Hub (HUBG) 10-Q 2005 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

    [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005 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 of organization)            Identification No.)

3050 Highland Parkway, Suite 100
Downers Grove, Illinois 60515
(Address, including zip code, of principal executive offices)
(630) 271-3600
(Registrant’s telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XNo   

         Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes XNo   

        On July 19, 2005, the registrant had 19,329,763 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
Condensed Consolidated Balance Sheets - June 30, 2005 (unaudited) and
December 31, 2004		3
Unaudited Condensed Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 2005 and 2004		4
Unaudited Condensed Consolidated Statement of Stockholders' Equity - Six
Months Ended June 30, 2005		5
Unaudited Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 2005 and 2004		6
Notes to Unaudited Condensed Consolidated Financial Statements		7
Management's Discussion and Analysis of Financial Condition and
Results of Operations		12
Quantitative and Qualitative Disclosures related to Market Risk		18
Controls and Procedures		18
PART II. Other Information		19

2

HUB GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

	June 30, 2005		December 31, 2004
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$    6,972		$    16,806
Restricted investments	885		—
Accounts receivable
Trade, net	140,609		140,762
Other	13,576		8,313
Deferred taxes	4,364		4,667
Prepaid expenses and other current assets	3,126		4,746
TOTAL CURRENT ASSETS	169,532		175,294
PROPERTY AND EQUIPMENT, net	16,385		19,487
GOODWILL, net	215,175		215,175
OTHER ASSETS	428		889
TOTAL ASSETS	$ 401,520		$ 410,845
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade	$ 116,820		$ 115,819
Other	3,598		1,660
Accrued expenses
Payroll	14,052		19,542
Other	13,909		15,100
TOTAL CURRENT LIABILITIES	148,379		152,121
DEFERRED TAXES	35,723		31,788
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares
issued or outstanding in 2005 and 2004	—		—
Common stock
Class A: $.01 par value; 47,337,700 shares authorized; 20,281,248
shares issued (including treasury stock in 2005) and 19,329,763 shares
outstanding in 2005; 19,933,610 shares issued and outstanding in 2004	203		199
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares
issued and outstanding in 2005 and 2004	7		7
Additional paid-in capital	184,477		182,262
Purchase price in excess of predecessor basis, net of tax benefit of $10,306	(15,458	)	(15,458	)
Retained earnings	77,884		64,611
Unearned compensation	(3,910	)	(4,685	)
Treasury stock, at cost (951,485 shares in 2005)	(25,785	)	—
TOTAL STOCKHOLDERS' EQUITY	217,418		226,936
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 401,520		$ 410,845

See notes to unaudited condensed consolidated financial statements.

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HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Revenue	$ 371,630		$ 348,971		$ 711,488		$ 677,273
Transportation costs	324,721		305,306		621,334		591,805
Gross margin	46,909		43,665		90,154		85,468
Costs and expenses:
Salaries and benefits	21,503		22,233		43,379		44,575
General and administrative	9,489		10,315		19,241		20,596
Depreciation and amortization of property and equipment	2,453		2,851		4,936		5,734
Total costs and expenses	33,445		35,399		67,556		70,905
Operating income	13,464		8,266		22,598		14,563
Other income (expense):
Interest expense	(140	)	(1,684	)	(347	)	(3,397	)
Interest income	183		56		384		109
Other, net	40		363		54		404
Total other income (expense)	83		(1,265	)	91		(2,884	)
Income before provision for income taxes	13,547		7,001		22,689		11,679
Provision for income taxes	5,622		2,942		9,416		4,907
Net income	$     7,925		$     4,059		$     13,273		$     6,772
Basic earnings per common share	$       0.40		$       0.26		$         0.66		$       0.43
Diluted earnings per common share	$       0.38		$       0.24		$         0.63		$       0.40
Basic weighted average number of shares outstanding	19,977		15,702		20,130		15,598
Diluted weighted average number of shares outstanding	20,796		16,938		20,977		16,762

See notes to unaudited condensed consolidated financial statements.

