-------------------------------------------------------------------------------- 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, 2001 OR [ ] 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: NoneSecurities 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 requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes X No __Indicate by check mark if disclosure of delinquent filers pursuant to Item 405of Regulation S-K is not contained herein, and will not be contained, to thebest of Registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. [X]The aggregate market value of the Registrant's voting stock held bynon-affiliates on March 22, 2002, based upon the last reported sale price onthat date on the NASDAQ National Market of $10.50 per share, was $65,784,054.On March 22, 2002, the Registrant had 7,046,250 outstanding shares of Class Acommon stock, par value $.01 per share, and 662,296 outstanding shares of ClassB common stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCEThe Registrant's definitive Proxy Statement for the Annual Meeting ofStockholders to be held on May 21, 2002, (the "Proxy Statement") is incorporatedby reference in Part III of this Form 10-K to the extent stated herein. Exceptwith respect to information specifically incorporated by reference in this Form10-K, the Proxy Statement is not deemed to be filed as a part hereof.-------------------------------------------------------------------------------- PART IITEM 1. BUSINESS RESTATEMENT INFORMATION On February 12, 2002, Hub Group, Inc. ("Hub Group" or the "Company")announced that it had discovered certain accounting irregularities at its 65%owned subsidiary, Hub Group Distribution Services ("Hub Distribution") thatresulted in a restatement of the Company's net income over a two-year period.The amount of the overstatement of net income in 1999 and 2000 was $1.4 millionand $1.9 million, respectively, and the Company has restated its financialstatements for these periods accordingly. As the Company did not restate itsresults on a quarterly basis, the effect of the restatement for 1999 was bookedin the fourth quarter of 1999 and the effect of the restatement for 2000 wasbooked in the fourth quarter of 2000. Similarly, in 2001, the fourth quartercontains the effect of the required adjustments to properly report the annualresults for 2001. These restated financial statements have been audited byArthur Andersen and are included herein.GENERAL Hub Group is a Delaware corporation that was incorporated on March 8, 1995.Since its founding as an intermodal marketing company ("IMC") in 1971, Hub Grouphas grown to become the largest IMC in the United States and a full servicetransportation provider, offering intermodal, truck brokerage and comprehensivelogistics services. The Company operates through an extensive nationwide network of 24 officesor "Hubs" and Hub Distribution. Each Hub is strategically located in a marketthat has a significant concentration of shipping customers and one or morerailheads. Each Hub functions essentially as a stand-alone business managedlocally by an executive with significant transportation experience. Localmanagement is responsible for operations, customer service and regionalmarketing. Corporate management is responsible for group strategic planning andadministration, financial services, relationships with the railroads andmanagement information systems support. Hub Distribution, which performs certainspecialized logistics services, also functions essentially as a stand-alonebusiness, with local management responsible for operations, customer service,marketing, financial services and management information systems support. HubGroup also maintains a National Accounts sales force to provide centralizedmarketing of the Company's services to large and geographically diversifiedshippers. Through a series of acquisitions, Hub Group now owns a 65% partnershipinterest in Hub Distribution and wholly-owns each of its other operatingsubsidiaries. Unless the context otherwise requires, references to "Hub Group"or the "Company" include the Hubs, Hub Distribution and their respectivesubsidiaries. In early 2001, the Company centralized all accounting, other thanaccounting for Hub Distribution, at its corporate headquarters in Lombard,Illinois. The Company also installed and began using a new accounting softwarepackage for the Hubs during 2001 in Lombard. In addition, after two years ofdevelopment, the Company implemented its new proprietary Network ManagementSystem. The new software is designed to streamline operational processes,improve the quality of data available to the Hubs and their customers and betterintegrate various systems and software applications.SERVICES PROVIDED The Company's transportation services can be broadly placed into thefollowing categories: INTERMODAL As an IMC, the Company arranges for the movement of itscustomers' freight in containers and trailers over long distances. Hub Groupcontracts with railroads to provide transportation over the long-haul portion ofthe shipment and with local trucking companies, known as "drayage companies,"for pickup and delivery. In markets where adequate service is not available, theCompany supplements third party drayage services with Company-owned drayageoperations. As part of its intermodal services, the Company negotiates rail anddrayage rates, electronically tracks shipments in transit, consolidates billing and handles claims for freight loss or damage on behalf of its customers. 1 The Company uses its Hub network, connected through its Network ManagementSystem, to access containers and trailers owned by leasing companies, railroadsand steamship lines. Because each Hub not only handles its own outboundshipments but also handles inbound shipments from other Hubs, each Hub is ableto track trailers and containers entering its service area and reuse thatequipment to fulfill its customers' outbound shipping requirements. Thiseffectively allows the Company to "capture" containers and trailers and keepthem within the Hub network without having to make a capital investment intransportation equipment. The Company also has exclusive use of the containersin its Premier Service Network. HIGHWAY SERVICES The Company arranges for the transportation of freight bytruck, providing customers another option for their transportation needs. Thisis accomplished by matching customers' needs with carriers' capacity to providethe appropriate service and price combination. The Company has contracts with asubstantial base of carriers allowing it to meet the varied needs of itscustomers. The Company negotiates rates, tracks shipments in transit and handlesclaims for freight loss and damage on behalf of its customers. The Company's brokerage operation also provides customers with specializedprograms. Through the Dedicated Trucking program, certain carriers haveinformally agreed to move freight for Hub's customers on a continuous basis.This arrangement allows the Company to gain control of the trucking equipment toeffectively meet its customer's needs without owning the equipment. Through theCore Carrier-Plus One program, the Company assumes the responsibility forover-the-road truckload shipments that the customer's core carriers cannothandle. This service supplements the customer's core carrier program and helpsensure the timely delivery of the customer's freight. LOGISTICS The Company has expanded its service capabilities as customersincreasingly outsource their transportation needs. The Company has established aSupply Chain Solutions group with logistics expertise at its headquarters inLombard. In addition, many of the Hubs have hired experienced logisticspersonnel exclusively dedicated to selling and servicing Hub Group's logisticsservice offering. The Supply Chain Solutions group acts as a central resourcefor the Hubs who then perform the actual logistics services. The Company currently offers various logistics services, includingcomprehensive transportation management, arranging for delivery to multiplelocations at the shipment's destination, third party warehousing,less-than-truckload consolidation and other customized logistics services, aswell as other non-traditional logistics services such as installation of pointof sale merchandise displays. When providing complete transportation services,the Company essentially replaces the customer's transportation department. Oncethe Company is hired as a single source logistics provider, it negotiates withintermodal, railcar, truckload and less-than-truckload carriers to move thecustomer's product through the supply chain and then dispatches the move for thecustomer.HUB NETWORK Over the past 31 years, Hub Group has grown from a single office with twoemployees into a network of 22 Hubs in the United States, one Hub in Canada, oneHub in Mexico and Hub Distribution. Hub Group also has several satellite salesoffices. In developing this network, the Company has carefully selected eachlocation to ensure coverage in areas with significant concentrations of shippingcustomers and one or more railheads. Hub Group currently has Hubs in thefollowing cities: Atlanta Houston Milwaukee Salt Lake City Baltimore Indianapolis New York City San Francisco Boston Kansas City Pittsburgh Seattle Chicago (2) Los Angeles Portland Toledo Cleveland Memphis Rochester Toronto Detroit Mexico City St. LouisThe entire Hub network is interactively connected through the Company's NetworkManagement System. This enables Hub Group to move freight into and out of everymajor city in the United States and most locations in Canada and Mexico. 2 Each Hub manages the freight originating in or destined for its servicearea. In a sample intermodal transaction, the customer contacts the local Hub,known as the selling Hub, to obtain shipping schedules and a price quote for aparticular freight movement. The local Hub obtains the necessary intermodalequipment, arranges for it to be delivered to the customer by a drayage companyand, after the freight is loaded, arranges for the transportation of thecontainer or trailer to the rail ramp. Information is entered into the NetworkManagement System by the local Hub. This information is simultaneouslytransmitted through the Network Management System to the Hub closest to thepoint of delivery. The Company's predictive track and trace technology thenmonitors the shipment to ensure that it will arrive as scheduled, alerting thecustomer service personnel at the local Hub if there are service delays. The Hubclosest to the point of delivery arranges for and confirms delivery by a drayagecompany. This arrangement among the Hubs is transparent to the customer andallows the customer to maintain its relationship solely with the selling Hub. The Company provides brokerage services to its customers in a similarmanner. In a sample brokerage transaction, the customer contacts the local Hubto obtain transit information and a price quote for a particular freightmovement. The customer then provides appropriate shipping information to thelocal Hub. The local Hub makes the delivery appointment and arranges with theappropriate carrier to pick up the freight. Once it receives confirmation thatthe freight has been picked up, the local Hub monitors the movement of thefreight until it reaches its destination and the delivery has been confirmed. Ifthe carrier notifies Hub Group that after delivering the load it will needadditional freight, the Hub located nearest the destination is notified of thecarrier's availability. Although it is under no obligation to do so, the localHub then may attempt, if requested by the carrier, to secure freight for thecarrier.MARKETING AND CUSTOMERS The Company believes that fostering long-term customer relationships iscritical to the Company's success. Through these long-term relationships, theCompany is able to better understand its customer's needs and to tailortransportation services for a specific customer, regardless of the customer'ssize or volume. The Company currently has full time marketing representatives ateach Hub and Hub Distribution with primary responsibility for servicing localand regional accounts. These sales representatives work from the local Hubs, HubDistribution and the Company's satellite sales offices. This network provides alocal marketing contact for small and medium shippers in most major metropolitanareas within the United States. In 1985, the Company established the National Accounts group to service theneeds of the nation's largest shippers. The Company recognized that althoughmost large shippers originate freight from multiple locations throughout thecountry, their logistics function is usually centralized. The Companyessentially mirrored this structure by servicing national accounts from acentral location and parceling out the servicing of individual freight shipmentsto the appropriate Hub. There are currently 18 National Accounts salesrepresentatives who report either directly or indirectly to the Company'sExecutive Vice President of Marketing. The National Accounts salesrepresentatives regularly call on the nation's largest shippers to developbusiness relationships and to expand the Company's participation in servicingtheir transportation needs. When a business opportunity is identified by aNational Accounts sales representative, the Company's market development andpricing personnel and the local Hubs work together to provide a transportationsolution tailored to the customer's needs. Local Hubs provide transportation services to National Accounts customers. After the plan is implemented, NationalAccounts' personnel maintain regular contact with the shipper to ensure customersatisfaction and to refine the process as necessary. This unique combination of local and regional marketing has produced alarge, diverse customer base. The Company services customers in a wide varietyof industries, including automotive, chemicals, consumer products, electronics,paper, printing, and retail.MANAGEMENT INFORMATION SYSTEMS A primary component of the Company's business strategy is the continuedimprovement of its Network Management System and other technology to ensure thatthe Company will remain a leader among transportation providers in informationprocessing for transportation services. Hub Group's Network Management Systemconsists of proprietary software running on IBM AS/400 computers located at asecure offsite data center. All of the Hubs are linked with these AS/400 3computers and each other using a frame relay network. This configurationprovides a real time environment for transmitting data among the Hubs and theCompany's headquarters. The Company also makes extensive use of electronic datainterchange ("EDI"), allowing each Hub to communicate electronically with eachrailroad, certain drayage companies and those customers with EDI capabilities. The Company's Network Management System is the primary mechanism used bythe Hubs to handle the Company's intermodal and highway services business. TheNetwork Management System processes customer transportation requests, schedulesand tracks shipments, prepares customer billing, establishes account profilesand retains critical information for analysis. The Network Management Systemprovides connectivity with each of the major rail carriers, enabling the Companyto electronically schedule and track shipments in a real time environment. Inaddition, the Network Management System's EDI features offer customers with EDIcapability a completely paperless process, including load tendering, shipmenttracking, customer billing and remittance processing. The Company aggressivelypursues opportunities to establish EDI interfaces with its customers andcarriers. To help manage its logistics business, the Company uses i2 Technologies'Transportation and Logistics Suite which includes planning and executionsolutions. This sophisticated transportation management software enables HubGroup to offer supply chain planning tools and logistics managing, modeling,optimizing and monitoring tools for its customers. This software may be used bythe Company when offering logistics management services to customers that shipvia multiple modes, including intermodal, truckload, and less-than-truckload,allowing the Company to optimize mode and carrier selection and routing for itscustomers. This software is integrated with Hub Group's Network ManagementSystem and Hub Group's accounting system. The Company's website, www.hubgroup.com, is designed to allow Hub Group'scustomers and vendors to easily do business with Hub Group online. The Companylaunched the Vendor Interface portion of this website in early 2000. ThroughVendor Interface, the Company tenders loads to its drayage partners using theInternet rather than phones or faxes. Vendor Interface also captures eventstatus information and helps facilitate paperless invoicing for payment. HubGroup currently tenders over 98% of its drayage loads using Vendor Interface orEDI. Hub Group launched the Customer Advantage portion of its website in early2001. Customer Advantage allows customers to receive immediate pricing, placeorders, track shipments and review historical shipping data through a variety ofreports over the Internet. Current Internet applications are, and futureInternet applications will be, integrated with the Network Management System.