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Hub Group Inc · 10-K · For 12/31/99

Filed On 3/29/00 · SEC File 0-27754 · Accession Number 940942-0-6

  As Of               Filer                 Filing     As/For/On Docs:Pgs

 3/29/00  Hub Group Inc                     10-K       12/31/99    2:48

Annual Report · Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Form 10-K for Hub Group, Inc.                         47    176K 
 2: EX-27       12/31/99 Financials                                    1      4K

10-K · Form 10-K for Hub Group, Inc.
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Business Certain Relationships and Related Transactions Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Directors and Executive Officers of the Registrant Executive Compensation Executive Officers of the Registrant Exhibits, Financial Statement Schedules & Reports on Form 8-K Financial Statements and Supplementary Data Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Market for Registrants Common Equity and Related Shareholder Matters Outlook, Risks and Uncertainties Properties Quantitative and Qualitative Disclosures About Market Risk Security Ownership of Certain Beneficial Owners and Management Selected Financial Data Submission of Matters to A Vote of Security Holders Year 2000
1	1st Page
2	Item 1. Business
7	Item 2. Properties
8	Item 3. Legal Proceedings
"	Item 4. Submission of Matters to A Vote of Security Holders
9	Executive Officers of the Registrant
11	Item 5. Market for Registrants Common Equity and Related Shareholder Matters
12	Item 6. Selected Financial Data
13	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
18	Outlook, Risks and Uncertainties
"	Year 2000
21	Item 7a. Quantitative and Qualitative Disclosures About Market Risk
22	Item 8. Financial Statements and Supplementary Data
40	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"	Item 10. Directors and Executive Officers of the Registrant
"	Item 11. Executive Compensation
"	Item 12. Security Ownership of Certain Beneficial Owners and Management
"	Item 13. Certain Relationships and Related Transactions
41	Item 14. Exhibits, Financial Statement Schedules & Reports on Form 8-K

10-K 1st Page of 47 TOC Top Previous Next Bottom Just 1st

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1999

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission File No. 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 of organization) Identification No.)

377 E. BUTTERFIELD ROAD, SUITE 700
LOMBARD, ILLINOIS 60148
(Address and zip code of principal executive offices)
(630) 271-3600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

CLASS A COMMON STOCK, $.01 PAR VALUE

(Title of Class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the Registrant's voting stock held by
non-affiliates on March 27, 2000, based upon the last reported sale price on
that date on the NASDAQ National Market of $15 7/8 per share, was $110,763,844.

On March 27, 2000, 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.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 17, 2000, (the "Proxy Statement") is incorporated
by reference in Part III of this Form 10-K to the extent stated herein. Except
with respect to information specifically incorporated by reference in this Form
10-K, the Proxy Statement is not deemed to be filed as a part hereof.

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PART I

ITEM 1. BUSINESS

GENERAL

Hub Group, Inc. ("Hub Group" or the "Company") is a Delaware corporation
which was incorporated on March 8, 1995. Since its founding as an intermodal
marketing company ("IMC") in 1971, Hub Group has grown to become the largest IMC
in the United States and a full service transportation provider, offering
intermodal, truck brokerage and comprehensive logistics services.

The Company operates through an extensive nationwide network of 29 offices
or "Hubs." Each Hub is strategically located in a market that has a significant
concentration of shipping customers and one or more railheads. Each Hub
functions essentially as a stand-alone business managed locally by an executive,
known as a "Principal," with significant transportation experience. Local
management is responsible for operations, customer service and regional
marketing, while corporate management is responsible for group strategic
planning and administration, financial services, relationships with the
railroads and management information systems support. Hub Group also maintains a
National Accounts sales force to provide centralized marketing of the Company's
services to large and geographically diversified shippers.

On March 18, 1996, Hub Group purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition. Concurrent with the acquisition of
Hub Chicago, Hub Group completed the initial public offering of 4,261,250 shares
of its Class A common stock (the "Class A Common Stock"), with net proceeds to
Hub Group of $52.9 million. Simultaneously with the initial public offering, Hub
Group, through its new wholly owned subsidiary, Hub Chicago, acquired with cash
the general partnership interests in 26 operating partnerships, each with one or
more offices. In addition, Hub Group directly acquired with cash a controlling
interest in the Hub Group Distribution Services partnership ("Hub Distribution")
which performs certain specialized logistics functions (each of the 26 operating
partnerships and Hub Distribution are a "Hub Partnership" and collectively are
the "Hub Partnerships"). With the exception of Hub Distribution, the Company had
the continuing option, exercisable any time after the Principal currently
associated with a Hub Partnership ceased to be an employee of that Hub
Partnership, to purchase the limited partnership interest in that Hub
Partnership. The decision as to whether or when to exercise an option to acquire
the limited partnership interest in a Hub Partnership was made by the
independent members of the Company's Board of Directors. Unless the context
otherwise requires, references to "Hub Group" or the "Company" include Hub
Chicago, the Hub Partnerships and their respective subsidiaries.

On April 1, 1999, the Company exercised its option 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. (which purchase is referred to herein as the "April Purchase") for an
aggregate purchase price of approximately $108.7 million in cash. Except for
Hub Distribution, of which the Company owns 65%, the Company now wholly-owns all
of the Hub Partnerships and the Company's operations in North America and
Europe.

On May 1, 1998, the Company formally launched its new Hub Group Premier
Service Network in conjunction with the Burlington Northern and Santa Fe Railway
Company ("BNSF"). During 1998, the Company took on the management of
approximately 2000 48' x 102" containers and approximately 180 53' x 102"
containers from BNSF for dedicated use throughout the BNSF intermodal container
network. On March 1 1999, the Company and BNSF entered into a multi-year
extension and expansion of this program. In accordance with this new agreement,
the Company and BNSF added an additional 1000 53' x 102" containers during 1999.

On June 1, 1999, the Company and the Norfolk Southern Corporation ("NS")
entered into a multi-year agreement expanding the Company's Premier Service
Network onto NS's rail system. In accordance with this agreement, the Company
took on the management of 675 53' x 102" containers from the NS during 1999. The
BNSF containers and the NS containers are fully interchangeable across both the
BNSF and NS rail networks.

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On December 31, 1999, each of the Hub Partnerships, except for Hub
Distribution and Hub City Texas, L.P., converted to a limited liability company.
Also on December 31, 1999, Hub Holdings, Inc., a wholly-owned subsidiary of Hub
Group, merged with and into Hub Chicago, making each limited liability company a
wholly-owned subsidiary of Hub Chicago.

On March 13, 2000, the Company signed a letter of intent pursuant to which
the Company agreed to sell its 65% interest in Hub Distribution for $65 million
in cash and warrants to purchase 5% of the outstanding shares of stock of Hub
Distribution. The sale of this interest is subject to a number of customary
conditions and there is therefore no guarantee that a transaction will
ultimately be consummated.