4

HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 2005
(in thousands, except shares)

	June 30, 2005
Class A & B Common Stock Shares Outstanding
Beginning of year		20,595,906
Exercise of non-qualified stock options		346,258
Issuance of restricted stock		1,380
Purchase of treasury shares		(1,117,431	)
Treasury shares issued under restricted stock and stock option plans		165,946
Ending balance		19,992,059
Class A & B Common Stock Amount
Beginning of year	$	206
Issuance of restricted stock and exercise of stock options		4
Ending balance		210
Additional Paid-in Capital
Beginning of year		182,262
Exercise of non-qualified stock options		(1,697	)
Tax benefit of employee stock plans		3,912
Ending balance		184,477
Purchase Price in Excess of Predecessor Basis, Net of Tax
Beginning of year		(15,458	)
Ending balance		(15,458	)
Retained Earnings
Beginning of year		64,611
Net income		13,273
Ending balance		77,884
Unearned Compensation
Beginning of year		(4,685	)
Issuance of restricted stock awards, net of forfeitures		(286	)
Compensation expense related to restricted stock awards		1,061
Ending balance		(3,910	)
Treasury Stock
Beginning of year		—
Purchase of treasury shares		(30,558	)
Issuance for restricted stock and exercise of stock options		4,773
Ending balance		(25,785	)
Total stockholders' equity	$	217,418

See notes to unaudited condensed consolidated financial statements.

5

HUB GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Six Months Ended June 30,
	2005		2004
Cash flows from operating activities:
Net income	$   13,273		$   6,772
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment	5,154		5,812
Deferred taxes	8,150		4,735
Compensation expense related to restricted stock	1,061		1,044
Gain on sale of assets	(18	)	(162	)
Other assets	461		697
Changes in working capital:
Restricted investments	(885	)	—
Accounts receivable, net	(5,110	)	(1,547	)
Prepaid expenses and other current assets	1,620		(101	)
Accounts payable	2,939		(4,814	)
Accrued expenses	(6,681	)	1,667
Net cash provided by operating activities	19,964		14,103
Cash flows from investing activities:
Purchases of property and equipment, net	(2,034	)	(1,682	)
Net cash used in investing activities	(2,034	)	(1,682	)
Cash flows from financing activities:
Proceeds from stock options exercised	2,794		3,359
Purchase of treasury stock	(30,558	)	(2,767	)
Net payments on revolver	—		(6,000	)
Payments on long-term debt	—		(7,013	)
Net cash used in financing activities	(27,764	)	(12,421	)
Net decrease in cash and cash equivalents	(9,834	)	—
Cash and cash equivalents beginning of period	16,806		—
Cash and cash equivalents end of period	$      6,972		$             —
Supplemental disclosures of cash flow information
Cash paid for:
Interest	$            —		$        2,630
Income taxes	$       1,066		$           368

See notes to unaudited condensed consolidated financial statements.

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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. (“we,” “us” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. However, we believe that the disclosures contained herein are adequate to make the information presented not misleading.

        The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position and results of operations for the three months and six months ended June 30, 2005 and 2004.

        These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.

NOTE 2.   Restructuring Charges

        During the six months ended June 30, 2005, we recorded a $219,000 severance charge for termination of 30 employees. All severance charges are included in salaries and benefits in the statement of income. Additionally, we recorded charges of $37,000 related to the 2002 restructuring plan as a result of changes in assumptions related to the closing of a facility.

        The following table displays the activity and balances for the restructuring reserves for the six months ended June 30, 2005 (in thousands):

	Headcount			Consolidation
	Reduction			of Facilities			Total
Balance at December 31, 2004	$	–		$	146		$	146
Additional Restructuring Expenses		176			–			176
Cash Payments		(78	)		(79	)		(157	)
Adjustment for previous estimate		–			37			37
Balance at March 31, 2005	$	98		$	104		$	202
Additional Restructuring Expenses		43			–			43
Cash Payments		(120	)		(48	)		(168	)
Balance at June 30, 2005	$	21		$	56		$	77

NOTE 3.   Stock Based Compensation

        Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. We have chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of our stock at the date of the grant over the amount an employee must pay to acquire the stock. We grant options at fair market value and therefore recognize no compensation expense.

