Annual Reports

 
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  • 10-Q (Oct 31, 2014)
  • 10-Q (Jul 30, 2014)
  • 10-Q (Apr 25, 2014)
  • 10-Q (Oct 31, 2013)
  • 10-Q (Jul 31, 2013)
  • 10-Q (Apr 26, 2013)

 
8-K

 
Other

Hub Group 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Graphic
  6. Graphic
hgsecondqtr10q2010.htm
UNITED STATES
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 June 30, 2010 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 logo
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.)
 
 
3050 Highland Parkway, Suite 100
Downers Grove, Illinois 60515
(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     

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).  Yes  X   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer  X      Accelerated Filer         Non-Accelerated Filer       Smaller Reporting Company

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

On July 22, 2010, the registrant had 37,019,216 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


          
 
PART I.  Financial Information: Page
   
Consolidated Balance Sheets – June 30, 2010 (unaudited) and
December 31, 2009
 3
   
Unaudited Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 2010 and 2009
 4
   
Unaudited Consolidated Statements of Cash Flows - Six
Months Ended June 30, 2010 and 2009
 5
   
Notes to Unaudited Consolidated Financial Statements   6
   
Management’s Discussion and Analysis of Financial Condition and
Results of Operations 
 9
   
Quantitative and Qualitative Disclosures about Market Risk   15
   
Controls and Procedures  15
   
PART II.  Other Information    15
   
   
   
   
 
 

 





 
2
 
 

HUB GROUP, INC.
 
CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share amounts)
 
       
   
June 30,
2010
   
December 31,
2009
 
ASSETS
 
(unaudited)
       
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 128,356     $ 126,863  
Accounts receivable trade, net
    195,134       145,317  
Accounts receivable other
    14,621       11,932  
Prepaid taxes
    354       593  
Deferred taxes
    955       2,874  
Prepaid expenses and other current assets
    6,867       6,801  
TOTAL CURRENT ASSETS
    346,287       294,380  
                 
Restricted investments
    9,294       9,583  
Property and equipment, net
    27,577       28,510  
Other intangibles, net
    5,941       6,164  
Goodwill, net
    232,782       232,892  
Other assets
    2,340       1,819  
TOTAL ASSETS
  $ 624,221     $ 573,348  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable trade
  $ 146,872     $ 110,626  
Accounts payable other
    9,237       7,695  
Accrued payroll
    9,003       8,253  
Accrued other
    21,762       18,958  
TOTAL CURRENT LIABILITIES
    186,874       145,532  
                 
Non-current liabilities
    11,640       12,002  
Deferred taxes
    64,509       61,973  
                 
STOCKHOLDERS' EQUITY:
               
Preferred stock, $.01 par value;  2,000,000 shares authorized;  no shares issued or outstanding in 2010 and 2009
    -       -  
Common stock
               
Class A:  $.01 par value;  97,337,700 shares authorized and 41,224,792 shares issued in 2010 and 2009;  37,016,157 shares outstanding in 2010 and 37,253,330 shares outstanding in 2009. Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2010 and 2009.
    419       419  
Additional paid-in capital
    168,343       171,470  
Purchase price in excess of predecessor basis, net of tax benefit of $10,306
    (15,458 )     (15,458 )
Retained earnings
    317,884       299,552  
Other comprehensive income (loss)
    2       (9 )
Treasury stock; at cost, 4,208,635 shares in 2010 and 3,971,462 shares in 2009
    (109,992 )     (102,133 )
TOTAL STOCKHOLDERS' EQUITY
    361,198       353,841  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 624,221     $ 573,348  
   
See notes to unaudited consolidated financial statements.
 

 
3
 
 

HUB GROUP, INC.
 
