0001564590-18-026874.txt : 20181105 0001564590-18-026874.hdr.sgml : 20181105 20181105163416 ACCESSION NUMBER: 0001564590-18-026874 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181105 DATE AS OF CHANGE: 20181105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Hub Group, Inc. CENTRAL INDEX KEY: 0000940942 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 364007085 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27754 FILM NUMBER: 181160316 BUSINESS ADDRESS: STREET 1: 2000 CLEARWATER DRIVE CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 6302713653 MAIL ADDRESS: STREET 1: 2000 CLEARWATER DRIVE CITY: OAK BROOK STATE: IL ZIP: 60523 FORMER COMPANY: FORMER CONFORMED NAME: Hub Group DATE OF NAME CHANGE: 20160718 FORMER COMPANY: FORMER CONFORMED NAME: HUB GROUP INC DATE OF NAME CHANGE: 19950313 10-Q 1 hubg-10q_20180930.htm 10-Q hubg-10q_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018 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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2000 Clearwater Drive

Oak Brook, Illinois 60523

(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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer

 

Accelerated Filer

 

Non-Accelerated Filer

 

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

On October 30, 2018, the registrant had 33,612,071 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.

INDEX

 

 

 

 

 

2


 

HUB GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

ASSETS

(unaudited)

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

$

267,507

 

 

$

28,557

 

Accounts receivable trade, net

 

457,694

 

 

 

424,679

 

Accounts receivable other

 

4,575

 

 

 

5,704

 

Prepaid taxes

 

171

 

 

 

12,088

 

Prepaid expenses and other current assets

 

25,001

 

 

 

25,414

 

Current assets held for sale

 

-

 

 

 

159,616

 

TOTAL CURRENT ASSETS

 

754,948

 

 

 

656,058

 

 

 

 

 

 

 

 

 

Restricted investments

 

22,168

 

 

 

20,143

 

Property and equipment, net

 

662,755

 

 

 

561,214

 

Other intangibles, net

 

61,116

 

 

 

64,747

 

Goodwill, net

 

318,662

 

 

 

319,272

 

Other assets

 

3,552

 

 

 

5,491

 

Non-current assets held for sale

 

-

 

 

 

44,016

 

TOTAL ASSETS

$

1,823,201

 

 

$

1,670,941

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable trade

$

247,332

 

 

$

238,230

 

Accounts payable other

 

13,959

 

 

 

13,903

 

Accrued payroll

 

46,443

 

 

 

26,674

 

Accrued other

 

84,559

 

 

 

53,508

 

Current portion of capital lease

 

2,820

 

 

 

2,777

 

Current portion of long term debt

 

95,946

 

 

 

77,266

 

Current liabilities held for sale

 

-

 

 

 

107,185

 

TOTAL CURRENT LIABILITIES

 

491,059

 

 

 

519,543

 

 

 

 

 

 

 

 

 

Long term debt

 

207,596

 

 

 

214,808

 

Non-current liabilities

 

36,634

 

 

 

33,599

 

Long term portion of capital lease

 

5,472

 

 

 

7,696

 

Deferred taxes

 

154,485

 

 

 

121,095

 

Non-current liabilities held for sale

 

-

 

 

 

4,328

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

Preferred stock, $.01 par value;  2,000,000 shares authorized;  no shares issued or outstanding in 2018 and 2017

-

 

 

 

-

 

Common stock

 

 

 

 

 

 

 

Class A:  $.01 par value;  97,337,700 shares authorized and 41,224,792 shares issued in 2018 and 2017; 33,612,071 shares outstanding in 2018 and 33,447,070 shares outstanding in 2017

 

412

 

 

 

412

 

Class B:  $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2018 and 2017

 

7

 

 

 

7

 

Additional paid-in capital

 

175,442

 

 

 

173,011

 

Purchase price in excess of predecessor basis, net of tax benefit of $10,306

 

(15,458

)

 

 

(15,458

)

Retained earnings

 

1,023,545

 

 

 

870,715

 

Accumulated other comprehensive loss

 

(168

)

 

 

(193

)

Treasury stock; at cost, 7,612,721 shares in 2018 and 7,777,722 shares in 2017

 

(255,825

)

 

 

(258,622

)

TOTAL STOCKHOLDERS' EQUITY

 

927,955

 

 

 

769,872

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,823,201

 

 

$

1,670,941

 

See notes to unaudited consolidated financial statements.