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        The following table illustrates the effect on the net income and net income per share if we had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
Net income, as reported	$7,925		$4,059		$13,273		$6,772
Add: Total stock-based compensation included in net income,
net of related tax effects	316		319		620		605
Deduct: Total stock-based compensation expense determined under fair value based method for all
awards, net of related tax effects	(400	)	(470	)	(791	)	(924	)
Net income, pro forma	$7,841		$3,908		$13,102		$6,453
Earnings per share:
Basic-- as reported	$0.40		$0.26		$0.66		$0.43
Basic-- pro forma	$0.39		$0.25		$0.65		$0.41
Diluted-- as reported	$0.38		$0.24		$0.63		$0.40
Diluted-- pro forma	$0.38		$0.23		$0.62		$0.38
Dividend Yield	$0.00		$0.00		$0.00		$0.00

        The pro forma disclosure is not likely to be indicative of pro forma results which may be expected in future periods because of the fact that options vest over several years, pro forma compensation expense is recognized as the options vest and additional awards may also be granted.

        In December 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123 (R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123 (R) is similar to the approach described in Statement 123. However, Statement 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. This statement must be adopted effective January 1, 2006.

        Statement 123 (R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under the current literature. This requirement will reduce net operating cash flow and increase net financing cash flow in periods after adoption. We cannot estimate what those amounts will be in the future because they depend on, among other things, when employees exercise stock options.

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NOTE 4.   Earnings Per Share

The following is a reconciliation of our earnings per share (in thousands, except for per share data):

	Three Months Ended June 30, 2005			Three Months Ended June 30, 2004
	Income	Shares	Per Share Amount	Income	Shares	Per Share Amount
Basic EPS
Net Income	$7,925	19,977	$0.40	$4,059	15,702	$0.26
Effect of Dilutive Securities
Stock options and restricted stock	—	819	—	—	1,236	—
Diluted EPS
Net Income	$7,925	20,796	$0.38	$4,059	16,938	$0.24
	Six Months Ended June 30, 2005			Six Months Ended June 30, 2004
	Income	Shares	Per Share Amount	Income	Shares	Per Share Amount
Basic EPS
Net Income	$13,273	20,130	$0.66	$6,772	15,598	$0.43
Effect of Dilutive Securities
Stock options and restricted stock	—	847	—	—	1,164	—
Diluted EPS
Net Income	$13,273	20,977	$0.63	$6,772	16,762	$0.40

        No stock options were excluded from the determination of diluted weighted-average shares because they would have been anti-dilutive for the three months ending June 30, 2005 and 2004. Additionally, no stock options were excluded from the determination of diluted weighted average shares because they would have been anti-dilutive for the six months ended June 30, 2005. For the six months ended June 30, 2004, 11,500 stock options were excluded from the determination of diluted weighted- average shares because they would be anti-dilutive.

NOTE 5.   Deferred Compensation Plan

        In January 2005, we established the Hub Group, Inc. Nonqualified Deferred Compensation Plan (“the Plan”) to provide added incentive for the retention of certain key employees. Under the Plan, participants can elect to defer up to 50% of their base salary and up to 100% of their bonus. Accounts will grow on a tax-deferred basis to the participant. Restricted investments included in the consolidated balance sheet represent the fair value of the mutual fund and other security investments related to the Plan at June 30, 2005. Both realized and unrealized gains and losses, which have not been material, are included in income and expense and offset the change in the deferred compensation liability. The Company provides a 50% match on the first 6% of employee compensation deferred under the Plan, with a maximum match equivalent to 3% of base salary.