SERVICES PROVIDED

The Company's transportation services can be broadly placed into the
following categories:

INTERMODAL As an IMC, the Company arranges for the movement of its
customers' freight in containers and trailers over long distances. Hub Group
contracts with railroads to provide transportation over the long-haul portion of
the shipment and with local trucking companies, known as "drayage companies,"
for pickup and delivery. In markets where adequate service is not available, the
Company supplements third party drayage services with Company-owned drayage
operations. As part of its intermodal services, the Company negotiates rail and
drayage rates, electronically tracks shipments in transit, consolidates billing
and handles claims for freight loss or damage on behalf of its customers. The
Company uses its Hub network, connected through its proprietary advanced
intermodal management ("AIM") system, to access containers and trailers owned by
leasing companies, railroads and steamship lines. The Company also has exclusive
use of the containers in its Premier Service Network. Because each Hub not only
handles its own outbound shipments but also handles inbound shipments from other
Hubs, each Hub is able to track trailers and containers entering its service
area and reuse that equipment to fulfill its customers' outbound shipping
requirements. This effectively allows the Company to "capture" containers and
trailers and keep them within the Hub network without having to make a capital
investment in transportation equipment.

HIGHWAY SERVICES The Company arranges for the transportation of freight by
truck, providing customers another option for their transportation needs. This
is accomplished by matching customers' needs with carriers' capacity to provide
the appropriate service and price combination. The Company has contracts with a
substantial base of carriers allowing it to meet the varied needs of its
customers. The Company negotiates rates, tracks shipments in transit,
consolidates billing and handles claims for freight loss and damage on behalf of
its customers. The Company's brokerage operation also provides customers with
specialized programs. Through the Dedicated Trucking program, certain carriers
have informally agreed to move freight for Hub's customers on a continuous
basis. This arrangement allows Hub to gain control of the trucking equipment to
effectively meet its customer's needs without owning the equipment. Through the
Core Carrier-Plus One program, Hub assumes the responsibility for over-the-road
truckload shipments that the customer's core carriers cannot handle. This
service supplements the customer's core carrier program and helps ensure the
timely delivery of the customer's freight.

LOGISTICS The Company has expanded its service capabilities as customers
increasingly outsource their transportation needs. The Company currently offers
various logistics services, including comprehensive transportation management,
arranging for delivery to multiple locations at the shipment's destination,
third party warehousing and other customized logistics services, as well as
other non-traditional logistics services such as installation of point of sale
merchandise displays.

When providing complete transportation services, the Company essentially
replaces the customer's transportation department. Once the Company is hired as
a single source logistics provider, it negotiates with intermodal, railcar,
truckload and less-than-truckload carriers to move the customer's product
through the supply chain and then dispatches the move for the customer. Using
its advanced transportation management software ("ATMS"), the Company
consolidates orders into full truckload shipments, chooses a shipping route,
electronically tenders loads to carriers and reports the move to the customer.

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HUB NETWORK

Over the past 29 years, Hub Group has grown from a single office with two
employees into a network of 27 Hubs in the United States, one Hub in Canada and
one Hub in Mexico. Hub Group also has several satellite sales offices. In
developing this network, the Company has carefully selected each location to
ensure coverage in areas with significant concentrations of shipping customers
and one or more railheads. Hub Group currently has Hubs in the following cities:

Atlanta Houston Milwaukee St. Louis
Baltimore Indianapolis New Orleans Salt Lake City
Boston Jacksonville New York City San Francisco
Chicago (3) Kansas City Philadelphia Seattle
Cleveland Los Angeles Pittsburgh Toledo
Detroit Memphis Portland Toronto
Grand Rapids Mexico City Rochester

The entire Hub network is interactively connected through the Company's AIM
system. This enables Hub Group to move freight into and out of every major city
in the United States and most locations in Canada and Mexico.

Each Hub manages the freight originating in or destined for its service
area. In a typical intermodal transaction, the customer contacts the local Hub
to obtain shipping schedules and a price quote for a particular freight
movement. The local Hub obtains the necessary intermodal equipment, arranges for
it to be delivered to the customer by a drayage company and, after the freight
is loaded, arranges for the transportation of the container or trailer to the
rail ramp. Information is entered into the AIM system by the local Hub, which
monitors the shipment to ensure that it will arrive as scheduled. This
information is simultaneously transmitted through the AIM system to the Hub
closest to the point of delivery, which arranges for and confirms delivery by a
drayage company. This arrangement among the Hubs is transparent to the customer
and allows the customer to maintain its relationship solely with the originating
Hub.

The Company provides brokerage services to its customers in a similar
manner. In a typical brokerage transaction, the customer contacts the local Hub
to obtain transit information and a price quote for a particular freight
movement. The customer then provides appropriate shipping information to the
local Hub. The local Hub makes the delivery appointment and arranges with the
appropriate carrier to pick up the freight. Once it receives confirmation that
the freight has been picked up, the local Hub monitors the movement of the
freight until it reaches its destination and the delivery has been confirmed. If
the carrier notifies Hub Group that after delivering the load it will need
additional freight, the Hub located nearest the destination is notified of the
carrier's availability. Although it is under no obligation to do so, the local
Hub then may attempt, if requested by the carrier, to secure freight for the
carrier.

MARKETING AND CUSTOMERS

The Company believes that fostering long-term customer relationships is
critical to the Company's success. Through these long-term relationships, the
Company is able to better understand its customer's needs and to tailor
transportation services for a specific customer, regardless of the customer's
size or volume. The Company has created a database of current and prospective
customers, profiling each customer's shipping patterns, which the Company
periodically updates. This database allows the Company to target its marketing
to meet each customer's specific requirements.

The Company currently has full time marketing representatives at each Hub
with primary responsibility for servicing local and regional accounts. These
sales representatives work from the 29 Hubs and the Company's satellite sales
offices. This network provides a local marketing contact for small and medium
shippers in most major metropolitan areas within the United States.

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In 1985, the Company established the National Accounts group to service the
needs of the nation's largest shippers. The Company recognized that although
large shippers originate freight from multiple locations throughout the country,
their logistics function is usually centralized. The Company essentially
mirrored this structure by servicing national accounts from a central location
and parceling out the servicing of individual freight shipments to the
appropriate Hub. There are currently 21 National Accounts sales representatives
who report to the Company's Executive Vice President of National Accounts. The
National Accounts sales representatives regularly call on the nation's largest
shippers to develop business relationships and to expand the Company's
participation in servicing their transportation needs. When a business
opportunity is identified by a National Accounts sales representative, the
Company's market development and pricing personnel and the local Hubs work
together to provide a transportation solution tailored to the customer's needs.
Local Hubs provide transportation services to National Accounts customers. After
the plan is implemented, National Accounts' personnel maintain regular contact
with the shipper to ensure customer satisfaction and to refine the process as
necessary.