 

 

 

3


 

HUB GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

 

 

Three Months

 

 

Nine Months

 

 

Ended September 30,

 

 

Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

933,224

 

 

$

824,809

 

 

$

2,665,300

 

 

$

2,213,824

 

Transportation costs

 

818,240

 

 

 

738,482

 

 

 

2,358,286

 

 

 

1,982,800

 

Gross margin

 

114,984

 

 

 

86,327

 

 

 

307,014

 

 

 

231,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

57,123

 

 

 

45,978

 

 

 

163,496

 

 

 

127,643

 

General and administrative

 

19,327

 

 

 

20,637

 

 

 

55,557

 

 

 

57,681

 

Depreciation and amortization

 

3,800

 

 

 

3,966

 

 

 

11,286

 

 

 

8,331

 

Total costs and expenses

 

80,250

 

 

 

70,581

 

 

 

230,339

 

 

 

193,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

34,734

 

 

 

15,746

 

 

 

76,675

 

 

 

37,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,411

)

 

 

(2,345

)

 

 

(6,702

)

 

 

(4,474

)

Interest and dividend income

 

340

 

 

 

42

 

 

 

365

 

 

 

332

 

Other, net

 

251

 

 

 

355

 

 

 

20

 

 

 

533

 

Total other expense

 

(1,820

)

 

 

(1,948

)

 

 

(6,317

)

 

 

(3,609

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations Before Income Taxes

 

32,914

 

 

 

13,798

 

 

 

70,358

 

 

 

33,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

7,150

 

 

 

2,210

 

 

 

16,371

 

 

 

10,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

25,764

 

 

 

11,588

 

 

 

53,987

 

 

 

23,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from Discontinued Operations, net of income taxes

$

88,846

 

 

$

3,746

 

 

$

98,842

 

 

$

11,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

114,610

 

 

$

15,334

 

 

$

152,829

 

 

$

35,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

22

 

 

 

9

 

 

 

25

 

 

 

101

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

$

114,632

 

 

$

15,343

 

 

$

152,854

 

 

$

35,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.77

 

 

$

0.35

 

 

$

1.62

 

 

$

0.71

 

Diluted

$

0.77

 

 

$

0.35

 

 

$

1.61

 

 

$

0.71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

2.66

 

 

$

0.11

 

 

$

2.96

 

 

$

0.35

 

Diluted

$

2.64

 

 

$

0.11

 

 

$

2.95

 

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

3.43

 

 

$

0.46

 

 

$

4.58

 

 

$

1.06

 

Diluted

$

3.41

 

 

$

0.46

 

 

$

4.56

 

 

$

1.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of shares outstanding

 

33,399

 

 

 

33,227

 

 

 

33,387

 

 

 

33,217

 

Diluted weighted average number of shares outstanding

 

33,605

 

 

 

33,335

 

 

 

33,548

 

 

 

33,323

 

 

See notes to unaudited consolidated financial statements.

 

 

 

 

4


 

HUB GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

152,829

 

 

$

35,210

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

59,184

 

 

 

43,531

 

Deferred taxes

 

33,989

 

 

 

19,983

 

Compensation expense related to share-based compensation plans

 

9,490

 

 

 

7,402

 

Contingent consideration adjustment

 

(4,703

)

 

 

-

 

(Gain) loss on sale of assets

 

(1,458

)

 

 

360

 

Gain on Disposition

 

(113,601

)

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Restricted investments

 

(2,454

)

 

 

(3,189

)

Accounts receivable, net

 

(44,138

)

 

 

(37,448

)