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NOTE 6.   Property and Equipment

        Property and equipment consist of the following (in thousands):

	June 30,		December 31,
	2005		2004
Building and improvements	$      237		$      237
Leasehold improvements	950		942
Computer equipment and software	52,664		52,442
Furniture and equipment	7,092		7,188
Transportation equipment and automobiles	1,939		1,461
	62,882		62,270
Less: Accumulated depreciation and amortization	(46,497	)	(42,783	)
Property and Equipment, net	$ 16,385		$   19,487

NOTE 7.   Debt

        On March 23, 2005, we entered into a revolving credit agreement that provides for unsecured borrowings of up to $40 million. The interest rate ranges from LIBOR plus 0.75% to 1.25% or Prime plus 0.5%. The revolving line of credit expires on March 23, 2010. The financial covenants require a minimum net worth of $175 million and a cash flow leverage ratio of not more than 2.0 to 1.0. The commitment fees charged on the unused line of credit are between 0.15% and 0.25% per annum.

        We had $39 million of unused and available borrowings under our bank revolving line of credit at June 30, 2005. We were in compliance with our debt covenants at June 30, 2005.

        We have standby letters of credit that expire from 2005 to 2012. As of June 30, 2005, the outstanding letters of credit were $1 million.

NOTE 8.   Commitments and Contingencies

        In March 2005, we entered into an equipment purchase contract with Shanghai Jindo Container Co., Ltd. We agreed to purchase 3,400 fifty-three foot dry freight steel domestic containers for approximately $33 million. As of July 18, approximately 1,128 containers were delivered. The remainder are expected to be delivered by the end of the third quarter 2005. However, this timeframe is subject to the manufacturer meeting production and delivery schedules. We are financing these containers with operating leases.

        In June 2005, our Quality Services subsidiary entered into a 5 year operating lease agreement for 31 tractors. The total obligation for this lease is $2.5 million.

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

NOTE 9.   Stock Buy Back Plan

        During the first quarter of 2005, the Board of Directors authorized the purchase of up to $30 million worth of our Class A Common Stock. Repurchases were made from time to time as market and business conditions warranted. We intend to hold the repurchased shares in treasury for future use. This program replaces our previous repurchase plan. During the first half of 2005, we completed the authorized purchase of $30 million worth of our Class A Common Stock.

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					Total Number of Shares
	Total Number				Purchased as
	of Shares		Average Price		Part of Publicly
	Purchased		Paid Per Share		Announced Plan
January 1 to January 31		—		—		—
February 1 to February 28		64,800		$  27.19		64,800
March 1 to March 31		110,000		$  30.04		110,000
April 1 to April 30		200,000		$  28.07		200,000
May 1 to May 31		398,700		$  27.38		398,700
June 1 to June 30		321,299		$  26.07		321,299
Total		1,094,799		$  27.38		1,094,799

NOTE 10.   Stock Split

        The Board of Directors approved a two for one stock split in February 2005. The Board set May 4, 2005 as the record date and May 11, 2005 as the payment date. All shares have been retroactively restated to give effect to the two-for-one stock split, which was effected in the form of a 100% stock dividend. Each of our Class A stockholders and Class B stockholders received one Class A share on each share of Class A Common Stock and each share of Class B Common Stock held by them on the record date in connection with the stock split. In accordance with the terms of our Certificate of Incorporation, the number of votes held by each share of Class B Common Stock was adjusted in connection with this stock dividend such that each share of Class B Common Stock now entitles its holder to approximately 40 votes. Each share of Class A Common Stock entitles its holder to one vote.

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HUB GROUP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OUTLOOK, RISKS AND UNCERTAINTIES

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

        •  the degree and rate of market growth in the intermodal, truck brokerage and logistics markets served by us;
        •  deterioration in our relationships with existing railroads or adverse changes to the railroads’ operating rules;
        •  changes in rail service conditions or adverse weather conditions;
        •  further consolidation of railroads;
        •  the impact of competitive pressures in the marketplace, including entry of new competitors, direct marketing efforts
           by the railroads or marketing efforts of asset-based carriers;
        •  changes in rail, drayage and trucking company capacity;
        •  equipment shortages;
        •  changes in the cost of services from rail, drayage, truck or other vendors;
        •  labor unrest in the rail, drayage or trucking company communities;
        •  general economic and business conditions;
        •  fuel shortages or prices;
        •  increases in interest rates;
        •  decrease in demand for our distribution services;
        •  changes in homeland security or terrorist activity;
        •  difficulties in maintaining or enhancing our information technology systems;
        •  changes to or new governmental regulation;
        •  loss of several of our largest customers;
        •  inability to recruit and retain key personnel; and
        •  awards of large customer contracts.

