(000's) (000's)
--------------- --------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
Basic Earnings per Share
Income available to
common stockholders $3,703 7,654 $0.48 $4,195 5,925 $0.71
------ ----- ------ ------ ----- ------
Effect of Dilutive Securities
Stock options - 95 - - 105 -
------ ----- ----- ------ ----- ------
Diluted Earnings per Share
Income available to
common stockholders
plus assumed exercises $3,703 7,749 $0.48 $4,195 6,030 $0.70
------ ----- ----- ------ ----- ------
NOTE 4. Purchases of Minority Interest
On March 1, 1997, the Company purchased an approximate 44% minority
interest in Hub Group Distribution Services for approximately $1,576,000 in
cash.
On September 17, 1997, the Company purchased the remaining 70% minority
interests in Hub City Los Angeles, L.P. and Hub City Golden Gate, L.P. for
approximately $59,379,000 in cash.
On October 31, 1997, the Company purchased the remaining 70% minority
interest in Hub City New Orleans, L.P. for one dollar.
On April 1, 1998, the Company purchased the remaining 70% minority
interest in Hub City Dallas, L.P., Hub City Houston, L.P. and Hub City Rio
Grande for approximately $6,152,000 in cash.
As the amount paid for each of the purchases of minority interest
equaled the basis in excess of the fair market value of assets acquired and
liabilities assumed, the amount paid was recorded as goodwill.
8
NOTE 5. Property and Equipment
Property and equipment consist of the following:
June 30, December 31,
1998 1997
------------- -------------
(000's)
Land $ 56 $ 56
Building and improvements 193 233
Leasehold improvements 1,114 886
Computer equipment and software 16,403 14,512
Furniture and equipment 4,807 4,172
Transportation equipment and automobiles 5,860 5,828
------------- -------------
28,433 25,687
Less: Accumulated depreciation and amortization (8,159) (6,071)
------------- -------------
PROPERTY AND EQUIPMENT, net $ 20,274 $ 19,616
============= =============
9
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS COMBINATIONS
On April 1, 1998, Hub Group, Inc. ("Hub Group" or the "Company") acquired
the outstanding stock of Quality Intermodal Corporation ("Quality"). The
Company paid $4.1 million in cash and issued a three-year note for $6.3
million, bearing interest at an annual rate of 5.6%.
CALL OPTIONS
On April 1, 1998, the Company exercised its call options to acquire the
remaining 70% minority interests in Hub City Rio Grande, L.P. ("Hub Rio
Grande"), Hub City Dallas, L.P. ("Hub Dallas"), and Hub City Houston, L.P.
("Hub Houston"). The Company paid $6.2 million in cash.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998, Compared to Three Months Ended June 30, 1997
Revenue
Revenue for the Company increased 5.5% to $283.1 million from $268.2
million in 1997. Brokerage revenue increased 31.4% to $42.1 million from $32.0
million in 1997. Logistics revenue decreased 35.0% to $13.9 million from $21.5
million in 1997. This decrease is attributed to the Company terminating its
contract to provide third-party logistics to a significant customer in January
1998. Intermodal revenue increased 5.7% to $227.0 million from $214.7 million
in 1997. The well-publicized service disruptions in the intermodal industry
continued into the second quarter of 1998. Although management is unable to
quantify the effect, management believes these service issues have inhibited
Hub Group's intermodal revenue growth rate.
Net Revenue
Net revenue increased to $33.6 million from $32.5 million in 1997. As
a percentage of revenue, net revenue decreased to 11.9% of revenue from 12.1% in
1997. The decrease in the percentage was due to the Company incurring additional
costs for purchased transportation due to rate increases, alternate routing
around congested rail lanes, repositioning empty equipment and detention charges
related to the service disruptions in the intermodal industry.
Salaries and Benefits
Salaries and benefits increased 9.6% to $17.6 million from $16.0
million in 1997. As a percentage of revenue, salaries and benefits increased to
6.2% of revenue from 6.0% in 1997. The increase in the percentage is primarily
attributable to two factors. First, expenditures increased due to the normal
year-over-year merit and cost of living increases granted to the Company's
employees. Second, the rail service disruptions, which continued through the
second quarter of 1998, created a significantly expanded work load requiring
additional staffing to handle our customers' intermodal transportation.