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 UnitedStates. The Company views its relationship with the railroads as a partnership.Due to the Company's size and relative importance, many railroads have dedicatedsupport personnel to focus on the Company's day-to-day service requirements. Ona regular basis, senior executives of the Company and each of the railroads meetto discuss major strategic issues concerning intermodal transportation. Severalof the Company's executive officers, including both the Company's Chairman andPresident, are former railroad employees, which makes them well-suited tounderstand the railroads' service capabilities.The Company has contracts with each of the following major railroads: Burlington Northern Santa Fe Railway Kansas City Southern Canadian National Norfolk Southern Canadian Pacific Union Pacific CSXThe Company also has contracts with each of the following major fourth-partyservice providers: Mitsui O.S.K. Lines (America) Inc., Pacer International,Inc., K-Line America, Inc. and Maersk Sea-Land. These contracts govern the transportation services and payment termspursuant to which the Company's intermodal shipments are handled by therailroads. The contracts have staggered renewal terms with the earliestexpiration occurring during 2002. While there can be no assurances that thesecontracts will be renewed, the Company has in the past successfully negotiated 4extensions of these contracts. Transportation rates are market driven and aretypically negotiated between the Company and the railroads or fourth-partyservice providers on a customer specific basis. Consistent with industrypractice, many of the rates negotiated by the Company are special commodityquotations ("SCQs"), which provide discounts from published price lists based oncompetitive market factors and are designed by the railroads or fourth-partyservice providers to attract new business or to retain existing business. SCQrates are generally issued for the account of a single IMC. SCQ rates apply tospecific customers in specified shipping lanes for a specific period of time,usually six to 12 months. The Company also manages a fleet of containers under its Premier ServiceNetwork. This program began with the Burlington Northern and Santa Fe RailwayCompany ("BNSF") in May 1998 and in 1999 expanded to include the NorfolkSouthern Corporation ("NS"). Under agreements with both the BNSF and NS, theCompany manages, as of March 1, 2002, approximately 5,000 containers owned bythe BNSF and 1,300 containers owned by the NS. These containers are for HubGroup's dedicated use on the BNSF and NS rail systems. The BNSF containers andthe NS containers are fully interchangeable across both the BNSF and NS railnetworks.RELATIONSHIP WITH DRAYAGE COMPANIES In 1990, the Company instituted its "Quality Drayage Program," whichconsists of agreements and rules that govern the framework pursuant to which thedrayage companies perform services for the Company. Participants in the programcommit to provide high quality service along with clean and safe equipment,maintain a defined on-time performance level and follow specified proceduresdesigned to minimize freight loss and damage. Whenever possible, the Companyuses the services of drayage companies that participate in its Quality DrayageProgram. However, during periods of high demand for drayage services or at therequest of a customer, the Company will use the services of other drayagecompanies. The local Hubs negotiate drayage rates for transportation betweenspecific origin and destination points. These rates generally are valid, withminor 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 activecarriers in its database which it uses to transport freight. The local Hubs dealdaily with these carriers on an operational level. Hub Highway Services, apartnership controlled by the Company, handles the administrative and regulatoryaspects of the carrier relationship. Hub Group's relationships with its carriersare important since these relationships determine pricing, load coverage andoverall service.RISK MANAGEMENT AND INSURANCE The Company requires all drayage companies participating in the QualityDrayage 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 ontheir own or through the Company's insurance, $1.0 million in cargo insurance.Railroads, which are self-insured, provide limited cargo protection, generallyup to $250,000 per shipment. To cover freight loss or damage when a carrier'sliability cannot be established or a carrier's insurance is insufficient tocover 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 millionper occurrence and $2.0 million in the aggregate with a companion $20.0 millionumbrella 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 commoditiesby 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 prescribesqualifications for acting in this capacity, including a $10,000 surety bondwhich the Company has posted. To date, compliance with these regulations has nothad a material adverse effect on the Company's results of operations orfinancial condition. However, the transportation industry is subject tolegislative or regulatory changes that can affect the economics of the industry 5by requiring changes in operating practices or influencing the demand for, andcost of providing, transportation services.COMPETITION The transportation services industry is highly competitive. The Companycompetes against other IMCs, as well as logistics companies, third partybrokers, over-the-road truckload carriers and railroads that market their ownintermodal services. There is an emerging trend for larger truckload carriers toenter into agreements with railroads to market intermodal services nationwide.In addition, many existing and start-up companies are using the Internet tomarket transportation services. Competition is based primarily on freight rates,quality of service, reliability, transit time and scope of operations. Severaltransportation service companies and truckload carriers, and all of the majorrailroads, have substantially greater financial and other resources than theCompany.GENERAL EMPLOYEES As of February 28, 2002, the Company had approximately 1,540employees. The Company is not a party to any collective bargaining agreement andconsiders its relationship with its employees to be satisfactory. OTHER No material portion of the Company's operations is subject torenegotiation of profits or termination of contracts at the election of thefederal government. None of the Company's patents and trademarks is believed tobe material to the Company. The Company's business is seasonal to the extentthat certain customer groups, such as retail, are seasonal. ITEM 2. PROPERTIES The Company directly, or indirectly through its subsidiaries, operates 42offices throughout the United States and in Canada and Mexico, including theCompany's headquarters in Lombard, Illinois and its Company-owned drayageoperations. The office building used by the Hub located in Toledo is owned, andthe remainder are leased. Most office leases have initial terms of more than oneyear, and many include options to renew. While some of the Company's leasesexpire in the near term, the Company does not believe that it will havedifficulty in renewing them or in finding alternative office space. The Companybelieves that its offices are adequate for the purposes for which they arecurrently used.ITEM 3. LEGAL PROCEEDINGS On February 19, 2002, a purported class action lawsuit was filed by RiggsPartners, LLC in the United States District Court for the Northern District ofIllinois, Eastern Division. The complaint names as defendants the Company, theCompany's officers and former officers that signed the Company's recent periodicreports filed with the Securities and Exchange Commission and the Company'sauditors. The complaint alleges that the defendants violated Section 10(b) andRule 10b-5 thereunder and Section 20(a) of the Securities Exchange Act of 1934by filing or causing to be filed with the Securities and Exchange Commissionperiodic reports that contained inaccurate financial statements. The complaintseeks unspecified compensatory damages, reimbursement of reasonable costs andexpenses, including counsel fees and expert fees, and such other relief as thecourt deems just and proper. The Company believes that this suit is withoutmerit and intends to vigorously defend itself and its officers. An adversejudgement in this lawsuit could have a material adverse affect on the Company'sfinancial position and results of operations. In addition to the suit described above, the Company is a party to routinelitigation incident to its business, primarily claims for freight lost ordamaged in transit or improperly shipped. Many of the lawsuits to which theCompany is party are covered by insurance and are being defended by theCompany's insurance carriers. Management does not believe that the outcome ofthis litigation will have a materially adverse effect on the Company's financialposition or results of operations. See Item 1 Business - Risk Management andInsurance.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Company's security holdersduring the fourth quarter of 2001. 6EXECUTIVE OFFICERS OF THE REGISTRANT In reliance on General Instruction G to Form 10-K, information on executiveofficers of the Registrant is included in this Part I. The table sets forthcertain information as of March 18, 2002 with respect to each person who is anexecutive officer of the Company. Name Age Position ------------------ ----- ----------------------------------------------- Phillip C. Yeager 74 Chairman of the Board of Directors David P. Yeager 48 Vice Chairman of the Board of Directors and Chief Executive Officer Thomas L. Hardin 56 President, Chief Operating Officer and Director Mark A. Yeager 37 President-Field Operations Donald G. Maltby 47 President-Hub Online Jay E. Parker 37 Vice President-Finance, Chief Financial Officer and Treasurer Richard M. Rogan 62 Executive Vice President-Marketing Dennis R. Polsen 48 Vice President and Chief Information Officer David C. Zeilstra 32 Vice President, Secretary and General Counsel Phillip C. Yeager, the Company's founder, has been Chairman of the Boardsince October 1985. From April 1971 to October 1985, Mr. Yeager served asPresident of Hub City Terminals, Inc. ("Hub Chicago"). Mr. Yeager becameinvolved in intermodal transportation in 1959, five years after the introductionof intermodal transportation in the United States, as an employee of thePennsylvania and Pennsylvania Central Railroads. He spent 19 years with thePennsylvania and Pennsylvania Central Railroads, 12 of which involved intermodaltransportation. In 1991, Mr. Yeager was named Man of the Year by the IntermodalTransportation Association. In 1995, he received the Salzburg PractitionersAward from Syracuse University in recognition of his lifetime achievements inthe transportation industry. In October 1996, Mr. Yeager was inducted into theChicago Area Entrepreneurship Hall of Fame sponsored by the University ofIllinois at Chicago. In March 1997, he received the Presidential Medal fromDowling College for his achievements in transportation services. In September1998 he received the Silver Kingpin award from the Intermodal Association ofNorth America and in February 1999 he was named Transportation Person of theYear by the New York Traffic Club. Mr. Yeager graduated from the University ofCincinnati in 1951 with a Bachelor of Arts degree in Economics. Mr. Yeager isthe father of David P. Yeager and Mark A. Yeager. David P. Yeager has served as the Company's Vice Chairman of the Boardsince January 1992 and as Chief Executive Officer of the Company since March1995. From October 1985 through December 1991, Mr. Yeager was President of HubChicago. From 1983 to October 1985, he served as Vice President, Marketing ofHub Chicago. Mr. Yeager founded the St. Louis Hub in 1980 and served as itsPresident from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 andserved as its President from 1975 to 1977. Mr. Yeager received a Masters inBusiness Administration degree from the University of Chicago in 1987 and aBachelor of Arts degree from the University of Dayton in 1975. Mr. Yeager is theson of Phillip C. Yeager and the brother of Mark A. Yeager. Thomas L. Hardin has served as the Company's President since October 1985and has served as Chief Operating Officer and a director of the Company sinceMarch 1995. From January 1980 to September 1985, Mr. Hardin was VicePresident-Operations and from June 1972 to December 1979, he was General Managerof the Company. Prior to joining the Company, Mr. Hardin worked for the MissouriPacific Railroad where he held various marketing and pricing positions. Mr.Hardin is the former Chairman of the Intermodal Association of North America. Mark A. Yeager has been the Company's President-Field Operations since July1999. From November 1997 through June 1999 Mr.Yeager was Division President,Secretary and General Counsel. From March 1995 to November 1997, Mr. Yeager 7was 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 theCompany in 1992, Mr. Yeager was an associate at the law firm of Grippo & Eldenfrom January 1991 through May 1992 and an associate at the law firm ofSidley & Austin from May 1989 through January 1991. Mr. Yeager received a JurisDoctor degree from Georgetown University in 1989 and a Bachelor of Arts degreefrom Indiana University in 1986. Mr. Yeager is the son of Phillip C. Yeagerand the brother of David P. Yeager. Donald G. Maltby has served as President - Hub Online, the Company'se-commerce division, since February 2000. From July 1990 through January 2000,Mr. Maltby served as the President of the Company's Hub in Cleveland. Prior tojoining Hub Group, Mr. Maltby served as President of Lyons Transportation, awholly-owned subsidiary of Sherwin Williams Company, from 1988 to 1990. In hiscareer at Sherwin Williams, which began in 1981 and continued until he joinedthe Company in 1990, Mr. Maltby held a variety of management positions,including Vice-President of Marketing and Sales for their TransportationDivision. Mr. Maltby has been in the Transportation and Logistics industry since 1976. Mr. Maltby received a Masters in Business Administration from BaldwinWallace College in 1982 and a Bachelor of Science degree from the StateUniversity of New York in 1976. Jay E. Parker has been the Company's Vice President of Finance, ChiefFinancial Officer and Treasurer since June 1999. From July 1995 through May1999, Mr. Parker was the Company's Corporate Controller. Prior to joining theCompany, Mr. Parker was the Director of Financial Reporting at Discovery Zone,Inc. from July 1994 through June 1995 and held various positions, includingAudit Manager, with Arthur Andersen from December 1988 through June 1994. Mr.Parker received a Masters of Accounting Science from Northern IllinoisUniversity in 1988, became a Certified Public Accountant in 1987 and received aBachelor of Science degree in Finance from Northern Illinois University in 1986. Richard M. Rogan has been Executive Vice President of Marketing sinceNovember 1997 and was President of Hub Highway Services from May 1995 throughFebruary 2002. Prior to joining the Company, Mr. Rogan was Executive VicePresident 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 Presidentand Chief Executive Officer from March 1988 to April 1993 and as an ExecutiveVice President from July 1985 to February 1988. Mr. Rogan's transportationcareer spans 25 years and includes earlier assignments with the Illinois CentralRailroad, North American Van Lines and Schneider National. He received aBachelor of Business Administration degree from Loyola University of Chicago in1962 and a Master of Business Administration degree from the Wharton School ofthe University of Pennsylvania in 1963. He has served on the Board of Directorsof the ATA Foundation as well as the Interstate Truckload Carrier Conference("ITCC"). He is a past Chairman of the ITCC Highway Policy Committee and hasalso served on the Advisory Board of the Trucking Profitability StrategiesConference at the University of Georgia. Dennis R. Polsen has been the Company's Vice President - Chief InformationOfficer since September 2001. From March 2000 through August 2001, Mr. Polsenwas the Company's Vice-President of Application Development. Prior to joiningthe Company, Mr. Polsen was Director of Applications for Humana, Inc. fromSeptember 1997 through February 2000 and spent 14 years prior to thatdeveloping, implementing, and directing transportation logistics applications atSchneider National, Inc. Mr. Polsen received a Bachelor of BusinessAdministration in May of 1976 from the University of Wisconsin, Milwaukee and aMasters in Business Administration in May of 1983 from the University ofWisconsin Graduate School of Business. Mr. Polsen is a past member of theAmerican Trucking Association. David C. Zeilstra has been the Company's Vice President, Secretary andGeneral Counsel since July 1999. From December 1996 through June 1999, Mr.Zeilstra was the Company's Assistant General Counsel. Prior to joining theCompany, Mr. Zeilstra was an associate with the law firm of Mayer, Brown & Plattfrom September 1994 through November 1996. Mr. Zeilstra received a Juris Doctordegree from the Duke University School of Law in 1994 and a Bachelor of Artsdegree from Wheaton College in 1990.DIRECTORS OF THE REGISTRANT The following three individuals are also on the Company's Board ofDirectors: Gary D. Eppen - currently retired and formerly the Ralph and DorothyKeller Distinguished Service Professor of Operations Management and Deputy Dean 8for part-time Masters in Business Administration Programs at the Graduate Schoolof Business at the University of Chicago; Charles R. Reaves- Chief ExecutiveOfficer of Reaves Enterprises, Inc., a real estate development company andMartin P. Slark - President, Chief Operating Officer and Director of Molex,Incorporated, a manufacturer of electronic, electrical and fiber opticinterconnection products and systems. PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Class A common stock of the Company ("Class A Common Stock") tradeson the NASDAQ National Market tier of the NASDAQ Stock Market. The Companynormally trades under the symbol "HUBG." On February 19, 2002, the Companyannounced that it received a letter from the Nasdaq National Stock Market("Nasdaq"). This letter informed the Company that due to the Company's plans torestate its earnings, the Company's public filings made during fiscal 1999,2000, and 2001 did not satisfy the Company's obligation under Nasdaq'sMarketplace Rule 4310(c)(14). The letter stated that Company's securities couldbe subject to delisting should this violation go uncorrected. The Companyrequested and held a hearing with Nasdaq on this matter, which automaticallystayed the delisting process. Pending the decision of the hearing panel, theCompany's Class A Common Stock will continue trading on Nasdaq under the symbol"HUBGE." As a result of filing this Form 10-K with the Securities and ExchangeCommission, the Company believes it is now in full compliance with MarketplaceRule 4310(c)(14) and the Company will therefore seek Nasdaq approval to againtrade under the symbol "HUBG." Set forth below are the high and low prices for shares of the Class ACommon Stock of the Company for each full quarterly period in 2000 and 2001. 