SEC Filing | Hub Group Inc.

================================================================================ 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 September 30, 1999 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 (I.R.S. Employer incorporation or organization) Identification No.) 377 EAST BUTTERFIELD ROAD, SUITE 700 LOMBARD, ILLINOIS 60148 (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 __ On November 10, 1999, the registrant had 7,043,950 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 PAGE PART I. FINANCIAL INFORMATION: HUB GROUP, INC. - REGISTRANT Unaudited Condensed Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 3 Unaudited Condensed Consolidated Statements of Operations - Three Months and Nine Months Ended September 30, 1999 and 1998 4 Unaudited Condensed Consolidated Statement of Stockholders' Equity - Nine Months Ended September 30, 1999 5 Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1999 and 1998 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION 18 2

HUB GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, ---------------- ---------------- 1999 1998 ---------------- ---------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,970 $ 15,178 Accounts receivable, net 183,734 148,104 Prepaid expenses and other current assets 4,730 6,036 ---------------- --------------- TOTAL CURRENT ASSETS 196,434 169,318 PROPERTY AND EQUIPMENT, net 21,125 19,111 GOODWILL, net 221,086 115,858 OTHER ASSETS 2,014 504 ---------------- --------------- TOTAL ASSETS $ 440,659 $ 304,791 ================ =============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable Trade $ 145,876 $ 123,513 Other 11,713 7,909 Accrued expenses Payroll 8,969 6,339 Other 6,497 6,332 Deferred taxes 1,751 1,751 Current portion of long-term debt 6,106 3,161 ---------------- --------------- TOTAL CURRENT LIABILITIES 180,912 149,005 LONG-TERM DEBT, EXCLUDING CURRENT PORTION 127,986 29,589 DEFERRED TAXES 3,035 556 CONTINGENCIES AND COMMITMENTS MINORITY INTEREST 668 5,968 STOCKHOLDERS' EQUITY: Preferred stock - - Common stock 77 77 Additional paid-in capital 110,786 110,181 Purchase price in excess of predecessor basis (25,764) (25,764) Tax benefit of purchase price in excess of predecessor basis 10,306 10,306 Retained earnings 32,653 24,873 ---------------- --------------- TOTAL STOCKHOLDERS' EQUITY 128,058 119,673 ---------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 440,659 $ 304,791 ================ =============== See notes to unaudited condensed consolidated financial statements. 3

HUB GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ---------------------------- --------------------------- 1999 1998 1999 1998 -------------- ------------- ------------- ------------- Revenue $ 333,337 $ 295,859 $ 960,467 $ 834,043 Transportation costs 291,844 259,336 840,760 733,453 -------------- ------------- ------------- ------------- Net revenue 41,493 36,523 119,707 100,590 Costs and expenses: Salaries and benefits 21,014 18,396 62,413 52,861 Selling, general and administrative 9,492 7,994 27,972 23,159 Depreciation and amortization of property and equipment 975 739 2,994 2,568 Amortization of goodwill 1,434 752 3,632 2,153 Change in estimate/impairment of property and equipment - - 884 - -------------- ------------- ------------- ------------- Total costs and expenses 32,915 27,881 97,895 80,741 Operating income 8,578 8,642 21,812 19,849 -------------- ------------- ------------- ------------- Other income (expense): Interest expense (3,071) (620) (5,647) (1,913) Interest income 191 260 706 712 Other, net 131 (37) 1,113 103 -------------- ------------- ------------- ------------- Total other expense (2,749) (397) (3,828) (1,098) Income before minority interest and provision for income taxes 5,829 8,245 17,984 18,751 -------------- ------------- ------------- ------------- Minority interest 407 3,902 4,798 8,238 -------------- ------------- ------------- ------------- Income before provision for income taxes 5,422 4,343 13,186 10,513 Provision for income taxes 2,223 1,737 5,406 4,204 -------------- ------------- ------------- ------------- Net income $ 3,199 $ 2,606 $ 7,780 $ 6,309 ============== ============= ============= ============= Basic earnings per common share $ 0.42 $ 0.34 $ 1.01 $ 0.82 ============== ============= ============= ============= Diluted earnings per common share $ 0.41 $ 0.34 $ 1.00 $ 0.82 ============== ============= ============= ============= See notes to unaudited condensed consolidated financial statements. 4

