[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, 2003 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
| Delaware | 36-4007085 |
|---|---|
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X
On August 6, 2003, the registrant had 7,046,250 outstanding shares of Class A common stock, par value $.01 per share, and 662,296 outstanding shares of Class B common stock, par value $.01 per share.
| Hub Group, Inc. - Registrant | |||||
Unaudited Condensed Consolidated Balance Sheets - June 30, 2003 and | |||||
| December 31, 2002 | 3 | ||||
Unaudited Condensed Consolidated Statements of Operations - Three Months and | |||||
| Six Months Ended June 30, 2003 and 2002 | 4 | ||||
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Six | |||||
| Months Ended June 30, 2003 | 5 | ||||
Unaudited Condensed Consolidated Statements of Cash Flows - Six | |||||
| Months Ended June 30, 2003 and 2002 | 6 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | ||||
Management's Discussion and Analysis of Financial Condition and | |||||
| Results of Operations | 12 | ||||
PART II. Other Information | 16 | ||||
| June 30, 2003 |
December 31, 2002 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| CURRENT ASSETS: | |||||
| Cash and cash equivalents | $ — | $ — | |||
| Accounts receivable | |||||
| Trade, net | 122,642 | 126,736 | |||
| Other | 13,958 | 13,715 | |||
| Deferred taxes | 2,374 | 3,221 | |||
| Prepaid expenses and other current assets | 4,244 | 4,732 | |||
| TOTAL CURRENT ASSETS | 143,218 | 148,404 | |||
| PROPERTY AND EQUIPMENT, net | 30,422 | 34,209 | |||
| GOODWILL, net | 215,175 | 215,175 | |||
| OTHER ASSETS | 1,719 | 1,474 | |||
| TOTAL ASSETS | $ 390,534 | $ 399,262 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| CURRENT LIABILITIES: | |||||
| Accounts payable | |||||
| Trade | $ 118,876 | $ 124,980 | |||
| Other | 2,267 | 3,226 | |||
| Accrued expenses | |||||
| Payroll | 11,178 | 10,275 | |||
| Other | 11,001 | 8,971 | |||
| Current portion of long-term debt | 8,034 | 8,061 | |||
| TOTAL CURRENT LIABILITIES | 151,356 | 155,513 | |||
| LONG-TERM DEBT, EXCLUDING CURRENT PORTION | 84,020 | 94,027 | |||
| DEFERRED TAXES | 17,912 | 15,382 | |||
| CONTINGENCIES AND COMMITMENTS | |||||
| STOCKHOLDERS' EQUITY: | |||||
| Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares | |||||
| issued or outstanding in 2003 and 2002 | — | — | |||
| Common stock, | |||||
| Class A: $.01 par value; 12,337,700 shares authorized; 7,046,250 shares | |||||
| issued and outstanding in 2003 and 2002 | 70 | 70 | |||
| Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued | |||||
| and outstanding in 2003 and 2002 | 7 | 7 | |||
| Additional paid-in capital | 110,819 | 110,819 | |||
| Purchase price in excess of predecessor basis, net of tax benefit of $10,306 | (15,458 | ) | (15,458 | ) | |
| Retained earnings | 41,808 | 38,902 | |||
| Accumulated other comprehensive loss | — | — | |||
| TOTAL STOCKHOLDERS' EQUITY | 137,246 | 134,340 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 390,534 | $ 399,262 | |||
See notes to unaudited condensed consolidated financial statements.