2000 2001 ---------- --------- HIGH LOW HIGH LOW ---- --- ---- --- First Quarter $20 1/2 $15 1/4 $11.875 $8.00 Second Quarter $15 1/8 $10 1/2 $14.20 $8.00 Third Quarter $14 1/2 $9 9/16 $15.14 $10.60 Fourth Quarter $9 10/16 $6 1/2 $11.19 $8.75 On March 1, 2002, there were approximately 55 stockholders of record of theClass A Common Stock and, in addition, there were an estimated 1,250 beneficialowners of the Class A Common Stock whose shares were held by brokers and otherfiduciary institutions. On March 1, 2002, there were 11 holders of record of theCompany's Class B common stock (the "Class B Common Stock" together with theClass A Common Stock, the "Common Stock"). The Company was incorporated in 1995 and has never paid cash dividends oneither the Class A Common Stock or the Class B Common Stock. The declaration andpayment of dividends by the Company are subject to the discretion of the Boardof Directors. Any determination as to the payment of dividends will depend uponthe results of operations, capital requirements and financial condition of theCompany, and such other factors as the Board of Directors may deem relevant.Accordingly, there can be no assurance that the Board of Directors will declareor pay dividends on the shares of Common Stock in the future. The certificate ofincorporation of the Company requires that any cash dividends must be paidequally on each outstanding share of Class A Common Stock and Class B CommonStock. The Company's credit facility and private placement debt prohibit theCompany from paying dividends on the Common Stock if there has been, orimmediately following the payment of a dividend would be, a default or an eventof default under the credit facility or private placement debt. The Company iscurrently in compliance with the covenants contained in the credit facility andprivate placement debt. 9ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA (in thousands except per share data) YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- RESTATED RESTATED ----------------------------- 2001 2000(2) 1999(2) 1998 1997(1) -------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA:Revenue $1,319,331 $ 1,382,880 $ 1,295,502 $ 1,145,906 $1,064,479Gross margin 178,963 167,767 159,863 138,334 129,855Operating income 10,548 13,495 26,453 26,406 33,495Income before minority interest and taxes 902 2,878 19,928 25,324 32,869Income before taxes 751 4,547 15,941 15,205 15,874Net income 443 2,683 9,405 8,908 9,525Basic earnings per common share $ .06 $ 0.35 $ 1.22 $ 1.16 $ 1.48Diluted earnings per common share $ .06 $ 0.35 $ 1.21 $ 1.15 $ 1.46 AS OF DECEMBER 31, --------------------------------------------------------------------- RESTATED RESTATED ----------------------------- 2001 2000 1999 1998 1997(1) --------------------------------------------------------------------- BALANCE SHEET DATA: Working capital $ (5,380) $ (5,902) $ 20,202 $ 20,313 $ 15,209Total assets 416,024 469,373 441,421 304,791 267,826Long-term debt, excluding current portion 96,059 109,089 131,414 29,589 22,873Stockholders' equity 32,453 132,397 129,683 119,673 110,462(1) In September 1997, the Company issued 1,725,000 shares of Class A commonstock through a secondary offering which resulted in net proceeds ofapproximately $54,763,000. These proceeds were used to purchase the remaining70% minority interest in Hub City Los Angeles, L.P. and Hub City Golden Gate,L.P.(2) As a result of a comprehensive review that commenced in the first quarter of2002, the Company determined that certain items of revenue and expense wereincorrectly reported in previously issued financial statements. The Company hasaccordingly restated its financial results for 2000 and 1999. See Note 2 to theconsolidated financial statements. 10ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSRESTATEMENT As more fully described in Note 2 of the Notes to ConsolidatedFinancial Statements, certain information in this filing has been restated tocorrect previously issued financial statements. The discussion in this itemreflects those restatements.CAPITAL STRUCTURE Hub Group, Inc. (the "Company") has authorized common stock comprisedof Class A common stock and Class B common stock. The rights of holders of ClassA common stock and Class B common stock are identical, except each share ofClass B common stock entitles its holder to 20 votes, while each share of ClassA common stock entitles its holder to one vote.CALL OPTIONS On April 1, 1999, Hub Group, Inc. exercised its call options to acquirethe remaining 70% minority interests in Hub City Alabama, L.P., Hub CityAtlanta, 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 NewYork/New Jersey, L.P., Hub City New York State, L.P., Hub City Ohio, L.P., HubCity 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 1999Purchase"). The Company paid $108.7 million in cash.RESULTS OF OPERATIONSYEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000REVENUE Revenue for the Company decreased 4.6% to $1,319.3 million in 2001 from$1,382.9 million in 2000. Overall, management believes that a soft economy hasnegatively impacted the current year growth. Intermodal revenue decreased 9.9%from 2000. The decline in intermodal revenue was primarily due to a $71.8million reduction in demand for intermodal service from the Company's steamshipcustomers. Two large steamship customers ceased doing business with the Companyin the second quarter of 2001. While one steamship customer has terminatedoperations worldwide, the other has changed its method of business. Truckloadbrokerage revenue increased 2.7% from 2000. Logistics revenue, which includesrevenue from the Company's supply chain solutions services and revenue from HubGroup Distribution Services ("Hub Distribution"), increased 17.8% compared to2000. This increase was primarily due to significant growth from the Company'ssupply chain solutions business.GROSS MARGIN Gross margin increased 6.7% to $179.0 million in 2001 from $167.8million in 2000. As a percent of revenue, gross margin increased to 13.6% from12.1% in 2000. The increase in gross margin as a percent of revenue is primarilydue to the increase in the intermodal gross margin percentage resulting in partfrom the loss of the high volume, lower margin steamship business.SALARIES AND BENEFITS Salaries and benefits decreased 1.3% to $95.0 million in 2001 from$96.2 million in 2000. As a percentage of revenue, salaries and benefitsincreased to 7.2% from 7.0% in 2000. The increase as a percentage of revenue isdue to the decrease in revenue. 11SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased 16.0% to $53.6million in 2001 from $46.2 million in 2000. As a percentage of revenue, theseexpenses increased to 4.1% from 3.3% in 2000. The increase as a percentage ofrevenue is primarily attributed to a $4.7 million write-off associated with thebankruptcy and forced liquidation of a Korean steamship line customer, increasedcosts associated with the outsourced data center and the decrease in revenue.DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT Depreciation and amortization increased 75.1% to $10.7 million in 2001from $6.1 million in 2000. This expense as a percentage of revenue increased to0.8% from 0.4% in 2000. The increase in depreciation and amortization is due inpart to the depreciation of software applications placed into service throughout2000 and 2001. Additionally, during the first half of the year, the Companyrecognized $1.5 million in additional depreciation due primarily to a change inestimated useful lives for various assets. Of this amount, $0.9 million relatesto various assets, that in December 2000, were determined to be no longer usefulonce the Company's new operating system was completed. The remaining $0.6million of additional depreciation relates to the Company's decision toaccelerate depreciation for a piece of communications software that was replacedwith a more stable and cost effective software application during the secondquarter of 2001.AMORTIZATION OF GOODWILL Amortization of goodwill remained constant at $5.7 million in both 2001and 2000.IMPAIRMENT OF PROPERTY AND EQUIPMENT The $3.4 million impairment charge in 2001 was due to HubDistribution's exit from its initiative surrounding the home delivery of largebox items purchased over the internet.OTHER INCOME (EXPENSE) Interest expense decreased 10.3% to $10.3 million in 2001 from $11.5million in 2000. The decrease in interest expense is due primarily to carrying alower average debt balance this year as compared to the prior year and lowerinterest rates. Interest income decreased to $0.7 million in 2001 from $0.8 million in2000. Other income decreased to $0.0 million in 2001 from $0.1 million in2000.MINORITY INTEREST Minority interest increased to $0.2 million in 2001 from $(1.7) millionin 2000. Minority interest represents the 35% minority interest in HubDistribution.PROVISION FOR INCOME TAXES The provision for income taxes decreased 83.5% to $0.3 million in 2001compared to $1.9 million in 2000. The Company provided for income taxes using aneffective rate of 41.0% in both years.NET INCOME Net income decreased 83.5% to $0.4 million in 2001 from $2.7 million in2000. 12EARNINGS PER COMMON SHARE Basic and diluted earnings per common share decreased 82.9% to $0.06 in2001 from $0.35 in 2000.YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999REVENUE Revenue for the Company increased 6.7% to $1,382.9 million in 2000 from$1,295.5 million in 1999. Early in 2000, the Company's underlying rail andtruckload carriers began passing on significant price increases related to theincrease in the cost of fuel. Accordingly, the Company increased the prices itcharges its customers. Based on the timing and magnitude of these increases,management estimates that such increases caused the Company's revenue to grow 4%to 5% for the year. Absent this increase, management estimates that revenuegrowth would have ranged from 2% to 3% for the year. Intermodal revenueincreased 3.9% over 1999. Management believes that this slower than historicalgrowth in intermodal is due in part to a softening economy and the terminationof a significant customer contract in November 1999. Truckload brokerage revenueincreased 5.7% over 1999. Logistics revenue increased 29.2% compared to 1999.This increase was primarily due to growth in the Company's supply chainsolutions logistics services revenue.GROSS MARGIN Gross margin increased 4.9% to $167.8 million in 2000 from $159.9million in 1999. Gross margin as a percentage of revenue decreased to 12.1% from12.3% in 1999. The primary cause for the decline as a percentage of revenue wasdue to lower gross margins at Hub Distribution.SALARIES AND BENEFITS Salaries and benefits increased 14.4% to $96.2 million in 2000 from$84.1 million in 1999. As a percentage of revenue, salaries and benefitsincreased to 7.0% from 6.5% in 1999. The increase in the percentage is primarilyattributed to increased headcount supporting the Company's growing base ofservice offerings, information technology initiatives and e-businessinitiatives. The additional service offerings include the operational and salessupport of boxcar, flat bed, expedited and certain logistics applications.Additionally, in the fourth quarter of 2000, the Company recognized a $0.3million charge related to severance primarily for accounting personnel as partof a plan to centralize the Company's accounting functions at its corporateheadquarters in 2001.SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased 17.5% to $46.2million in 2000 from $39.4 million in 1999. As a percentage of revenue, theseexpenses increased to 3.3% from 3.0% in 1999. The increase as a percentage ofrevenue is primarily attributed to expenditures related to equipment leases,data center and data communications costs and rent. The increase in equipmentleases is primarily due to the leasing of computer hardware required to supportboth newly developed and future software applications. The increase in datacommunication costs and costs associated with the recently outsourced datacenter are related to supporting the Company's information technologyinitiatives. Rent expense increased as the Company's operating units wererequired to obtain larger office space to accommodate operations.DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT Depreciation and amortization increased 51.9% to $6.1 million in 2000from $4.0 million in 1999. This expense as a percentage of revenue increased to0.4% from 0.3% in 1999. The increase is primarily related to the amortization ofinternally developed software for the Company's e-business initiatives.Additionally, in the fourth quarter of 2000, the Company recognized $0.5 millionin additional depreciation due primarily to a change in estimated useful livesof various assets that will no longer be used once the new operating system iscompleted. 13AMORTIZATION OF GOODWILL Amortization of goodwill increased 13.3% to $5.7 million from $5.1million in 1999. The expense as a percentage of revenue remained constant at0.4%. The $0.6 million increase in expense over 1999 is attributable to having afull year of amortization of the goodwill associated with the purchase of theremaining 70% minority interests in connection with the April 1999 Purchase.OTHER INCOME (EXPENSE) Interest expense increased to $11.5 million in 2000 from $8.6 millionin 1999. The increase in interest expense is due primarily to having a full yearof the debt required to fund the purchase of the remaining 70% minorityinterests in connection with the April 1999 Purchase. Interest income decreased to $0.8 million in 2000 from $0.9 million in1999. The primary cause for this decrease is the Company's increasedconcentration of cash balances to reduce debt and minimize related interestexpense. Other income decreased to $0.1 million in 2000 from $1.2 million in1999. This decrease is primarily attributed to $1.0 million of non-recurringincome recognized in 1999 upon execution of a confidential agreement with one ofthe Company's vendors.MINORITY INTEREST Minority interest decreased to $(1.7) million in 2000 from $4.0 millionin 1999. The decrease is attributed to a net loss at Hub Distribution in 2000and the purchase of the remaining 70% minority interests in connection with theApril 1999 Purchase.PROVISION FOR INCOME TAXES The provision for income taxes decreased 71.5% to $1.9 million in 2000compared to $6.5 million in 1999. The Company provided for income taxes using aneffective rate of 41.0% in both years.NET INCOME Net income decreased 71.5% to $2.7 million in 2000 from $9.4 million in1999.EARNINGS PER COMMON SHARE Basic earnings per common share decreased 71.3% to $0.35 in 2000 from$1.22 in 1999. Diluted earnings per common share decreased 71.1% to $0.35 in2000 from $1.21 in 1999.LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations and capital expenditures throughcash flows from operations and bank borrowings. Cash provided by operating activities for the year ended December 31,2001, was approximately $27.6 million, which resulted primarily from net incomefrom operations before non-cash charges of $21.7 million and a net increase inworking capital of $5.9 million. The increase in working capital was primarilyrelated to a significant reduction in accounts receivable due to improvedcollections and lower revenue. Net cash used in investing activities for the year ended December 31,2001, was $10.3 million and related to capital expenditures. The capitalexpenditures were principally made to enhance the Company's information systemcapabilities. The most significant project relates to a customized operatingsystem. 