Prepaid taxes

 

11,918

 

 

 

(11,839

)

Prepaid expenses and other current assets

 

438

 

 

 

(3,059

)

Other assets

 

1,572

 

 

 

(3,505

)

Accounts payable

 

8,070

 

 

 

51,459

 

Accrued expenses

 

30,952

 

 

 

(13,179

)

Non-current liabilities

 

4,358

 

 

 

1,419

 

Transaction costs for Disposition

 

(5,665

)

 

 

-

 

Net cash provided by operating activities

 

140,781

 

 

 

87,145

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from sale of equipment

 

4,035

 

 

 

3,052

 

Purchases of property and equipment

 

(138,847

)

 

 

(39,936

)

Acquisitions, net of cash acquired

 

-

 

 

 

(165,933

)

Proceeds from the disposition of discontinued operations

 

227,986

 

 

 

-

 

Net cash provided by (used in) investing activities

 

93,174

 

 

 

(202,817

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of debt

 

118,809

 

 

 

73,606

 

Repayments of long term debt

 

(107,341

)

 

 

(59,921

)

Stock tendered for payments of withholding taxes

 

(4,262

)

 

 

(3,410

)

Capital lease payments

 

(2,181

)

 

 

(2,101

)

Payment of debt issuance costs

 

-

 

 

 

(1,397

)

Net cash provided by financing activities

 

5,025

 

 

 

6,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(30

)

 

 

49

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

238,950

 

 

 

(108,846

)

Cash and cash equivalents beginning of the period

 

28,557

 

 

 

127,404

 

Cash and cash equivalents end of the period

$

267,507

 

 

$

18,558

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash paid for:

 

 

 

 

 

 

 

Interest

$

6,740

 

 

$

4,033

 

Income taxes

$

2,759

 

 

$

12,880

 

See notes to unaudited consolidated financial statements.

 

 

 

5


 

HUB GROUP, INC.

NOTES TO UNAUDITED

CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1.

Interim Financial Statements

Our accompanying unaudited consolidated financial statements of Hub Group, Inc. (“Hub”, the “Company”, “we”, “us” or “our”) 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 omitted pursuant to those rules and regulations.  However, we believe that the disclosures contained herein are adequate to make the information presented not misleading.

The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position as of September 30, 2018 and results of operations for the three and nine months ended September 30, 2018 and 2017.

These unaudited consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.  Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.

On August 31, 2018, Hub Group, Inc. entered into a purchase agreement (“the Purchase Agreement”) with Mode Transportation, LLC, (“Mode LLC”) a direct wholly-owned subsidiary of the Company, and Mode Purchaser, Inc., an affiliate of York Capital Management (“Purchaser”), pursuant to which the Company sold all of the issued and outstanding membership interests of Mode LLC to Purchaser (the “Disposition”).  Mode LLC’s temperature protected division (“Temstar”) was not included in the Disposition.  Temstar was retained by the Company and is now included in Hub’s intermodal line of business.  As part of the Disposition, the Company conveyed to the Purchaser the majority of working capital assets and liabilities associated with Mode LLC.  Unless otherwise stated, the information disclosed in the footnotes accompanying the financial statements refer to continuing operations.  Prior to the Disposition, Hub historically reported two distinct business segments.  See Note 2 for additional information regarding results from discontinued operations.

Accounting Standards Update.  On January 1, 2018 we adopted the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers.  Under this new standard our significant accounting policy for revenue is as follows:

Revenue: 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) collectability is reasonably assured. We generally recognize revenue over time because of continuous transfer of control to the customer.  Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based on the extent of progress towards completion of the related performance obligation.  We enter into contracts that can include various combinations of services, which are capable of being distinct and accounted for as separate performance obligations. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.  Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.  Further, in most cases, we report our revenue on a gross basis because we are the primary obligor as we are responsible for providing the service desired by the customer. Our customers view us as responsible for fulfillment including the acceptability of the service. Service 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. We have discretion in setting sales prices and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by our customers.  These factors, discretion in setting prices and discretion in selecting vendors, further support reporting revenue on a gross basis for most of our revenue.  