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
 
(in thousands, except per share amounts)
 
               
   
Three Months
   
Six Months
   
   
Ended June 30,
   
Ended June 30,
   
                       
   
2010
   
2009
       2010      
2009
 
   
                     
Revenue
  $ 458,113     $ 362,613     $ 875,407     $ 714,308  
Transportation costs
    407,537       316,850       776,013       623,376  
Gross margin
    50,576       45,763       99,394       90,932  
                           
Costs and expenses:
                         
Salaries and benefits
    23,863       22,063       47,321       45,277  
General and administrative
    10,064       9,130       20,209       19,253  
Depreciation and amortization
    934       1,124       1,907       2,280  
Total costs and expenses
    34,861       32,317       69,437       66,810  
                           
Operating income
    15,715       13,446       29,957       24,122  
                           
Other income (expense):
                         
Interest expense
    (12 )     (25 )     (26 )     (50 )
Interest and dividend income
    23       36       48       91  
Other, net
    84       62       152       72  
Total other income
    95       73       174       113  
                           
Income before provision for income taxes
    15,810       13,519       30,131       24,235  
                           
Provision for income taxes
    6,180       5,214       11,799       9,752  
                           
Net income
  $ 9,630     $ 8,305     $ 18,332     $ 14,483  
                           
Basic earnings per common share
  $ 0.26     $ 0.22     $ 0.49     $ 0.39  
                           
Diluted earnings per common share
  $ 0.26     $ 0.22     $ 0.49     $ 0.39  
                           
Basic weighted average number of shares outstanding
    37,429       37,344       37,478       37,333  
                           
Diluted weighted average number of shares outstanding
    37,580       37,480       37,611       37,446  
                           
                       
See notes to unaudited consolidated financial statements.
 


 
4
 
 


HUB GROUP, INC.
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in thousands)
 
       
   
Six Months Ended June 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
    Net income
  $ 18,332     $ 14,483  
    Adjustments to reconcile net income to net cash provided by operating activities:
               
       Depreciation and amortization
    3,945       4,320  
       Deferred taxes
    4,644       3,227  
       Compensation expense related to share-based compensation plans
    1,822       2,152  
       Loss (gain) on sale of assets
    19       (16 )
    Changes in operating assets and liabilities:
               
       Restricted investments
    289       (1,570 )
       Accounts receivable, net
    (52,505 )     1,709  
       Prepaid expenses and other current assets
    174       (2,260 )
       Other assets
    (520 )     63  
       Accounts payable
    36,312       11,047  
       Accrued expenses
    2,939       (3,362 )
       Non-current liabilities
    (441 )     288  
            Net cash provided by operating activities
    15,010       30,081  
                 
Cash flows from investing activities:
               
     Proceeds from sale of equipment
    720       53  
     Purchases of property and equipment
    (2,051 )     (1,951 )
            Net cash used in investing activities
    (1,331 )     (1,898 )
                 
Cash flows from financing activities:
               
     Proceeds from stock options exercised
    14       44  
     Purchase of treasury stock
    (12,365 )     (1,082 )
     Excess tax benefits from share-based compensation
    154       147  
            Net cash used in financing activities
    (12,197 )     (891 )
                 
                 
     Effect of exchange rate changes on cash and cash equivalents
    11       -  
                 
Net increase in cash and cash equivalents
    1,493       27,292  
Cash and cash equivalents beginning of period
    126,863       85,799  
Cash and cash equivalents end of period
  $ 128,356     $ 113,091  
                 
Supplemental disclosures of cash paid for:
               
     Interest
  $ 26     $ 50  
     Income taxes
  $ 4,304     $ 4,413  
   
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. (“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 June 30, 2010 and results of operations for the three months and six months ended June 30, 2010 and 2009.

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, 2009.  Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
 
 
NOTE 2.                      Earnings Per Share

The following is a reconciliation of our earnings per share (in thousands, except for per share data):
 
   
Three Months Ended,
 June 30,
   
Six Months Ended,
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net income for basic and diluted earnings per share
  $ 9,630     $ 8,305     $ 18,332     $ 14,483  
                                 
Weighted average shares outstanding – basic
    37,429       37,344       37,478       37,333  
                                 
Dilutive effect of  stock options and restricted stock
    151       136       133       113  
                                 
Weighted average shares outstanding – diluted
    37,580       37,480       37,611       37,446  
                                 
Earnings per share – basic
  $ 0.26     $ 0.22     $ 0.49     $ 0.39  
                                 
Earnings per share – diluted
  $ 0.26     $ 0.22     $ 0.49     $ 0.39  
                                 

 
6
 
 
NOTE 3.                      Debt

On March 3, 2010, we entered into an amendment to our Credit Agreement which reduced our maximum unsecured borrowing capacity under the Credit Agreement from $50.0 million to $10.0 million and extended the term of the Credit Agreement until March 2013.  The interest rate of the Credit Agreement is equal to LIBOR plus 1.75%.  The financial covenants require a minimum net worth of $275.0 million and a cash flow leverage ratio of not more than 2.0 to 1.0.  The commitment fee charged on the unused line of credit is 0.375%.