14 The net cash used in financing activities for the year ended December31, 2001, was $17.3 million. This was primarily comprised of $5.0 million ofvoluntary payments on the Company's line of credit and $12.3 million ofscheduled payments on the Company's term debt, unsecured notes, installmentnotes and capital leases. The Company maintains a multi-bank credit facility (the "CreditFacility"). The Credit Facility is comprised of term debt and a revolving lineof credit. Borrowings under the revolving line of credit are unsecured and havea five-year term that began on April 30, 1999, with a floating interest ratebased upon the LIBOR (London Interbank Offered Rate) or Prime Rate. Borrowingsand weighted average interest rates on the revolving line of credit were $19.0million and 4.46% and $24.0 million and 9.23% at December 31, 2001 and 2000,respectively. There was $31.0 million and $26.0 million unused and availableunder the revolving line of credit at December 31, 2001 and 2000, respectively.The term debt has quarterly payments ranging from $1,250,000 to $2,000,000 witha balloon payment of $19.0 million due on March 31, 2004. Borrowings and weighted average interest rates on the term debt was $35.0 million and 4.66% and$42.0 million and 9.19% at December 31, 2001 and 2000, respectively. On November 7, 2000, the Company amended the Credit Facility. Theamendment increases the borrowing rate ranges of both the term note andrevolving line of credit. Under the amended line of credit, the Company canborrow, at its option, at the prime rate plus 0.25% to 1.25% or at a rateestablished at the bank's discretion on a day-to-day basis. The Company may alsoborrow for 30, 60, 90 or 180 day periods at LIBOR plus 1.50% to 2.75% based onthe Company's funded debt to EBITDAM (earnings before interest expense, incometaxes, depreciation, amortization and minority interest) ratio. Under theamended term debt, the Company can borrow at the prime rate plus 0.25% to 1.50%on a day-to-day basis or may borrow for 30, 60, 90 or 180 day periods at LIBORplus 1.75% to 3.00% based on the Company's funded debt to EBITDAM ratio. TheCredit Facility also contains certain financial covenants which were amended.The amended Credit Facility requires that the Company maintain required levelsof net worth and EBITDAM, and ratios of fixed charge coverage and funded debt toEBITDAM. The amendment has an additional financial covenant that limits capitalexpenditures for 2001. On February 26, 2001, the Company executed a secondamendment to its Credit Facility. The amendment has an additional financialcovenant that limits capital expenditures for 2002. On March 30, 2001, theCompany executed a third amendment to its Credit Facility, amending thedefinition of EBITDAM slightly, extending the date for adding back certainnon-cash charges. Effective September 30, 2001, the Company executed a fourthamendment to its Credit Facility, allowing the $4.7 million of customer bad debtwrite-off related to a Korean steamship line to be added back for the purpose ofcalculating the EBITDAM ratio. All other provisions of the November 7, 2000amendment remained unchanged. On March 27, 2002, the Company executed a fifthamendment to its Credit Facility. The amendment waives any historical covenantviolations that resulted from the restatement of the financial statements from1999 and 2000. In addition, an adjusting entry was made in the fourth quarter of2001 to properly state the results for 2001 since the Company did not make anyadjustments to 2001 on a quarterly basis. The amendment allows the spreading ofthis fourth quarter adjustment pro-rata throughout the year for purposes ofcovenant calculations in 2002. The amendment established a minimum borrowingrate from January 1, 2002 through September 30, 2002. The term debt interestrate will be a minimum of LIBOR plus 2.75% or at the Prime Rate plus 1.25%. Therevolving credit interest will be a minimum of LIBOR plus 2.50% or at the PrimeRate plus 1.00%. The Company was in compliance with the financial covenants thatwere effective as of December 31, 2001. The Company maintains $50.0 million of private placement debt (the"Notes"). These Notes are unsecured and have an eight-year average life.Interest is paid quarterly. These Notes mature on June 25, 2009, with annualpayments of $10.0 million commencing on June 25, 2005. On February 26, 2001, the Company amended the Notes. The amendment,effective December 31, 2000, increases the borrowing rate from 8.64% to 9.14%.The Notes also contain certain financial covenants which were amended. Theamended agreement requires that the Company maintain required levels of networth, ratios of fixed charge coverage and funded debt to EBITDAM. The amendmenthas an additional financial covenant that provides limitations on capitalexpenditures for 2001 and 2002. On March 30, 2001, the Company executed a secondamendment to the Notes, amending the definition of EBITDAM slightly, andextending the date for adding back certain non-cash charges. Effective September30, 2001, the Company executed a third amendment to the Notes, allowing the $4.7million of customer bad debt write-off related to a Korean steamship line to beadded back for the purpose of calculating EBITDAM. On March 27, 2002, the 15Company executed a fourth amendment to the Notes. The amendment waives anyhistorical covenant violations that resulted from the restatement of thefinancial statements from 1999 and 2000. In addition, an adjusting entry wasmade in the fourth quarter of 2001 to properly state the results for 2001 sincethe Company did not make any adjustments to 2001 on a quarterly basis. The amendment allows the spreading of this fourth quarter adjustment pro-ratathroughout the year for purposes of covenant calculations in 2002. The Companywas in compliance with the financial covenants that were effective as ofDecember 31, 2001.RECENT ACCOUNTING PRONOUNCEMENTS On June 30, 2001, the Financial Accounting Standards Board ("FASB")issued Statement No. 141, "Business Combinations" ("Statement 141"). UnderStatement 141, all business combinations initiated after June 30, 2001 must beaccounted for using the purchase method of accounting. Use of thepooling-of-interests method is prohibited. Additionally, Statement 141 requiresthat certain intangible assets that can be identified and named be recognized asassets apart from goodwill. Statement 141 was effective for all businesscombinations initiated after June 30, 2001. On June 30, 2001, the FASB issued Statement No. 142, "Goodwill andOther Intangible Assets" ("Statement 142"). Under Statement 142, goodwill andintangible assets that have indefinite useful lives will not be amortized butrather will be tested at least annually for impairment. Intangible assets thathave finite useful lives will continue to be amortized over their useful lives.The Company will adopt Statement 142 as of January 1, 2002. As of December 31,2001, goodwill, net of accumulated amortization, was $208.2 million andamortization expense for the year ended December 31, 2001 was $5.7 million.Except as set forth in Outlook, Risks and Uncertainties - Amortization ofGoodwill, the Company has not yet fully determined the impact that Statement 142will have on the Company's financial condition or results of operations. In August 2001, the FASB issued Statement No. 144, "Accounting for theImpairment or Disposal of Long-Lived Assets" ("Statement 144") which supercedesStatement No. 121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of." Statement 144 created one accounting modelfor long-lived assets to be disposed of by sale that applies to all long-livedassets, including discontinued operations, and replaces the provisions ofAccounting Principles Board Opinion No. 30, "Reporting Results ofOperations--Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual, and Infrequently Occurring Events and Transactions," forthe disposal of segments of a business. Statement 144 requires that thoselong-lived assets be measured at the lower of carrying amount or fair value lesscost to sell, whether reporting in continuing operations or in discontinuedoperations. The provisions of Statement 144 are effective for financialstatements issued for fiscal years beginning after December 15, 2001 and,generally, are to be applied prospectively. The Company does not expect thisstatement to have a material impact on its statements of financial condition orresults of operations.OUTLOOK, RISKS AND UNCERTAINTIES Except for historical data, the information contained in this AnnualReport constitutes forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements areinherently uncertain and subject to risks. Such statements should be viewed withcaution. Actual results or experience could differ materially from theforward-looking statements as a result of many factors. Forward-lookingstatements in this report include, but are not limited to, those contained inthis "Outlook, Risks and Uncertainties" section regarding expectations, hopes,beliefs, estimates, intentions or strategies regarding the future. The Companyassumes no liability to update any such forward-looking statements. In additionto those mentioned elsewhere in this section, such risks and uncertaintiesinclude the impact of competitive pressures in the marketplace, including theentry of new, web-based competitors and direct marketing efforts by therailroads, the degree and rate of market growth in the intermodal, brokerage andlogistics markets served by the Company, changes in rail and truck capacity,further consolidation of rail carriers, deterioration in relationships withexisting rail carriers, rail service conditions, changes in governmentalregulation, adverse weather conditions, fuel shortages, changes in the cost ofservices from rail, drayage and other vendors and fluctuations in interestrates. 16BUSINESS COMBINATIONS/DIVESTITURES Management believes that future acquisitions or dispositions made bythe Company could significantly impact financial results. Financial results mostlikely to be impacted include, but are not limited to, revenue, gross margin,salaries and benefits, selling general and administrative expenses, depreciationand amortization, interest expense, minority interest, net income and theCompany's debt level. Financial results may be impacted by additional factors asdiscussed below.REVENUE Management believes that the performance of the railroads and a moresevere or prolonged slow-down of the economy are the most significant factorsthat could negatively influence the Company's revenue growth rate. The servicedisruptions in the intermodal industry due to the split-up of Conrail, whichbegan on June 1, 1999, appear to have been significantly rectified. Should thistrend reverse, the Company believes its intermodal growth rate would likely benegatively impacted. Should there be further consolidation in the rail industry,causing a similar or more severe service disruption, the Company believes itsintermodal growth rate would likely be negatively impacted. Should there beanother significant service disruption, the Company expects there may be somecustomers who would switch from using the Company's intermodal service to othercarriers' over-the-road service. The Company expects these customers may chooseto continue to utilize these carriers even when intermodal service levels arerestored. Other factors that could negatively influence the Company's growthrate include, but are not limited to, the elimination of fuel surcharges, theentry of new web-based competitors, inadequate drayage service and inadequateequipment supply. Hub Distribution's largest customer, for which Hub Distributioninstalls point-of-purchase displays, has notified the Company of a significantchange in its strategy related to its displays. This has already resulted in asignificant decrease in revenue during the first quarter of 2002. Should thiscustomer continue with this strategy, management believes the revenue for thiscustomer will continue at significantly lower levels than those experienced in2001.GROSS MARGIN Management expects fluctuations in the gross margin percentage fromquarter-to-quarter caused by various factors including, but not limited to,changes in business mix, intermodal margins, highway brokerage margins,logistics business margins, trailer and container capacity, vendor pricing,intermodal industry growth, intermodal industry service levels, competition andaccounting estimates.SALARIES AND BENEFITS It is anticipated that salaries and benefits as a percentage of revenuecould fluctuate from quarter-to-quarter as there are timing differences betweenrevenue increases and changes in levels of staffing. Should the Companyeliminate positions due to automation resulting from systems enhancements orcentralizing functions, this expense, as a percent of revenue, is likely to bereduced. Factors that could affect the percentage from staying in the recenthistorical range include, but are not limited to, revenue growth ratessignificantly higher or lower than forecasted, a management decision to investin additional personnel to stimulate new or existing businesses, such as theCompany's expedited services initiative, changes in customer requirements andchanges in railroad intermodal service levels which could result in a lower orhigher cost of labor per move.SELLING, GENERAL AND ADMINISTRATIVE Management believes there are several factors that could cause selling,general and administrative expenses to increase as a percentage of revenue. Ascustomer expectations and the competitive environment require the development ofweb-based business interfaces and the restructuring of the Company's informationsystems and related platforms, the Company believes there could be significantexpenses incurred, some of which would not be capitalized. Costs incurred toformulate the Company's strategy as well as any costs that would be identifiedas reengineering or training would be expensed. 17 Management believes the fees for professional services incurred duringthe first quarter of 2002 related to the investigation and restatement relatedto Hub Distribution's financial statements will range between $800,000 and$900,000 on a pre-minority interest, pre-tax basis. Management believesadditional fees will be incurred during the second quarter and managementestimates these additional fees will range from $150,000 to $400,000 on apre-minority interest, pre-tax basis.DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT Management estimates that depreciation and amortization of property andequipment will increase in the future. The most significant factor that willcause an increase in depreciation and amortization expense is increased softwareamortization related to improvements in the Company's information systems.During 2001, the Company placed in service its proprietary operating system, anoperational accounting system, and other related applications. Additionalfactors that could cause an increase in depreciation expense include, but arenot limited to, if the Company decided to purchase rather than lease a greaterproportion of assets or accelerating depreciation due to changes in useful livesof existing assets.AMORTIZATION OF GOODWILL With the adoption of Statement 142 effective January 1, 2002, asindicated in the Recent Accounting Pronouncements, the Company's goodwill willno longer be amortized but will be subject to periodic impairment reviews. Asrequired, the Company will have an independent valuation performed during 2002to determine if a transitional impairment charge is necessary.IMPAIRMENT OF PROPERTY AND EQUIPMENT On an ongoing basis, the Company assesses the realizability of itsassets. If, at any point during the year, management determines that animpairment exists, the carrying amount of the asset is reduced by the estimatedimpairment with a corresponding charge to earnings. If it is determined that animpairment exists, management estimates that the write down of specific assetscould have a material adverse impact on earnings.OTHER INCOME (EXPENSE) Management estimates that interest expense will likely decrease fromthe prior year. Factors that could cause interest to fluctuate higher or lowerthan forecasted include, but are not limited to, changes in lending rates,unanticipated debt repayments, unanticipated working capital needs,unanticipated software development expenses and unanticipated capitalexpenditures. Management estimates that interest income will likely remain relativelyconsistent with the prior year. Factors that could cause a change include, butare not limited to, the possible use of cash to make debt repayments, fundworking capital needs and fund capital expenditures.MINORITY INTEREST Management estimates that minority interest will likely remainrelatively consistent with the prior year, based on the expected profitability of Hub Distribution. Acquisitions of entities with a minority interest,disposition of Hub Distribution or fluctuations in profitability of HubDistribution could have a material impact on minority interest.LIQUIDITY AND CAPITAL RESOURCES The Company believes that cash to be provided by operations, cashavailable under its lines of credit and the Company's ability to obtainadditional credit will be sufficient to meet the Company's short-term workingcapital and capital expenditure needs. The Company believes that theaforementioned items are sufficient to meet its anticipated long-term workingcapital, capital expenditure and debt repayment needs. The Company estimates that its capital expenditures will not exceed$15.0 million in 2002. 18ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to changes in interestrates which may adversely affect its results of operations and financialcondition. The Company seeks to minimize the risk from interest rate volatilitythrough its regular operating and financing activities and, when deemedappropriate, through the use of derivative financial instruments. The Companydoes not use financial instruments for trading purposes. The Company has both fixed and variable rate debt as described in Note9. The Company has entered into an interest rate swap agreement designated as ahedge on a portion of the Company's variable rate debt. The purpose of the swapis to fix the interest rate on a portion of the variable rate debt and reducecertain exposures to interest rate fluctuations. At December 31, 2001, theCompany had an interest rate swap with a notional amount of $25.0 million, aweighted average pay rate of 8.37%, a weighted average receive rate of 5.34% anda maturity date of September 30, 2002. This swap agreement involves the exchangeof amounts based on the variable interest rate for amounts based on the fixedinterest rate over the life of the agreement, without an exchange of thenotional amount upon which the payments are based. The differential to be paidor received as interest rates change is accrued and recognized as an adjustmentof interest expense related to the debt. The main objective of interest rate risk management is to reduce thetotal funding cost to the Company and to alter the interest rate exposure to thedesired risk profile. 19ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULEReport of Independent Public Accountants 21Consolidated Balance Sheets - December 31, 2001 and December 31, 2000 22Consolidated Statements of Operations - Years ended December 31, 2001, December 31, 2000 and December 31, 1999 23Consolidated Statements of Stockholders' Equity - Years ended December 31, 2001, December 31, 2000 and December 31, 1999 24Consolidated Statements of Cash Flows - Years ended December 31, 2001, December 31, 2000 and December 31, 1999 25Notes to Consolidated Financial Statements 26 Schedule II - Valuation and Qualifying Accounts S-1 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTSTo the Stockholders of Hub Group, Inc. and Hub Group, Inc.: We have audited the accompanying consolidated balance sheets of HubGroup, Inc. (a Delaware corporation) as of December 31, 2001 and 2000 and therelated consolidated statements of operations, stockholders' equity and cashflows for each of the three years in the period ended December 31, 2001 (2000and 1999 as restated - see Note 2). These consolidated financial statements andthe schedule referred to below are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements and the schedule based on our audits. We conducted our audits in accordance with auditing standards generallyaccepted in the United States. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion. The selected quarterly financial data included in Note 20 containsinformation that we did not audit, and, accordingly, we do not express anopinion on that data. We were unable to review the quarterly financial datain accordance with standards established by the American Institute of CertifiedPublic Accountants because the Company did not restate its results on aquarterly basis (see Note 2). In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of Hub Group,Inc. as of December 31, 2001 and 2000, and the results of its operations andcash flows for each of the three years in the period ended December 31, 2001, inconformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basicfinancial statements taken as a whole. The schedule on page S-1 is presented forpurposes of complying with the Securities and Exchange Commissions rules and isnot part of the basic financial statements. This schedule has been subjected tothe auditing procedures applied in the audit of the basic financial statementsand, in our opinion, is fairly stated in all material respects in relation tothe basic financial statements taken as a whole. ARTHUR ANDERSEN LLPChicago, IllinoisMarch 27, 2002 21 HUB GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) Restated -------------- December 31, ------------------------------ 2001 2000 --------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ - $ - Accounts receivable, net 149,765 192,969 Deferred taxes 11,147 9,277 Prepaid expenses and other current assets 3,840 4,537 --------------- -------------- TOTAL CURRENT ASSETS 164,752 206,783 PROPERTY AND EQUIPMENT, net 39,098 43,854 GOODWILL, net 208,166 213,907 OTHER ASSETS 1,507 2,177 MINORITY INTEREST 2,501 2,652 --------------- -------------- TOTAL ASSETS $ 416,024 $ 469,373 =============== ==============LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable Trade $ 135,588 $ 172,010 Other 1,275 8,529 Accrued expenses Payroll 11,195 9,559 Other 14,020 10,246 Current portion of long-term debt 8,054 12,341 --------------- -------------- TOTAL CURRENT LIABILITIES 170,132 212,685 LONG-TERM DEBT, EXCLUDING CURRENT PORTION 96,059 109,089 DEFERRED TAXES 17,380 15,202 CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 2,000,000 shares authorized; no shares issued or outstanding in 2001 and 2000 - - Common stock, Class A: $.01 par value; 12,337,700 shares authorized; 7,046,250 shares issued and outstanding in 2001, 7,046,050 shares issued and outstanding in 2000 70 70 Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2001 and 2000 7 7 Additional paid-in capital 110,819 110,817 Purchase price in excess of predecessor basis, net of tax benefit of $10,306 (15,458) (15,458) Retained earnings 37,404 36,961 Accumulated other comprehensive loss (389) - --------------- -------------- TOTAL STOCKHOLDERS' EQUITY 132,453 132,397 --------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 416,024 $ 469,373 =============== ==============The accompanying notes to consolidated financial statements are an integral partof these statements. 22 HUB GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) RESTATED ----------------------------- YEARS ENDED DECEMBER 31, -------------------------------------------- 2001 2000 1999 -------------- -------------- -------------- Revenue $ 1,319,331 $ 1,382,880 $ 1,295,502Transportation costs 1,140,368 1,215,113 1,135,639 -------------- -------------- -------------- Gross margin 178,963 167,767 159,863Costs and expenses: Salaries and benefits 94,982 96,201 84,082 Selling, general and administrative 53,613 46,233 39,361 Depreciation and amortization of property and equipment 10,678 6,097 4,014 Amortization of goodwill 5,741 5,741 5,069 Impairment of property and equipment 3,401 - 884 -------------- -------------- -------------- Total costs and expenses 168,415 154,272 133,410 Operating income 10,548 13,495 26,453 -------------- -------------- --------------Other income (expense): Interest expense (10,345) (11,532) (8,642) Interest income 693 779 926 Other, net 6 136 1,191 -------------- -------------- -------------- Total other expense (9,646) (10,617) (6,525)Income before minority interest and provision for income taxes 902 2,878 19,928 -------------- -------------- --------------Minority interest 151 (1,669) 3,987 -------------- -------------- --------------Income before provision for income taxes 751 4,547 15,941Provision for income taxes 308 1,864 6,536 -------------- -------------- --------------Net income $ 443 $ 2,683 $ 9,405 ============== ============== ==============Basic earnings per common share $ 0.06 $ 0.35 $ 1.22 ============== ============== ==============Diluted earnings per common share $ 0.06 $ 0.35 $ 1.21 ============== ============== ==============The accompanying notes to consolidated financial statements are an integral partof these statements. 23 HUB GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the three years ended December 31, 2001 (in thousands, except shares) RESTATED --------------------------------- 2001 2000 1999 --------------- ---------------- ---------------- Class A & B Common Stock Shares Beginning of year 7,708,346 7,706,246 7,672,246 Exercise of non-qualified stock options 200 2,100 34,000 --------------- ---------------- ---------------- End of year 7,708,546 7,708,346 7,706,246 --------------- ---------------- ----------------Class A & B Common Stock Amount Beginning of year $ 77 $ 77 $ 77 --------------- ---------------- ---------------- End of year 77 77 77 --------------- ---------------- ----------------Additional Paid-in Capital Beginning of year 110,817 110,786 110,181 Exercise of non-qualified stock options 2 31 605 --------------- ---------------- ---------------- End of year 110,819 110,817 110,786 --------------- ---------------- ----------------Purchase Price in Excess of Predecessor Basis, Net of Tax Beginning of year (15,458) (15,458) (15,458) --------------- ---------------- ---------------- End of year (15,458) (15,458) (15,458) --------------- ---------------- ----------------Retained Earnings Beginning of year 36,961 34,278 24,873 Net income 443 2,683 9,405 --------------- ---------------- ---------------- End of year 37,404 36,961 34,278 --------------- ---------------- ----------------Accumulated Other Comprehensive Loss Beginning of year - - - Other comprehensive loss (389) - - --------------- ---------------- ---------------- End of year (389) - - --------------- ---------------- ---------------- TOTAL STOCKHOLDERS' EQUITY $ 132,453 $ 132,397 $ 129,683 =============== ================ ================Comprehensive Income Net income $ 443 $ 2,683 $ 9,405 Cumulative effect of adopting Statement 133, net of tax of $55 79 - - Unrealized interest rate swap loss net of tax benefit of ($325) (468) - - --------------- ---------------- ---------------- Other comprehensive loss (389) - - --------------- ---------------- ---------------- Total comprehensive income $ 54 $ 2,683 $ 9,405 =============== ================ ================The accompanying notes to consolidated financial statements are an integral partof these statements. 24 HUB GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) RESTATED --------------------------------- YEARS ENDED DECEMBER 31, ------------------------------------------------- 2001 2000 1999 --------------- ---------------- ---------------- Cash flows from operating activities: Net income $ 443 $ 2,683 $ 9,405 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 11,248 6,875 5,013 Amortization of goodwill 5,741 5,741 5,069 Impairment of property and equipment 3,401 - 884 Deferred taxes 308 1,864 1,754 Minority interest 151 (1,669) 3,987 Loss on sale of assets 426 128 205 Changes in working capital: Accounts receivable, net 43,204 (4,044) (40,821) Prepaid expenses and other current assets 697 (1,188) 2,687 Accounts payable (43,676) 26,446 22,671 Accrued expenses 5,021 4,729 2,405 Other assets 670 (215) (1,458) --------------- ---------------- ---------------- Net cash provided by operating activities 27,634 41,350 11,801 --------------- ---------------- ----------------Cash flows from investing activities: Purchases of minority interest - - (108,710) Purchases of property and equipment, net (10,319) (26,613) (11,234) --------------- ---------------- ---------------- Net cash used in investing activities (10,319) (26,613) (119,944) --------------- ---------------- ----------------Cash flows from financing activities: Proceeds from sale of common stock 2 31 605 Distributions to minority interest - (454) (10,484) Net payments on long-term debt (17,317) (16,206) (50,930) Proceeds from issuance of long-term debt - 27 155,639 --------------- ---------------- ---------------- Net cash (used in) provided by financing activities (17,315) (16,602) 94,830 Net decrease in cash and cash equivalents - (1,865) (13,313)Cash and cash equivalents, beginning of period - 1,865 15,178 --------------- ---------------- ----------------Cash and cash equivalents, end of period $ - $ - $ 1,865 =============== ================ ================Supplemental disclosures of cash flow information Cash paid for: Interest $ 10,143 $ 12,520 $ 8,293 Income taxes - 567 2,474 Non-cash activity: Unrealized loss on derivative instrument $ 389 $ - $ - Acquisition purchase price adjustment of note payable - - 150The accompanying notes to consolidated financial statements are an integralpart of these statements. 25 HUB GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBUSINESS: Hub Group, Inc. (the "Company") provides intermodal transportationservices utilizing primarily third party arrangements with railroads and drayagecompanies. The Company also arranges for transportation of freight by truckand performs logistics services.PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include theaccounts of the Company and all entities in which the Company has more than a50% equity ownership or otherwise exercises unilateral control. All significantintercompany balances and transactions have been eliminated.CASH AND CASH EQUIVALENTS: The Company considers as cash equivalents all highlyliquid instruments with an original maturity of three months or less. Checksoutstanding, net, of approximately $12,320,000 and $23,494,000 at December 31,2001 and 2000, respectively, are included in accounts payable.RECEIVABLES: The Company's reserve for uncollectible accounts receivable wasapproximately $4,020,000 and $3,088,000 at December 31, 2001 and 2000,respectively. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciationof property and equipment is computed using the straight-line and variousaccelerated methods at rates adequate to depreciate the cost of applicableassets over their expected useful lives: buildings and improvements, 15 to 40years; leasehold improvements, the shorter of useful life or lease term;computer equipment and software, 3 to 5 years; furniture and equipment, 3 to 10years; and transportation equipment and automobiles, 3 to 12 years. Direct costsrelated to internally developed software projects are capitalized and amortizedover their expected useful life on a straight-line basis not to exceed fiveyears. Interest is capitalized on qualifying assets under development forinternal use. Maintenance and repairs are charged to operations as incurred andmajor improvements are capitalized. The cost of assets retired or otherwisedisposed of and the accumulated depreciation thereon are removed from theaccounts with any gain or loss realized upon sale or disposal charged orcredited to operations.GOODWILL: Goodwill is amortized on the straight-line method over 40 years. On anongoing basis, the Company estimates the future undiscounted cash flows beforeinterest of the operating units to which goodwill relates in order to evaluateimpairment. If impairment exists, the carrying amount of the goodwill is reducedby the estimated shortfall of cash flows. The Company has not experienced anyimpairment of goodwill. Accumulated goodwill amortization was $21,517,000 and$15,774,000 as of December 31, 2001 and 2000, respectively.DEFERRED FINANCING COSTS: The Company has deferred financing costs related toits debt. The accumulated amortization related to the deferred financing costswas $1,108,000 and $632,000 as of December 31, 2001 and 2000, respectively.The amortization expense related to deferred financing costs was $476,000,$387,000 and $245,000 for the years ending December 31, 2001, 2000 and 1999,respectively.CONCENTRATION OF CREDIT RISK: The Company's financial instruments that areexposed to concentrations of credit risk consist primarily of cash and cashequivalents and accounts receivable. The Company places its cash and temporaryinvestments with high quality financial institutions. At times, such investmentsmay be in excess of the FDIC insurance limit. Temporary investments are valuedat the lower of cost or market and at the balance sheet dates approximate fairmarket value. The Company primarily serves customers located throughout theUnited States with no significant concentration in any one region. No onecustomer accounted for more than 10% of revenue in 2001, 2000 and 1999. TheCompany reviews a customer's credit history before extending credit. Inaddition, the Company routinely assesses the financial strength of its customersand, as a consequence, believes that its trade accounts receivable risk islimited.REVENUE RECOGNITION: Revenue represents sales of services to customers. Revenueis recognized based on relative transit time. Revenue for the installationbusiness is recognized on the date the services are performed. 26INCOME TAXES: The Company accounts for certain income and expense itemsdifferently for financial reporting and income tax purposes. Deferred tax assetsand liabilities are determined based on the difference between the financialstatement and tax bases of assets and liabilities applying enacted statutory taxrates in effect for the year in which the differences are expected to reverse.EARNINGS PER COMMON SHARE: In accordance with Statement of Financial AccountingStandards No. 128 ("Statement 128"), "Earnings per Share", basic earnings percommon share are based on the average quarterly weighted average number of ClassA and Class B shares of common stock outstanding. Diluted earnings per commonshare are adjusted for the assumed exercise of dilutive stock options. Incomputing the per share effect of assumed exercise, funds which would have beenreceived from the exercise of options, including tax benefits assumed to berealized, are considered to have been used to purchase shares at current marketprices, and the resulting net additional shares are included in the calculation of weighted average shares outstanding.USE OF ESTIMATES: The preparation of financial statements in conformity withaccounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenue andexpense during the reporting period. Actual results could differ from thoseestimates.RECENT ACCOUNTING PRONOUNCEMENTS: On June 30, 2001, the Financial Accounting Standards Board ("FASB")issued Statement No. 141, "Business Combinations" ("Statement 141"). UnderStatement 141, all business combinations initiated after June 30, 2001 must beaccounted for using the purchase method of accounting. Use of thepooling-of-interests method is prohibited. Additionally, Statement 141 requiresthat certain intangible assets that can be identified and named be recognized asassets apart from goodwill. Statement 141 was effective for all businesscombinations initiated after June 30, 2001. On June 30, 2001, the FASB issued Statement No. 142, "Goodwill andOther Intangible Assets" ("Statement 142"). Under Statement 142, goodwill andintangible assets that have indefinite useful lives will not be amortized butrather will be tested at least annually for impairment. Intangible assets thathave finite useful lives will continue to be amortized over their useful lives.The Company will adopt Statement 142 as of January 1, 2002. As of December 31,2001, goodwill, net of accumulated amortization, is $208.2 million andamortization expense for the year ended December 31, 2001 is $5.7 million.The Company has not yet fully determined the impact that Statement 142will have on the Company's financial condition or results of operations. In August 2001, the FASB issued Statement No. 144, "Accounting for theImpairment or Disposal of Long-Lived Assets" ("Statement 144") which supercedesStatement No. 121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of." Statement 144 created one accounting modelfor long-lived assets to be disposed of by sale that applies to all long-livedassets, including discontinued operations, and replaces the provisions ofAccounting Principles Board Opinion No. 30, "Reporting Results ofOperations--Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual, and Infrequently Occurring Events and Transactions", forthe disposal of segments of a business. Statement 144 requires that thoselong-lived assets be measured at the lower of carrying amount or fair value lesscost to sell, whether reporting in continuing operations or in discontinuedoperations. The provisions of Statement 144 are effective for financialstatements issued for fiscal years beginning after December 15, 2001 and,generally, are to be applied prospectively. The Company does not expect thisstatement to have a material impact on its statements of financial condition orresults of operations.RECLASSIFICATIONS: Certain items previously reported have been reclassified toconform with the 2001 presentation. 