HUB GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS, EXCEPT SHARES) TAX BENEFIT PURCHASE OF PURCHASE PRICE IN PRICE COMMON STOCK ADDITIONAL EXCESS OF IN EXCESS OF TOTAL ------------------------ PAID-IN PREDECESSOR PREDECESSOR RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL BASIS BASIS EARNINGS EQUITY ------------- ---------- ------------ ------------- -------------- ---------- --------------- Balance at December 31, 1998 7,672,246 $ 77 $ 110,181 $ (25,764) $ 10,306 $ 24,873 $ 119,673 Net income - - - - - 7,780 7,780 Exercise of non-qualified stock options 34,000 - 605 - - - 605 ============= ========== ============ ============= ============== ========== =============== Balance at September 30, 1999 7,706,246 $ 77 $ 110,786 $ (25,764) $ 10,306 $ 32,653 $ 128,058 ============= ========== ============ ============= ============== ========== =============== See notes to unaudited condensed consolidated financial statements. 5

HUB GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, --------------------------------- 1999 1998 ---------------- --------------- Cash flows from operating activities: Net income $ 7,780 $ 6,309 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 3,753 3,384 Amortization of goodwill 3,632 2,153 Change in estimate/impairment of property and equipment 884 - Deferred taxes 2,479 4,043 Minority interest 4,798 8,238 Loss/(Gain) on sale of assets 140 (51) Changes in working capital, net of effects of purchase transaction: Accounts receivable, net (35,630) (9,528) Prepaid expenses and other current assets 1,306 (1,217) Accounts payable 26,167 10,480 Accrued expenses 2,795 1,508 Other assets (1,510) (13) ---------------- --------------- Net cash provided by operating activities 16,594 25,306 ---------------- --------------- Cash flows from investing activities: Cash used in acquisitions, net - (3,989) Purchases of minority interest (108,710) (6,152) Purchases of property and equipment, net (6,791) (3,145) ---------------- --------------- Net cash used in investing activities (115,501) (13,286) ---------------- --------------- Cash flows from financing activities: Proceeds from sale of common stock 605 49 Distributions to minority interest (10,098) (7,349) Payments on long-term debt (49,447) (25,706) Proceeds from issuance of long-term debt 150,639 26,383 ---------------- --------------- Net cash provided by/(used in) financing activities 91,699 (6,623) ---------------- --------------- Net increase (decrease) in cash and cash equivalents (7,208) 5,397 Cash and cash equivalents, beginning of period 15,178 12,056 ---------------- --------------- Cash and cash equivalents, end of period $ 7,970 $ 17,453 ================ =============== Supplemental disclosures of cash flow information Cash paid for: Interest $ 4,256 $ 1,873 Income taxes 1,624 1,041 See notes to unaudited condensed consolidated financial statements. 6

HUB GROUP, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. INTERIM FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements of Hub Group, Inc. (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. However, the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. The financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position and results of operations. NOTE 2. BUSINESS COMBINATIONS On April 1, 1998, the Company acquired all the outstanding stock of Quality Intermodal Corporation for $4,080,000 in cash and $6,100,000 through the issuance of a three-year note, bearing interest at an annual rate of 5.6%. The acquisition was recorded using the purchase method of accounting resulting in preliminary goodwill of $9,028,000 at September 30, 1998. The purchase price was subsequently adjusted resulting in goodwill of $9,608,000. On August 1, 1998, Hub Distribution acquired all the outstanding stock of Corporate Express Distribution Services ("CEDS") for $750,000 in cash. The acquisition was recorded using the purchase method of accounting resulting in goodwill of $390,750. Business acquisitions which involved the use of cash were accounted for as follows: NINE MONTHS ENDED SEPTEMBER 30, 1998 ------------------- (000'S) Accounts receivable $ 8,698 Prepaid expenses and other current assets 57 Property and equipment 779 Goodwill 9,419 Other assets 15 Accounts payable (7,483) Accrued expenses (461) Long-term debt (7,035) ------------------- Cash used in acquisitions, net $ 3,989 ------------------- 7

