Attached files
| file | filename |
|---|---|
| EX-2.1 - EXHIBIT 2.1 - Hub Group, Inc. | exh_21.htm |
| 8-K - FORM 8-K - Hub Group, Inc. | f8k_090618.htm |
Exhibit 99.1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On August 31, 2018, Hub Group, Inc. (the “Company”), entered into a definitive agreement and concurrently sold its subsidiary, Mode Transportation, LLC (“Mode”) to an affiliate of York Capital Management (“Buyer”) for $238.5 million (the “Disposition”). The sale does not include the Temstar business which is being retained by the Company and was previously included in the Mode segment for financial reporting purposes.
The Disposition constitutes a significant disposition for purposes of Item 2.01 of Form 8-K. As a result, the following unaudited pro forma consolidated statement of net income for the six month period ended June 30, 2018 and unaudited pro forma consolidated statements of net income for each of the years ended December 31, 2017, 2016 and 2015 are presented as if the Disposition and related events had occurred on January 1, 2015, the first day of fiscal year 2015. The following unaudited pro forma consolidated balance sheet as of June 30, 2018 is presented as if the Disposition and related events had occurred on June 30, 2018. Based on the magnitude of Mode’s contribution to operating income and because the Company is exiting its agent-based business, the Disposition represents a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the Company will be applying discontinued operations treatment for the Disposition in the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2018.
The unaudited consolidated pro forma financial statements have been derived from historical financial statements prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and are presented based on information currently available. They are intended for informational purposes only and are not intended to represent the Company’s financial position or results of operations had the Disposition and related events occurred on the dates indicated, or to project the Company’s financial performance for any future period. Beginning in the third quarter of fiscal 2018, the historical financial results attributable to Mode Transportation, LLC for periods prior to the Disposition will be reflected in the Company’s consolidated statements of net income as discontinued operations. Discontinued operations will not include Temstar which historically was included in the Mode segment financial results.
The unaudited pro forma consolidated financial statements and the accompanying notes should be read in conjunction with the following: (i) the audited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Form 10-K for the years ended December 31, 2017, 2016 and 2015 and (ii) the unaudited consolidated financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Form 10-Q for the second quarter and six months ended June 30, 2018.
The unaudited pro forma consolidated financial statements include information, statements, and assumptions that are or may be considered “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by the use of words such as “may,” “should,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan” or similar expressions. Statements that describe objectives, plans, or goals also are forward-looking statements. These forward-looking statements involve risks and uncertainties, and actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. For any forward-looking statements contained herein, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and the Company undertakes no obligation to update publicly or revise any forward-looking statements in light of new information or future events.
| 1 |
HUB GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(in thousands, except per share amounts)
| Pro forma | Hub Group, Inc. | |||||||||||||
| Historical (a) | Adjustments | Notes | Pro Forma | |||||||||||
| Revenue | $ | 2,275,064 | $ | (542,988 | ) | ( b ) ( c ) | $ | 1,732,076 | ||||||
| Transportation costs | 2,016,083 | (476,037 | ) | ( b ) ( c ) | 1,540,046 | |||||||||
| Gross margin | 258,981 | (66,951 | ) | 192,030 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Salaries and benefits | 114,099 | (7,726 | ) | ( b ) | 106,373 | |||||||||
| Agent fees and commissions | 41,111 | (41,060 | ) | ( b ) | 51 | |||||||||
| General and administrative | 40,720 | (4,385 | ) | ( b ) ( d ) | 36,335 | |||||||||
| Depreciation and amortization | 7,965 | (479 | ) | ( b ) | 7,486 | |||||||||
| Total costs and expenses | 203,895 | (53,650 | ) | 150,245 | ||||||||||
| Operating income | 55,086 | (13,301 | ) | 41,785 | ||||||||||
| Other income (expense): | ||||||||||||||
| Interest expense | (4,291 | ) | - | (4,291 | ) | |||||||||
| Interest and dividend income | 44 | (19 | ) | ( b ) | 25 | |||||||||
| Other, net | (244 | ) | 13 | ( b ) | (231 | ) | ||||||||
| Total other expense | (4,491 | ) | (6 | ) | (4,497 | ) | ||||||||
| Income before provision for income taxes | 50,595 | (13,307 | ) | 37,288 | ||||||||||
| Income tax expense | 12,377 | (3,095 | ) | ( e ) | 9,282 | |||||||||
| Net income | $ | 38,218 | $ | (10,212 | ) | $ | 28,006 | |||||||
| Basic earnings per common share | $ | 1.14 | $ | 0.84 | ||||||||||
| Diluted earnings per common share | $ | 1.14 | $ | 0.84 | ||||||||||
| Basic weighted average number of shares outstanding | 33,382 | 33,382 | ||||||||||||
| Diluted weighted average number of shares outstanding | 33,520 | 33,520 | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma financial statements.