| Three Months Ended June 30, |
Six Months Ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | ||||||
| Revenue | $ 331,651 | $ 327,595 | $ 660,934 | $ 632,894 | |||||
| Transportation costs | 288,191 | 290,999 | 575,424 | 555,289 | |||||
| Gross margin | 43,460 | 36,596 | 85,510 | 77,605 | |||||
| Costs and expenses: | |||||||||
| Salaries and benefits | 22,853 | 23,348 | 46,181 | 46,945 | |||||
| Selling, general and administrative | 12,105 | 11,610 | 23,891 | 23,123 | |||||
| Depreciation and amortization of property and equipment | 2,588 | 2,535 | 5,149 | 5,207 | |||||
| Total costs and expenses | 37,546 | 37,493 | 75,221 | 75,275 | |||||
| Operating income (loss) | 5,914 | (897 | ) | 10,289 | 2,330 | ||||
| Other income (expense): | |||||||||
| Interest expense | (2,010 | ) | (2,482 | ) | (4,096 | ) | (4,768 | ) | |
| Interest income | 25 | 54 | 75 | 121 | |||||
| Other, net | 49 | 60 | 13 | 122 | |||||
| Total other expense | (1,936 | ) | (2,368 | ) | (4,008 | ) | (4,525 | ) | |
| Income (loss) before minority interest and provision for income taxes | 3,978 | (3,265 | ) | 6,281 | (2,195 | ) | |||
| Minority interest | — | — | — | (524 | ) | ||||
| Income (loss) before provision for (benefit from) income taxes | 3,978 | (3,265 | ) | 6,281 | (1,671 | ) | |||
| Provision for (benefit from) income taxes | 2,431 | (1,038 | ) | 3,375 | (384 | ) | |||
| Net income (loss) | $ 1,547 | $ (2,227 | ) | $ 2,906 | $ (1,287 | ) | |||
| Basic earnings (loss) per common share | $ 0.20 | $ (0.29 | ) | $ 0.38 | $ (0.17 | ) | |||
| Diluted earnings (loss) per common share | $ 0.20 | $ (0.29 | ) | $ 0.37 | $ (0.17 | ) | |||
| Basic weighted average number of shares outstanding | 7,709 | 7,709 | 7,709 | 7,709 | |||||
| Diluted weighted average number of shares outstanding | 7,824 | 7,709 | 7,773 | 7,709 | |||||
| June 30, 2003 | |||||
|---|---|---|---|---|---|
| Class A and B Common Stock Shares | |||||
| Beginning of year | 7,708,546 | ||||
| Ending balance | 7,708,546 | ||||
| Class A and B Common Stock Amount | |||||
| Beginning of year | $ | 77 | |||
| Ending balance | 77 | ||||
| Additional Paid-in Capital | |||||
| Beginning of year | 110,819 | ||||
| Ending balance | 110,819 | ||||
| Purchase Price in Excess of Predecessor Basis, Net of Tax | |||||
| Beginning of year | (15,458 | ) | |||
| Ending balance | (15,458 | ) | |||
| Retained Earnings | |||||
| Beginning of year | 38,902 | ||||
| Net income | 2,906 | ||||
| Ending balance | 41,808 | ||||
| Stockholders' Equity | |||||
| Beginning of year | 134,340 | ||||
| Net income | 2,906 | ||||
| Ending Balance | $ | 137,246 | |||
See notes to unaudited condensed consolidated financial statements.
| Six Months Ended June 30, | |||||
|---|---|---|---|---|---|
| 2003 |
2002 | ||||
| Cash flows from operating activities: | |||||
| Net income (loss) | $ 2,906 | $(1,287 | ) | ||
| Adjustments to reconcile net income (loss) to net cash provided | |||||
| by (used in) operating activities: | |||||
| Depreciation and amortization of property and equipment | 5,174 | 5,284 | |||
| Deferred taxes | 3,375 | (384 | ) | ||
| Minority interest | — | (524 | ) | ||
| Loss on sale of assets | 8 | 48 | |||
| Other assets | (243 | ) | (56 | ) | |
| Changes in working capital: | |||||
| Accounts receivable, net | 3,851 | (1,795 | ) | ||
| Prepaid expenses and other current assets | 488 | 269 | |||
| Accounts payable | (7,063 | ) | 4,222 | ||
| Accrued expenses | 2,933 | (7,355 | ) | ||
| Net cash provided by (used in) operating activities | 11,429 | (1,578 | ) | ||
| Cash flows from investing activities: | |||||
| Purchases of property and equipment, net | (1,395 | ) | (3,394 | ) | |
| Net cash used in investing activities | (1,395 | ) | (3,394 | ) | |
| Cash flows from financing activity: | |||||
| Net (payments) borrowings on revolver | (6,034 | ) | 8,972 | ||
| Payments on long-term debt | (4,000 | ) | (4,000 | ) | |
| Net cash (used in) provided by financing activities | (10,034 | ) | 4,972 | ||
| Net increase (decrease) in cash and cash equivalents | — | — | |||
| Cash and cash equivalents beginning of period | — | — | |||
| Cash and cash equivalents end of period | $ — | $ — | |||
| Supplemental disclosures of cash flow information | |||||
| Cash paid for: | |||||
| Interest | $ 3,415 | $ 4,152 | |||
| Non-cash activity: | |||||
| Unrealized income on derivative instrument | $ — | $ 261 | |||
See notes to unaudited condensed consolidated 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 for the three months and six months ended June 30, 2003 and 2002.
These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
Certain prior year amounts have been reclassified to conform to the current year presentation.
The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition.” Accordingly, revenue is recognized at the time 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the sales price is fixed and determinable and 4) collectibility is reasonably assured. In accordance with EITF 91-9, revenue and related transportation costs are recognized based on relative transit time. Further, Hub reports its revenue on a gross basis in accordance with the criteria in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” Hub is the primary obligor as the Company is responsible for providing the service desired by the customer. The customer views Hub as responsible for fulfillment including the acceptability of the service. Services requirements may include, for example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick up and delivery and tracing shipments in transit. Hub has discretion in setting sales prices and as a result, the amount Hub earns varies. In addition, Hub has the discretion to select its vendors from multiple suppliers for the services ordered by customers. Finally, Hub has credit risk for its receivables. These three factors, discretion in setting prices, discretion in selecting vendors and credit risk, further support reporting revenue on a gross basis.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts, costs of purchased transportation and services and reserves for pricing and billing adjustments. Actual results could differ from those estimates.