NOTE 3. EARNINGS PER SHARE The following is a reconciliation of the Company's Earnings per Share: THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 --------------------------- ------------------------- (000'S) (000'S) --------------- -------------- Per-Share Per-Share INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------- ------ --------- ------ ------ --------- BASIC EARNINGS PER SHARE Income available to common stockholders $3,199 7,704 $0.42 $2,606 7,655 $0.34 ------ ----- ----- ------ ----- ----- EFFECT OF DILUTIVE SECURITIES Stock options - 82 - - 60 - ------ ----- ----- ------ ----- ----- DILUTED EARNINGS PER SHARE Income available to common stockholders plus assumed exercises $3,199 7,786 $0.41 $2,606 7,715 $0.34 ------ ----- ----- ------ ----- ----- NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 --------------------------- ------------------------- (000'S) (000'S) --------------- -------------- Per-Share Per-Share INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------- ------ --------- ------ ------ --------- BASIC EARNINGS PER SHARE Income available to common stockholders $7,780 7,688 $1.01 $6,309 7,654 $0.82 ------ ----- ----- ------ ----- ----- EFFECT OF DILUTIVE SECURITIES Stock options - 76 - - 83 - ------ ----- ----- ------ ----- ----- DILUTED EARNINGS PER SHARE Income available to common stockholders plus assumed exercises $7,780 7,764 $1.00 $6,309 7,737 $0.82 ------ ----- ----- ------ ----- ----- NOTE 4. PURCHASE OF MINORITY INTERESTS On April 1, 1998, the Company purchased the remaining 70% minority interests in Hub City Dallas, L.P., Hub City Houston, L.P. and Hub City Rio Grande, L.P. for approximately $6,152,000 in cash. As the amount paid for each of the purchases of minority interest equaled the basis in excess of the fair market value of assets acquired and liabilities assumed, the amount paid was recorded as goodwill. The purchase price was subsequently adjusted resulting in goodwill of $6,730,000. On April 1, 1999, the Company purchased the remaining 70% minority interests in Hub City Alabama, L.P., Hub City Atlanta, L.P., Hub City Boston, L.P., Hub City Canada, L.P., Hub City Cleveland, L.P., Hub City Detroit, L.P., Hub City Florida, L.P., Hub City Indianapolis, L.P., Hub City Kansas City, L.P., Hub City Mid-Atlantic, L.P., Hub City New York/New Jersey, L.P., Hub City New York State, L.P., Hub City Ohio, L.P., Hub City Philadelphia, L.P., Hub City Pittsburgh, L.P., Hub City Portland, L.P. and Hub City St. Louis, L.P. for approximately $108,710,000 in cash. The acquisition was recorded using the purchase method of accounting resulting in preliminary goodwill of $108,710,000 to be amortized over a 40 year life. 8

NOTE 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following: SEPTEMBER 30, DECEMBER 31, ------------------------------------- 1999 1998 ----------------- ------------------- (000'S) Building and improvements $ 55 $ 53 Leasehold improvements 1,435 1,206 Computer equipment and software 18,719 15,816 Furniture and equipment 7,181 5,722 Transportation equipment and automobiles 4,706 5,318 ----------------- ------------------ 32,096 28,115 Less: Accumulated depreciation and amortization (10,971) (9,004) ----------------- ------------------ PROPERTY AND EQUIPMENT, net $ 21,125 $ 19,111 ================= ================== NOTE 6. LONG-TERM DEBT AND FINANCING ARRANGEMENTS Fair value approximates book value at the balance sheet date. SEPTEMBER 30, ------------------ 1999 ------------------ (000'S) Installment notes payable due through 2001, monthly installments ranging from $365 - $16,103, including interest, ranging from 2.9% to 12.0%, collateralized by certain equipment $ 977 Bank lines of credit (see below) 29,000 Unsecured term notes, with quarterly payments ranging from $1,250,000 to $2,000,000 with a balloon payment of $19 million due March 31, 2004; interest is due quarterly at a floating rate based upon LIBOR (London Interbank Offered Rate) or Prime rate (see below). At September 30, 1999, interest rates range from 7.8% to 8.37% 48,750 Unsecured notes, mature on June 25, 2009 with annual payments of $10,000,000 commencing on June 25, 2005; interest is paid quarterly at 8.64% 50,000 Unsecured notes payable due in one balloon payment of $5,225,000 on April 1, 2001; interest is due annually and is paid at 5.6% 5,225 Capital lease obligations, collateralized by certain equipment 140 ------------------ Total long-term debt 134,092 Less current portion (6,106) ------------------ $ 127,986 ------------------ Aggregate principal payments, in thousands, due subsequent to September 30, 1999, are as follows: 1999 (Remaining three months) $ 1,538 2000 6,250 2001 12,299 2002 8,003 2003 and thereafter 106,002 ------------------ $ 134,092 ------------------ 9