This unique combination of local and regional marketing has produced a
large, diverse customer base. The Company services customers in a wide variety
of industries, including automotive, consumer products, printing, paper, retail,
chemicals and electronics.

MANAGEMENT INFORMATION SYSTEMS

A primary component of the Company's business strategy is the continued
improvement of its AIM system and other technology to ensure that the Company
will remain a leader among transportation providers in information processing
for transportation services. The AIM system consists of a network of IBM AS/400
computers located at the Hubs and linked to a host computer at the Company's
headquarters. Hub Group uses IBM's Global Network as the nucleus for linking its
computers and databases. This configuration provides a real time environment for
transmitting data among the Hubs and the Company's headquarters using electronic
data interchange ("EDI"), electronic mail and other protocols. It also allows
Hub to communicate electronically with each railroad, certain drayage companies
and those customers with EDI capabilities.

The Company's proprietary AIM system is the primary mechanism used by the
Hubs to process customer transportation requests, schedule and track shipments,
prepare customer billing, establish account profiles and retain critical
information for analysis. The AIM system provides connectivity with each of the
major rail carriers, enabling the Company to electronically schedule and track
shipments in a real time environment. In addition, the AIM system's EDI features
offer customers with EDI capability a completely paperless process, including
load tendering, shipment dispatch, shipment tracking, customer billing and
remittance processing. The Company aggressively pursues opportunities to
establish EDI interfaces with its customers and carriers.

To more effectively manage its highway services business, the Company
utilizes software that is designed to automate the Company's highway services
operations. This software processes customer transportation requests, schedules
and tracks shipments, prepares customer billing, establishes account profiles
and retains critical information for analysis. It also interfaces with the
carrier by handling load tendering, shipment dispatch, shipment tracking,
customer billing and remittance processing.

During 1999 the Company began work on a number of web-based software
applications. The Company began the process of implementing the first of these
applications, Vendor Interface, in the fourth quarter of 1999. Vendor Interface
was designed to allow the Company's drayage partners to interface with the
Company using the internet rather than phone or faxes. Vendor Interface allows
the Company to tender loads to draymen, captures event status and helps
facilitate appropriate payment. Current internet applications are, and future
internet applications will be, integrated with the AIM system.

The Company also purchased a new software package in 1999 designed to
replace its existing ATMS. This software may be used by the Company when
offering logistics management services to customers that ship via multiple
modes, including intermodal, truckload, and less than truckload, allowing the
Company to optimize mode and carrier selection and routing for its customers.
The Company has installed this software package and is currently preparing the
software for its operational applications.

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RELATIONSHIP WITH RAILROADS

A key element of the Company's business strategy is to strengthen its close
working relationship with each of the major intermodal railroads in the United
States. The Company views its relationship with the railroads as a partnership.
Due to the Company's size and relative importance, many railroads have dedicated
support personnel to focus on the Company's day-to-day service requirements. On
a regular basis, senior executives of the Company and each of the railroads meet
to discuss major strategic issues concerning intermodal transportation. Several
of the Company's executive officers, including both the Company's Chairman and
President, are former railroad employees, which makes them well-suited to
understand the railroads' service capabilities.

The Company has contracts with each of the following major railroads:

Burlington Northern Santa Fe Railway Kansas City Southern
Canadian Pacific Norfolk Southern
CSX Union Pacific
Illinois Central

The Company also has contracts with each of the following major fourth-party
service providers: Mitsui O.S.K. Lines (America) Inc., Pacer International, Inc.
and K-Line America, Inc..

These contracts govern the transportation services and payment terms
pursuant to which the Company's intermodal shipments are handled by the
railroads. The contracts have staggered renewal terms with the earliest
expiration occurring during 2000. While there can be no assurances that these
contracts will be renewed, the Company has in the past successfully negotiated
extensions of these contracts. Transportation rates are market driven and are
typically negotiated between the Company and the railroads or fourth-party
service providers on a customer specific basis. Consistent with industry
practice, many of the rates negotiated by the Company are special commodity
quotations ("SCQs"), which provide discounts from published price lists based on
competitive market factors and are designed by the railroads or fourth-party
service providers to attract new business or to retain existing business. SCQ
rates are generally issued for the account of a single IMC. SCQ rates apply to
specific customers in specified shipping lanes for a specific period of time,
usually six to 12 months.

RELATIONSHIP WITH DRAYAGE COMPANIES

In 1990, the Company instituted its "Quality Drayage Program," which
consists of agreements and rules that govern the framework pursuant to which the
drayage companies perform services for the Company. Participants in the program
commit to provide high quality service, clean and safe equipment, maintain a
defined on-time performance level and follow specified procedures designed to
minimize freight loss and damage. Whenever possible, the Company uses the
services of drayage companies that participate in its Quality Drayage Program.
However, during periods of high demand for drayage services or at the request of
a customer, the Company will use the services of other drayage companies. The
local Hubs negotiate drayage rates for transportation between specific origin
and destination points. These rates generally are valid, with minor exceptions
for fuel surcharge increases, for a period of one year.

RELATIONSHIP WITH TRUCKLOAD CARRIERS

The Company's brokerage operation has a large and growing number of active
carriers in its database which it uses to transport freight. The local Hubs deal
daily with these carriers on an operational level. Hub Highway Services, a
partnership controlled by the Company, handles the administrative and regulatory
aspects of the carrier relationship. Hub's relationships with its carriers are
important since these relationships determine pricing, load coverage and overall
service.

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RISK MANAGEMENT AND INSURANCE

The Company requires all drayage companies participating in the Quality
Drayage Program to carry at least $1.0 million in general liability insurance,
$1.0 million in truckman's auto liability insurance and to obtain, either on
their own or through the Company, $1.0 million in cargo insurance. Railroads,
which are self insured, provide limited cargo protection, generally up to
$250,000 per shipment, although higher coverage is available on a load-by-load
basis. To cover freight loss or damage when a carrier's liability cannot be
established or a carrier's insurance is insufficient to cover the claim, the
Company carries its own cargo insurance with a limit of $2.0 million per
container or trailer and a limit of $20 million per occurrence. The Company also
carries general liability insurance with limits of $1.0 million per occurrence
and $2.0 million in the aggregate with a companion $10.0 million umbrella policy
on this general liability insurance.