We have standby letters of credit that expire at various dates from 2010 to 2012.  As of June 30, 2010, the outstanding letters of credit totaled $2.6 million.

We had $7.4 million of unused and available borrowings under our bank revolving line of credit as of June 30, 2010.  We were in compliance with our debt covenants as of June 30, 2010.
 
 
NOTE 4.                      Commitments and Contingencies
 
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 a 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.
 
 
NOTE 5.                      Fair Value Measurement

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of June 30, 2010 and December 31, 2009 due to their short-term nature.  Cash and cash equivalents included $120.8 million and $123.0 million as of June 30, 2010 and December 31, 2009, respectively, invested in a money market fund comprised of U.S. treasury securities and repurchase agreements for these securities.  Restricted investments included $9.3 million and $9.6 million as of June 30, 2010 and December 31, 2009, respectively, 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 Codification.

NOTE 6.                      New Pronouncements
 
In June 2009, the FASB issued amendments to the guidance on variable interest entities and consolidation, codified primarily in the Consolidation Topic of the FASB ASC. This guidance modifies the method for determining whether an entity is a variable interest entity as well as the methods permitted for determining the primary beneficiary of a variable interest entity. In addition, this guidance requires ongoing reassessments of whether a company is the primary beneficiary of a variable interest entity and enhanced disclosures related to a company’s involvement with a variable interest entity. The Company adopted this guidance effective January 1, 2010, as required. The effect of adopting this standard had no impact on our financial statements.

NOTE 7.                      Guarantees

The California Air Resources Board (CARB) approved new regulations that require significantly reduced emissions from existing on-road diesel vehicles operating in California.  The regulations require older model tractors to be modified to comply with the new regulations.  In response to the costs associated with complying with these new emission laws, we developed a guaranty program with a leasing company in 2009.  As part of this program, we are guaranteeing certain owner operators’ lease payments for these tractors.  The term of the guarantee is through 2012.

The potential maximum exposure under these lease guarantees was approximately $6.2 million and $3.8 million as of June 30, 2010 and December 31, 2009, respectively.  The potential maximum exposure represents the amount of the remaining lease payments on all outstanding guaranteed leases as of June 30, 2010 and December 31, 2009.  However, upon default, we have the option to purchase the tractors.  We could then sell the tractors and use the proceeds to recover all or a portion of the amounts paid under the guarantees.  Alternatively, we can contract with another owner operator who would assume the lease.  There were no material defaults during the six months ended June 30, 2010.
 
7
 
 
The liability was approximately $0.1 million as of June 30, 2010 and December 31, 2009 for the guarantees representing the fair value of the guarantees based on a discounted cash-flow analysis.  We are amortizing the amounts over the remaining lives of the respective guarantees.
 
NOTE 8.                      Comprehensive Income

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 $9.6 million and $8.3 million for the quarters ended June 30, 2010 and 2009, respectively and $18.3 million and $14.5 million for the six months ended June 30, 2010 and 2009, respectively.
 
8
 
 

HUB GROUP, INC.