The Company capitalizes commissions incurred in connection with obtaining a contract.  The Company capitalized commissions associated with dedicated services of $0.4 million at September 30, 2018.  Capitalized commission fees are amortized based on the transfer of services to which the assets relate and are included in selling, general and administrative expenses.  In 2018, the amount of amortization was approximately $54,000.

Costs incurred to fulfill an intermodal, truck brokerage or logistics contract are expensed as incurred according to the practical expedient that allows contract acquisition costs to be recognized immediately if the deferral period is one year or less.  

The Company applied Topic 606 retrospectively using the practical expedient in paragraph 606-10-65-1(f)(3), under which the Company does not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before January 1, 2018.  We do not

 

6


 

generally have a remaining performance obligation due to revenue generally being recognized using relevant transit time.  We only had one significant accounting policy change that is disclosed below.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by Hub Group from a customer were previously recorded on a gross basis. Under Topic 606, these taxes are excluded from revenue.  This change had an effect of $0.7 million and $2.2 million on revenue and transportation costs for the three and nine months ending September 30, 2017, respectively.

 

Hub offers comprehensive multimodal solutions including intermodal, truck brokerage, logistics and dedicated services.  Our employees operate the freight through a network of operating centers and terminals located in the United States, Canada and Mexico.  Each operating center is strategically located in a market with a significant concentration of shipping customers and one or more railheads.  Hub has full time employees located throughout the United States, Canada and Mexico.

Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers and trailers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for pickup and delivery. As part of our intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.

Truck Brokerage (Highway Services). We are one of the largest truck brokers in the United States, providing customers with a highway service option for their transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers. As part of the truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss and damage on behalf of our customers.

Logistics and Other Services. Hub’s logistics business operates under the name of Unyson Logistics. Unyson Logistics is comprised of a network of logistics professionals dedicated to developing, implementing and operating customized logistics solutions for customers. Unyson Logistics offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Unyson Logistics operates throughout North America, providing services through its main operating location in St. Louis with additional support locations in the Boston and Chicago metro areas.

Dedicated: Our dedicated service line contracts with customers who wish to outsource a portion of their transportation needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations.

The following tables summarizes our disaggregated revenue by business line (in thousands) for the quarter ended September 30:

 

Three Months Ended

 

 

Three Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2017

 

 

Intermodal

$

576,478

 

 

$

478,531

 

 

Truck brokerage

 

122,062

 

 

 

112,653

 

 

Logistics

 

156,041

 

 

 

175,679

 

 

Dedicated

 

78,643

 

 

 

57,946

 

 

Total revenue

$

933,224

 

 

$

824,809

 

 

The following table summarizes our disaggregated revenue by business line (in thousands) for the nine months ended September 30:

 

Nine Months Ended

 

 

Nine Months Ended

 

 

September 30, 2018

 

 

September 30, 2017

 

Intermodal

$

1,597,254

 

 

$

1,362,564

 

Truck brokerage

 

357,016

 

 

 

323,128

 

Logistics

 

498,139

 

 

 

470,186

 

Dedicated

 

212,891

 

 

 

57,946

 

Total revenue

$

2,665,300

 

 

$

2,213,824

 

 

 

 

7


 

 

NOTE 2.

Discontinued Operations  

On August 31, 2018, Hub Group, Inc. entered into the Purchase Agreement with Mode LLC, a direct wholly-owned subsidiary of the Company, and Mode Purchaser, Inc., an affiliate of York Capital Management (“Purchaser”) pursuant to which the Company sold all of the issued and outstanding membership interests of Mode LLC to Purchaser (the “Disposition”). Total consideration received for the transaction was $238.5 million in cash, subject to customary purchase price adjustments.

