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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 March 31, 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 May 8, 1998, the registrant had 6,990,950 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 - March 31, 1998
and December 31, 1997 3
Unaudited Condensed Consolidated Statements of Operations - Three
Months Ended March 31, 1998 and 1997 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
Three Months Ended March 31, 1998 5
Unaudited Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1998 and 1997 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. Other Information 11
2
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
-----------------------------
1998 1997
-------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 19,706 $ 12,056
Accounts receivable, net 120,761 127,673
Deferred taxes 615 1,222
Prepaid expenses and other current assets 2,810 1,961
-------------- --------------
Total current assets 143,892 142,912
Property and equipment, net 19,960 19,616
Goodwill, net 101,494 102,151
Deferred taxes 2,002 2,479
Other assets 565 668
-------------- --------------
Total assets $ 267,913 $ 267,826
============== ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
Trade $ 108,025 $ 102,364
Other 10,126 12,639
Accrued expenses
Payroll 4,457 6,013
Other 2,319 3,259
Current portion of long-term debt 3,372 3,428
-------------- --------------
Total current liabilities 128,299 127,703
Long-term debt, excluding current portion 22,160 22,873
Contingencies and commitments
Minority interest 5,365 6,788
Stockholders' equity:
Preferred stock - -
Common stock 77 77
Additional paid-in capital 109,878 109,878
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 17,592 15,965
-------------- --------------
Total stockholders' equity 112,089 110,462
-------------- --------------
Total liabilities and stockholders' equity $ 267,913 $ 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
Ended March 31,
---------------------------
1998 1997
------------- ------------
Revenue $ 255,133 $ 251,120
Transportation costs 224,686 220,906
------------- ------------
Net revenue 30,447 30,214
Costs and expenses:
Salaries and benefits 16,888 15,253
Selling, general and administrative 7,623 6,084
Depreciation and amortization 1,502 961
------------- ------------
Total costs and expenses 26,013 22,298
Operating income 4,434 7,916
------------- ------------
Other income (expense):
Interest expense (558) (619)
Interest income 226 263
Other, net 90 30
------------- ------------
Total other income (expense) (242) (326)
Income before minority interest and provision for income taxes 4,192 7,590
------------- ------------
Minority interest 1,481 4,294
------------- ------------
Income before provision for income taxes 2,711 3,296
Provision for income taxes 1,084 1,318
------------- ------------
Net income $ 1,627 $ 1,978
============= ============
Basic earnings per common share $ 0.21 $ 0.33
============= ============
Diluted earnings per common share $ 0.21 $ 0.33
============= ============
See notes to unaudited condensed consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 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 - - - - - 1,627 1,627
=========== ========== ============ ============== ============== =========== ==============
Balance at March 31, 1998 7,653,246 $ 77 $ 109,878 $ (25,764) $ 10,306 $ 17,592 $ 112,089
=========== ========== ============ ============== ============== =========== ==============
See notes to unaudited condensed consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
-----------------------------
1998 1997
-------------- -------------
Cash flows from operating activities:
Net income $ 1,627 $ 1,978
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,779 1,222
Deferred taxes 1,084 305
Minority interest 1,481 4,294
Gain on sale of assets 37 8
Changes in working capital, net of effects of purchase transactions:
Accounts receivable, net 6,912 3,974
Prepaid expenses and other current assets (849) (276)
Accounts payable 3,148 7,392
Accrued expenses (2,496) (1,027)
Other assets 103 (77)
-------------- -------------
Net cash provided by operations 12,826 17,793
-------------- -------------
Cash flows from investing activities:
Purchases of minority interest - (1,525)
Purchases of property and equipment, net (1,503) (2,621)
-------------- -------------
Net cash used in investing activities (1,503) (4,146)
-------------- -------------
Cash flows from financing activities:
Proceeds from sale of common stock in initial public offering, net - (45)
Proceeds from sale of common stock - 28
Distributions to minority interest (2,904) (4,317)
Payments on long-term debt (769) (798)
Proceeds from issuance of long-term debt - 3,358
-------------- -------------
Net cash provided by (used in) financing activities (3,673) (1,774)
-------------- -------------
Net increase/(decrease) in cash 7,650 11,873
Cash and cash equivalents, beginning of period 12,056 13,893
-------------- -------------
Cash and cash equivalents, end of period $ 19,706 $ 25,766
============== =============
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 310 $ 125
Income taxes 54 54
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.
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.
NOTE 3. Earnings per Share
The following is a reconciliation of the Company's Earnings per Share:
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
----------------------------- ----------------------------
(000's) (000's)
----------------- Per-Share ----------------- Per-Share
Income Shares Amount Income Shares Amount
-------- ------- ---------- -------- ------- ---------
Basic Earnings per Share
Income available to
common stockholders $ 1,627 7,653 $ 0.21 $ 1,978 5,924 $ 0.33
-------- ------- ---------- -------- ------- ---------
Effect of Dilutive Securities
Stock options - 105 - - 105 -
-------- ------- ---------- -------- ------- ---------
Diluted Earnings per Share
Income available to
common stockholders
plus assumed exercises $ 1,627 7,758 $ 0.21 $ 1,978 6,029 $ 0.33
-------- ------- ---------- -------- ------- ---------
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.