On March 18, 1996, the Company assumed a line of credit for $5,000,000. This line of credit was not used at September 30, 1999. On April 30, 1999, the Company closed on an unsecured $50.0 million five-year revolving line of credit with a bank. The Company can borrow at the prime rate or up to prime plus 1% on a day-to-day basis or may borrow for 30, 60, 90 or 180 day periods at LIBOR plus 1.25% to 2.50% based on the Company's funded debt to EBITDAM (earnings before interest expense, income taxes, depreciation, amortization and minority interest) ratio. The credit facility also contains certain financial covenants which, among others, requires that the Company maintain required levels of EBITDAM, funded debt to EBITDAM, fixed charge coverage and current assets to current liabilities. In addition, there are limitations on additional indebtedness as well as acquisitions and minority interest purchases. The Company was in compliance with these covenants at September 30, 1999. Advances on this line of credit at September 30, 1999 were $29,000,000 with interest rates ranging between 7.83% and 7.88% and are classified as long term debt. The unsecured term notes have a floating interest rate. The Company can borrow at the prime rate or up to prime plus 1.25% on a day-to-day basis or may borrow for 30, 60, 90 or 180 day periods at LIBOR plus 1.50% to 2.75% based on the Company's funded debt to EBITDAM ratio. On April 30, 1999, under the term notes and the $50.0 million line of credit debt agreement, the Company was required to enter into an interest rate swap agreement designated as a hedge on a portion of the Company's variable rate debt. The purpose of the swap was to fix the interest rate on a portion of the variable rate debt and reduce certain exposures to interest rate fluctuations. At September 30, 1999, the Company had an interest rate swap with a notional amount of $25.0 million, a weighted average pay rate of 8.37%, a weighted average receive rate of 8.08% and a maturity date of September 30, 2002. This swap agreement involves the exchange of amounts based on the variable interest rate for amounts based on the fixed interest rate over the life of the agreement, without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. On June 25, 1999, the Company closed on $50.0 million of private placement debt (the "Notes"). These Notes are unsecured and have an eight-year average life with a coupon interest rate of 8.64% paid quarterly. The Notes contain certain covenants which the Company was in compliance with at September 30, 1999. NOTE 7. CHANGE IN ESTIMATE/IMPAIRMENT OF PROPERTY AND EQUIPMENT In the second quarter of 1999, an $884,000 pretax charge was recorded due to a change in estimate and an impairment loss relating to certain operating software applications. Specifically, $662,000 of this charge was attributable to a change in estimate of the useful life for the Visual Movement software previously used primarily for brokerage. The Visual Movement software is no longer being used by the Company and was replaced with enhancements to the Company's proprietary intermodal operating software during the second quarter of 1999. These enhancements allow for greater network visibility of loads in a year 2000 compliant program. The $222,000 impairment loss related to the write-down of a logistics software program. The fair value was determined based on the estimated future cash flows attributable to the single customer using this asset. During the quarter ended June 30, 1999, management decided and subsequently purchased a new logistics operating software application that is expected to be installed by December 31, 1999. This new software will provide greater functionality than the existing application. 10

