=======================================================================================================================================
[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, 2004 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 July 22, 2004, the registrant had 9,328,382 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, 2004 and | |||||
| December 31, 2003 | 3 | ||||
Unaudited Condensed Consolidated Statements of Operations - Three Months and | |||||
| Six Months Ended June 30, 2004 and 2003 | 4 | ||||
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Six | |||||
| Months Ended June 30, 2004 | 5 | ||||
Unaudited Condensed Consolidated Statements of Cash Flows - Six | |||||
| Months Ended June 30, 2004 and 2003 | 6 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements | 7 | ||||
Management's Discussion and Analysis of Financial Condition and | |||||
| Results of Operations | 12 | ||||
Quantitative and Qualitative Disclosures related to Market Risk | 16 | ||||
Controls and Procedures | 16 | ||||
PART II. Other Information | 17 | ||||
| June 30, 2004 |
December 31, 2003 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| CURRENT ASSETS: | |||||
| Cash and cash equivalents | $ — | $ — | |||
| Accounts receivable | |||||
| Trade, net | 122,572 | 125,754 | |||
| Other | 14,201 | 9,472 | |||
| Deferred taxes | 4,789 | 4,676 | |||
| Prepaid expenses and other current assets | 4,679 | 4,578 | |||
| TOTAL CURRENT ASSETS | 146,241 |
144,480 |
|||
| PROPERTY AND EQUIPMENT, net | 23,887 | 27,855 | |||
| GOODWILL, net | 215,175 | 215,175 | |||
| OTHER ASSETS | 320 | 1,017 | |||
| TOTAL ASSETS | $ 385,623 | $ 388,527 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| CURRENT LIABILITIES: | |||||
| Accounts payable | |||||
| Trade | $ 112,228 | $ 117,790 | |||
| Other | 3,303 | 2,555 | |||
| Accrued expenses | |||||
| Payroll | 14,538 | 14,157 | |||
| Other | 12,878 | 11,592 | |||
| Current portion of long-term debt | 8,010 | 8,017 | |||
| TOTAL CURRENT LIABILITIES | 150,957 |
154,111 |
|||
| LONG-TERM DEBT, EXCLUDING CURRENT PORTION | 54,011 | 67,017 | |||
| DEFERRED TAXES | 27,961 | 24,364 | |||
| STOCKHOLDERS' EQUITY: | |||||
| Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares | |||||
| issued or outstanding in 2004 and 2003 | — | — | |||
| Common stock | |||||
| Class A: $.01 par value; 12,337,700 shares authorized; 7,554,977 shares | |||||
| issued and 7,529,582 outstanding in 2004; 7,410,700 issued and | |||||
| 7,390,500 outstanding in 2003 | 75 | 74 | |||
| Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued | |||||
| and outstanding in 2004 and 2003 | 7 | 7 | |||
| Additional paid-in capital | 118,608 | 115,820 | |||
| Purchase price in excess of predecessor basis, net of tax benefit of $10,306 | (15,458 | ) | (15,458 | ) | |
| Retained earnings | 54,104 | 47,332 | |||
| Unearned compensation | (4,018 | ) | (4,448 | ) | |
| Treasury stock, at cost (25,395 shares in 2004 and 20,200 shares in 2003) | (624 | ) | (292 | ) | |
| TOTAL STOCKHOLDERS' EQUITY | 152,694 | 143,035 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 385,623 | $ 388,527 | |||
See notes to unaudited condensed consolidated financial statements.