7
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.
As the amount paid for each of the purchases of minority interest
equaled the basis in excess of the fair market value of assets acquired and
liabilities assumed, the amount paid was recorded as goodwill.
NOTE 5. Property and Equipment
Property and equipment consist of the following:
March 31, December 31,
1998 1997
---------- ------------
(000's)
Land $ 56 $ 56
Building and improvements 233 233
Leasehold improvements 935 886
Computer equipment and software 15,435 14,512
Furniture and equipment 4,431 4,172
Transportation equipment and automobiles 5,927 5,828
-------- --------
27,017 25,687
Less: Accumulated depreciation and amortization (7,057) (6,071)
-------- --------
PROPERTY AND EQUIPMENT, net $19,960 $19,616
======== ========
NOTE 6. Subsequent Events
On April 1, 1998, the Company acquired all the outstanding stock of
Quality Intermodal Corporation ("Quality") for $4.1 million in cash and $6.3
million through the issuance of a three-year note, bearing interest at an annual
rate of 5.6%. The amount of the note is subject to a downward adjustment based
on the audited balance in Quality's stockholders' equity accounts at March 31,
1998. The amount of the adjustment, if any, is unknown at this time.
On April 1, 1998, the Company purchased the remaining 70% minority
interests in Hub City Rio Grande, L.P., Hub City Dallas, L.P. and Hub City
Houston, L.P. for approximately $6.3 million 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
HUB GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998, Compared to Three Months Ended March 31, 1997
Revenue
Revenue for Hub Group, Inc. ("Hub Group" or the "Company") increased
1.6% to $255.1 million from $251.1 million in 1997. Brokerage revenue increased
17.9% to $34.0 million from $28.8 million in 1997. Logistics revenue decreased
34.0% to $13.5 million from $20.4 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 2.9% to
$207.6 million from $201.9 million in 1997. The well-publicized service
disruptions in the intermodal industry continued into the first 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 $30.4 million from $30.2 million in 1997. As a
percentage of revenue, net revenue decreased to 11.9% of revenue from 12.0% in
1997. The decrease in the percentage was due to the Company incurring additional
costs for purchased transportation due to 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 10.7% to $16.9 million from $15.3
million in 1997. As a percentage of revenue, salaries and benefits increased to
6.6% of revenue from 6.1% 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 quarter of 1998 created a significantly expanded work load required to
handle our customers' intermodal transportation. Existing staff levels were
maintained to ensure that the best possible service was provided during this
difficult period.
Selling, General and Administrative
Selling, general and administrative expenses increased 25.3% to $7.6
million from $6.1 million in 1997. These expenses as a percentage of revenue
increased to 3.0% from 2.4% in 1997. This increase is primarily attributed to
expenditures made related to information systems, bad debts, rent and equipment
leases. The Company continues to make expenditures for technology to improve
operating efficiencies, accommodate customer requirements, and maintain
communications links. Rent expense increased due to the expansion of some of
Hub's operating facilities. Equipment lease expense continues to increase as the
Company utilizes operating leases for its information systems hardware.
Depreciation and Amortization
Depreciation and amortization expense increased 56.3% to $1.5 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 purchase of the 70% minority interests in
Hub City Los Angeles, L.P. and Hub City Golden Gate, L.P. in September 1997.
9
Other Income (Expense)
Other income (expense) netted to $(0.2) million in 1998 compared to
$(0.3) million in 1997. Interest expense remained constant at $0.6 million.
Interest income decreased to $0.2 million from $0.3 million in 1997.
Minority Interest
Minority interest decreased 65.5% to $1.5 million from $4.3 million in
1997. Minority interest as a percentage of income before minority interest
decreased to 35.3% from 56.6% 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 17.8% to $1.1 million from
$1.3 million in 1997. The Company is providing for income taxes at an effective
rate of 40%.
Net Income
Net income decreased 17.7% to $1.6 million from $2.0 million in 1997.
Earnings Per Share
Earnings per share decreased 36.4% to $0.21 from $0.33 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the unused and available portion of the line of
credit with Cass Bank and Trust Company was $5.0 million. At March 31, 1998,
there was $15.0 million outstanding and $21.0 million unused and available under
the line of credit with Harris Trust and Savings Bank. Subsequent to March 31,
1998, the Company borrowed an additional $11.0 million to pay approximately $6.0
million for its purchase of the minority interests in Hub City Rio Grande, L.P.,
Hub City Dallas, L.P. and Hub City Houston, L.P., to pay $3.0 million of the
$4.1 million cash portion of the purchase price of Quality Intermodal
Corporation and to pay off the $2.0 million note to American President Lines
Land Transport Services, Inc. that matured in May 1998. The Company also issued
a $6.3 million three-year note bearing interest at 5.6% in connection with the
acquisition of Quality Intermodal Corporation.
10
PART II. Other Information
None.
11
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: May 8, 1998 /s/ William L. Crowder
----------------------
William L. Crowder
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)