 
Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” and variations of these words and similar expressions are intended to identify these forward-looking statements.  Forward-looking statements are inherently uncertain and subject to risks.  Such statements should be viewed with caution.  Actual results or experience could differ materially from the forward-looking statements as a result of many factors.  We assume no liability to update any such forward-looking statements contained in this quarterly report.  Factors that could cause our actual results to differ materially include:

·  
the degree and rate of market growth in the domestic intermodal, truck brokerage and logistics markets served by us;
·  
deterioration in our relationships with existing railroads or adverse changes to the railroads’ operating rules;
·  
changes in rail service conditions or adverse weather conditions;
·  
further consolidation of railroads;
·  
the impact of competitive pressures in the marketplace, including entry of new competitors, direct marketing efforts by the railroads or marketing efforts of asset-based carriers;
·  
changes in rail, drayage and trucking company capacity;
·  
railroads moving away from ownership of intermodal assets;
·  
equipment shortages or equipment surplus;
·  
changes in the cost of services from rail, drayage, truck or other vendors;
·  
increases in costs for independent contractors due to regulatory, judicial and legal changes;
·  
labor unrest in the rail, drayage or trucking company communities;
·  
general economic and business conditions;
·  
significant deterioration in our customer’s financial condition, particularly in the retail and durable goods sectors;
·  
fuel shortages or fluctuations in fuel prices;
·  
increases in interest rates;
·  
changes in homeland security or terrorist activity;
·  
difficulties in maintaining or enhancing our information technology systems;
·  
changes to or new governmental regulation;
·  
loss of several of our largest customers;
·  
inability to recruit and retain key personnel;
·  
inability to recruit and retain drivers and owner operators;
·  
changes in insurance costs and claims expense;
·  
changes to current laws which will aid union organizing efforts; and
·  
inability to close and successfully integrate any future business combinations.


EXECUTIVE SUMMARY

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.

 
9
 
 
Our drayage services are provided by our subsidiary, Comtrak, which assists us in providing reliable, cost effective intermodal services to our customers.  Comtrak has terminals in Atlanta, Philadelphia, Birmingham, Charleston, Charlotte, Chattanooga, Chicago, Cleveland, Columbus (OH), Dallas, Harrisburg, Huntsville, Jacksonville, Kansas City, Memphis, Nashville, Los Angeles, Perry (FL), Saint Louis, Savannah, Stockton, and Titusville (FL).  As of June 30, 2010, Comtrak owned 291 tractors, leased 5 tractors, leased or owned 504 trailers, employed 276 drivers and contracted with 1,101 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 top 50 customers’ revenue represents approximately 61% of our revenue as of June 30, 2010.  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.


RESULTS OF OPERATIONS

The following table summarizes our revenue by business line (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
               
%
               
%
 
   
2010
   
2009
   
Change
   
2010
   
2009
   
Change
 
                                     
Revenue
                                   
Intermodal
  $ 320,351     $ 254,072       26.1 %   $ 607,084     $ 499,641       21.5 %
Truck brokerage
    86,355       71,399       20.9       169,937       139,439       21.9  
Logistics
    51,407       37,142       38.4       98,386       75,228       30.8  
Total revenue
  $ 458,113     $ 362,613       26.3 %   $ 875,407     $ 714,308       22.6 %

 
10
 
 
The following table includes certain items in the consolidated statements of income as a percentage of revenue:

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Revenue
    100.0 %     100.0 %     100.0 %     100.0 %
                                 
Transportation costs
    89.0       87.4       88.6       87.3  
                                 
Gross margin
    11.0       12.6       11.4       12.7  
                                 
Costs and expenses:
                               
     Salaries and benefits
    5.2       6.1       5.4       6.3  
     General and administrative
    2.2       2.5       2.3       2.7  
     Depreciation and amortization
    0.2       0.3       0.2       0.3  
Total costs and expenses
    7.6       8.9       7.9       9.3  
                                 
Operating income
    3.4       3.7       3.5       3.4  
                                 
Other income:
                               
     Interest and dividend income
    0.0       0.0       0.0       0.0  
     Total other income
    0.0       0.0       0.0       0.0  
                                 
Income before provision for income taxes
    3.4       3.7       3.5       3.4  
                                 
Provision for income taxes
    1.3       1.4       1.3       1.4  
                                 
Net income
    2.1 %     2.3 %     2.2 %     2.0 %

 
11
 
 
Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009

Revenue

Revenue increased 26.3% to $458.1 million in 2010 from $362.6 million in 2009.  Intermodal revenue increased 26.1% to $320.3 million due to a 25% increase in volume and an 8% increase for fuel offset by a 2% price decrease and a 5% decrease for mix.  Truck brokerage revenue increased 20.9% to $86.4 million due to a 17% increase in volume and a 7% increase for fuel offset by a 3% decrease for price and mix.  Our average length of haul for truck brokerage was down 5% or 37 miles.  Logistics revenue increased 38.4% to $51.4 million related primarily to new customers added in 2009 and an increase in business with existing accounts.