| Three Months Ended June 30, |
Six Months Ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 | ||||||
| Revenue | $ 348,971 | $ 331,651 | $ 677,273 | $ 660,934 | |||||
| Transportation costs | 305,306 | 288,191 | 591,805 | 575,424 | |||||
| Gross margin | 43,665 | 43,460 | 85,468 | 85,510 | |||||
| Costs and expenses: | |||||||||
| Salaries and benefits | 22,233 | 22,853 | 44,575 | 46,181 | |||||
| Selling, general and administrative | 10,315 | 12,105 | 20,596 | 23,891 | |||||
| Depreciation and amortization of property and equipment | 2,851 | 2,588 | 5,734 | 5,149 | |||||
| Total costs and expenses | 35,399 | 37,546 | 70,905 | 75,221 | |||||
| Operating income | 8,266 | 5,914 | 14,563 | 10,289 | |||||
| Other income (expense): | |||||||||
| Interest expense | (1,684 | ) | (2,010 | ) | (3,397 | ) | (4,096 | ) | |
| Interest income | 56 | 25 | 109 | 75 | |||||
| Other, net | 363 | 49 | 404 | 13 | |||||
| Total other expense | (1,265 | ) | (1,936 | ) | (2,884 | ) | (4,008 | ) | |
| Income before provision for income taxes | 7,001 | 3,978 | 11,679 | 6,281 | |||||
| Provision for income taxes | 2,942 | 2,431 | 4,907 | 3,375 | |||||
| Net income | $ 4,059 | $ 1,547 | $ 6,772 | $ 2,906 | |||||
| Basic earnings per common share | $ 0.52 | $ 0.20 | $ 0.87 | $ 0.38 | |||||
| Diluted earnings per common share | $ 0.48 | $ 0.20 | $ 0.81 | $ 0.37 | |||||
| Basic weighted average number of shares outstanding | 7,851 | 7,709 | 7,799 | 7,709 | |||||
| Diluted weighted average number of shares outstanding | 8,469 | 7,824 | 8,381 | 7,773 | |||||
| June 30, 2004 | |||||
|---|---|---|---|---|---|
| Class A & B Common Stock Shares Outstanding | |||||
| Beginning of year | 8,052,796 | ||||
| Exercise of stock options | 127,634 | ||||
| Issuance of restricted stock | 16,643 | ||||
| Purchase of treasury shares | (96,500 | ) | |||
| Treasury shares issued under restricted stock and stock option plan, net of forfeitures | 91,305 | ||||
| Ending balance | 8,191,878 | ||||
| Class A & B Common Stock Amount | |||||
| Beginning of year | $ | 81 | |||
| Issuance of restricted stock and exercise of stock options | 1 | ||||
| Ending balance | 82 | ||||
| Additional Paid-in Capital | |||||
| Beginning of year | 115,820 | ||||
| Exercise of stock options | 2,301 | ||||
| Issuance of restricted stock | 487 | ||||
| Ending balance | 118,608 | ||||
| Purchase Price in Excess of Predecessor Basis, Net of Tax | |||||
| Beginning of year | (15,458 | ) | |||
| Ending balance | (15,458 | ) | |||
| Retained Earnings | |||||
| Beginning of year | 47,332 | ||||
| Net income | 6,772 | ||||
| Ending balance | 54,104 | ||||
| Unearned Compensation | |||||
| Beginning of year | (4,448 | ) | |||
| Issuance of restricted stock, net of forfeitures | (614 | ) | |||
| Compensation expense related to restricted stock | 1,044 | ||||
| Ending balance | (4,018 | ) | |||
| Treasury Stock | |||||
| Beginning of year | (292 | ) | |||
| Purchase of treasury shares | (2,767 | ) | |||
| Issuance of restricted stock and exercise of stock options, net of forfeitures | 2,435 | ||||
| Ending balance | (624 | ) | |||
| Total stockholder's equity | $ | 152,694 | |||
See notes to unaudited condensed consolidated financial statements.