| 2 |
HUB GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2017
(in thousands, except per share amounts)
| Pro forma | Hub Group, Inc. | |||||||||||||
| Historical (a) | Adjustments | Notes | Pro Forma | |||||||||||
| Revenue | $ | 4,034,897 | $ | (908,870 | ) | ( b ) ( c ) | $ | 3,126,027 | ||||||
| Transportation costs | 3,577,380 | (788,982 | ) | ( b ) ( c ) | 2,788,398 | |||||||||
| Gross margin | 457,517 | (119,888 | ) | 337,629 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Salaries and benefits | 188,389 | (12,821 | ) | ( b ) | 175,568 | |||||||||
| Agent fees and commissions | 74,082 | (73,955 | ) | ( b ) | 127 | |||||||||
| General and administrative | 85,182 | (7,761 | ) | ( b ) ( d ) | 77,421 | |||||||||
| Depreciation and amortization | 13,313 | (1,158 | ) | ( b ) | 12,155 | |||||||||
| Total costs and expenses | 360,966 | (95,695 | ) | 265,271 | ||||||||||
| Operating income | 96,551 | (24,193 | ) | 72,358 | ||||||||||
| Other income (expense): | ||||||||||||||
| Interest expense | (6,754 | ) | - | (6,754 | ) | |||||||||
| Interest and dividend income | 416 | (67 | ) | ( b ) | 349 | |||||||||
| Other, net | 724 | (56 | ) | ( b ) | 668 | |||||||||
| Total other expense | (5,614 | ) | (123 | ) | (5,737 | ) | ||||||||
| Income before provision for income taxes | 90,937 | (24,316 | ) | 66,621 | ||||||||||
| Income tax benefit | (44,216 | ) | (8,867 | ) | ( e ) | (53,083 | ) | |||||||
| Net income | $ | 135,153 | $ | (15,449 | ) | $ | 119,704 | |||||||
| Basic earnings per common share | $ | 4.07 | $ | 3.60 | ||||||||||
| Diluted earnings per common share | $ | 4.05 | $ | 3.59 | ||||||||||
| Basic weighted average number of shares outstanding | 33,220 | 33,220 | ||||||||||||
| Diluted weighted average number of shares outstanding | 33,350 | 33,350 | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma financial statements.
