Hub Group - 10-Q quarterly report FY

HUB GROUP, INC.

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We had $47.1 million of unused and available borrowings under our bank revolving line of credit at September 30, 2009.  We were in compliance with our debt covenants as of September 30, 2009.

We have standby letters of credit that expire at various dates from 2009 to 2012.  As of September 30, 2009, the outstanding letters of credit totaled $2.9 million.

 

We are a party to litigation incident to our business, including claims for freight lost or damaged in-transit, freight improperly shipped or improperly billed, property damage and personal injury.  Some of the lawsuits to which we are party are covered by insurance and are being defended by our insurance carriers.  Some of the lawsuits are not covered by insurance and we are defending them.  Management does not believe that the outcome of this litigation will have a material adverse effect on our financial position.

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates fair value as of September 30, 2009 due to their short-term nature.  As of September 30, 2009, cash and cash equivalents and restricted investments include $119.7 million in a money market fund comprised of U.S. treasury securities and repurchase agreements for these securities and $9.0 million of mutual funds, which are reported at fair value.  The fair value measurement of these securities is based on quoted prices in active markets for identical assets which are defined as “Level 1” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the FASB Accounting Codification (“the Codification”).

In the first quarter of 2009, we recorded a restructuring charge of approximately $0.9 million consisting of a severance charge for 115 employees.  Approximately $0.5 million of severance payments remained to be paid as of March 31, 2009.

In the second quarter of 2009, we recorded a restructuring charge of approximately $0.04 million consisting of a severance charge for 7 employees.  Approximately $0.1 million of severance payments remained to be paid as of June 30, 2009.

In the third quarter of 2009, we recorded a restructuring charge of approximately $0.06 million consisting of a severance charge for 4 employees.  Approximately $0.02 million of severance payments remained to be paid as of September 30, 2009.

All severance charges are included in salaries and benefits in the statements of income.

The following table displays the activity and balances of the restructuring reserves in the consolidated balance sheets (in thousands):

In September 2006, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the Codification. This guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. In February 2008, the FASB deferred the effective date of this guidance for one year for all nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  We adopted the guidance effective January 1, 2008 for all financial assets and liabilities.  As of January 1, 2009, we adopted the guidance for all non-financial assets and all non-financial liabilities.  There is no impact on our financial statements as of September 30, 2009.

In December 2007, the FASB issued guidance in the Business Combinations Topic of the Codification.  This guidance requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values including contingent consideration.  In addition, this guidance changes the recognition of assets acquired and liabilities assumed arising from preacquisition contingencies and requires the expensing of acquisition-related costs as incurred.  The guidance applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009.  We adopted this guidance effective January 1, 2009.  Any impact would be on future acquisitions.

In December 2007, the FASB issued guidance in the Consolidation Topic of the Codification on the accounting for noncontrolling interests in consolidated financial statements.  This guidance clarifies the classification of noncontrolling interests in consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interests.  This guidance is effective as of the beginning of an entity’s first fiscal year that begins on or after December 15, 2008 and is required to be adopted prospectively, except for the reclassification of noncontrolling interests to equity and the recasting of net income (loss) attributable to both the controlling and noncontrolling interests, which are required to be adopted retrospectively.  We adopted this guidance effective January 1, 2009.  There is no impact on our financial statements as of September 30, 2009.

In April 2008, the FASB issued guidance in the Intangibles-Goodwill and Other Topic of the Codification on the determination of the useful life of an intangible asset.  This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset.  This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  We adopted this guidance effective January 1, 2009.  There is no impact on our financial statements as of September 30, 2009.

In June 2008, FASB issued guidance in the Earnings Per Share Topic of the Codification on determining whether instruments granted in share-based payment transactions are participating securities.  The guidance clarified that all unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and provides guidance on how to compute basic EPS under the two-class method.  The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  We adopted this guidance effective January 1, 2009 and it had no impact on our financial statements.

In April 2009, the FASB issued guidance in the Fair Value Measurements and Disclosures Topic of the Codification on determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly.  The guidance emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants.  The guidance provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity.  In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value.  The guidance is effective for interim or annual reporting periods ending after June 15, 2009, and shall be applied prospectively.  We adopted this guidance effective for the quarter ending June 30, 2009.  There is no impact of the adoption on our financial statements as of September 30, 2009.

In April 2009, FASB issued guidance in the Financial Instruments Topic of the Codification on interim disclosures about fair value of financial instruments.  The guidance requires disclosures about the fair value of financial instruments for both interim reporting periods, as well as annual reporting periods.  The guidance is effective for all interim and annual reporting periods ending after June 15, 2009 and shall be applied prospectively.  The adoption of this guidance had no impact on our financial statements as of September 30, 2009, other than the additional disclosure.

The FASB issued guidance in the Subsequent Events Topic of the Codification in May 2009.  The guidance is intended to establish general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The guidance is effective for interim or annual financial periods ending after June 15, 2009 and is required to be adopted prospectively.  We adopted this guidance effective for the quarter ending June 30, 2009.  The adoption of this guidance had no impact on our financial statements as of September 30, 2009, other than the additional disclosure.