| Six Months Ended June 30, | |||||
|---|---|---|---|---|---|
| 2004 |
2003 | ||||
| Cash flows from operating activities: | |||||
| Net income | $ 6,772 | $ 2,906 | |||
| Adjustments to reconcile net income to net cash provided | |||||
| by operating activities: | |||||
| Depreciation and amortization of property and equipment | 5,812 | 5,174 | |||
| Deferred taxes | 4,735 | 3,375 | |||
| Compensation expense related to restricted stock | 1,044 | — | |||
| (Gain) Loss on sale of assets | (162 | ) | 8 | ||
| Other assets | 697 | (243 | ) | ||
| Changes in working capital: | |||||
| Accounts receivable, net | (1,547 | ) | 3,851 | ||
| Prepaid expenses and other current assets | (101 | ) | 488 | ||
| Accounts payable | (4,814 | ) | (7,063 | ) | |
| Accrued expenses | 1,667 | 2,933 | |||
| Net cash provided by operating activities | 14,103 | 11,429 | |||
| Cash flows from investing activities: | |||||
| Purchases of property and equipment, net | (1,682 | ) | (1,395 | ) | |
| Net cash used in investing activities | (1,682 | ) | (1,395 | ) | |
| Cash flows from financing activity: | |||||
| Proceeds from stock options exercised | 3,359 | — | |||
| Purchase of treasury stock | (2,767 | ) | — | ||
| Net payments on revolver | (6,000 | ) | (6,000 | ) | |
| Payments on long-term debt | (7,013 | ) | (4,034 | ) | |
| Net cash used in financing activities | (12,421 | ) | (10,034 | ) | |
| 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 | $ 2,630 | $ 3,415 | |||
| Income Taxes | $ 368 | $ — | |||
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, 2004 and 2003.
These unaudited 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, 2003. 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.
In the fourth quarter of 2002, the Company recorded a $458,000 liability for the remaining lease obligation related to a closed facility. Lease payments made during 2004 were $80,000. The payments made in the quarters ended March 31, 2004 and June 30, 2004 were $53,000 and $27,000 respectively. The lease obligation is $201,000 at June 30, 2004.
During the quarter ended June 30, 2003 the Company recorded a liability of $180,000 for the estimated remaining lease obligation and closing costs related to a facility in Detroit. Approximately $43,000 of the lease obligation remains as of June 30, 2004. Lease and closing cost payments made during 2004 were $37,000. The payments made in the quarters ended March 31, 2004 and June 30, 2004 were $19,000 and $18,000, respectively.
During the year ended December 31, 2003 the Company recorded a severance charge for 165 employees of $876,000. Severance payments of $75,000 were made during the period ended March 31, 2004. All of the severance payments for these employees were made as of March 31, 2004.
During the three months ended March 31, 2004, the Company recorded severance charges for 20 employees of $115,000 and for the three months ended June 30, 2004, the Company recorded severance charges for 20 employees of $191,000. Total severance charges for the six months ended June 30, 2004 was $306,000 for 40 employees. All of these severance payments were made as of June 30, 2004.
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 and net income per share 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, | ||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||
| Net income, as reported | $4,059 | $1,547 | $6,772 | $2,906 | |||||
| Add: Total stock-based compensation included in net income, | |||||||||
| net of related tax effects | 319 | — | 605 | — | |||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all | |||||||||
| awards, net of related tax effects | (470 | ) | (186 | ) | (924 | ) | (364 | ) | |
| Net income, pro forma | $3,908 | $1,361 | $6,453 | $2,542 | |||||
| Earnings per share: | |||||||||
| Basic-- as reported | $0.52 | $0.20 | $0.87 | $0.38 | |||||
| Basic-- pro forma | $0.50 | $0.18 | $0.83 | $0.33 | |||||
| Diluted-- as reported | $0.48 | $0.20 | $0.81 | $0.37 | |||||
| Diluted-- pro forma | $0.46 | $0.17 | $0.77 | $0.33 | |||||
| Dividend Yield | $0.00 | $0.00 | $0.00 | $0.00 | |||||
No options were granted in 2004. The above table is based upon the valuation of option grants using the Black-Scholes pricing model for traded options with an assumed risk-free interest rate of 3.6% in 2003, a stock price volatility factor of 40.0% in 2003 and an expected life of the options of six years. Using the foregoing assumptions, the calculated weighted-average fair value of the options granted during the three months ended June 30, 2003 was $2.95 and for the six months ended June 30, 2003 was $2.35. 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 per share:
| Three Months Ended June 30, 2004 |
Three Months Ended June 30, 2003 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (000's) |
(000's) |
||||||||||||
| Income |
Shares |
Per Share Amount |
Income |
Shares |
Per Share Amount | ||||||||
| Basic EPS | |||||||||||||
| Net Income | |||||||||||||