Gross Margin

Gross margin increased 10.5% to $50.6 million in 2010 from $45.8 million in 2009.  This $4.8 million margin increase came from our intermodal and logistics businesses, offset by a $1.7 million decline in truck brokerage margins.  As a percentage of revenue, gross margin decreased to 11.0% in 2010 from 12.6% in 2009.  The decrease in gross margin as a percentage of revenue was driven primarily by an increase in truck brokerage costs resulting from tighter capacity and a dercrease in intermodal pricing and mix.
 
alaries and Benefits>

As a percentage of revenue, salaries and benefits decreased to 5.2% in 2010 from 6.1% in 2009 due to increased revenue and improved employee efficiencies.  Salaries and benefits increased to $23.9 million in 2010 from $22.1 million in 2009 due primarily to an increase in bonus expense, salary expense and commission expense.  Bonuses were $1.2 million higher than last year due primarily to the EPS portion of the bonus being accrued in 2010 while no EPS bonus was accrued in 2009.  Headcount as of June 30, 2010 and 2009 was 1,080 and 1,016, respectively, which excludes drivers as driver costs are included in transportation costs.

General and Administrative

General and administrative expenses increased to $10.1 million in 2010 from $9.1 million in 2009.  As a percentage of revenue, these expenses decreased to 2.2% in 2010 from 2.5% in 2009.  Total expenses increased primarily due to $0.3 million increases in driver recruiting costs, agency fees, independent contractor commission expense and the replacement of personal computers.  These increases were partially offset by a reduction in bad debt expense of $0.3 million.

Depreciation and Amortization

Depreciation and amortization decreased to $0.9 million in 2010 from $1.1 million in 2009.  This expense as a percentage of revenue decreased to 0.2% in 2010 from 0.3% in 2009.  The decrease in depreciation and amortization was due primarily to a change in the salvage value of certain assets in 2009.

Other Income (Expense)

Interest and other income increased to $0.1 million in 2010 from $0.08 million in 2009.  The increase in other income was primarily due to the positive effects of currency translation for the quarter ended June 30, 2010. 

Provision for Income Taxes

The provision for income taxes increased to $6.2 million in 2010 from $5.2 million in 2009.  We provided for income taxes using an effective rate of 39.1% in 2010 and an effective rate of 38.6% in 2009.  The 2010 effective rate was higher due primarily to restrictions on the deductibility of certain compensation.

 
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Net Income

Net income increased to $9.6 million in 2010 from $8.3 million in 2009 due primarily to higher gross margin.

Earnings Per Common Share

Basic earnings per share were $0.26 in 2010 and $0.22 in 2009.  Basic earnings per share increased due to the increase in net income.  Diluted earnings per share were $0.26 in 2010 and $0.22 in 2009.  Diluted earnings per share increased due to the increase in net income.
 

 
Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

Revenue

Revenue increased 22.6% to $875.4 million in 2010 from $714.3 million in 2009.  Intermodal revenue increased 21.5% to $607.1 million due to a 21% increase in volume and a 7% increase for fuel offset by a 2% price decrease and a 4% decrease for mix.  Truck brokerage revenue increased 21.9% to $169.9 million due to a 20% increase in volume and a 6% increase for fuel offset by a 4% decrease for price and mix.  Our average length of haul for truck brokerage was down 4% or 26 miles.  Logistics revenue increased 30.8% to $98.4 million related to new customers added in 2009 and an increase in business with existing accounts.