HUB GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CALL OPTIONS On April 1, 1999, Hub Group, Inc. ("Hub Group" or the "Company") exercised its call options to acquire the remaining 70% minority interests in Hub City Alabama, L.P., Hub City Atlanta, L.P., Hub City Boston, L.P., Hub City Canada, L.P., Hub City Cleveland, L.P., Hub City Detroit, L.P., Hub City Florida, L.P., Hub City Indianapolis, L.P., Hub City Kansas City, L.P., Hub City Mid-Atlantic, L.P., Hub City New York/New Jersey, L.P., Hub City New York State, L.P., Hub City Ohio, L.P., Hub City Philadelphia, L.P., Hub City Pittsburgh, L.P., Hub City Portland, L.P. and Hub City St. Louis, L.P. (collectively referred to as the "April 1999 Rollup"). The Company paid $108.7 million in cash. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998 REVENUE Revenue for Hub Group increased 12.7% to $333.3 million from $295.9 million in 1998. Intermodal revenue increased 6.1% to $249.1 million from $234.9 million in 1998. Management believes the intermodal growth was somewhat negatively impacted by service disruption from the split-up of Conrail which began on June 1, 1999. Truckload brokerage revenue increased 16.5% to $50.1 million from $43.0 million in 1998. A change in business mix to a greater proportion of short haul loads accounted for the lower growth rate in truckload brokerage than has been experienced in recent quarters. Logistics revenue increased 89.9% to $34.1 million from $18.0 million in 1998. This increase is primarily due to the increase in revenue from the Company's niche logistic services performed by Hub Group Distribution Services ("Hub Distribution"). NET REVENUE Net revenue increased to $41.5 million from $36.5 million in 1998. As a percentage of revenue, net revenue increased to 12.4% of revenue from 12.3% in 1998. The increase in the percentage is principally attributed to the growth in niche logistic services which earns a higher net revenue percentage of revenue than does the Company's core intermodal and brokerage service offerings. SALARIES AND BENEFITS Salaries and benefits increased 14.2% to $21.0 million from $18.4 million in 1998. As a percentage of revenue, salaries and benefits increased to 6.3% of revenue from 6.2% in 1998. The increase in the percentage is primarily attributable to the growth in niche logistic services. The Company's niche logistic services requires a higher level of salaries and benefits as compared to revenue than does the Company's core intermodal and brokerage service offerings. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased 18.7% to $9.5 million from $8.0 million in 1998. As a percentage of revenue, these expenses increased to 2.8% of revenue from 2.7% in 1998. This increase in percentage is primarily attributed to expenditures made related to information systems, travel and outside services. The Company's information systems expenditures relate to consulting, Year 2000 remediation and validation, and enhancements to the Company's operating system. Travel and related expenses increased due to a national sales meeting held in 1999 and not in the previous year. Outside service expenditures relate to contracted temporary labor and other services to handle increased business for niche logistic services and outside sales commissions. 11

DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT Depreciation and amortization of property and equipment increased 31.9% to $1.0 million from $0.7 million in 1998. The expense as a percentage of revenue increased to 0.3% from 0.2% in 1998. Third quarter 1999 depreciation and amortization expense is consistent with that of the second quarter of 1999. Third quarter 1998 expense included an adjustment that reduced the actual level of depreciation and amortization for that quarter. AMORTIZATION OF GOODWILL Amortization of goodwill increased 90.7% to $1.4 million from $0.8 million in 1998. The expense as a percentage of revenue increased to 0.4% from 0.3% in 1998. The increase in expense is attributable to the purchase of the remaining 70% minority interests in the April 1999 Rollup. OTHER INCOME (EXPENSE) Other income (expense) netted to $(2.7) million in 1999 compared to $(0.4) million in 1998. Interest expense increased to $(3.1) million from $(0.6) million in 1998. This increase in interest expense is due to the additional debt required to fund the purchases of the remaining 70% minority interests in the April 1999 Rollup. Interest income decreased to $0.2 million from $0.3 million in 1998. The decrease in interest income is due to fewer short-term investments of cash as the Company seeks to minimize the amounts outstanding under its lines of credit. Other income of $0.1 million in 1999 is an increase of $0.2 million over the prior year. This increase in other income is primarily due to the gain on the sale of various fixed assets. MINORITY INTEREST Minority interest decreased 89.6% to $0.4 million from $3.9 million in 1998. This reduction in expense is due to the purchase of the remaining 70% minority interests in the April 1999 Rollup. The $0.4 million in expense in 1999 represents the 35% minority interest in Hub Distribution. INCOME TAXES The provision for income taxes increased 28.0% to $2.2 million from $1.7 million in 1998. The Company is providing for income taxes at an effective rate of 41% in 1999. NET INCOME Net income increased 22.8% to $3.2 million from $2.6 million in 1998. EARNINGS PER SHARE Basic earnings per share increased 23.5% to $0.42 from $0.34 in 1998. Diluted earnings per share increased 20.6% to $0.41 from $0.34 in 1998. NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 REVENUE Revenue for Hub Group increased 15.2% to $960.5 million from $834.0 million in 1998. Intermodal revenue increased 7.1% to $717.1 million from $669.6 million in 1998. Management believes the intermodal growth was somewhat negatively impacted by concerns over service disruption and actual service disruption from the split-up of Conrail which began on June 1, 1999. Truckload brokerage revenue increased 20.9% to $143.9 million from $119.1 million in 1998. 12