27NOTE 2. RESTATEMENT The Company has restated its consolidated financial statements for 2000and 1999. In the unaudited quarterly financial data, as shown in Note 20, thefourth quarter of 2000 has been restated. Except as otherwise stated, allinformation presented in the consolidated financial statements and related notesreflects all such restatements. As a result of a comprehensive review that commenced in the firstquarter of 2002, the Company determined that certain items of revenue andexpense were incorrectly reported in previously issued financial statements for2000 and 1999 related to its 65% owned subsidiary, Hub Group Distribution Services ("Hub Distribution"). These items principally related to revenue,transportation costs and selling, general and administrative expense. TheCompany is still investigating the causes for the incorrect accounting at HubDistribution. The restatement also includes a restatement of minority interest equalto 35% of the adjustments in revenue, transportation costs and selling, generaland administrative expense. Additionally, the Company recorded additionalinterest expense owed to its bank group based upon variable interest ratepricing tied to its restated cash flow leverage ratio. The adjustments to minority interest resulted in a receivable balancedue from the minority shareholder. The Hub Distribution partnership agreementrequires all income and losses be allocated to the partners based on ownership.Should Hub Distribution be liquidated in the future, the partnership agreementrequires that the minority shareholder bring its capital account to zero throughpayment to the partnership.A summary of the restatement by category is as follows: CUMULATIVE RESTATEMENT THROUGH DECEMBER 31, 2000 ------------------------- (000's) Revenue $ (2,796)Transportation costs (5,267)Selling, general and administrative expense (522)Interest expense (140)Minority interest 3,004 -------------------------Total $ (5,721) ------------------------- 28The effect of such restatement discussed above on the statement of operationsline items is shown in the following table: As Previously As REPORTED RESTATEMENT RESTATED ------------------------------------------------- FISCAL 1999Revenue $ 1,296,799 $ (1,297) $ 1,295,502Transportation costs 1,134,384 1,255 1,135,639 ------------------------------------------------- Gross margin 162,415 (2,552) 159,863Costs and expenses: Salaries and benefits 84,082 - 84,082 Selling, general and administrative 38,232 1,129 39,361 Depreciation and amortization of property and equipment 4,014 - 4,014 Amortization of goodwill 5,069 - 5,069 Impairment of property and equipment 884 - 884 ------------------------------------------------- Total costs and expenses 132,281 1,129 133,410 ------------------------------------------------- Operating income 30,134 (3,681) 26,453 -------------------------------------------------Other income (expense): Interest expense (8,592) (50) (8,642) Interest income 926 - 926 Other, net 1,191 - 1,191 ------------------------------------------------- Total other expense (6,475) (50) (6,525)Income before minority interest and provision for income taxes 23,659 (3,731) 19,928Minority interest 5,275 (1,288) 3,987 -------------------------------------------------Income before provision for income taxes 18,384 (2,443) 15,941Provision for income taxes 7,538 (1,002) 6,536 -------------------------------------------------Net income $ 10,846 $ (1,441) $ 9,405 ================================================= FISCAL 2000Revenue $ 1,384,379 $ (1,499) $ 1,382,880Transportation costs 1,211,101 4,012 1,215,113 ------------------------------------------------- Gross margin 173,278 (5,511) 167,767Costs and expenses: Salaries and benefits 96,201 - 96,201 Selling, general and administrative 46,840 (607) 46,233 Depreciation and amortization of property and equipment 6,097 - 6,097 Amortization of goodwill 5,741 - 5,741 Impairment of property and equipment - - - ------------------------------------------------- Total costs and expenses 154,879 (607) 154,272 ------------------------------------------------- Operating income 18,399 (4,904) 13,495 -------------------------------------------------Other income (expense): Interest expense (11,442) (90) (11,532) Interest income 779 - 779 Other, net 136 - 136 ------------------------------------------------- Total other expense (10,527) (90) (10,617)Income before minority interest and provision for income taxes 7,872 (4,994) 2,878Minority interest 47 (1,716) (1,669) -------------------------------------------------Income before provision for income taxes 7,825 (3,278) 4,547Provision for income taxes 3,208 (1,344) 1,864 -------------------------------------------------Net income $ 4,617 $ (1,934) $ 2,683 ================================================= 29 NOTE 3. CAPITAL STRUCTURE The Company has authorized common stock comprised of Class A commonstock and Class B common stock. The rights of holders of Class A common stockand Class B common stock are identical, except each share of Class B commonstock entitles its holder to 20 votes, while each share of Class A common stockentitles its holder to one vote.NOTE 4. EARNINGS PER SHARE The following is a reconciliation of the Company's Earnings Per Share: RESTATED RESTATED ------------------------- ------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999 -------------------------- ------------------------- ------------------------- (000'S) (000'S) (000's) -------------- -------------- -------------- Per-Share Per-Share Per-Share INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------ ------ --------- ------ ------ --------- ------ ------ --------- HISTORICAL BASIC EPS Income available to common stockholders $443 7,708 $0.06 $2,683 7,708 $0.35 $9,405 7,693 $1.22 ------ ------ --------- ------ ------ --------- ------ ------ ---------EFFECT OF DILUTIVE SECURITIES Stock options - 8 - - 8 - - 67 - ------ ------ --------- ------ ------ --------- ------ ------ ---------HISTORICAL DILUTED EPS Income available to common stockholders plus assumed exercises $443 7,716 $0.06 $2,683 7,716 $0.35 $9,405 7,760 $1.21 ------ ------ --------- ------ ------ --------- ------ ------ ---------NOTE 5. PURCHASES OF MINORITY INTEREST On April 1, 1999, the Company purchased the remaining 70% minorityinterests 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 CityNew York State, L.P., Hub City Ohio, L.P., Hub City Philadelphia, L.P., Hub CityPittsburgh, L.P., Hub City Portland, L.P., and Hub City St. Louis, L.P. forapproximately $108,710,000 in cash (collectively referred to as the "April 1999Purchase"). As the amount paid for each of the purchases of minority interest equaled the basis in excess of the fair market value of assets acquired andliabilities assumed, the amount paid was recorded as goodwill.NOTE 6. PROPERTY AND EQUIPMENTProperty and equipment consist of the following: YEARS ENDED DECEMBER 31, ------------------------------------ 2001 2000 ----------------- ----------------- (000'S) Building and improvements $ 57 $ 57Leasehold improvements 2,126 2,111Computer equipment and software 49,373 46,396Furniture and equipment 7,542 7,635Transportation equipment and automobiles 3,690 3,678 ----------------- ----------------- 62,788 59,877Less: Accumulated depreciation and amortization (23,690) (16,023) ----------------- ----------------- PROPERTY AND EQUIPMENT, net $ 39,098 $ 43,854 ================= ================= 30 Depreciation expense was $11,248,000, $6,875,000 and $5,013,000 for2001, 2000 and 1999, respectively. Depreciation expense for 2000 includedapproximately $500,000 of additional depreciation due to the change in estimateduseful lives of various assets that were no longer used once the new operatingsystem was completed.NOTE 7. IMPAIRMENT OF PROPERTY AND EQUIPMENT On March 30, 2001, a $3.4 million pretax charge was recorded due to theimpairment of Hub Distribution's e-Logistics software ("e-software"). Thise-software was used to process orders relating to the home delivery of large boxitems purchased over the internet. Management made the decision to exit theinternet home delivery business and in conjunction with this decision, allcustomer contracts associated with the internet home delivery business wereterminated as of March 30, 2001. Consequently, the e-software's fair value wasreduced to zero based on the lack of any future cash flows attributable to HubDistribution's e-Logistics initiative. The Company does not intend to use thesoftware in the future. In the second quarter of 1999, a $0.9 million pretax charge wasrecorded relating to certain operating software applications. Specifically, $0.7million of this charge was attributable to a write-down of the Visual Movementsoftware previously used primarily for brokerage. The Visual Movement softwareis no longer being used by the Company and was replaced with enhancements to theCompany's proprietary intermodal operating software during the second quarter of1999. These enhancements allow for greater network visibility of loads. Theremaining $0.2 million impairment loss related to the write-down of a logisticssoftware program. The fair value was determined based on the estimated futurecash flows attributable to the single customer using this program. The Companyinstalled a new software package in 1999 that provides enhanced functionalityfor its operational applications.NOTE 8. INCOME TAXESThe following is a reconciliation of the Company's effective tax rate to thefederal statutory tax rate: YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- RESTATED RESTATED --------------------- --------------------- 2001 2000 1999 -------------------- --------------------- --------------------- U.S. federal statutory rate 34.0% 34.0% 35.0%State taxes, net of federal benefit 3.9 3.9 4.1Goodwill amortization 1.1 1.1 0.5Other 2.0 2.0 1.4 -------------------- --------------------- ---------------------Net effective rate 41.0% 41.0% 41.0% -------------------- --------------------- --------------------- The following is a summary of the Company's provision for income taxes: YEARS ENDED DECEMBER 31, ---------------------------------------------------------------- RESTATED RESTATED --------------------- --------------------- 2001 2000 1999 -------------------- --------------------- --------------------- (000'S) Current Federal $ - $ - $ 4,280 State and local - - 502 -------------------- --------------------- --------------------- - - 4,782 -------------------- --------------------- ---------------------Deferred Federal 276 1,672 1,570 State and local 32 192 184 -------------------- --------------------- --------------------- 308 1,864 1,754 -------------------- --------------------- --------------------- Total provision $ 308 $ 1,864 $ 6,536 -------------------- --------------------- --------------------- 31 The following is a summary of the Company's deferred tax assets andliabilities: YEARS ENDED DECEMBER 31, ----------------------------------------- RESTATED -------------------- 2001 2000 ------------------- -------------------- (000'S) Reserve for uncollectible accounts receivable $ 1,537 $ 1,093Accrued compensation 163 -Net operating loss carryforward 9,500 7,956Subsequent adjustment reserve 430 472Other reserves 749 197 ------------------- -------------------- Current deferred tax asset 12,379 9,718Accrued compensation 1,636 938Net operating loss carryforward 2,307 -Other 31 98Income tax basis in excess of financial basis of goodwill 7,678 8,511 ------------------- -------------------- Long-term deferred tax asset 11,652 9,547 ------------------- -------------------- Total deferred tax asset $ 24,031 $ 19,265 ------------------- --------------------Receivables $ (1,232) $ (441) ------------------- -------------------- Current deferred tax liability (1,232) (441)Property and equipment (9,929) (7,453)Goodwill (19,103) (17,296) ------------------- -------------------- Long-term deferred tax liability (29,032) (24,749) ------------------- -------------------- Total deferred tax liability $ (30,264) $ (25,190) ------------------- -------------------- The Company had federal net operating loss carryforwards ofapproximately $16,971,000 at December 31, 2001. These federal net operating losscarryforwards expire as follows:(In thousands)------------------------------------------------------------------------------ 2020 $ 2272021 16,744 The Company had federal tax credits of approximately $1,070,000 atDecember 31, 2001. The portion of the federal tax credits that have expirationdates, expire as follows:(In thousands)------------------------------------------------------------------------------2019 $ 1772020 508 32NOTE 9. LONG-TERM DEBT AND FINANCING ARRANGEMENTSFair value approximates book value at the balance sheet dates. YEARS ENDED DECEMBER 31, ------------------------------ 2001 2000 -------------- -------------- (000'S) Installment notes payable due through 2001, monthly installments ranging from $1,587 to $7,112, including interest at 9.3%, collateralized by certain equipment $ - $ 75 Bank line of credit (see below) 19,000 24,000Unsecured term notes, with quarterly payments ranging from $1,250,000 to $2,000,000 with a balloon payment of $19,000,000 due March 31, 2004; interest is due quarterly at a floating rate based upon LIBOR (London Interbank Offered Rate) or Prime rate (see below). At December 31, 2001 and 2000, the weighted average interest rate was 4.66% and 9.19%, respectively 35,000 42,000Unsecured notes, mature on June 25, 2009 with annual payments of $10,000,000 commencing on June 25, 2005; interest is paid quarterly at a fixed rate of 9.14% during 2001 and 2000 50,000 50,000Unsecured notes payable due in one balloon payment of $5,225,000 on April 1, 2001; interest is due annually and is paid at 5.6% - 5,225Capital lease obligations, collateralized by certain equipment 113 130 -------------- --------------Total long-term debt 104,113 121,430Less current portion (8,054) (12,341) -------------- -------------- $ 96,059 $ 109,089 -------------- -------------- Aggregate principal payments, in thousands, due subsequent toDecember 31, 2001, are as follows:2002 $ 8,0542003 8,0412004 38,0162005 10,0022006 and thereafter 40,000 ----------- $ 104,113 ----------- The Company maintains a multi-bank credit facility (the "CreditFacility"). The Credit Facility is comprised of term debt and a revolving lineof credit. Borrowings under the revolving line of credit are unsecured and havea five-year term that began on April 30, 1999, with a floating interest ratebased upon the LIBOR (London Interbank Offered Rate) or Prime Rate. Borrowingsand weighted average interest rates on the revolving line of credit were $19.0million and 4.46% and $24.0 million and 9.23% at December 31, 2001and 2000,respectively. There was $31.0 million and $26.0 million unused and availableunder the revolving line of credit at December 31, 2001 and 2000, respectively.The term debt has quarterly payments ranging from $1,250,000 to $2,000,000 witha balloon payment of $19.0 million due on March 31, 2004. Borrowings andweighted average interest rates on the term debt was $35.0 million and 4.66% and$42.0 million and 9.19% at December 31, 2001 and 2000, respectively. On November 7, 2000, the Company amended the Credit Facility. Theamendment increases the borrowing rate ranges of both the term note andrevolving line of credit. Under the amended line of credit, the Company canborrow, at its option, at the prime rate plus 0.25% to 1.25% or at a rate established at the bank's discretion on a day-to-day basis. The Company may alsoborrow for 30, 60, 90 or 180 day periods at LIBOR plus 1.50% to 2.75% based onthe Company's funded debt to EBITDAM (earnings before interest expense, incometaxes, depreciation, amortization and minority interest) ratio. Under theamended term debt, the Company can borrow at the prime rate plus 0.25% to 1.50%on a day-to-day basis or may borrow for 30, 60, 90 or 180 day periods at LIBOR 33plus 1.75% to 3.00% based on the Company's funded debt to EBITDAM ratio. TheCredit Facility also contains certain financial covenants which were amended.The amended Credit Facility requires that the Company maintain required levelsof net worth and EBITDAM, and ratios of fixed charge coverage and funded debt toEBITDAM. The amendment has an additional financial covenant that limits capitalexpenditures for 2001. On February 26, 2001, the Company executed a secondamendment to its Credit Facility. The amendment has an additional financialcovenant that limits capital expenditures for 2002. On March 30, 2001, theCompany executed a third amendment to its Credit Facility, amending thedefinition of EBITDAM slightly, extending the date for adding back certainnon-cash charges. Effective September 30, 2001, the Company executed a fourthamendment to its Credit Facility, allowing the $4.7 million of customer bad debtwrite-off related to a Korean steamship line to be added back for the purpose ofcalculating the EBITDAM ratio. All other