Gross Margin

Gross margin increased 9.3% to $99.4 million in 2010 from $90.9 million in 2009.  This $8.5 million margin increase came primarily from intermodal and logistics.  As a percentage of revenue, gross margin decreased to 11.4% in 2010 from 12.7% in 2009.  The decrease in gross margin as a percentage of revenue was driven primarily by an increase in truck brokerage costs resulting from tighter capacity and a decrease in intermodal pricing and mix.

Salaries and Benefits

Salaries and benefits increased to $47.3 million in 2010 from $45.3 million in 2009 due primarily to an increase in bonus expense and commission expense, partially offset by lower severance.  Bonuses were $2.5 million higher in the six months ended June 30, 2010 due primarily to the EPS portion of the bonus being accrued in 2010 while no EPS bonus was accrued in 2009.  This increase was partially offset by a decrease in salaries related to severance costs of $0.9 million recorded during the six months ended June 30, 2009.  As a percentage of revenue, salaries and benefits decreased to 5.4% in 2010 from 6.3% in 2009 due to increased revenue and improved employee efficiencies.

General and Administrative

General and administrative expenses increased to $20.2 million in 2010 from $19.3 million in 2009.  As a percentage of revenue, these expenses decreased to 2.3% in 2010 from 2.7% in 2009.  Total expenses increased primarily due to increases in agency fees of $0.7 million, driver and employee recruiting costs of $0.6 million, independent contractor commission expense of $0.4 million and the replacement of personal computers of $0.3 million.  These increases were partially offset by a reduction in bad debt expense of $1.2 million.

Depreciation and Amortization

Depreciation and amortization decreased to $1.9 million in 2010 from $2.3 million in 2009.  This expense as a percentage of revenue decreased to 0.2% in 2010 from 0.3% in 2009.  The decrease in depreciation and amortization was due primarily to a change in the salvage value of certain assets in 2009.

 
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Other Income (Expense)

Interest and other income increased to $0.2 million in 2010 from $0.1 million in 2009.  The increase in other income was primarily due to the positive effects of currency translation for the six months ended June 30, 2010. 

Provision for Income Taxes

The provision for income taxes increased to $11.8 million in 2010 from $9.8 million in 2009 due to the increase in pretax income.  We provided for income taxes using an effective rate of 39.2% in 2010 and an effective rate of 40.2% in 2009.  The 2009 effective rate was higher due to income tax law changes enacted in February 2009 by Wisconsin and California.  The combined effect of the changes was approximately a $0.4 million increase in expense.

Net Income

Net income increased to $18.3 million in 2010 from $14.5 million in 2009 due primarily to higher gross margin.

Earnings Per Common Share

Basic earnings per share increased to $0.49 in 2010 from $0.39 in 2009.  Basic earnings per share increased due to the increase in net income.  Diluted earnings per share increased to $0.49 in 2010 from $0.39 in 2009.  Diluted earnings per share increased due to the increase in net income.
 
 
LIQUIDITY AND CAPITAL RESOURCES

During 2010, we have funded operations, capital expenditures and stock buy backs through cash flows from operations. We believe that our cash, cash flow from operations and borrowings available under our Credit Agreement will be sufficient to meet our cash needs for at least the next 12 months.

Cash provided by operating activities for the six months ended June 30, 2010 was approximately $15.0 million, which resulted primarily from income of $18.3 million adjusted for non-cash charges of $10.4 million offset by the change in operating assets and liabilities of $13.7 million.

Net cash used in investing activities for the six months ended June 30, 2010 was $1.3 million related to capital expenditures of $2.0 million, partially offset by proceeds from the sale of equipment of $0.7 million.  We expect capital expenditures to be between $30.0 million and $32.0 million for all of 2010.  This range includes the acquisition of the 2,500 53’ containers for approximately $24.8 million which are expected to be delivered between May and November 2010.  The foregoing estimate of capital expenditures assumes no real property purchases in 2010.  We are exploring purchasing property to support our drayage and equipment operations.  If we purchase any property, our capital expenditures could be higher than the range specified.

The net cash used in financing activities for the six months ended June 30, 2010 was $12.2 million.  We used $12.4 million of cash to purchase treasury stock and reported $0.2 million of excess tax benefits from share-based compensation as a financing cash in-flow.