| 3 |
HUB GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2016
(in thousands, except per share amounts)
| Pro forma | Hub Group, Inc. | |||||||||||||
| Historical (a) | Adjustments | Notes | Pro Forma | |||||||||||
| Revenue | $ | 3,572,790 | $ | (819,572 | ) | ( b ) ( c ) | $ | 2,753,218 | ||||||
| Transportation costs | 3,118,005 | (696,107 | ) | ( b ) ( c ) | 2,421,898 | |||||||||
| Gross margin | 454,785 | (123,465 | ) | 331,320 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Salaries and benefits | 180,459 | (14,340 | ) | ( b ) | 166,119 | |||||||||
| Agent fees and commissions | 72,896 | (72,754 | ) | ( b ) | 142 | |||||||||
| General and administrative | 68,630 | (7,553 | ) | ( b ) ( d ) | 61,077 | |||||||||
| Depreciation and amortization | 8,966 | (1,253 | ) | ( b ) | 7,713 | |||||||||
| Total costs and expenses | 330,951 | (95,900 | ) | 235,051 | ||||||||||
| Operating income | 123,834 | (27,565 | ) | 96,269 | ||||||||||
| Other income (expense): | ||||||||||||||
| Interest expense | (3,625 | ) | - | (3,625 | ) | |||||||||
| Interest and dividend income | 393 | (47 | ) | ( b ) | 346 | |||||||||
| Other, net | 819 | (70 | ) | ( b ) | 749 | |||||||||
| Total other expense | (2,413 | ) | (117 | ) | (2,530 | ) | ||||||||
| Income before provision for income taxes | 121,421 | (27,682 | ) | 93,739 | ||||||||||
| Income tax expense | 46,616 | (10,336 | ) | ( e ) | 36,280 | |||||||||
| Net income | $ | 74,805 | $ | (17,346 | ) | $ | 57,459 | |||||||
| Basic earnings per common share | $ | 2.21 | $ | 1.70 | ||||||||||
| Diluted earnings per common share | $ | 2.20 | $ | 1.69 | ||||||||||
| Basic weighted average number of shares outstanding | 33,841 | 33,841 | ||||||||||||
| Diluted weighted average number of shares outstanding | 33,949 | 33,949 | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma financial statements.
| 4 |
HUB GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015
(in thousands, except per share amounts)
| Pro forma | Hub Group, Inc. | |||||||||||||
| Historical (a) | Adjustments | Notes | Pro Forma | |||||||||||
| Revenue | $ | 3,525,595 | $ | (826,359 | ) | ( b ) ( c ) | $ | 2,699,236 | ||||||
| Transportation costs | 3,112,900 | (709,389 | ) | ( b ) ( c ) | 2,403,511 | |||||||||
| Gross margin | 412,695 | (116,970 | ) | 295,725 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Salaries and benefits | 158,938 | (13,941 | ) | ( b ) | 144,997 | |||||||||
| Agent fees and commissions | 68,724 | (68,605 | ) | ( b ) | 119 | |||||||||
| General and administrative | 60,015 | (6,805 | ) | ( b ) ( d ) | 53,210 | |||||||||
| Depreciation and amortization | 7,988 | (1,296 | ) | ( b ) | 6,692 | |||||||||
| Total costs and expenses | 295,665 | (90,647 | ) | 205,018 | ||||||||||
| Operating income | 117,030 | (26,323 | ) | 90,707 | ||||||||||
| Other income (expense): | ||||||||||||||
| Interest expense | (2,971 | ) | - | (2,971 | ) | |||||||||
| Interest and dividend income | 83 | (7 | ) | ( b ) | 76 | |||||||||
| Other, net | (2,560 | ) | 445 | ( b ) | (2,115 | ) | ||||||||
| Total other expense | (5,448 | ) | 438 | (5,010 | ) | |||||||||
| Income before provision for income taxes | 111,582 | (25,885 | ) | 85,697 | ||||||||||
| Income tax expense | 40,633 | (9,710 | ) | ( e ) | 30,923 | |||||||||
| Net income | $ | 70,949 | $ | (16,175 | ) | $ | 54,774 | |||||||
| Basic earnings per common share | $ | 1.98 | $ | 1.53 | ||||||||||
| Diluted earnings per common share | $ | 1.97 | $ | 1.52 | ||||||||||
| Basic weighted average number of shares outstanding | 35,876 | 35,876 | ||||||||||||
| Diluted weighted average number of shares outstanding | 35,968 | 35,968 | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma financial statements.