GOVERNMENT REGULATION

Hub Highway Services is licensed by the Department of Transportation
("DOT") as a broker in arranging for the transportation of general commodities
by motor vehicle. To the extent that the Hubs perform truck brokerage services,
they do so under the license granted to Hub Highway Services. The DOT prescribes
qualifications for acting in this capacity, including certain surety bonding
requirements. While the DOT requires a $10,000 surety bond to maintain this
license, the Company has voluntarily posted a $300,000 surety bond. To date,
compliance with these regulations has not had a material adverse effect on the
Company's results of operations or financial condition. However, the
transportation industry is subject to legislative or regulatory changes that can
affect the economics of the industry by requiring changes in operating practices
or influencing the demand for, and cost of providing, transportation services.

COMPETITION

The transportation services industry is highly competitive. The Company
competes against other IMCs, as well as logistics companies, third party
brokers, over-the-road truckload carriers and railroads that market their own
intermodal services. There is an emerging trend for larger truckload carriers to
enter into agreements with railroads to market intermodal services nationwide.
In addition, many existing and start-up companies are using the internet to
market transportation services. Competition is based primarily on freight rates,
quality of service, reliability, transit time and scope of operations. Several
transportation service companies and truckload carriers, and all of the major
railroads, have substantially greater financial and other resources than the
Company.

GENERAL

EMPLOYEES As of February 29, 2000, the Company had approximately 1,593
employees. The Company is not a party to any collective bargaining agreement and
considers its relationship with its employees to be satisfactory.

OTHER No material portion of the Company's operations is subject to
renegotiation of profits or termination of contracts at the election of the
federal government. The Company has not spent a material amount on company
sponsored research and development activities or on customer sponsored research
activities. None of the Company's patents and trademarks is believed to be
material to the Company. The Company's business is seasonal to the extent that
certain customer groups, such as retail, are seasonal.

ITEM 2. PROPERTIES

The Company directly, or indirectly through the Hub Partnerships, operates
41 offices throughout the United States and in Canada and Mexico, including the
Company's headquarters in Lombard, Illinois and its Company-owned drayage
operations. On March 1, 1999, the Company relocated its National Accounts office
in Stamford, Connecticut to corporate headquarters in Lombard, Illinois. The
office building used by the Hub located in Toledo is owned, and the remainder
are leased. Most office leases have initial terms of more than one year, and
many include options to renew. While some of the Company's leases are
month-to-month and others expire in the near term, the Company does not believe
that it will have difficulty in renewing them or in finding alternative office
space. The Company believes that its offices are adequate for the purposes for
which they are currently used.

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ITEM 3. LEGAL PROCEEDINGS

The Company is a party to routine litigation incident to its business,
primarily claims for freight lost or damaged in transit or improperly shipped.
Most of the lawsuits to which the Company is party are covered by insurance and
are being defended by the Company's insurance carriers. Management does not
believe that the litigation to which it is currently a party, if determined
adversely to the Company, would individually or in the aggregate have a
materially adverse effect on the Company's financial position or results of
operations. See Item 1 Business - Risk Management and Insurance.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of 2000.

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EXECUTIVE OFFICERS OF THE REGISTRANT

In reliance on General Instruction G to Form 10-K, information on executive
officers of the Registrant is included in this Part I. The table sets forth
certain information as of March 20, 2000 with respect to each person who is an
executive officer of the Company.

NAME AGE POSITION
------------------ ----- --------------------------------------------------
Phillip C. Yeager 72 Chairman of the Board of Directors
David P. Yeager 47 Vice Chairman of the Board of Directors and Chief
Executive Officer
Thomas L. Hardin 54 President, Chief Operating Officer and Director
Mark A. Yeager 35 President- Field Operations
Daniel F. Hardman 51 President-Chicago Region
Jay E. Parker 35 Vice President-Finance, Chief Financial Officer
and Treasurer
John T. Donnell 60 Executive Vice President-National Accounts
Richard M. Rogan 60 President-Hub Highway Services, Executive Vice
President-Marketing
Daniel L. Sellers 44 Vice President-Information Services and Chief
Information Officer
David C. Zeilstra 30 Vice President, Secretary and General Counsel

Phillip C. Yeager, the Company's founder, has been Chairman of the Board
since October 1985. From April 1971 to October 1985, Mr. Yeager served as
President of Hub Chicago. Mr. Yeager became involved in intermodal
transportation in 1959, five years after the introduction of intermodal
transportation in the United States, as an employee of the Pennsylvania and
Pennsylvania Central Railroads. He spent 19 years with the Pennsylvania and
Pennsylvania Central Railroads, 12 of which involved intermodal transportation.
In 1991, Mr. Yeager was named Man of the Year by the Intermodal Transportation
Association. In 1995, he received the Salzburg Practitioners Award from Syracuse
University in recognition of his lifetime achievements in the transportation
industry. In October 1996, Mr. Yeager was inducted into the Chicago Area
Entrepreneurship Hall of Fame sponsored by the University of Illinois at
Chicago. In March 1997, he received the Presidential Medal from Dowling College
for his achievements in transportation services. In September 1998 he received
the Silver Kingpin award from the Intermodal Association of North America and in
February 1999 he was named Transportation Person of the Year by the New York
Traffic Club. Mr. Yeager graduated from the University of Cincinnati in 1951
with a Bachelor of Arts degree in Economics. Mr. Yeager is the father of David
P. Yeager and Mark A. Yeager.

David P. Yeager has served as the Company's Vice Chairman of the Board
since January 1992 and as Chief Executive Officer of the Company since March
1995. From October 1985 through December 1991, Mr. Yeager was President of Hub
Chicago. From 1983 to October 1985, he served as Vice President, Marketing of
Hub Chicago. Mr. Yeager founded the St. Louis Hub in 1980 and served as its
President from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 and
served as its President from 1975 to 1977. Mr. Yeager received a Masters in
Business Administration degree from the University of Chicago in 1987 and a
Bachelor of Arts degree from the University of Dayton in 1975. Mr. Yeager is the
son of Phillip C. Yeager and the brother of Mark A. Yeager. Mr. Yeager also
serves as a director of SPR Inc.

Thomas L. Hardin has served as the Company's President since October 1985
and has served as Chief Operating Officer and a director of the Company since
March 1995. From January 1980 to September 1985, Mr. Hardin was Vice
President-Operations and from June 1972 to December 1979, he was General Manager
of the Company. Prior to joining the Company, Mr. Hardin worked for the Missouri
Pacific Railroad where he held various marketing and pricing positions. Mr.
Hardin is presently Chairman of the Intermodal Association of North America.