On March 3, 2010, we entered into an amendment to our Credit Agreement which reduced our maximum unsecured borrowing capacity under the Credit Agreement from $50.0 million to $10.0 million and extended the term of the Credit Agreement until March 2013.  The interest rate of the Credit Agreement is equal to LIBOR plus 1.75%.  The financial covenants require a minimum net worth of $275.0 million and a cash flow leverage ratio of not more than 2.0 to 1.0.  The commitment fee charged on the unused line of credit is 0.375%. The revolving line of credit expires on March 3, 2013.  We believe that the $10.0 million in unsecured borrowing capacity more accurately reflects our borrowing needs in the coming years in light of our historical lack of borrowings against the line of credit, significant cash balance and ability to generate cash.
 
We have standby letters of credit that expire at various dates from 2010 to 2012.  As of June 30, 2010, the outstanding letters of credit were $2.6 million.

 
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We had $7.4 million of unused and available borrowings under our bank revolving line of credit as of June 30, 2010.  We were in compliance with our debt covenants as of June 30, 2010.

We have authorization to spend up to $30.0 million to purchase common stock through March 2011.  We purchased 380,150 shares under this authorization during the six months ended June 30, 2010 and have $18.5 million remaining under this authorization  Of these shares, 20,000 shares were purchased in June 2010 and settled in July 2010.  We may make additional purchases from time to time as market conditions warrant.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk related to changes in interest rates on our bank line of credit which may adversely affect our results of operations and financial condition.

Item 4.  CONTROLS AND PROCEDURES

As of June 30, 2010, 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 June 30, 2010.  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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.                      Other  Information

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On February 24, 2010, our Board of Directors authorized the purchase of up to $30.0 million of our Class A Common Stock.  This authorization expires March 31, 2011.  We purchased 380,150 shares during the six months ended June 30, 2010.   We may make purchases from time to time as market conditions warrant, and any repurchased shares are expected to be held in treasury for future use.

The following table displays the number of shares purchased during the quarter and the maximum value of shares that may yet be purchased under the plan:

   
Total Number of Shares Purchased
   
Average Price Paid Per Share
   
Total Number of Shares Purchased as Part of Publicly Announced Plan
   
Maximum Value of Shares that May Yet Be Purchased Under the Plan
(in 000’s)
 
April 1-30
    -     $ -       -     $ 28,523  
May 1-31
    61,350     $ 29.62       61,350     $ 26,706  
June 1-30
    265,000     $ 31.02       265,000     $ 18,486  
           Total
    326,350     $ 30.75       326,350     $ 18,486  

All of the above shares were settled prior to or in June 2010 except for 20,000 shares which were settled in July 2010.

This table excludes 672 shares we purchased for $0.02 million during the three months ended June 30, 2010 related to employee withholding upon vesting of restricted stock.

Item 6.  Exhibits

The exhibits included as part of the Form 10-Q are set forth in the Exhibit Index immediately preceding such Exhibits and are incorporated herein by reference.
 
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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.
 
 
 
  HUB GROUP, INC.  
       
Date: July 28, 2010
By:
/s/ Terri A. Pizzuto  
    Name: Terria A. Pizzuto  
   
Title: Executive Vice President, Chief Financial 
          Officer and Treasurer
          (Principal Financial Officer)
 
 







 
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EXHIBIT INDEX

Exhibit No.                      Description
 
10.1
Equipment Purchase Contract, dated as of April 8, 2010, by and between Hub City Terminals, Inc. and Singamas Management Services, Ltd. (incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K dated April 8, 2010 and filed April 13, 2010, File No. 000-27754)

31.1
Certification of David P. Yeager, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2
Certification of Terri A. Pizzuto, Executive Vice President, Chief Financial Officer and Treasurer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1
Certification of David P. Yeager and Terri A. Pizzuto, Chief Executive Officer and Chief Financial Officer, respectively, Pursuant to 18 U.S.C. Section 1350.

101
The following financial statements and footnotes from the Hub Group Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Unaudited Consolidated Statements of Income; (iii) Unaudited Consolidated Statements of Cash Flow; and (iv) Notes to Unaudited Consolidated Financial Statements.



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