Selling, General and Administrative
Selling, general and administrative expenses increased 7.8% to $7.5
million from $7.0 million in 1997. These expenses as a percentage of revenue
increased to 2.7% from 2.6% in 1997. This increase is primarily attributed to
expenditures made related to rent and equipment leases. Rent expense increased
due to the expansion of some of Hub Group's operating facilities. Equipment
lease expense continues to increase as the Company utilizes operating leases for
its information systems hardware.
10
Depreciation and Amortization
Depreciation and amortization expense increased 68.1% to $1.7 million
from $1.0 million in 1997. This expense as a percentage of revenue increased to
0.6% from 0.4% in 1997. The increase is primarily attributable to increased
goodwill amortization related to the following purchases: (i) the 70% minority
interests in Hub City Los Angeles, L.P. and Hub City Golden Gate, L.P. in
September 1997 and (ii) the 70% minority interests in Hub Rio Grande, Hub Dallas
and Hub Houston in April 1998, and the acquisition of Quality in April 1998.
Other Income (Expense)
Other income (expense) netted to $(0.5) million in 1998 compared to
$(0.2) million in 1997. Interest expense increased to $0.7 million in 1998 from
$0.5 million in 1997. Interest expense increased primarily due to the purchases
of minority interests and the acquisition in April 1998 (see "Depreciation and
Amortization"). Interest income decreased to $0.2 million from $0.3 million
in 1997.
Minority Interest
Minority interest decreased 36.5% to $2.9 million from $4.5 million in
1997. Minority interest as a percentage of income before minority interest
decreased to 45.2% from 54.9% in 1997. The purchase of the minority interests as
discussed in "Depreciation and Amortization" had the effect of lowering minority
interest as a percentage of income before minority interest when comparing 1998
to 1997.
Income Taxes
The provision for income taxes decreased 6.4% to $1.4 million from
$1.5 million in 1997. The Company is providing for income taxes at an effective
rate of 40%.
Net Income
Net income decreased 6.4% to $2.1 million from $2.2 million in 1997.
Earnings Per Share
Basic and diluted earnings per share decreased 27.0% to $0.27 from
$0.37 in 1997.
Six Months Ended June 30, 1998, Compared to Six Months Ended June 30, 1997.
Revenue
Revenue increased 3.6% to $538.2 million from $519.3 million in 1997.
Brokerage revenue increased 25.0% to $76.1 million from $60.9 million in 1997.
Logistics revenue decreased 34.5% to $27.4 million from $41.9 million in 1997.
This decrease is attributed to the Company terminating its contract to provide
third-party logistics to a significant customer in January 1998. Intermodal
revenue increased 4.3% to $434.7 million from $416.6 million in 1997. The
well-publicized service disruptions in the intermodal industry continued into
the first half of 1998. Although management is unable to quantify the effect,
management believes these service issues have inhibited Hub Group's intermodal
revenue growth rate.
Net Revenue
Net revenue increased to $64.1 million from $62.7 million in 1997. As
a percentage of revenue, net revenue decreased to 11.9% from 12.1% in 1997. The
decrease in the percentage was due to the Company incurring additional costs for
purchased transportation due to rate increases, alternate routing around
congested rail lanes, repositioning empty equipment and detention charges
related to the service disruptions in the intermodal industry.
11
Salaries and Benefits
Salaries and benefits increased to $34.5 million from $31.3 million in
1997. These expenses as a percentage of revenue increased to 6.4% from 6.0% in
1997. The increase in the percentage is primarily attributable to two factors
that caused actual expenditures to increase while revenue remained nearly flat.
First, expenditures increased due to the normal year-over-year merit and cost of
living increases granted to the Company's employees. Second, the rail service
disruptions, which continued through the first half of 1998, created a
significantly expanded work load requiring additional staffing to handle our
customers' intermodal transportation.