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Mark A. Yeager has been the Company's President-Field Operations since
July 1999. From November 1997 through June 1999 Mr. Yeager was Division
President, Secretary and General Counsel. From March 1995 to November 1997,
Mr. Yeager was Vice President, Secretary and General Counsel. From May 1992 to
March 1995, Mr. Yeager served as the Company's Vice President-Quality. Prior to
joining the Company in 1992, Mr. Yeager was an associate at the law firm of
Grippo & Elden from January 1991 through May 1992 and an associate at the law
firm of Sidley & Austin from May 1989 through January 1991. Mr. Yeager received
a Juris Doctor degree from Georgetown University in 1989 and a Bachelor of Arts
degree from Indiana University in 1986. Mr. Yeager is the son of Phillip C.
Yeager and the brother of David P. Yeager.

Daniel F. Hardman has been the President-Chicago Region since February
1996. Mr. Hardman has been employed by the Hub Group since 1982, serving as
President of Hub Chicago from December 1992 to February 1996, Vice President of
Hub Chicago from January 1987 to December 1992, General Manager of Sales of Hub
Chicago from August 1985 to January 1987, President of Hub Charlotte from June
1984 to August 1985 and Regional Sales Manager of Hub Chicago from December 1982
to June 1984. Mr. Hardman is a former Director of the Intermodal Transportation
Association and is presently a member of the Chicago Traffic Club and the
Chicago Intermodal Transportation Association. Mr. Hardman is a 1991 graduate of
the Certificate Program in Business Administration from the University of
Illinois.

Jay E. Parker has been the Company's Vice President of Finance, Chief
Financial Officer and Treasurer since June 1999. From July 1995 through May 1999
Mr. Parker was the Company's Corporate Controller. Prior to joining the Company,
Mr. Parker was the Director of Financial Reporting at Discovery Zone, Inc. from
July 1994 through June 1995 and held various positions, including Audit Manager,
with Arthur Andersen from December 1988 through June 1994. Mr. Parker received a
Masters of Accounting Science from Northern Illinois University in 1988, became
a Certified Public Accountant in 1987 and received a Bachelor of Science degree
in Finance from Northern Illinois University in 1986.

John T. Donnell has been Executive Vice President of National Accounts
since October 1993. From October 1985 through October 1993, Mr. Donnell served
as Vice President of National Accounts. Prior to joining the Company in 1985,
Mr. Donnell worked for Transamerica Leasing as Vice President of Marketing where
he was responsible for marketing 40,000 intermodal trailers to the railroads and
the intermodal marketing industry. Mr. Donnell received a Master of Business
Administration degree from Northwestern University in 1981 and a Bachelor of
Science degree in Marketing from Northeast Louisiana University in 1961.

Richard M. Rogan has been Executive Vice President of Marketing since
November 1997 and President of Hub Highway Services since May 1995. Prior to
joining the Company, Mr. Rogan was Executive Vice President of National Freight,
Inc. from May 1993 to April 1995. Prior to that, Mr. Rogan was with Burlington
Motor Carriers, Inc., where he served as President and Chief Executive Officer
from March 1988 to April 1993 and as an Executive Vice President from July 1985
to February 1988. Mr. Rogan's transportation career spans 25 years and includes
earlier assignments with the Illinois Central Railroad, North American Van Lines
and Schneider National. He received a Bachelor of Business Administration degree
from Loyola University of Chicago in 1962 and a Master of Business
Administration degree from the Wharton School of the University of Pennsylvania
in 1963. He has served on the Board of Directors of the ATA Foundation as well
as the Interstate Truckload Carrier Conference ("ITCC"). He is a past Chairman
of the ITCC Highway Policy Committee and has also served on the Advisory Board
of the Trucking Profitability Strategies Conference at the University of
Georgia.

Daniel L. Sellers has been the Company's Vice President of Information
Services and Chief Information Officer since December 1998. Prior to joining
the Company, Mr. Sellers was Vice President of Information Systems with Humana,
Inc. from February 1997 to December 1998. Prior to that, Mr. Sellers was Vice
President and General Manager of OmniTracs software with Qualcomm, Inc. from
November 1993 to February 1997. Mr. Sellers also worked in the transportation
industry for 15 years with Schneider National, Inc. in a variety of positions,
including as Vice President and Chief Information Officer of Information
Systems. He received a Bachelor of Business Administration from the University
of Cincinnati in 1978 and a Masters in Business Administration from the
University of Wisconsin Graduate School of Business in 1983. Mr. Sellers is a
past member of the American Trucking Association's Management Systems Council.

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David C. Zeilstra has been the Company's Vice President, Secretary and
General Counsel since July 1999. From December 1996 through June 1999, Mr.
Zeilstra was the Company's Assistant General Counsel. Prior to joining the
Company, Mr. Zeilstra was an associate with the law firm of Mayer, Brown and
Platt from September 1994 through November 1996. Mr. Zeilstra received a Juris
Doctor degree from the Duke University School of Law in 1994 and a Bachelor of
Arts degree from Wheaton College in 1990.

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS

The Class A Common Stock of the Company trades on the NASDAQ National
Market tier of The NASDAQ Stock Market ("NASDAQ") under the symbol "HUBG." Set
forth below are the high and low prices for shares of the Class A Common Stock
of the Company for each full quarterly period in 1998 and 1999.

1998 1999
---------- ----------
HIGH LOW HIGH LOW
-------- ------- -------- ---------
First Quarter $ 30 $ 25 $23 3/4 $18 7/8

Second Quarter $ 28 1/8 $ 19 3/4 $27 7/8 $21

Third Quarter $ 24 $ 15 3/4 $27 1/16 $20 7/16

Fourth Quarter $ 20 1/4 $ 12 3/4 $21 $14 11/16

On March 27, 2000, there were approximately 42 stockholders of record of
the Class A Common Stock and, in addition, there were an estimated 1,500
beneficial owners of the Class A Common Stock whose shares were held by brokers
and other fiduciary institutions. On March 27, 2000, there were nine holders of
record of the Company's Class B common stock (the "Class B Common Stock"
together with the Class A Common Stock, the "Common Stock").

The Company was incorporated in 1995 and has never paid cash dividends on
either the Class A Common Stock or the Class B Common Stock. The declaration and
payment of dividends by the Company are subject to the discretion of the Board
of Directors. Any determination as to the payment of dividends will depend upon
the results of operations, capital requirements and financial condition of the
Company, and such other factors as the Board of Directors may deem relevant.
Accordingly, there can be no assurance that the Board of Directors will declare
or pay dividends on the shares of Common Stock in the future. The certificate of
incorporation of the Company requires that any cash dividends must be paid
equally on each outstanding share of Class A Common Stock and Class B Common
Stock. The Company's credit facility and private placement debt prohibit the
Company from paying dividends on the Common Stock if there has been, or
immediately following the payment of a dividend would be, a default or an event
of default under the credit facility or private placement debt. The Company is
currently in compliance with the covenants contained in the credit facility and
private placement debt.