EXECUTIVE SUMMARY

        Hub Group, Inc. (“we,” “us” or “our”) is the largest intermodal marketing company (“IMC”) in North America and a full service transportation provider offering intermodal, truck brokerage or highway services and comprehensive logistics services. These service offerings are referred to as the Core Transportation business. The Core Transportation business operates through a nationwide network of operating centers. We also operate Hub Group Distribution Services (“HGDS” or “Hub Distribution”). Hub Distribution performs certain specialized services, predominately installation of point of purchase displays, and is responsible for its own operations, customer service, marketing and management information systems support.

        As an IMC, we arrange for the movement of our customers’ freight in containers and trailers over long distances. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for local pickup and delivery. As part of the intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.

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

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

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

        Revenue growth resulted primarily from price increases, mix and fuel surcharges during the first half of 2005 compared to the first half of 2004. The price increase resulted from rate increases from our carriers. During 2004, we severed relationships with certain low profitability customers.

        We use various performance indicators to manage our business. We closely monitor gains and losses for our significant customers and evaluate on-time performance, costs per load by location and days sales outstanding by location. Vendor cost changes and vendor service issues are also tracked closely.

        Our installation services business, HGDS, is a project-based business with significant customer concentration and higher margins than our other service lines. Any decrease in the demand from these customers or our failure to secure new project business could have a material effect on HGDS revenue.

RESULTS OF OPERATIONS

The following table summarizes our revenue by business line:

	Three Months Ended							Six Months Ended
	June 30,							June 30
					%							%
	2005		2004		Change			2005		2004		Change
Revenue (in thousands)
Core Transporation
Intermodal	$	259,260	$	247,940		4	.6%	$	492,922	$	484,261		1	.8%
Brokerage		68,038		56,778		19	.8%		128,192		107,738		19	.0%
Logistics		34,524		33,786		2	.2%		70,113		67,699		3	.6%
Total Core
		361,822		338,504		6	.9%		691,227		659,698		4	.8%
Hub Distribution		9,808		10,467		(6	.3%)		20,261		17,575		15	.3%
Total Revenue
	$	371,630	$	348,971		6	.5%	$	711,488	$	677,273		5	.1%

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Transportation costs	87.4		87.5		87.3		87.4
Gross margin	12.6		12.5		12.7		12.6
Costs and expenses:
Salaries and benefits	5.7		6.3		6.1		6.7
General and administrative	2.6		3.0		2.7		3.0
Depreciation and amortization	0.7		0.8		0.7		0.8
Total costs and expenses	9.0		10.1		9.5		10.5
Operating income	3.6		2.4		3.2		2.1
Other expense
Interest expense	0.0		(0.5	)	0.0		(0.5	)
Interest income	0.0		0.0		0.0		0.0
Other, net	0.0		0.1		0.0		0.1
Total other expense	0.0		(0.4	)	0.0		(0.4	)
Income before provision for income taxes	3.6		2.0		3.2		1.7
Provision for income taxes	1.5		0.8		1.3		0.7
Net income	2.1	%	1.2	%	1.9	%	1.0	%

Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004

Revenue

        Revenue increased 6.5% to $372 million in 2005 from $349 million in 2004. Intermodal revenue increased 4.6% due primarily to price increases, mix and fuel surcharges offset by a 7.9% decrease in volume. Truckload brokerage revenue increased 19.8% due primarily to an increase in revenue per load from price increases, mix, fuel surcharges and new business. Logistics revenue increased 2.2% due to the transfer of the time sensitive delivery of pharmaceutical samples from Hub Distribution to this service line during the third quarter of 2004 and as a result of adding new customers. Hub Distribution revenue decreased 6.3% due primarily to the transfer of the time sensitive delivery of pharmaceutical samples.