During the first quarter of 2002, the Company revised its estimate in accrued transportation costs resulting in an increase in pretax income of approximately $2.8 million in the quarter.
In the fourth quarter of 2002, the Company recorded a $458,000 liability for the remaining lease obligation related to a closed facility in New Jersey. Approximately $360,000 of the lease obligation remains as of June 30, 2003 as lease payments made during the six-month period ended June 30, 2003 were $98,000.
During the quarter ended June 30, 2003, the Company recorded a $180,000 liability for the estimated remaining lease obligation related to a facility in Detroit.
During the three months ended June 30, 2003, the Company recorded a severance charge for 28 employees of $159,000. During the six months ended June 30, 2003, the Company recorded a severance charge for 51 employees of $291,000. All of these severance payments were made as of June 30, 2003.
Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company grants options at fair market value and therefore recognizes no compensation expense.
The following table illustrates the effect on the net income (loss) and net income (loss) per share for the quarters ended June 30, 2003 and 2002 and the six months ended June 30, 2003 and 2002 if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands, except per share data):
| Three Months Ended |
Six Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| June 30, |
June 30, | ||||||||
| 2003 |
2002 |
2003 |
2002 | ||||||
| Net income (loss), as reported | $1,547 | $(2,227 | ) | $2,906 | $ (1,287 | ) | |||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all | |||||||||
| awards, net of related tax effects | (186 | ) | (161 | ) | (364 | ) | (320 | ) | |
| Net income (loss), pro forma | $1,361 | $(2,388 | ) | $2,542 | $ (1,607 | ) | |||
| Earnings (loss) per share: | |||||||||
| Basic-- as reported | $0.20 | $(0.29 | ) | $0.38 | $ (0.17 | ) | |||
| Basic-- pro forma | $0.18 | $(0.31 | ) | $0.33 | $ (0.21 | ) | |||
| Diluted-- as reported | $0.20 | $(0.29 | ) | $0.37 | $ (0.17 | ) | |||
| Diluted-- pro forma | $0.17 | $(0.31 | ) | $0.33 | $ (0.21 | ) | |||
| Dividend Yield | $0.00 | $0.00 | $0.00 | $ 0.00 | |||||
The above table is based upon the valuation of option grants using the Black-Scholes pricing model for traded options with assumed risk-free interest rates of 3.6% and 3.4% for 2003 and 2002, respectively, stock price volatility factor of 40.0% for both 2003 and 2002, and an expected life of the options of six years. Using the foregoing assumptions, the calculated weighted-average fair value of options granted during the three months ended June 30, 2003 was $2.95 and for the six months ended June 30, 2003 and 2002 was $2.35 and $3.51, respectively. There were no options granted during the three months ended June 30, 2002. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, in management’s opinion, the model does not necessarily provide a reliable single measure of the fair value of its employee stock options.
The pro forma disclosure is not likely to be indicative of pro forma results which may be expected in future periods because of the fact that options vest over several years, pro forma compensation expense is recognized as the options vest and additional awards may also be granted.
The following is a reconciliation of the Company’s earnings (loss) per share:
| Three Months Ended June 30, 2003 |
Three Months Ended June 30, 2002 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (000's) |
(000's) |
||||||||||||
| Income |
Shares |
Per Share Amount |
Income |
Shares |
Per Share Amount | ||||||||
| Basic Earnings (Loss) Per Share | |||||||||||||
| Income (loss) available to | |||||||||||||
| common stockholders | $1,547 | 7,709 | $0.20 | $(2,227 | ) | 7,709 | $(0.29 | ) | |||||
| Effect of Dillutive Securities | |||||||||||||
| Stock options | — | 115 | — | — | — | — | |||||||
| Diluted Earnings (Loss) Per Share | |||||||||||||
| Income (loss) available to | |||||||||||||
| common stockholders | |||||||||||||
| plus assumed exercises | $1,547 | 7,824 | $0.20 | $(2,227 | ) | 7,709 | $(0.29 | ) | |||||
| Six Months Ended June 30, 2003 |
Six Months Ended June 30, 2002 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (000's) |
(000's) |
||||||||||||
| Income |
Shares |
Per Share Amount |
Income |
Shares |
Per Share Amount | ||||||||
| Basic Earnings (Loss) Per Share | < | ||||||||||||