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA
(in thousands except per share data)

[Enlarge/Download Table]

YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997(1) 1996(2) 1995
-------------- ------------- ------------ ------------ -----------

STATEMENT OF OPERATIONS DATA:
Revenue $ 1,296,799 $ 1,145,906 $1,064,479 $ 754,243 $ 81,408
Net revenue 162,415 138,334 129,855 91,564 6,266
Operating income 30,134 26,406 33,495 27,925 2,567
Income before minority interest and taxes 23,659 25,324 32,869 27,704 2,638
Income before taxes 18,384 15,205 15,874 11,338 2,638
Historical net income 10,846 8,908 9,525 7,044 2,599
Historical basic earnings per common share $ 1.41 $ 1.16 $ 1.48 $ 1.41 $ 1.56
Historical diluted earnings per common share $ 1.40 $ 1.15 $ 1.46 $ 1.39 $ 1.56
Pro forma provision for additional income taxes(3) 241 1,016
Pro forma net income $ 6,803 $ 1,583
Pro forma basic earnings per common share $ 1.36 $ 0.95
Pro forma diluted earnings per common share $ 1.35 $ 0.95
[Enlarge/Download Table]

AS OF DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997(1) 1996(2) 1995
-------------- ------------- ------------ ------------ -----------

BALANCE SHEET DATA:
Working capital $ 21,504 $ 20,313 $ 15,209 $ 15,877 $ 804
Total assets 441,609 304,791 267,826 201,225 9,083
Long-term debt, excluding current portion 131,414 29,589 22,873 28,714 -
Stockholders' equity 131,124 119,673 110,462 46,124 1,165

(1) In September 1997, the Company issued 1,725,000 shares of Class A common
stock through a secondary offering which resulted in net proceeds of
approximately $54,763,000. These proceeds were used to purchase the remaining
70% minority interest in Hub City Los Angeles, L.P. and Hub City Golden Gate,
L.P. See the Notes to the Company's Consolidated Financial Statements.

(2) On March 18, 1996, Hub Group, Inc. purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition through the issuance of 1,000,000
shares of the Company's Class A common stock and 662,296 shares of the Company's
Class B common stock. Hub Chicago has been accounted for similar to the pooling
of interests method of accounting and has been included in all periods presented
on a historical cost basis. Concurrent with the acquisition of Hub Chicago, the
Company completed the initial public offering of 4,261,250 shares of its Class A
common stock, with net proceeds to the Company of approximately $52,945,000.
Coincident with the initial public offering, a selling stockholder sold
1,000,000 shares of the Company's Class A common stock through a secondary
offering. The Company did not receive any net proceeds from the sale of the
shares by the selling stockholder. Concurrent with the initial public offering,
the Company acquired with cash a controlling interest in each of 27 operating
partnerships. On May 2, 1996, the Company acquired the rights to service the
customers of American President Lines Domestic Distribution Services. See the
Notes to the Company's Consolidated Financial Statements.

(3) Prior to March 18, 1996, the Company was an S corporation and not subject to
federal corporate income taxes. On March 18, 1996, the Company changed its
status from an S corporation to a C corporation. The statement of operations
data reflects a pro forma provision for income taxes as if the Company were
subject to federal and state corporate income taxes for all periods presented.
The pro forma provision reflects a combined federal and state tax rate of 40%.
See the Notes to the Company's Consolidated Financial Statements.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

CAPITAL STRUCTURE

Hub Group, Inc. (the "Company") was incorporated on March 8, 1995. On
March 18, 1996, Hub Group, Inc. purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition through the issuance of 1,000,000
shares of Class A common stock and 662,296 shares of Class B common stock. Hub
Chicago has been accounted for similar to the pooling of interests method of
accounting and has been included in all periods presented on a historical cost
basis. Concurrent with the acquisition of Hub Chicago in March 1996, Hub Group,
Inc. completed the initial public offering of 4,261,250 shares of its Class A
common stock. Coincident with the initial public offering, a selling stockholder
sold 1,000,000 shares of Hub Group, Inc. Class A common stock through a
secondary offering. In September 1997, Hub Group, Inc. completed a secondary
offering of 1,725,000 shares of Hub Group, Inc.'s Class A common stock.

BUSINESS COMBINATIONS

On October 31, 1997, the Company acquired the 50% interest in its
international joint venture, HLX Company, LLC ("HLX"), that it did not
previously own. HLX offers point-to-point international transportation services
with a focus on the North American movement of import and export freight.

On April 1, 1998, the Company acquired all of the outstanding stock of
Quality Intermodal Corporation ("Quality"). Quality primarily offered intermodal
and truckload brokerage services with offices in Houston, Dallas, Los Angeles,
Chicago, Atlanta, and Philadelphia. The Company absorbed the Quality business
directly into its existing operations.

On August 1, 1998, the Company acquired the rights to service the
customers of Corporate Express Distribution Services ("CEDS") as well as certain
fixed assets. The CEDS business is being operated by Hub Group Distribution
Services ("Hub Distribution"), the Company's niche logistic services provider.
CEDS was a provider of niche logistic services including a pharmaceutical
sample delivery operation.

CALL OPTIONS

On March 1, 1997, the Company exercised its option to purchase an
approximate 44% minority interest in Hub Distribution. The Company paid $1.6
million in cash.

On September 17, 1997, the Company exercised its call options to
acquire the remaining 70% minority interests in Hub City Los Angeles, L.P. and
Hub City Golden Gate, L.P. The Company paid $59.4 million in cash.

On October 31, 1997, the Company exercised its call option to purchase
the remaining 70% minority interest in Hub City New Orleans, L.P. for one
dollar.

On April 1, 1998, the Company exercised its call options to acquire the
remaining 70% minority interests in Hub City Rio Grande, L.P., Hub City Dallas,
L.P., and Hub City Houston, L.P. ("Texas Hubs"). The Company paid $6.2 million
in cash.

On April 1, 1999, Hub Group, Inc. 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
Purchase"). The Company paid $108.7 million in cash.

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RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998

REVENUE

Revenue for the Company increased 13.2% to $1,296.8 million in 1999
from $1,145.9 million in 1998. Intermodal revenue increased 6.2% over 1998.
Management believes that the service disruption from the split-up of Conrail
which began on June 1, 1999 negatively impacted intermodal revenue growth.
Truckload brokerage revenue increased 19.3% over 1998. The Company has
successfully grown truckload brokerage by cross-selling to its intermodal
customers and employing dedicated and experienced personnel in each Hub.
Logistics revenue increased 88.3% compared to 1998. This increase was primarily
due to the increase in revenue from the Company's niche logistic services
performed by Hub Distribution.