provisions of the November 7, 2000amendment remained unchanged. On March 27, 2002, the Company executed a fifthamendment to its Credit Facility. The amendment waives any historical covenantviolations that resulted from the restatement of the financial statements from1999 and 2000. In addition, an adjusting entry was made in the fourth quarter of2001 to properly state the results for 2001 since the Company did not make anyadjustments to 2001 on a quarterly basis. The amendment allows the spreading ofthis fourth quarter adjustment pro-rata throughout the year for purposes ofcovenant calculations in 2002. The amendment established a minimum borrowingrate from January 1, 2002 through September 30, 2002. The term debt interestrate will be a minimum of LIBOR plus 2.75% or at the Prime Rate plus 1.25%. Therevolving credit interest will be a minimum of LIBOR plus 2.50% or at the PrimeRate plus 1.00%. The Company was in compliance with the financial covenants thatwere effective as of December 31, 2001. The Company maintains $50.0 million of private placement debt (the"Notes"). These Notes are unsecured and have an eight-year average life.Interest is paid quarterly. These Notes mature on June 25, 2009, with annualpayments of $10.0 million commencing on June 25, 2005. On February 26, 2001, the Company amended the Notes. The amendment,effective December 31, 2000, increases the borrowing rate from 8.64% to 9.14%.The Notes also contain certain financial covenants which were amended. Theamended agreement requires that the Company maintain required levels of networth, ratios of fixed charge coverage and funded debt to EBITDAM. The amendmenthas an additional financial covenant that limits capital expenditures for 2001and 2002. On March 30, 2001, the Company executed a second amendment to theNotes, amending the definition of EBITDAM slightly and extending the date foradding back certain non-cash charges. Effective September 30, 2001, the Companyexecuted a third amendment to the Notes, allowing the $4.7 million of customerbad debt write-off related to a Korean steamship line to be added back for thepurpose of calculating EBITDAM. On March 27, 2002, the Company executed a fourthamendment to the Notes. The amendment waives any historical covenant violationsthat resulted from the restatement of the financial statements from 1999 and2000. In addition, an adjusting entry was made in the fourth quarter of 2001 toproperly state the results for 2001 since the Company did not make anyadjustments to 2001 on a quarterly basis. The amendment allows the spreading ofthis fourth quarter adjustment pro-rata throughout the year for purposes ofcovenant calculations in 2002. The Company was in compliance with the financialcovenants that were effective as of December 31, 2001. The Company has authorized the issuance of standby letters of credittotaling $925,000, which automatically renew annually. NOTE 10. CAPITALIZED INTEREST AND INTEREST EXPENSE Capitalized interest on qualifying assets under development and totalinterest were as follows: YEARS ENDED DECEMBER 31, --------------------------------------------- RESTATED RESTATED ------------- ------------- 2001 2000 1999 ------------- ------------- ------------- (000'S) Capitalized interest $ 365 $ 836 $ 201Interest expensed 10,345 11,532 8,642 ------------- ------------- -------------Total Interest Incurred $ 10,710 $ 12,368 $ 8,843 ------------- ------------- ------------- 34NOTE 11. RENTAL EXPENSE AND LEASE COMMITMENTS Minimum annual rental commitments, in thousands, at December 31, 2001,under noncancellable operating leases, principally for real estate andequipment, are payable as follows:2002 $ 11,4672003 8,1912004 4,4702005 2,2732006 1,5952007 and thereafter 9,059 ----------- $ 37,055 ----------- Total rental expense was approximately $15,157,000, $13,230,000 and$8,840,000 for 2001, 2000 and 1999, respectively. Many of the leases containrenewal options and escalation clauses which require payments of additional rentto the extent of increases in the related operating costs.NOTE 12. STOCK-BASED COMPENSATION PLAN In 1996, the Company adopted a Long-Term Incentive Plan (the "1996Incentive Plan"). The number of shares of Class A Common Stock reserved forissuance under the 1996 Incentive Plan was 450,000. In 1997, the Company adopteda second Long-Term Incentive Plan (the "1997 Incentive Plan"). The number ofshares of Class A Common Stock reserved for issuance under the 1997 IncentivePlan was 150,000. For the purpose of attracting and retaining key executive andmanagerial employees, in 1999 the Company adopted a third Long-Term IncentivePlan (the "1999 Incentive Plan"). The number of shares of Class A Common Stockreserved for issuance under the 1999 Incentive Plan was 600,000. Under the 1996,1997 and 1999 Incentive Plans, stock options, stock appreciation rights,restricted stock and performance units may be granted for the purpose ofattracting and motivating key employees and non-employee directors of theCompany. The options granted to non-employee directors vest ratably over athree-year period and expire 10 years after the date of grant. The optionsgranted to employees vest over a range of three to five years and expire 10years after the date of grant. The Company currently utilizes Accounting Principles Board Opinion No.25 in its accounting for stock options. In October 1995, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 123 ("Statement 123"), "Accounting for Stock-based Compensation." Theaccounting method as provided in the pronouncement is not required to be adopted; however, it is encouraged. The Company provides the disclosure below inaccordance with Statement 123. Had the Company accounted for its stock optionsin accordance with Statement 123, pro forma net income and pro forma earningsper share would have been: YEARS ENDED DECEMBER 31, ----------------------------------- RESTATED RESTATED ---------- ---------- 2001 2000 1999 --------- ---------- ---------- Net income as reported (000's) 443 2,683 9,405Net income (loss) pro forma for Statement 123 (000's) (288) 1,869 8,918Basic earnings per common share pro forma for Statement 123 $ (0.04) $ 0.24 $ 1.16Diluted earnings per common share pro forma for Statement 123 $ (0.04) $ 0.24 $ 1.15 35The pro forma disclosure is not likely to be indicative of pro forma resultswhich may be expected in future years because of the fact that options vest overseveral years, pro forma compensation expense is recognized as the options vestand additional awards may also be granted. For purposes of determining the pro forma effect of these options, thefair value of each option is estimated on the date of grant based on theBlack-Scholes single-option pricing model assuming: YEARS ENDED DECEMBER 31, -------------------------------------------- 2001 2000 1999 ----------- ----------- ----------- Dividend yield 0.00% 0.00% 0.00%Risk-free interest rate 4.50% 6.25% 6.25%Volatility factor 40.00% 40.00% 40.00%Expected life in years 6.0 6.0 6.0Information regarding these option plans for 2001, 2000 and 1999 is as follows: 2001 2000 1999 --------------------------------- ---------------------------------- --------------------------------- WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG. SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ----------------- -------------- ----------------- -------------- ------------------ -------------- Options outstanding, beginning of year 877,800 $ 17.07 892,800 $ 17.86 469,300 $ 16.58Options exercised (200) 10.43 (2,100) 14.00 (34,000) 14.00Options granted 106,000 10.15 100,000 13.32 480,000 18.85Options forfeited (32,050) 17.64 (112,900) 20.11 (22,500) 17.97 ----------------- -------------- ----------------- -------------- ------------------ --------------Options outstanding, end of year 951,550 $ 16.28 877,800 $ 17.07 892,800 $ 17.86Weighted average fair value of options granted during the year $ 4.66 $ 6.53 $ 9.25Options exercisable at year end 520,900 355,300 220,400Option price range at end of year $ 8.06 to $28.16 $ 8.31 to $28.16 $14.00 to $28.16Option price for exercised shares $ 10.43 $ 14.00 $ 14.00Options available for grant at end of year 188,450 262,400 249,500The following table summarizes information about options outstanding at December31, 2001: OPTIONS OUTSTANDING OPTIONS EXERCISABLE------------------------------------------------------------------ ----------------------------- WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG. RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE EXERCISE PRICES OF SHARES CONTRACTUAL LIFE PRICE OF SHARES PRICE---------------- ----------- ------------------ ------------- ----------- --------------- $ 8.06 to $14.00 455,300 6.06 $ 12.72 278,300 $ 13.89$17.66 to $19.94 477,750 7.83 $ 18.78 219,400 $ 18.91$21.06 to $28.16 38,500 6.35 $ 25.44 23,200 $ 25.47 ---------- ------------------ ------------- ----------- ---------------$ 8.06 to $28.16 951,550 6.96 $ 16.28 520,900 $ 16.52 36NOTE 13. BUSINESS SEGMENT The Company has no separately reportable segments in accordance withStatement of Financial Accounting Standards No. 131 ("Statement 131")"Disclosure About Segments of an Enterprise and Related Information". Under theenterprise wide disclosure requirements of Statement 131, the Company reportsrevenue, in thousands, for Intermodal Services, Brokerage Services, andLogistics Services as follows: YEARS ENDED DECEMBER 31, ---------------------------------------- RESTATED RESTATED ------------ ------------ 2001 2000 1999 ------------ ------------ ------------ Intermodal Services $ 904,999 $ 1,004,434 $ 966,804Brokerage Services 213,153 207,617 196,433Logistics Services 201,179 170,829 132,265 ------------ ------------ ------------ Total Revenue $ 1,319,331 $ 1,382,880 $ 1,295,502 ------------ ------------ ------------ NOTE 14. EMPLOYEE BENEFIT PLANS The Company has two profit-sharing plans and trusts under section401(k) of the Internal Revenue Code. Qualified contributions made by employeesto the plan are partially matched by the Company. The Company expensedapproximately $1,365,000 related to these plans in 2001. Prior to 2001, forevery dollar the employee contributed, the Company had contributed an additional$.20 up to $100. In addition, prior to 2001, the Company, at its discretion,typically had made profit sharing contributions. Historically, the Company hadcontributed an amount equal to 3% of each participant's compensation up to amaximum of $5,100. The Company's contributions to these plans were approximately$1,684,000 and $1,645,000 for 2000 and 1999, respectively. The Company provides a deferred compensation plan that permits certainofficers and certain management employees to defer portions of theircompensation. Contributions made by employees to the plan are partially matchedby the Company. The Company expensed $472,000 and $274,000 related to this planin 2001 and 2000, respectively.NOTE 15. RELATED PARTY TRANSACTIONS The Class B Common ("Class B") stockholders, some of whom are officersof the Company, as well as officers ofvthe Company who are not Class Bstockholders, received approximately 33% of minority interest distributions of income from the Company until the remaining 70% minority interests werepurchased in connection with the April 1999 Purchase. Furthermore, these partiesreceived approximately $66,268,000 when the Company acquired minority interestsin Hub City Los Angeles, L.P., Hub City Golden Gate, L.P., Hub GroupDistribution Services, Hub City Dallas, L.P., Hub City Houston, L.P., Hub CityRio Grande, L.P., Hub City Alabama, L.P., Hub City Atlanta, L.P., Hub CityBoston, L.P., Hub City Canada, L.P., Hub City Cleveland, L.P., Hub CityDetroit, L.P., Hub City Florida, L.P., Hub City Indianapolis, L.P., Hub CityKansas, 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. A shareholder of the Company is the owner of 20% of the Class Amembership interest of SmartOffices Services, LLC ("SmartOffices"). SmartOfficesis in the business of selling office supplies to various companies. The Companyspent $334,200 and $166,200 buying various office supplies from SmartOffices in2001 and 2000, respectively.NOTE 16. LEGAL MATTERS On February 19, 2002, a purported class action lawsuit was filed byRiggs Partners, LLC in the United States District Court for the NorthernDistrict of Illinois, Eastern Division. The complaint names as defendants theCompany, the Company's officers and former officers that signed the Company'srecent periodic reports filed with the Securities and Exchange Commission andthe Company's auditors. The complaint alleges that the defendants violated 37Section 10(b) and Rule 10b-5 thereunder and Section 20(a) of the SecuritiesExchange Act of 1934 by filing or causing to be filed with the Securities andExchange Commission periodic reports that contained inaccurate financialstatements. The complaint seeks unspecified compensatory damages, reimbursementof reasonable costs and expenses, including counsel fees and expert fees, andsuch other relief as the court deems just and proper. The Company believes thatthis suit is without merit and intends to vigorously defend itself and itsofficers. An adverse judgement in this lawsuit could have a material adverseaffect on the Company's financial position and results of operations. In addition to the suit described above, the Company is a party toroutine litigation incident to its business, primarily claims for freightdamaged in transit or improperly shipped. Many of the lawsuits to which theCompany is party are covered by insurance and are being defended by theCompany's insurance carriers. Management does not believe that the outcome ofthis litigation will have a materially adverse effect on the Company's financialposition or results of operations.NOTE 17. RESTRUCTURING CHARGE In the fourth quarter of 2000, management approved a plan torestructure the Company's accounting functions and centralize them at itscorporate headquarters in Lombard, Illinois. This centralization plan was toresult in the reduction of 56 accounting-related positions from the operatingcompanies. All affected employees were informed of this decision in mid-November2000. In connection with this plan, the Company recorded a pre-tax charge of$250,000 that is included in salaries and benefits expense in the fourth quarterof 2000. During 2001, $206,000 was paid related to the accounting restructuringand thirty-one employees were terminated. The remaining $44,000 of the accrualwas reversed in 2001, thereby reducing salaries and benefits expense.NOTE 18. DERIVATIVE FINANCIAL INSTRUMENT In June 1998, the Financial Accounting Standards Board issued Statementof Financial Accounting Standards No. 133 ("Statement 133"), "Accounting forDerivative Instruments and Hedging Activities." On January 1, 2001, the Companyadopted Statement 133 and recorded the fair value of its interest rate swap of $79,000, net of related income taxes of $55,000, as an asset. The transitionadjustment to record the asset was included in other comprehensive income. The Company has an interest rate swap that matures on September 30,2002 with a notional amount of $25.0 million, a weighted average pay rate of8.37% and weighted average receive rates of 5.34% and 9.19% at December 31, 2001and 2000, respectively. Under the Credit Facility, the Company was required toenter into this interest rate swap agreement designated as a hedge on a portionof the Company's variable rate debt. The Company uses this interest rate swap tomanage its exposure to changes in interest rates for its floating rate debt.This interest rate swap qualifies as a cash flow hedge. The interest ratedifferential to be received or paid on the swap is recognized in theconsolidated statements of operations as a reduction or increase in interestexpense, respectively. The Company recorded incremental interestexpense/(interest income) of $312,000, $(217,000) and $52,000 for this swap in2001, 2000 and 1999, respectively. In accordance with the new derivativerequirements, the effective portion of the change in the fair value of thederivative instrument is recorded in the consolidated balance sheets as acomponent of current assets or liabilities and other comprehensive income. Theineffective portion of the change in the fair value of the derivativeinstrument, along with the gain or loss on the hedged item, is recorded inearnings and reported in the consolidated statements of operations, on the sameline as the hedged item. For the twelve months ended December 31, 2001, the Company adjusted itsderivative financial instrument to fair value which resulted in an unrealizedloss of $468,000, net of the related income tax benefit of $325,000. Thisadjustment is included in other comprehensive loss.NOTE 19. BAD DEBT WRITE-OFF During September 2001, the Company recognized bad debt expense which isincluded in selling, general and administrative expense in the accompanyingconsolidated statements of operations in the amount of $4.7 million related to aKorean steamship line customer ("Customer"). The Customer filed forreorganization under the Corporate Reorganization Act of Korea in May 2001 andwas subsequently forced into liquidation by the Korean courts. According tocourt filings, the Customer does not have adequate funds to pay its securedcreditors. The Company, as an unsecured creditor, was notified by the trusteeappointed by the court during September 2001 that it should not expect torecover any funds from the Customer. 