        Certain prior year amounts have been reclassified to conform to the current year presentation.

Gross Margin

        Gross margin increased 7.4% to $46.9 million in 2005 from $43.7 million in 2004. As a percent of revenue, gross margin has remained fairly consistent at 12.6% in 2005 and 12.5% in 2004.

Salaries and Benefits

        As a percentage of revenue, salaries and benefits decreased to 5.7% from 6.3% in 2004. Salaries and benefits decreased to $21.5 million in 2005 from $22.2 million in 2004. This was due primarily to a decrease in headcount. Headcount as of June 30, 2005 was 1,167 while headcount at June 30, 2004 was 1,176.

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General and Administrative

        General and administrative expenses decreased to $9.5 million in 2005 from $10.3 million in 2004. As a percentage of revenue, these expenses decreased to 2.6% in 2005 from 3.0% in 2004. The decrease in general and administrative expenses is primarily attributed to a decrease in equipment leases, sales taxes and telephone costs.

Depreciation and Amortization of Property and Equipment

        Depreciation and amortization decreased to $2.5 million in 2005 from $2.9 million in 2004. This expense as a percentage of revenue decreased to 0.7% in 2005 from 0.8% in 2004. The decrease in depreciation and amortization is due primarily to lower computer equipment and software depreciation.

Other Income (Expense)

        Other income increased to $0.1 million in 2005 from an expense of $1.3 million in 2004 due to a decrease in interest expense caused primarily by the extinguishment of the private placement debt during the third quarter of 2004. Interest income increased due to investing cash.

Provision for Income Taxes

        The provision for income taxes increased to $5.6 million in 2005 compared to $2.9 million in 2004. We provided for income taxes using an effective rate of 41.5% in 2005 and an effective rate of 42.0% in the second quarter of 2004. The decrease in the effective tax rate is primarily the result of a lower state tax rate due to business restructuring.

   Net Income

        Net income increased to $7.9 million in 2005 from $4.1 million in 2004 due primarily to higher gross margin, lower general and administrative expenses, lower salaries and benefit expenses and lower interest expense.

Earnings Per Common Share

        Basic earnings per share were $0.40 in 2005 and were $0.26 in 2004 and diluted earnings per share increased to $0.38 in 2005 from $0.24 in 2004. The weighted average diluted shares outstanding increased 22.8% from 16,938,000 at June 30, 2004 to 20,796,000 at June 30, 2005 due primarily to our follow-on offering of Class A Common Stock in July 2004.

Six Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004

Revenue

        Revenue increased 5.1% to $711.5 million in 2005 from $677.3 million in 2004. Intermodal revenue increased 1.8% due primarily to price increases, mix and fuel surcharges offset by a 9.7% decrease in volume. Truckload brokerage revenue increased 19% due primarily to an increase in revenue per load from price increases, mix, fuel surcharges and new business. Logistics revenue increased 3.6% due to the transfer of the time sensitive delivery of pharmaceutical samples from Hub Distribution to this service line during the third quarter of 2004 and as a result of adding new customers. Hub Distribution revenue increased 15.3% due primarily to an increase in the installation business.

        Certain prior year amounts have been reclassified to conform to the current year presentation.

Gross Margin

        Gross margin increased 5.5% to $90.2 million in 2005 from $85.5 million in 2004. As a percent of revenue, gross margin has remained relatively consistent at 12.7% in 2005 and 12.6% in 2004.

Salaries and Benefits

        As a percentage of revenue, salaries and benefits decreased to 6.1% from 6.7% in 2004. Salaries and benefits decreased to $43.4 million in 2005 from $44.6 million in 2004. This was due primarily to a decrease in headcount.

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General and Administrative

        General and administrative expenses decreased to $19.2 million in 2005 from $20.6 million in 2004. As a percentage of revenue, these expenses decreased to 2.7% in 2005 from 3.0% in 2004. The decrease in general and administrative expenses is primarily attributed to a decrease in equipment leases, professional fees, travel and entertainment expense and rent expense.