A change in business mix to a greater proportion of short haul loads accounted for the lower growth rate in truckload brokerage than has been experienced in recent quarters. Logistics revenue increased 119.1% to $99.4 million from $45.4 million in 1998. This increase is primarily due to the increase in revenue from the Company's niche logistic services performed by Hub Distribution. NET REVENUE Net revenue increased to $119.7 million from $100.6 million in 1998. As a percentage of revenue, net revenue increased to 12.5% from 12.1% in 1998. The increase in the percentage is principally attributed to the growth in niche logistic services which earns a higher net revenue percentage of revenue than does the Company's core intermodal and brokerage service offerings. SALARIES AND BENEFITS Salaries and benefits increased 18.1% to $62.4 million from $52.9 million in 1998. As a percentage of revenue, salaries and benefits increased to 6.5% of revenue from 6.3% in 1998. The increase in the percentage is primarily attributable to the growth in niche logistic services. The Company's niche logistic services requires a higher level of salaries and benefits as compared to revenue than does the Company's core intermodal and brokerage service offerings. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased to $28.0 million from $23.2 million in 1998. As a percentage of revenue, these expenses increased to 2.9% from 2.8% in 1998. This increase in percentage is primarily attributed to expenditures made related to information systems, rent and outside services. The Company's information systems expenditures relate to consulting, Year 2000 remediation and validation, and enhancements to the Company's operating system. Rent expense increased due to the expansion of some of Hub's operating facilities. Outside service expenditures relate to contracted temporary labor to handle increased business for niche logistic services and outside sales commissions. DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT Depreciation and amortization of property and equipment increased 16.6% to $3.0 million from $2.6 million in 1998. This expense as a percentage of revenue remained constant at 0.3%. AMORTIZATION OF GOODWILL Amortization of goodwill increased 68.7% to $3.6 million from $2.2 million in 1998. The expense as a percentage of revenue increased to 0.4% from 0.3% in 1998. The increase in expense is primarily attributable to the purchase of the remaining 70% minority interests in the April 1999 Rollup. CHANGE IN ESTIMATE/IMPAIRMENT OF PROPERTY AND EQUIPMENT In the second quarter of 1999, an $0.9 million pretax charge was recorded due to a change in estimate and an impairment loss relating to certain operating software applications. Specifically, $0.7 million of this charge was attributable to a change in estimate of the useful life for the Visual Movement software previously used primarily for brokerage. The Visual Movement software is no longer being used by the Company and was replaced with enhancements to the Company's proprietary intermodal operating software during the second quarter of 1999. These enhancements allow for greater network visibility of loads in a year 2000 compliant program. The $0.2 million impairment loss related to the write-down of a logistics software program. The fair value was determined based on the estimated future cash flows attributable to the single customer using this asset. During the quarter ended June 30, 1999, management decided and subsequently purchased a new logistics operating software application that is expected to be installed by December 31, 1999. This new software will provide greater functionality than the existing application. 13