| 5 |
HUB GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2018
(in thousands, except share data)
| Pro forma | Hub Group, Inc. | |||||||||||||
| Historical (a) | Adjustments | Notes | Pro forma | |||||||||||
| ASSETS | ||||||||||||||
| CURRENT ASSETS: | ||||||||||||||
| Cash and cash equivalents | $ | 26,753 | $ | 221,311 | ( f ) | $ | 248,064 | |||||||
| Accounts receivable trade, net | 615,690 | (175,609 | ) | ( g ) | 440,081 | |||||||||
| Accounts receivable other | 3,851 | (315 | ) | ( g ) | 3,536 | |||||||||
| Prepaid taxes | 5,268 | - | 5,268 | |||||||||||
| Prepaid expenses and other current assets | 15,763 | (247 | ) | ( g ) | 15,516 | |||||||||
| TOTAL CURRENT ASSETS | 667,325 | 45,140 | 712,465 | |||||||||||
| Restricted investments | 24,107 | (4,640 | ) | ( g ) | 19,467 | |||||||||
| Property and equipment, net | 618,931 | (2,271 | ) | ( g ) | 616,660 | |||||||||
| Other intangibles, net | 71,501 | (9,175 | ) | ( g ) | 62,326 | |||||||||
| Goodwill, net | 348,106 | (29,389 | ) | ( g ) | 318,717 | |||||||||
| Other assets | 3,534 | (138 | ) | ( g ) | 3,396 | |||||||||
| TOTAL ASSETS | $ | 1,733,504 | $ | (473 | ) | $ | 1,733,031 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||
| Accounts payable trade | $ | 348,222 | $ | (113,808 | ) | ( g ) | $ | 234,414 | ||||||
| Accounts payable other | 12,418 | (817 | ) | ( g ) | 11,601 | |||||||||
| Accrued payroll | 36,487 | (2,787 | ) | ( g ) | 33,700 | |||||||||
| Accrued other | 78,598 | 3,752 | ( g ) ( h ) | 82,350 | ||||||||||
| Current portion of capital lease | 2,794 | - | 2,794 | |||||||||||
| Current portion of long term debt | 86,740 | - | 86,740 | |||||||||||
| TOTAL CURRENT LIABILITIES | 565,259 | (113,660 | ) | 451,599 | ||||||||||
| Long term debt | 179,444 | - | 179,444 | |||||||||||
| Non-current liabilities | 39,083 | (3,828 | ) | ( g ) | 35,255 | |||||||||
| Long term capital lease | 6,196 | - | 6,196 | |||||||||||
| Deferred taxes | 132,463 | 19,693 | ( h ) | 152,156 | ||||||||||
| STOCKHOLDERS' EQUITY: | ||||||||||||||
| Preferred stock, $.01 par value; 2,000,000 shares authorized; | ||||||||||||||
| no shares issued or outstanding in 2018 | - | - | - | |||||||||||
| Common stock | ||||||||||||||
| Class A: $.01 par value; 97,337,700 shares authorized and | ||||||||||||||
| 41,224,792 shares issued in 2018; 33,717,169 shares | ||||||||||||||
| outstanding in 2018 | 412 | - | 412 | |||||||||||
| Class B: $.01 par value; 662,300 shares authorized; | ||||||||||||||
| 662,296 shares issued and outstanding in 2018 | 7 | - | 7 | |||||||||||
| Additional paid-in capital | 168,614 | - | 168,614 | |||||||||||
| Purchase price in excess of predecessor basis, net of tax | ||||||||||||||
| benefit of $10,306 | (15,458 | ) | - | (15,458 | ) | |||||||||
| Retained earnings | 908,934 | 97,322 | ( i ) | 1,006,256 | ||||||||||
| Accumulated other comprehensive loss | (190 | ) | - | (190 | ) | |||||||||
| Treasury stock; at cost, 7,507,623 shares in 2018 | (251,260 | ) | - | (251,260 | ) | |||||||||
| TOTAL STOCKHOLDERS' EQUITY | 811,059 | 97,322 | 908,381 | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,733,504 | $ | (473 | ) | $ | 1,733,031 | |||||||
The accompanying notes are an integral part of the unaudited pro forma financial statements.
| 6 |
HUB GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The Company’s historical consolidated financial statements have been adjusted in the unaudited consolidated pro forma financial statements to present events that are (i) directly attributable to the Disposition, (ii) factually supportable and (iii) are expected to have a continuing impact on the Company’s consolidated results following the Disposition. The allocation of corporate support, general, management and administrative and other liabilities and expenses included may differ from expenses that would have been included on a stand-alone basis. The pro forma consolidated statements of net income do not reflect the estimated gain on the Disposition.