For the three months ended September 30, 2018 and 2017, respectively, Mode LLC had revenue of $10.6 million and $12.7 million from Hub and Hub had revenue of $2.7 million and $12.5 million from Mode LLC.  During the nine months ended September 30, 2018 and 2017, respectively, Mode LLC had revenue of $42.2 million and $37.0 million from Hub and Hub had revenue of $17.9 million and $37.4 million from Mode LLC.  These sales were eliminated on our Consolidated Statements of Income.  In connection with the Disposition, the Company and Mode LLC have entered into a transition services agreement pursuant to which both the Company and Mode will provide certain immaterial transition services to the other party for a period of time following the closing.

Results associated with Mode LLC are classified as income from discontinued operations, net of income taxes, in our Consolidated Statements of Income.  Prior year results have been adjusted to conform with the current presentation.  Income from discontinued operations is comprised of the following:

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

September 30, 2018

 

 

September 30, 2017

 

 

September 30, 2018

 

 

September 30, 2017

 

Revenue

$

196,546

 

 

$

228,858

 

 

$

739,534

 

 

$

656,288

 

Transportation costs

 

172,949

 

 

 

198,662

 

 

 

648,986

 

 

 

567,886

 

Gross margin

 

23,597

 

 

 

30,196

 

 

 

90,548

 

 

 

88,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

3,317

 

 

 

3,148

 

 

 

11,043

 

 

 

9,700

 

Agent fees and commissions

 

15,572

 

 

 

19,039

 

 

 

56,631

 

 

 

54,005

 

General and administrative

 

1,255

 

 

 

1,800

 

 

 

5,795

 

 

 

5,758

 

Depreciation and amortization

 

153

 

 

 

288

 

 

 

632

 

 

 

884

 

Total costs and expenses

 

20,297

 

 

 

24,275

 

 

 

74,101

 

 

 

70,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income from discontinued operations

 

3,300

 

 

 

5,921

 

 

 

16,447

 

 

 

18,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

3

 

 

 

17

 

 

 

22

 

 

 

56

 

Other, net

 

(1

)

 

 

49

 

 

 

(15

)

 

 

64

 

Gain on Disposition

 

113,601

 

 

 

-

 

 

 

113,601

 

 

 

-

 

Total other income

 

113,603

 

 

 

66

 

 

 

113,608

 

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations before income taxes

 

116,903

 

 

 

5,987

 

 

 

130,055

 

 

 

18,175

 

Provision for income taxes

 

28,057

 

 

 

2,241

 

 

 

31,213

 

 

 

6,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

$

88,846

 

 

$

3,746

 

 

$

98,842

 

 

$

11,510

 

 

Selling, general and administrative expenses recorded in discontinued operations include corporate costs incurred directly in support of Mode LLC.

 

8


 

 

See the table below for a reconciliation of the gain recorded on the sale of Mode LLC:

 

Net proceeds received from Disposition (1)

$

227,986

 

 

 

 

 

Mode LLC assets:

 

 

 

Accounts receivable

 

173,669

 

Accounts receivable other

 

22

 

Prepaid expenses

 

260

 

Property and equipment

 

2,501

 

Restricted investments

 

4,467

 

Other intangibles, net

 

9,032

 

Goodwill, net

 

29,389

 

Other assets

 

209

 

Total Mode LLC assets

 

219,549

 

 

 

 

 

Mode LLC liabilities:

 

 

 

Accounts payable (2)

 

97,535

 

Accrued payroll

 

3,072

 

Accrued other

 

6,286

 

Non-current liabilities

 

3,936

 

Total Mode LLC liabilities

 

110,829

 

 

 

 

 

Transaction costs for Disposition (3)

 

5,665

 

 

 

 

 

Gain on sale of the Mode LLC business before income taxes

$

113,601

 

 

(1)

The proceeds received from the Disposition are net of working capital adjustments outlined in the sale agreement.

 

(2)

Includes $2.3 million of bank overdrafts assumed by the Purchaser.

 

(3)

Costs include investment bank fees, legal fees and professional fees.

 

Due to the Disposition, the related assets and liabilities transferred to the Purchaser were reclassified as held for sale in the Consolidated Balance Sheet as of December 31, 2017 based on the nature of the asset or liability.