NET REVENUE

Net revenue increased 17.4% to $162.4 million in 1999 from $138.3
million in 1998. Net revenue as a percentage of revenue increased to 12.5% from
12.1% in 1998. Management believes the primary cause of this increase is 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 16.0% to $84.1 million in 1999 from
$72.5 million in 1998. As a percentage of revenue, salaries and benefits
increased to 6.5% from 6.3% in 1998. The increase in the percentage is primarily
attributed to the increased headcount supporting the Company's information
technology initiatives and 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 16.3% to $38.2
million in 1999 from $32.9 million in 1998. These expenses as a percentage of
revenue remained constant at 2.9%. While the percentage of revenue is consistent
with the prior year, the $5.3 million increase in expenses is primarily
attributed to information systems, travel and outside services. The Company's
increased information systems expenditures related to consulting, Year 2000
remediation and validation, and enhancements to the Company's operating system.
Travel and related expenses increased due primarily to a national sales meeting
held in 1999 that was not held in the previous year and increased expenditures
to support growth in the Company's niche logistic services. Outside service
expenditures relate to contracted temporary labor and other services to handle
increased business for niche logistic services and outside sales commissions.

DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT

Depreciation and amortization increased 9.5% to $4.0 million in 1999
from $3.7 million in 1998. This expense as a percentage of revenue remained
constant at 0.3%.

AMORTIZATION OF GOODWILL

Amortization of goodwill increased 74.1% to $5.1 million from $2.9
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
amortization of the goodwill associated with the purchase of the remaining 70%
minority interests in connection with the April 1999 Purchase.

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CHANGE IN ESTIMATE/IMPAIRMENT OF PROPERTY AND EQUIPMENT

In the second quarter of 1999, a $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 program. The Company has installed this software package and is currently
preparing the software for its operational applications. This new software will
provide enhanced functionality.

OTHER INCOME (EXPENSE)

Interest expense increased to $8.6 million in 1999 from $2.5 million in
1998. The increase in interest expense is due primarily to the additional debt
required to fund the purchases of the remaining 70% minority interests in
connection with the April 1999 Purchase. In addition, debt increased as a result
of the acquisition of Quality and the purchase of the minority interest in the
Texas Hubs in April 1998.

Interest income decreased to $0.9 million in 1999 from $1.0 million in
1998. The primary cause for this decrease is the Company's increased
concentration of its cash balances to reduce debt and minimize interest expense
on borrowings.

Other income of $1.2 million in 1999 is primarily due to non-recurring
income recognized upon execution of an agreement with one of the Company's
vendors.

MINORITY INTEREST

Minority interest decreased 47.9% to $5.3 million in 1999 from $10.1
million in 1998. Minority interest as a percentage of income before minority
interest and provision for income taxes was 22.3% in 1999 compared to 40.0% in
1998. The decrease in the percentage is primarily attributed to the purchase of
remaining 70% minority interest in connection with the April 1999 Purchase as
well as the purchase of minority interest in the Texas Hubs in April 1998.

PROVISION FOR INCOME TAXES

The provision for income taxes increased 19.7% to $7.5 million compared
to $6.3 million in 1998. The Company provided for income taxes using an
effective rate of 41.0% in 1999 versus 41.4% in 1998.

NET INCOME

Historical net income increased 21.8% to $10.8 million in 1999 from
$8.9 million in 1998. Historical net income as a percentage of revenue remained
constant at 0.8%.

EARNINGS PER COMMON SHARE

Basic earnings per common share increased 21.6% to $1.41 from $1.16 in
1998. Diluted earnings per common share increased 21.7% to $1.40 in 1999 from
$1.15 in 1998.

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YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997

REVENUE

Revenue for the Company increased 7.6% to $1,145.9 million in 1998 from
$1,064.5 million in 1997. Intermodal revenue increased 7.2% over 1997.
Management believes that the well-publicized railroad service disruptions
experienced by the intermodal industry during 1998 negatively impacted
intermodal revenue growth. Truckload brokerage revenue increased 27.3% over
1997. The Company has successfully maintained its expansion into this service
offering by employing dedicated and experienced personnel in each Hub. Logistics
revenue decreased 17.4% over revenue for 1997. This decrease was due to the
Company's cancellation of its contract to provide third-party logistics services
to a significant customer in January 1998. This customer accounted for $32.5
million of the Company's revenue in 1997.

NET REVENUE

Net revenue increased 6.5% to $138.3 million in 1998 from $129.9
million in 1997. Net revenue as a percentage of revenue decreased slightly to
12.1% from 12.2% in 1997. Management believes the primary cause of this slight
decrease is due to the increased transportation costs resulting from the service
disruptions that were prevalent in 1998. At times the Company used higher cost
alternative routing and incurred accessorials for detention and storage which
were not passed on to the customer in an effort to maintain the long-term
relationships the Company enjoys with many of its customers.

SALARIES AND BENEFITS

Salaries and benefits increased 12.7% to $72.5 million in 1998 over
$64.3 million in 1997. As a percentage of revenue, salaries and benefits
increased to 6.3% from 6.0% in 1997. The increase in the percentage is
attributed to the increased number of personnel needed to handle the Company's
intermodal business. Due to the service disruptions, personnel were required to
spend significantly more time per load to operate and monitor the transit of
freight.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses increased 19.7% to $32.9
million in 1998 from $27.5 million in 1997. Selling, general and administrative
expenses as a percentage of revenue increased to 2.9% in 1998 from 2.6% in 1997.
The increase in the percentage is principally attributable to increased spending
related to information systems, rent and equipment leases. Expenditures for
information systems included consulting costs related to the refinement of the
Company's information systems strategy and costs for the Year 2000 project. Rent
increased as many of the Company's Hubs were required to obtain larger office
space to accommodate present operations and future growth. Expenditures for
equipment leases increased as the Company moved towards leasing, as opposed to
purchasing, more of its office and computer equipment.

DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT

Depreciation and amortization of property and equipment increased 19.1%
to $3.7 million in 1998 from $3.1 million in 1997. This expense as a percentage
of revenue remained constant at 0.3%.

AMORTIZATION OF GOODWILL

Amortization of goodwill increased 91.0% to $2.9 million in 1998 from
$1.5 million in 1997. The expense as a percentage of revenue increased to 0.3%
from 0.1% in 1997. This increase is attributed primarily to the increase in
goodwill amortization related to the September 1997 purchase of the minority
interest in Hub City Los Angeles, L.P. and Hub City Golden Gate, L.P., the April
1998 purchase of the minority interest in the Texas Hubs and the April 1998
acquisition of Quality.

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OTHER INCOME (EXPENSE)

Interest expense increased 11.5% to $2.5 million in 1998 from $2.2
million in 1997. The increase is primarily attributed to the use of cash and a
note issued in conjunction with the acquisition of Quality and the purchase of
the minority interest in the Texas Hubs in April 1998.