Depreciation and Amortization of Property and Equipment

        Depreciation and amortization decreased to $4.9 million in 2005 from $5.7 million in 2004. This expense as a percentage of revenue decreased to 0.7% in 2005 from 0.8% in 2004. The decrease in depreciation and amortization is due primarily to lower computer equipment and software depreciation.

Other Income (Expense)

        Other income increased to $0.1 million in 2005 from an expense of $2.9 million in 2004 due to a decrease in interest expense caused primarily by the extinguishment of the private placement debt during the third quarter of 2004. Interest income increased due to investing cash.

Provision for Income Taxes

        The provision for income taxes increased to $9.4 million in 2005 compared to $4.9 million in 2004. We provided for income taxes using an effective rate of 41.5% in 2005 and an effective rate of 42.0% in 2004. The decrease in the effective tax rate is primarily the result of a lower state tax rate due to business restructuring.

   Net Income

        Net income increased to $13.3 million in 2005 from $6.8 million in 2004 due primarily to higher gross margin, lower general and administrative expenses, lower salaries and benefits expense and lower interest expense.

Earnings Per Common Share

        Basic earnings per share were $0.66 in 2005 and were $0.43 in 2004 and diluted earnings per share increased to $0.63 in 2005 from $0.40 in 2004. The weighted average diluted shares outstanding increased 25.1% from 16,762,000 at June 30, 2004 to 20,977,000 at June 30, 2005 due primarily to our follow-on offering of Class A Common Stock in July 2004.

CRITICAL ACCOUNTING POLICIES

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying consolidated financial statements. We have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Note 1 of the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2004, includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of the more significant accounting policies and estimates.

Allowance for Uncollectible Trade Accounts Receivable

        In the normal course of business, we extend credit to customers after a review of each customer’s credit history. An allowance for uncollectible trade accounts has been established through an analysis of the accounts receivable aging, an assessment of collectibility based on historical trends and an evaluation of the current economic conditions. To be more specific, we reserve every account balance that has aged over one year, certain customers in bankruptcy and account balances specifically identified as uncollectible. In addition, we provide a reserve for accounts not specifically identified as uncollectible based upon historical trends. The trends are continuously reviewed and updated. The allowance is reported on the balance sheet in net accounts receivable. Actual collections of accounts receivable could differ from management’s estimates due to changes in future economic, industry or customer financial conditions. Recoveries of receivables previously charged off are recorded when received.

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Revenue Recognition

        Revenue is recognized at the time 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the sales price is fixed and determinable and 4) collectibility is reasonably assured. In accordance with EITF 91-9, revenue and related transportation costs are recognized based on relative transit time. Further, we report revenue on a gross basis in accordance with the criteria in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” We are the primary obligor and are responsible for providing the service desired by the customer. The customer views us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick up and delivery and tracing shipments in transit. We have discretion in setting sales prices and as a result, our earnings vary. In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by our customers. Finally, we have credit risk for our receivables. These three factors, discretion in setting prices, discretion in selecting vendors and credit risk, further support reporting revenue on the gross basis.

Deferred Income Taxes

        Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We believe that it is more likely than not that our deferred tax assets will be realized with the exception of $332,000 related to state tax net operating losses for which a valuation allowance has been established. In the event the probability of realizing the remaining deferred tax assets do not meet the more likely than not threshold in the future, a valuation allowance would be established for the deferred tax assets deemed unrecoverable.

Valuation of Goodwill

        We review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. We utilize a third-party independent valuation firm to assist in performing the necessary valuations to be used in the impairment testing. These valuations are based on market capitalization, discounted cash flow analysis or a combination of both methodologies. The assumptions used in the valuations include expectations regarding future operating performance, discount rates, control premiums and other factors which are subjective in nature. Actual cash flows from operations could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions. Should estimates differ materially from actual results, we may be required to record impairment charges in the future.

LIQUIDITY AND CAPITAL RESOURCES

        During the year, we have funded operations and capital expenditures through cash flows from operations.