OTHER INCOME (EXPENSE) Other income (expense) netted to $(3.8) million in 1999 compared to $(1.1) million in 1998. Interest expense increased to $(5.6) million from $(1.9) million. This increase in interest expense is primarily due to the additional debt required to fund the purchases of the remaining 70% minority interests in the April 1999 Rollup. Interest income remained constant at $0.7 million in both periods. Other income increased to $1.1 million in 1999 from $0.1 million in 1998. This increase in other income is primarily due to $1.0 million of non-recurring income recognized upon execution of a confidential agreement with one of the company's vendors. MINORITY INTEREST Minority interest decreased 41.8% to $4.8 million from $8.2 million in 1998. Minority interest as a percentage of income before minority interest decreased to 26.7% from 43.9% in 1998. The purchase of the remaining 70% minority interests in the April 1999 Rollup had the effect of lowering minority interest as a percentage of income before minority interest when comparing 1999 to 1998. INCOME TAXES The provision for income taxes increased 28.6% to $5.4 million from $4.2 million in 1998. The Company is providing for income taxes at an effective rate of 41% in 1999. NET INCOME Net income increased 23.3% to $7.8 million from $6.3 million in 1998. EARNINGS PER SHARE Basic earnings per share increased 23.2% to $1.01 from $0.82 in 1998. Diluted earnings per share increased 22.0% to $1.00 from $0.82 in 1998. LIQUIDITY AND CAPITAL RESOURCES On April 30, 1999, the Company borrowed approximately $108 million of unsecured debt to pay for its purchase of the 70% limited partnership interests in the remaining limited partnerships which had a minority interest ownership. On April 30, 1999, the Company closed on a new bank facility with Harris Trust and Savings Bank ("Harris") which replaced the previous facility. The new facility is comprised of $50.0 million in term debt and a $50.0 million revolving line of credit. At September 30, 1999, there was $48.8 million outstanding term debt and $29.0 million outstanding and $21.0 million unused and available under the new line of credit with Harris. The facility is unsecured and has a five-year term with a floating interest rate based upon the LIBOR (London Interbank Offered Rate) or Prime Rate. The term debt has quarterly payments ranging from $1,250,000 to $2,000,000 with a balloon payment of $19 million due on March 31, 2004. Additionally, the Company closed and drew down on a $40.0 million bridge facility with Harris on April 30, 1999. The bridge facility had a three-month term and bore interest at the bank's prime rate plus 1%. This bridge facility of $40.0 million was paid off on June 25, 1999 and replaced with the "Notes" (see below). On June 25, 1999, the Company closed on $50.0 million of private placement debt (the "Notes"). These Notes are unsecured and have an eight-year average life with a coupon interest rate of 8.64% paid quarterly. These Notes mature on June 25, 2009, with annual payments of $10.0 million commencing on June 25, 2005. 14

At September 30, 1999, the unused and available portion of the line of credit with Cass Bank and Trust Company was $5.0 million. OUTLOOK, RISKS AND UNCERTAINTIES This "Outlook, Risks and Uncertainties" section contains statements regarding expectations, hopes, beliefs, intentions or strategies regarding the future which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties described below that could cause actual results to differ materially from those projected. The Company assumes no liability to update any such forward-looking statements. In addition to those mentioned elsewhere in this section, such risks and uncertainties include the impact of competitive pressures in the marketplace, the degree and rate of market growth in the markets served by the Company, changes in industry-wide capacity, further consolidation of rail carriers, changes in governmental regulation, changes in the cost of services from vendors and fluctuations in interest rates. YEAR 2000 STATE OF READINESS Management has broken down its Year 2000 program into four phases. Those phases are awareness, assessment, renovation and validation. The Company contracted with an outside consulting firm to perform a readiness review designed to verify that the Company is aware of all material relevant areas of concern regarding Year 2000 compatibility. This review was completed in December 1998. Management believes that it is aware of the risk areas facing the Company regarding Year 2000 and has broken that area into seven categories. The seven categories are: (i) the Company's main operating system that has been created and enhanced in-house, (ii) the Company's ancillary operating software applications which were purchased, (iii) desktop hardware and software applications, (iv) the Company's financial reporting system, (v) the Company's telephone systems, (vi) embedded technology in the Company's office equipment, physical environment and drayage tractors and (vii) the state of readiness of the Company's customers, transportation service providers and other vendors. The Company's main operating system has been renovated. The renovation, which consists of reprogramming the source code, was completed in March 1999. The validation phase was started in March 1999 and completed in September 1999. The Company is planning on testing and re-certifying the system throughout the fourth quarter of 1999. The Company believes all of its ancillary operating software applications have been assessed. All of the supporting vendors have stated their products are Year 2000 compliant. The validation phase began in March 1999 and was completed in October 1999. The Company's financial reporting system vendor has stated that their application is Year 2000 compliant. The Company executed the validation phase for the financial reporting system, successfully processing data with date parameters beyond December 31, 1999. The validation phase was started in April 1999 and completed in September 1999. The Company's desktop hardware and software application assessment is ongoing. The Company has created an inventory of all hardware and software applications. The Company is currently working with an outside consulting firm to execute the renovation and validation phases. The renovation phase will consist of updating or replacing the hardware or software application if it is not Year 2000 compliant. The renovation phase began during the second quarter of 1999. The Company has contracted with the outside consulting firm to complete the validation phase by December 31, 1999. The Company has assessed its telecommunications system during the second quarter of 1999. The Company has completed testing and upgrading of phone systems and believes that they are now Year 2000 compliant. 15