Selling, General and Administrative
Selling, general and administrative expenses increased to $15.2
million from $13.1 million in 1997. These expenses as a percentage of revenue
increased to 2.8% from 2.5% in 1997. This increase is primarily attributed to
expenditures made related to rent, equipment leases, bad debts and information
systems. Rent expense increased due to the expansion of some of Hub Group's
operating facilities. Equipment lease expense continues to increase as the
Company utilizes operating leases for its information systems hardware.
Information systems expense increased primarily due to expenditures to
reprogram software for year 2000 compliance.
Depreciation and Amortization
Depreciation and amortization increased to $3.2 million from $2.0
million in 1997. This expense as a percentage of revenue increased to 0.6% from
0.4% in 1997. The increase is primarily attributable to increased
goodwill amortization related to the following purchases: (i) the 70% minority
interests in Hub City Los Angeles, L.P. and Hub City Golden Gate, L.P. in
September 1997 and (ii) the 70% minority interests in Hub Rio Grande, Hub Dallas
and Hub Houston in April 1998, and the acquisition of Quality in April 1998.
Other Income (Expense)
Other income (expense) netted to an expense of $(0.7) million in 1998
compared to a net expense of $(0.5) million in 1997. Interest expense increased
to $1.3 million in 1998 from $1.1 million in 1997. Interest expense increased
primarily due to the purchases of minority interests and the acquisition in
April 1998 (see "Depreciation and Amortization"). Interest income decreased to
$0.5 million from $0.6 million in 1997.
Minority Interest
Minority interest decreased 50.7% to $4.3 million from $8.8 million in
1997. Minority interest as a percentage of income before minority interest
decreased to 41.3% from 55.7% in 1997. The purchase of the minority interests as
discussed in "Depreciation and Amortization" had the effect of lowering minority
interest as a percentage of income before minority interest when comparing 1998
to 1997.
Income Taxes
The provision for income taxes decreased to $2.5 million from $2.8
million in 1997. The Company is providing for income taxes at an effective rate
of 40%.
Net Income
Net income decreased 11.7% to $3.7 million from $4.2 million in 1997.
12
Earnings Per Share
Basic earnings per share decreased 32.4% to $0.48 from $0.71 in
1997. Diluted earnings per share decreased 31.4% to $0.48 from $0.70 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the unused and available portion of the line of
credit with Cass Bank and Trust Company was $5.0 million. At June 30, 1998,
there was $23.0 million outstanding and $13.0 million unused and available under
the line of credit with Harris Trust and Savings Bank.
OUTLOOK, RISKS AND UNCERTAINTIES
This "Outlook, Risks and Uncertainties" section contains statements
regarding expectations, hopes, beliefs, intentions or strategies regarding the
future which are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and involve risks and uncertainties
described below that could cause actual results to differ materially from those
projected. 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, 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.
Year 2000
The Company plans to complete the Year 2000 project not later than
March 31, 1999.
13
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Stockholders of Hub Group, Inc. was held on
May 19,1998. At this meeting, the following six directors were reelected with
the following votes: Phillip C. Yeager: 19,241,049 votes for and 97,767 votes
withheld; David P. Yeager: 19,240,749 votes for and 98,067 votes withheld;
Thomas L. Hardin: 19,241,049 votes for and 97,767 votes withheld; Gary D. Eppen:
19,311,041 votes for and 27,775 votes withheld; Charles R. Reaves: 19,311,041
votes for and 27,775 votes withheld; Martin P. Slark: 19,311,041 votes for and
27,775 votes withheld.
Also at this meeting, the Stockholders voted on a proposal to approve
the Company's 1997 Long-Term Incentive Plan. This proposal was approved by the
follow vote: 18,601,313 votes for, 696,367 votes against and 32,709 votes
withheld.
14
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: August 7, 1998 /s/ William L. Crowder
----------------------
William L. Crowder
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
5
1,000
3-MOS
DEC-31-1998
JUN-30-1998
15614
0
140872
1821
0
157777
28434
8159
296118
142431
0
0
0
77
114105
296118
0
283051
0
249431
26847
227
735
3459
1383
6773
0
0
0
2076
.27
.27