        Cash provided by operating activities for the six months ended June 30, 2005, was approximately $20 million, which resulted primarily from net income from operations of $13 million, non-cash charges of $15 million offset by decreases in working capital of $8 million.

        Net cash used in investing activities for the six months ended June 30, 2005, was $2 million and related primarily to expenditures made to enhance our information system capabilities. We expect capital expenditures to be approximately $4 million to $5 million for the year ended December 31, 2005.

        The net cash used in financing activities for the six months ended June 30, 2005, was $28 million. Uses of cash related to the purchase of treasury stock. We generated cash from stock options being exercised.

        On March 23, 2005 we entered into a revolving credit agreement that provides for unsecured borrowings of up to $40 million. The interest rate ranges from LIBOR plus 0.75% to 1.25% or Prime plus 0.5%. The revolving line of credit expires on March 23, 2010. The financial covenants require a minimum net worth of $175 million and a cash flow leverage ratio of not more than 2.0 to 1.0. The commitment fees charged on the unused line of credit are between 0.15% and 0.25% per annum.

        Our unused and available borrowings under our bank revolving line of credit at June 30, 2005 are $39 million. We were in compliance with our debt covenants at June 30, 2005.

        We have standby letters of credit that expire from 2005 to 2012. As of June 30, 2005, our outstanding letters of credit were $1 million.

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Contractual Obligations

        Our contractual cash obligations as of June 30, 2005 are minimum rental commitments. Minimum annual rental commitments, at June 30, 2005, under noncancellable operating leases, principally for real estate and equipment, are payable as follows (in thousands):

Remainder 2005	$  4,378
2006	8,160
2007	7,411
2008	6,601
2009	4,807
2010 and thereafter	8,746
Total	$40,103

        In March 2005, we entered into an equipment purchase contract with Shanghai Jindo Container Co., Ltd. We agreed to purchase 3,400 fifty-three foot dry freight steel domestic containers for approximately $33 million. As of July 18, approximately 1,128 containers were delivered. The remainder are expected to be delivered by the end of the third quarter 2005. However, this timeframe is subject to the manufacturer meeting production and delivery schedules. We are financing these containers with operating leases. The lease obligation is included in the table above.

In June 2005, our Quality Services subsidiary entered into a 5 year operating lease agreement for 31 tractors. This $2.5 million lease obligation is also included in the table above.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

CONTROLS AND PROCEDURES

        As of June 30, 2005, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of June 30, 2005. There have been no changes in our internal control over financial reporting identified in connection with such evaluation that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. Other Information

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

(c) Note 9 of the Company’s Notes to Unaudited Condensed Consolidated Financial Statements is incorporated herein by reference.

Item 4. Submission of Matters to a Vote of Security Holders

The 2005 Annual Meeting of Stockholders of Hub Group, Inc. was held on May 4, 2005. All six of the Company’s directors were reelected with the following votes: Phillip C. Yeager: 17,808,958 votes for and 3,942,463 votes withheld; David P. Yeager: 17,737,447 votes for and 4,013,974 votes withheld; Mark A. Yeager: 17,731,360 votes for and 4,020,061 votes withheld; Gary D. Eppen: 20,835,839 votes for and 915,582 votes withheld; Charles R. Reaves: 20,837,039 votes for and 914,382 votes withheld; Martin P. Slark: 20,837,039 votes for and 914,382 votes withheld.

Also at the meeting, the Stockholders voted on an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of Class A Common Stock. This proposal was approved by the following votes: 18,109,539 votes for, 3,641,254 votes against and 628 votes withheld.

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        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: July 22, 2005	/s/ Thomas M. White
	Thomas M. White
	Senior Vice President-Chief Financial
	Officer and Treasurer
	(Principal Financial Officer)

EXHIBIT INDEX

Exhibit No.           Description

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

31.2 Certification of Thomas M. White, Senior Vice President-Chief Financial Officer and Treasurer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1 Certification of David P. Yeager and Thomas M. White, Chief Executive Officer and Chief Financial Officer, respectively, Pursuant to 18 U.S.C. Section 1350.