The Company is aware of the potential issues regarding embedded technology in its office equipment, physical environment and drayage tractors. During the second quarter of 1999, the Company sent out surveys to the Hub Operating Companies to obtain the relevant information in order to determine whether their embedded systems were compliant. A variety of office equipment was analyzed and assessed for Year 2000 issues. The Company has upgraded or replaced office equipment that it identified as failing to meet Year 2000 compliance standards. Similarly, the Company recognizes the potential issues regarding its physical environment, such as heat, electricity, elevators, security systems, etc., and has taken the appropriate steps to assess any issues. The Company has assessed its embedded technology in its drayage tractors and received a statement from the engine manufacturers that the tractors' embedded technology is Year 2000 compliant. The Company has identified four categories of key third parties with which the Company has a material relationship that should be assessed. Those categories are: (i) transportation needs, (ii) key vendors such as the railroads and significant providers of drayage and over-the-road services, (iii) our information network communications provider and (iv) significant third-party freight payment vendors utilized by the Company's customers. The Company has received statements from certain major customers and from certain major customers' third-party freight payment vendors regarding their Year 2000 readiness. The Company has no plans to obtain such statements from all its customers or all its customers' third-party freight payment vendors. The Company has received statements from the major railroads and many of the Company's drayage and over-the-road service providers that they are Year 2000 compliant. The Company believes, at this time, that its information network communication provider is Year 2000 compliant. COSTS In 1999, through October 31, the Company has expensed approximately $1,761,000 related to Year 2000. CONTINGENCY PLAN The Company has developed formal written contingency plans. Certain aspects of the Year 2000 contingency plans, such as dealing with an inoperative system, were simply a matter of integrating the Company's current contingency plans for dealing with the potential temporary shut downs that may occur from time to time. Other aspects of the contingency plans were developed as the Company worked through the phases of readiness. The maintenance of the contingency plans will be an ongoing process. LIQUIDITY AND CAPITAL RESOURCES The Company believes its cash from operations and its lines of credit will be sufficient to meet its debt obligations as they become due. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk related to changes in interest rates which may adversely affect its results of operations and financial condition. The Company seeks to minimize the risk from interest rate volatility through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use financial instruments for trading purposes. The Company uses both fixed and variable rate debt as described in Note 8 of the Notes to Consolidated Financial Statements in Form 10-K for the year ended December 31, 1998 and Note 6 in Form 10-Q for the quarterly period ended September 30, 1999. The Company has entered into an interest rate swap agreement designated as a hedge on a portion of the Company's variable rate debt. The purpose of the swap is to fix the interest rate on a portion of the variable rate debt and reduce certain exposures to interest rate fluctuations. At September 30, 1999, the Company had an interest rate swap with a notional amount of $25.0 million, a weighted average pay rate of 8.37%, a weighted 16

average receive rate of 8.08% and a maturity date of September 30, 2002. This swap agreement involves the exchange of amounts based on the variable interest rate for amounts based on the fixed interest rate over the life of the agreement, without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. The main objective of interest rate risk management is to reduce the total funding cost to the Company and to alter the interest rate exposure to the desired risk profile. 17

PART II. OTHER INFORMATION None. 18

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly authorized this report to be signed on its behalf by the undersigned thereunto duly authorized. HUB GROUP, INC. DATE: November 10, 1999 /S/ JAY E. PARKER ----------------- Jay E. Parker Vice President-Finance and Chief Financial Officer (Principal Financial Officer)

5 This schedule contains summary financial information extracted from Unaudited Condensed Consolidated Statements of Operations and Unaudited Condensed Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1999 SEP-30-1999 7970 0 186240 2506 0 196434 32096 10971 440659 180912 0 0 0 77 127981 440659 0 333337 0 291844 32915 79 3071 5422 2223 8578 0 0 0 3199 .42 .41