 

Assets and liabilities classified as held for sale in our Consolidated Balance Sheet are comprised of the following:

 

 

 

December 31,

 

 

 

2017

 

Accounts receivable, net

 

$

159,314

 

Accounts receivable, other

 

 

19

 

Prepaid expenses and other current assets

 

 

283

 

TOTAL CURRENT ASSETS HELD FOR SALE

 

 

159,616

 

 

 

 

 

 

Restricted investments

 

 

4,038

 

Property and equipment, net

 

 

937

 

Other intangibles, net

 

 

9,601

 

Goodwill, net

 

 

29,389

 

Other assets

 

 

51

 

TOTAL NON-CURRENT ASSETS HELD FOR SALE

 

 

44,016

 

 

 

 

 

 

TOTAL ASSETS HELD FOR SALE

 

$

203,632

 

 

 

 

 

 

Accounts payable

 

$

99,067

 

Accrued payroll

 

 

2,320

 

Accrued other

 

 

5,798

 

TOTAL CURRENT LIABILITIES HELD FOR SALE

 

 

107,185

 

 

 

 

 

 

Non-current liabilities

 

 

4,328

 

 

 

 

 

 

TOTAL LIABILITIES HELD FOR SALE

 

$

111,513

 

 

9


 

 

Proceeds from the sale of Mode LLC have been presented in the Consolidated Statements of Cash Flows under investing activities for the nine months ended September 30, 2018.  Total operating and investing cash flows of discontinued operations for the nine months ended September 30, 2018 and 2017 are comprised of the following, which exclude the effect of income taxes:

 

(in thousands)

2018

 

 

2017

 

Net cash (used in) provided by operating activities

 

(4,184

)

 

 

24,910

 

Net cash (used in) provided by investing activities

 

226,358

 

 

 

(235

)

 

NOTE 3.

Acquisition  

Hub Group Trucking, Inc. (“HGT”), a wholly owned subsidiary of Hub Group, Inc., acquired all of the outstanding equity interests of Estenson Logistics, LLC (“Estenson”) on July 1, 2017 (the “Estenson Acquisition”).  Estenson is now our wholly owned subsidiary, operating under the name Hub Group Dedicated (“Dedicated”).  As a result of the Estenson Acquisition, HGT acquired substantially all of the assets of Estenson, which include tractors and trailers, as well as assumed certain liabilities, including equipment debt.

 

The following unaudited pro forma consolidated results of operations for 2017 assume that the acquisition of Estenson was completed as of January 1, 2017 (in thousands, except for per share amounts):

 

 

Nine Months

 

 

Ended

 

 

September 30, 2017

 

Revenue

$

2,329,361

 

Net income

$

27,887

 

Earnings per share

 

 

 

Basic

$

0.84

 

Diluted

$

0.84

 

 

The unaudited pro forma consolidated results for the nine month period was prepared using the acquisition method of accounting and is based on the historical financial information of Hub and Dedicated. The historical financial information has been adjusted to give effect to the pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2017.

 

 

 

10


 

NOTE 4.

Earnings Per Share

The following is a reconciliation of our earnings per share (in thousands, except for per share data):

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations for basic and diluted earnings per share

$

25,764

 

 

$

11,588

 

 

$

53,987

 

 

$

23,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from discontinued operations for basic and diluted earnings per share

 

88,846

 

 

 

3,746

 

 

 

98,842

 

 

 

11,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

114,610

 

 

 

15,334

 

 

 

152,829

 

 

 

35,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

33,399

 

 

 

33,227

 

 

 

33,387

 

 

 

33,217

 

Dilutive effect of stock options and restricted stock

 

206

 

 

 

108

 

 

 

161

 

 

 

106

 

Weighted average shares outstanding - diluted

 

33,605

 

 

 

33,335

 

 

 

33,548

 

 

 

33,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.77

 

 

$

0.35

 

 

$

1.62