In June 2009, the FASB issued guidance which will amend the Consolidation Topic of the Codification.  The guidance addresses the effects of eliminating the qualifying special-purpose entity (QSPE) concept and responds to concerns over the transparency of enterprises’ involvement with variable interest entities (VIEs).  The guidance is effective beginning on January 1, 2010.  We do not expect the adoption of this guidance to have an impact on our financial statements.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring Liabilities at Fair Value” (ASU 2009-05).  ASU 2009-05 amends the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification by providing additional guidance clarifying the measurement of liabilities at fair value.  ASU 2009-05 is effective for us for the reporting period ending December 31, 2009.  We do not expect the adoption of ASU 2009-05 to have an impact on our financial statements.

Foreign subsidiaries’ assets and liabilities are translated to United States dollars at the end of period exchange rates.  Revenues and expenses are translated at average rates for the period.  Translation adjustments are reported as a separate component of stockholders’ equity.  Total comprehensive income was $9.8 million and $16.9 million for the quarters ended September 30, 2009 and 2008, respectively.  Total comprehensive income was $24.3 million and $45.0 million for the nine months ended September 30, 2009 and 2008, respectively.

HUB GROUP, INC.

Hub Group, Inc.  (“we”, “us” or “our”) is the largest intermodal marketing company (“IMC”) in the United States and a full service transportation provider offering intermodal, truck brokerage and logistics services.  We operate through a nationwide network of operating centers.

As an IMC, we arrange for the movement of our customers’ freight in containers and trailers over long distances.  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 local pickup and delivery.  As part of the 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.

Our drayage services are provided by our subsidiary Comtrak Logistics, Inc. (“Comtrak”) that assists us in providing reliable, cost effective intermodal services to our customers.  Comtrak has terminals in Atlanta, Birmingham, Charleston, Charlotte, Chattanooga, Chicago, Cleveland, Columbus, Dallas, Harrisburg, Huntsville, Jacksonville, Kansas City, Los Angeles, Memphis, Nashville, Perry, Philadelphia, Savannah, St. Louis, Stockton, and Tampa.  As of September 30, 2009, Comtrak owned 285 tractors, leased 20 tractors, leased or owned 554 trailers, and employed 304 drivers and contracted with 943 owner-operators.

We also arrange for the transportation of freight by truck, providing customers with another option for their transportation needs.  We match the customers’ needs with carriers’ capacity to provide the most effective service and price combinations.  As part of our truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss or damage on behalf of our customers.

Our logistics service consists of complex transportation management services, including load consolidation, mode optimization and carrier management.  These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of their transportation needs.

We have full time marketing representatives throughout North America who service local, regional and national accounts.  We believe that fostering long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation services to them.

 Our yield management group works with pricing, sales and operations to enhance customer margins.  We are working on margin enhancement projects including matching up inbound and outbound loads, reducing our drayage costs and improving our recovery of accessorial costs.  Our top 50 customers’ revenue represents approximately 58% of our revenue as of September 30, 2009.

We use various performance indicators to manage our business.  We closely monitor margin and gains and losses for our top 50 customers.  We also evaluate on-time performance, costs per load and daily sales outstanding by customer account.  Vendor cost changes and vendor service issues are also monitored closely.

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

 
 

General and administrative expenses decreased to $9.1 million in 2009 from $10.8 million in 2008.  As a percentage of revenue, these expenses increased to 2.4% in 2009 from 2.1% in 2008.  Total expenses decreased due to reductions in outside services of $0.4 million, travel and entertainment expenses of $0.4 million and bad debt expense of $0.2 million.  In addition, we had a loss on the sale of assets of $0.3 million in 2008 that did not recur in 2009.  The reduction in travel and entertainment expenses resulted primarily from an increased focus on controlling costs.

The provision for income taxes decreased to $6.2 million in 2009 from $10.6 million in 2008.  We provided for income taxes using an effective rate of 38.6% in both 2009 and 2008.

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

General and administrative expenses decreased to $28.4 million for 2009 from $31.4 million in 2008.  Total expenses decreased due to reductions in outside services of $1.4 million, travel and entertainment expenses of $0.9 million office expenses of $0.5 million and outside sales commissions of $0.4 million.  The reduction in travel and entertainment expenses resulted primarily from an increased focus on controlling costs.  These decreases were partially offset by a $0.5 million increase in bad debt expense.  As a percentage of revenue, these expenses increased to 2.6% in 2009 from 2.2% in 2008.

The provision for income taxes decreased to $15.9 million in 2009 from $28.3 million in 2008.  We provided for income taxes using an effective rate of 39.6% in 2009 and an effective rate of 38.6% in 2008.  The 2009 effective rate was higher due to income tax law changes enacted in February, 2009 by Wisconsin and California.  The combined effect of these changes was approximately a $0.4 million increase in income tax expense.

We have standby letters of credit that expire at various dates from 2009 to 2012.  As of September 30, 2009, the outstanding letters of credit were $2.9 million.

Deferred Compensation

As of September 30, 2009, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures.   Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of September 30, 2009.  There have been no changes in our internal control over financial reporting identified in connection with such evaluation that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.