NOTE 2. Pro Forma Adjustments
The following adjustments have been reflected in the unaudited pro forma financial statements:
(a) Reflects the Company’s historical US GAAP consolidated financial statements, as reported, before pro forma adjustments related to the Disposition. For the six month period ended June 30, 2018 and the years ended December 31, 2017, 2016 and 2015, Mode’s results of operations were reported as a separate segment. However, Temstar, which was previously included in the Mode segment, is being retained by Hub. Temstar provides intermodal temperature protected services.
Hub adopted Accounting Standards Codification (ASC) topic 606 Revenue from Contracts with Customers (Topic 606) on January 1, 2018. As such, Topic 606 was effective during the six month period ended June 30, 2018, while during the years ended December 31, 2017, 2016 and 2015, Topic 606 was not effective. In addition, under Topic 606, 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 recorded on a gross basis prior to January 1, 2018. Under Topic 606, these taxes are excluded from revenue. This change had an effect of $1.2 million on revenue and transportation costs for the six months ending June 30, 2018, respectively.
(b) Reflects the elimination of revenues and expenses representing the historical operating results of the Mode business.
In addition to the elimination of revenues and expenses representing the historical Mode business, this pro forma adjustment reflects intersegment revenue and transportation costs which were eliminated in the historical consolidated financial statements.
(c) Intersegment transportation services sold to Mode were $15.2 million, $51.1 million, $76.1 million and $74.8 million for the six month period ended June 30, 2018, and the years ended December 31, 2017, 2016, and 2015, respectively. Intersegment transportation services purchased from Mode were $31.5 million, $50.6 million, $34.4 million and $7.6 million for the six month period ended June 30, 2018, and the years ended December 31, 2017, 2016, and 2015, respectively.
(d) Represents rental income from Mode that will cease. Rental income was $0.2 million for the six months ended June 30, 2018 and $0.3 million for each of the years ended December 31, 2017, 2016 and 2015.
(e) The pro forma adjustment for income tax expense was calculated as the difference between the income tax expense as reported, and pro forma income tax expense as calculated by using the statutory rate for the Company excluding the Mode business and adjusting for the impact of permanent items.
(f) Reflects estimated net cash proceeds from the Disposition of $221.3 million, representing the gross sale price of $238.5 million less certain purchase price adjustments and estimated transaction costs.
(g) Represents the assets and liabilities conveyed to the Buyer in the Disposition.
(h) Represents adjustments for the estimated taxes payable of $11.0 million caused by the gain associated with the Disposition. Taxes on the gain were calculated using a statutory rate of 24%. The pro forma adjustments also reflect the estimated realization of $19.7 million of deferred tax assets associated with the historical net operating losses and deferred taxes associated with Mode business.
| 7 |
(i) Represents the estimated after-tax gain on the Disposition of $97.3 million, which was calculated as follows:
| Estimated proceeds, net of transaction costs | $ | 221,311 | ||
| Assets of Mode | (221,784 | ) | ||
| Liabilties of Mode | 128,528 | |||
| Pre-tax gain on sale of Mode | 128,055 | |||
| Taxes on sale of Mode at the combined federal | ||||
| and state statuatory tax rate of 24% | 30,733 | |||
| After-tax gain on sale of Mode | $ | 97,322 |
NOTE 3. Transition Services Agreement
Pursuant to a transition services agreement entered into and effective on the closing of the Disposition, the Company will supply certain services to Mode. Mode will receive certain legal, human resource, tax, accounting and information technology services from the Company for a period generally not to exceed 4 months. No pro forma adjustments have been made associated with this agreement as services to be provided with a defined monetary value are not considered material, will not have a continuous impact and the variable elements are not estimable at this time.
8