Interest income decreased 30.8% to $1.0 million in 1998 from $1.5
million in 1997. The primary cause of this decrease is the Company's increased
concentration of its cash balances to reduce debt to minimize interest expense
on borrowings.

MINORITY INTEREST

Minority interest decreased 40.5% to $10.1 million in 1998 from $17.0
million in 1997. Minority interest as a percentage of income before minority
interest and provision for income taxes was 40.0% in 1998 as compared to 51.7%
in 1997. The decrease in the percentage is attributed to purchases of minority
interest in September 1997 and April 1998.

PROVISION FOR INCOME TAXES

Provision for income taxes was $6.3 million in 1997 and 1998. The
Company provided for income taxes at an effective rate of 41.4% in 1998 versus
40.0% in 1997. The increase in the effective rate was primarily the result of
the purchases of minority interest in September 1997 and the Quality acquisition
in April 1998. The goodwill related to the Quality acquisition is not tax
deductible and therefore has the effect of increasing the Company's effective
rate.

NET INCOME

Historical net income decreased 6.5% to $8.9 million in 1998 from $9.5
million in 1997. Because of the severe rail service disruptions in 1998,
expenses grew faster than revenue in 1998. Although the decrease in minority
interest offset a substantial portion of the increase in expenses, historical
net income dropped to 0.8% of revenue in 1998 from 0.9% in 1997.

EARNINGS PER COMMON SHARE

Basic earnings per common share decreased 21.6% to $1.16 in 1998 from
$1.48 in 1997. Diluted earnings per common share decreased 21.2% to $1.15 in
1998 from $1.46 in 1997. The decrease in net income coupled with the increase in
shares outstanding due to the secondary equity offering in September 1997 caused
the decrease.

LIQUIDITY AND CAPITAL RESOURCES

On April 30, 1999, the Company borrowed approximately $108 million of
unsecured debt to pay for its purchase of the remaining 70% limited partnership
interests in connection with the April 1999 Purchase.

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 December 31, 1999, there was $47.5 million of
outstanding term debt and $34.0 million outstanding and $16.0 million unused and
available under the new line of credit with Harris. Borrowings under the line of
credit are unsecured and have 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 $19.0 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 private placement debt described below.

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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.

The Company maintains a bank line of credit with Cass Bank and Trust
Company for $5.0 million. The interest rate is set at the bank's discretion at a
rate less than or equal to the bank's prime rate. At December 31, 1999, the rate
was 8.25%. The Company had no outstanding advances on the line at December 31,
1999.

The Company had capital expenditures of approximately $11.2 million
during 1999 and $4.0 million during 1998. Capital expenditures were principally
made to enhance the Company's information systems capabilities.

OUTLOOK, RISKS AND UNCERTAINTIES

Except for historical data, the information contained in this Annual
Report constitutes forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. 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. Forward-looking
statements in this report include, but are not limited to, those contained in
this "Outlook, Risks and Uncertainties" section regarding expectations, hopes,
beliefs, estimates, intentions or strategies regarding the future. 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, including the
entry of new, web-based competitors, the degree and rate of market growth in the
intermodal, brokerage and logistics markets served by the Company, changes in
rail and truck capacity, further consolidation of rail carriers, rail service
conditions, changes in governmental regulation, adverse weather conditions, fuel
shortages, changes in the cost of services from rail, drayage and other vendors
and fluctuations in interest rates.

YEAR 2000

"Year 2000" refers to the issue surrounding the compatibility of
computer and other technology based systems with dates beyond December 31, 1999.
This section will include an assessment of the Company's state of readiness,
the risks the issues represent, the subsequent results of system assessments
after December 31, 1999 and the costs to address the issues.

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, which
was completed in December 1998. This review was instrumental in identifying and
addressing Year 2000 issues.

Management believes that it has identified the risk areas facing the
Company regarding Year 2000 and had broken those areas 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 was renovated. The renovation,
which consisted of reprogramming the source code, has been completed. No
material failures resulted from the main operating system renovation subsequent
to December 31, 1999.

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The Company believes all of its ancillary operating software
applications have been assessed. All of the supporting vendors have stated that
their products are Year 2000 compliant. No material failures resulted from
ancillary operating software applications subsequent to December 31, 1999.

The Company's financial reporting system vendor has stated that their
application is Year 2000 compliant. No material failures resulted from the
financial reporting system subsequent to December 31, 1999.

The Company's desktop hardware and software application assessment is
complete. The Company engaged an outside consulting firm to execute the
renovation and validation phases. No material failures resulted from the desktop
hardware and software applications subsequent to December 31, 1999.

The Company assessed its many telephone systems. No material telephone
system failures resulted subsequent to December 31, 1999.

The Company did not experience any material issues regarding embedded
technology in its office equipment, physical environment and drayage tractors
subsequent to December 31, 1999.

The Company identified four categories of key third parties with which
the Company has a material relationship that were assessed. Those categories
were: (i) significant customers who rely on their computer systems to determine
their transportation needs, (ii) key vendors such as the railroads and
significant providers of drayage and over-the-road services, (iii) the Company's
information network communications provider and (iv) significant third party
freight payment vendors utilized by the Company's customers. The Company
experienced no material problems in the noted four categories related to Year
2000 issues subsequent to December 31, 1999.

COSTS

In 1999, the Company expensed approximately $1,900,000 related to Year
2000. In 2000, through January 31st, the Company has expensed an additional
$69,000 related to testing and monitoring of its systems. These costs include
not only amounts paid to outside parties but also the payroll costs for those
employees spending significant amounts of time on Year 2000 issues. The Company
has spent approximately $ 2.7 million in total related to Year 2000. The Company
does not expect to continue to spend additional funds related to Year 2000 since
no material systems problems were experienced.

BUSINESS COMBINATIONS/DIVESTITURES

Management believes that future acquisitions or dispositions made by
the Company could significantly impact financial results. Financial results most
likely to be impacted include but are not limited to revenue, net revenue,
salaries and benefits, selling general and administrative expenses, depreciation
and amortization, interest expense, minority interest, net income and the
Company's debt level. In this regard, on March 13, 2000, the Company signed a
letter of intent pursuant to which the Company agreed to sell its 65% interest
in Hub Distribution for $65 million in cash and warrants to purchase 5% of the
outstanding shares of stock of Hub Distribution. The sale of this interest is
subject to a number of customary conditions and there is therefore no guarantee
that a transaction will ultimately be consummated. Financial results may be
impacted by additional factors as discussed below.

REVENUE

Hub Group Inc · 10-K · For 12/31/99

Filed On 3/29/00 · SEC File 0-27754 · Accession Number 940942-0-6

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