38NOTE 20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) As indicated in Note 2, the Company has restated earnings in 2000. TheCompany did not restate each quarter of 2000 and has reflected the full impactof the 2000 restatement in the fourth quarter of 2000. In addition, an entry wasmade in the fourth quarter of 2001 to properly state 2001. The Company did notrestate the first, second or third quarter of 2001 and reflected the fullimpact of the adjustment in the fourth quarter of 2001. The following tablesets forth selected quarterly financial data for each of the quarters in 2001and 2000 (in thousands, except per share amounts): QUARTERS -------------------------------------------------------- FIRST SECOND THIRD FOURTH -------------- ------------- ------------- ------------- Year Ended December 31, 2001:Revenue $ 345,935 $ 318,023 $ 323,046 $ 332,327Gross margin 46,036 45,331 44,571 43,025Operating income 1,148 5,224 539 3,637Net income/(loss) (676) 1,065 (1,112) 1,166Basic earnings/(loss) per share $ (0.09) $ 0.14 $ (0.14) $ 0.15Diluted earnings/(loss) per share $ (0.09) $ 0.14 $ (0.14) $ 0.15 QUARTERS -------------------------------------------------------- RESTATED -------------- ------------- ------------- ------------- FIRST SECOND THIRD FOURTH -------------- ------------- ------------- ------------- Year Ended December 31, 2000:Revenue $ 328,568 $ 344,329 $ 354,797 $ 355,186Gross margin 39,465 44,583 44,223 39,496Operating income/(loss) 2,334 6,689 4,934 (462)Net income/(loss) (317) 2,298 1,564 (862)Basic earnings/(loss) per share $ (0.04) $ 0.30 $ 0.20 $ (0.11)Diluted earnings/(loss) per share $ (0.04) $ 0.30 $ 0.20 $ (0.11) 39ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors" and "Ownership of the CapitalStock of the Company" appearing in the Registrant's proxy statement for theannual meeting of stockholders to be held on May 21, 2002, sets forth certaininformation with respect to the directors of the Registrant and Section 16compliance and is incorporated herein by reference. Certain information withrespect to persons who are or may be deemed to be executive officers of theRegistrant is set forth under the caption "Executive Officers of the Registrant"in Part I of this report.ITEM 11. EXECUTIVE COMPENSATION The section entitled "Compensation of Directors and Executive Officers"appearing in the Registrant's proxy statement for the annual meeting ofstockholders to be held on May 21, 2002, sets forth certain information withrespect to the compensation of management of the Registrant and is incorporatedherein by reference.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Ownership of the Capital Stock of the Company"appearing in the Registrant's proxy statement for the annual meeting ofstockholders to be held on May 21, 2002, sets forth certain information withrespect to the ownership of the Registrant's Common Stock and is incorporatedherein by reference.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions" appearing in the Registrant'sproxy statement for the annual meeting of stockholders to be held on May 21,2002, sets forth certain information with respect to certain businessrelationships and transactions between the Registrant and its directors andofficers and it is incorporated herein by reference. 40 PART IVITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS The following consolidated financial statements of the Registrantare included under Item 8 of this Form 10-K: Report of Independent Accountants Consolidated Balance Sheets - December 31, 2001 and December 31, 2000 Consolidated Statements of Operations - Years ended December 31, 2001, December 31, 2000 and December 31, 1999 Consolidated Statements of Stockholders' Equity - Years ended December 31, 2001, December 31, 2000 and December 31, 1999 Consolidated Statements of Cash Flows - Years ended December 31, 2001, December 31, 2000 and December 31, 1999 Notes to Consolidated Financial Statements (A) (2) FINANCIAL STATEMENT SCHEDULES The remaining financial statements and statement schedule forwhich provision is made in Regulation S-X are set forth in the Index immediatelypreceding such financial statements and statement schedule and are incorporatedherein by reference. (A) (3) EXHIBITS The exhibits included as part of this Form 10-K are set forth inthe Exhibit Index immediately preceding such Exhibits and are incorporatedherein by reference. (B) REPORTS ON FORM 8-K The Company filed a Report on Form 8-K on February 13, 2002,reporting in Item 5 that the Company discovered certain accountingirregularities at its Hub Group Distribution Services subsidiary and included acopy of the press release issued by the Company on February 12, 2002. PERIODIC REPORTS Upon written request, the Company's annual report to theSecurities and Exchange Commission on Form 10-K for the fiscal year endedDecember 31, 2001, and its quarterly reports on Form 10-Q will be furnished tostockholders free of charge; write to: Public Relations Department, Hub Group,Inc., 377 E. Butterfield Road, Suite 700, Lombard, Illinois 60148. 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.Date: March 27, 2002 HUB GROUP, INC. By /S/ DAVID P. YEAGER -------------------- David P. Yeager Chief Executive Officer and Vice Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons in the capacities and onthe dates indicated: Title Date /S/ PHILLIP C. YEAGER Chairman and Director March 27, 2002---------------------- Phillip C. Yeager /S/ DAVID P. YEAGER Vice Chairman, Chief Executive Officer and Director March 27, 2002-------------------- David P. Yeager /S/ THOMAS L. HARDIN President, Chief Operating Officer and Director March 27, 2002--------------------- Thomas L. Hardin /S/ JAY E. PARKER Vice President-Finance and Chief Accounting Officer March 27, 2002------------------ Jay E. Parker (Principal Financial and Accounting Officer) /S/ CHARLES R. REAVES Director March 27, 2002---------------------- Charles R. Reaves /S/ MARTIN P. SLARK Director March 27, 2002-------------------- Martin P. Slark /S/ GARY D. EPPEN Director March 27, 2002------------------ Gary D. Eppen SCHEDULE II HUB GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS Balance at Charged to Balance at Beginning Costs & End of Year Expenses Deduction of Year ----------- ----------- ------------ ----------- Year Ended December 31: Allowance for uncollectible accounts receivable 2001 $ 3,088,000 $ 7,132,000 $(6,200,000) $ 4,020,000 2000 as restated 2,134,000 2,766,000 (1,812,000) 3,088,000 1999 691,000 2,321,000 (878,000) 2,134,000 S-1 INDEX TO EXHIBITSNUMBER EXHIBIT------ ------- 2.1 Purchase Agreement among the Registrant, American President Companies, Ltd. and APL Land Transport Services, Inc. (incorporated by reference to the Registrants report on Form 8-K dated May 2, 1996 and filed May 17, 1996, File No. 0-27754) 2.2 Purchase and Sale Agreement among Hub Holdings, Inc. and Hub City North Central, Inc. (incorporated by reference to Exhibit 2.2 to the Registrants report on Form 10-K dated March 26, 1997 and filed March 27, 1997, File No. 000-27754) 3.1 Amended Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 and 3.3 to the Registrant's registration statement on Form S-1, File No. 33-90210) 3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's registration statement on Form S-1, File No. 33-90210) 10.1 Form of Amended and Restated Limited Partnership Agreement (incorporated by reference to Exhibit 10.1 to the Registrants report on Form 10-K dated March 26, 1997 and filed March 27, 1997, File No 000-27754) 10.2 Amended and Restated Limited Partnership Agreement of Hub City Canada, L.P. (incorporated by reference to Exhibit 10.2 to the Registrants report on Form 10-K dated March 26, 1997 and filed March 27, 1997, File No 000-27754) 10.3 Form of Non-Competition Agreement (incorporated by reference to Exhibit 10.3 to the Registrants report on Form 10-K dated March 26, 1997 and filed March 27,1997, File No 000-27754) 10.4 Purchase and Sale Agreement between the Registrant and the Stockholders of Hub City Terminals, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant's registration statement on Form S-1, File No. 33-90210) 10.5 Hub Group Distribution Services Purchase and Sale Agreement (incorporated by reference to Exhibit 10.5 to the Registrant's report on Form 10-K dated March 26, 1997 and filed March 27, 1997, File No. 000-27754) 10.6 Management Agreement (incorporated by reference to Exhibit 10.6 to the Registrant's report on Form 10-K dated March 26, 1997 and filed March 27, 1997, File No. 000-27754) 10.7 Stockholders' Agreement (incorporated by reference to Exhibit 10.7 to the Registrant's report on Form 10-K dated March 26, 1997 and filed March 27, 1997, File No. 000-27754) 10.8 Credit Agreement dated as of September 27, 1997, among the Registrant, Hub City Terminals, Inc., Hub Holdings, Inc. and Harris Trust and Savings Bank (incorporated by reference to Exhibit 10.8 to the Registrant's report on Form 10-Q dated and filed November 13, 1997, File No. 000-27754) 10.9 $100 million Credit Agreement dated as of April 30, 1999, among the Registrant, Hub City Terminals, Inc., Hub Holdings, Inc. and Harris Trust and Savings Bank (incorporated by reference to Exhibit 10.9 to the Registrant's report on Form 10-Q dated and filed May 10, 1999, File No. 000-27754) 10.10 $40 million Bridge Credit Agreement dated as of April 30, 1999 among the Registrant, Hub City Terminals, Inc., Hub Holdings, Inc. and Harris Trust and Savings Bank (incorporated by reference to Exhibit 10.10 to the Registrant's report on Form 10-Q dated and filed May 10, 1999, File No. 000-27754) 10.11 $50 million Note Purchase Agreement dated as of June 25, 1999, among the Registrant, Hub City Terminals, Inc., Hub Holdings, Inc. and various purchasers (incorporated by reference to Exhibit 10.11 to the Registrant's report on Form 10-Q dated and filed August 16, 1999, File No. 000-27754) 10.12 Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and Harris Trust and Savings Bank (incorporated by reference to Exhibit 10.12 to the Registrant's report on Form 10-Q dated and filed November 13, 2000, File No. 000-27754) 10.13 Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and Harris Trust and Savings Bank 10.14 Amendment to $50 million Note Purchase Agreement among the Registrant, Hub City Terminals, Inc. and various purchasers 10.15 Letter from the Registrant to Daniel L. Sellers dated December 24, 199810.16 Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and Harris Trust and Savings Bank (incorporated by reference to Exhibit 10.16 to the Registrant's report on Form 10-Q dated and filed April 19, 2001, File No. 000-27754)10.17 Amendment to $50 million Note Purchase Agreement among the Registrant, Hub City Terminals, Inc. and various purchasers (incorporated by reference to Exhibit 10.17 to the Registrant's report on Form 10-Q dated and filed April 19, 2001, File No. 000-27754)10.18 Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and Harris Trust and Savings Bank (incorporated by reference to Exhibit 10.18 to the Registrant's report on Form 10-Q dated and filed November 13, 2001, File No. 000-27754)10.19 Amendment to $50 million Note Purchase Agreement among the Registrant, Hub City Terminals, Inc. and various purchasers (incorporated by reference to Exhibit 10.19 to the Registrant's report on Form 10-Q dated and filed November 13, 2001, File No. 000-27754)10.20 Amendment to $100 million Credit Agreement among the Registrant, Hub City Terminals, Inc. and Harris Trust and Savings Bank dated March 27, 200210.21 Amendment to $50 million Note Purchase Agreement among the Registrant, Hub City Terminals, Inc. and various purchasers dated March 27, 200221 Subsidiaries of the Registrant23.1 Consent of Arthur Andersen LLP99.1 Letter from the Company to the Securities and Exchange Commission dated March 27, 2002 regarding the Company's auditors, Arthur Andersen HUB GROUP, INC. HUB CITY TERMINALS, INC. AMENDMENT TO CREDIT AGREEMENTHarris Trust and Savings Bank LaSalle Bank National AssociationChicago, Illinois Chicago, IllinoisU.S. Bank National Association National City BankDes Plaines, Illinois Cleveland, OhioFirstar Bank, N.A.Milwaukee, WisconsinLadies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as ofApril 30, 1999 (the "CREDIT AGREEMENT"), as amended and currently in effect, byand among Hub Group, Inc. (the "PUBLIC HUB COMPANY"), Hub City Terminals, Inc.for itself and as successor by merger to Hub Holdings, Inc. ("HUB CHICAGO";together with the Public Hub Company, the "BORROWERS") and you (the "LENDERS").All capitalized terms used herein without definition shall have the samemeanings herein as such terms have in the Credit Agreement. Substantially concurrently herewith, the Hub Group is restatingearnings for their 1999 and 2000 fiscal years and adjusting earnings for their2001 fiscal year. As a result of such restatements and adjustments, (i) the HubGroup will have been in default of their obligations under Section 7.8 (FixedCharge Coverage Ratio) for the fiscal quarters ending March 31, 2000, September30, 2000 and December 31, 2000, Section 7.9 (Minimum EBITDAM) for the fiscalquarters ending September 30, 2000 and December 31, 2000 and Section 7.10 (CashFlow Leverage Ratio) for the fiscal quarters ending June 30, 2000, September 30,2000, December 31, 2000 and September 30, 2001 (collectively, the "RESTATEMENTDEFAULTS") and (ii) the Borrowers have underpaid interest on the Loans duringthe third fiscal quarter of 1999, the second and fourth fiscal quarters of 2000and the second fiscal quarter of 2001 due to the Applicable Margins being set atinappropriate status levels. The Borrowers have requested that the Lenders waivethe Restatement Defaults and make certain other amendments to the CreditAgreement, and the Lenders are willing to do so under the terms and conditionsset forth in this amendment (herein, the "AMENDMENT").1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth inSection 3 below, the Credit Agreement shall be and hereby is amended as follows: 1.01. Each of Sections 7.8, 7.9 and 7.10 of the Credit Agreement shall beand hereby is amended by adding the following sentence immediately at the endthereof: "Notwithstanding anything contained in this Agreement to the contrary, for purposes of computing the Hub Group's compliance with this Section, the Hub Group's adjustment of earnings for the 2001 fiscal year (which was an aggregate EBITDAM adjustment of $1,800,000 for such year) shall be treated as if such adjustment had occurred evenly in each fiscal quarter of such year (I.E. $450,000 per fiscal quarter)." 1.02. The definition of "APPLICABLE MARGIN" appearing in Section 4.1 ofthe Credit Agreement shall be amended by inserting the following new sentence atthe end thereof: "Notwithstanding anything herein to the contrary, the Applicable Margin in effect from January 1, 2002 through September 30, 2002 shall not be less than the Applicable Margin for Level III Status."2. WAIVER. The Borrowers acknowledge that prior to giving effect to thisAmendment, the Borrowers are in default of their obligations under Sections 7.8,7.9 and 7.10 of the Credit Agreement by reason of the Restatement Defaults. Uponthe effectiveness of this Amendment as hereinafter set forth, the Lenders herebywaive the Restatement Defaults. The foregoing waiver is expressly limited to thematters stated herein.3. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction ofall of the following conditions precedent: 3.01. The Borrowers, the Guarantors and the Required Lenders shallhave executed and delivered this Amendment. 3.02. The Senior Note Offering shall have been modified by writteninstrument (the "SENIOR NOTE AMENDMENT") in form and substance reasonablysatisfactory to the Agent to effect a waiver and modification of the terms andconditions thereof such that the same are no more burdensome on the Borrowersthan the corresponding provisions of the Credit Agreement after giving effect tothe modifications contemplated by this Amendment. 3.03. The Borrowers shall have paid to the Agent, for the benefit of theLenders, the difference in interest that the Borrowers should have paid to theLenders in the third fiscal quarter of 1999, the second and fourth fiscalquarters of 2000 and the second fiscal quarter of 2001 had the ApplicableMargins been set at the appropriate status levels during such periods. 3.04. The Borrowers shall have paid to the Agent, for the ratable benefitof the Lenders which have executed and delivered to counsel for the Agent acounterpart of this Amendment no later than 5:00 p.m. (Chicago time) on March 227, 2002, an amendment fee in an amount equal to 0.2% of such executing Lenders'Revolving Credit Commitments and outstanding Term Loans (the "AMENDMENT FEE"),such Amendment Fee to be fully earned and due and payable to such executingLenders upon such Lenders' execution of this Amendment 3.05. The Agent shall have received copies, executed or certified (as maybe appropriate), of the resolutions or consents of the board of directors orother governing body of the Borrowers authorizing the execution, delivery andperformance of this Amendment and the Senior Note Amendment, indicating theauthorized signers of this Amendment and the Senior Note Amendment and thespecimen signatures of such signers. 3.06. Legal matters incident to the execution and delivery of thisAmendment and the Senior Note Amendment shall be reasonably satisfactory to theAgent and its counsel.4. CONDITION SUBSEQUENT. As soon as possible, but not later than April 10, 2002, the Borrowersshall furnish to the Agent a copy of the consolidated balance sheet of the HubGroup as of the close of the 2001 fiscal year and the consolidated statements ofincome, retained earnings and cash flows of the Hub Group for such period, andaccompanying notes thereto, each in reasonable detail showing in comparativeform the figures for the previous fiscal year, accompanied by an unqualifiedopinion thereon of Arthur Andersen LLP or another firm of independent publicaccountants of recognized national standing, to the effect that the financialstatements have been prepared in accordance with GAAP and present fairly in accordance with GAAP the consolidated financial condition of the Hub Group as ofthe close of such fiscal year and the results of their operations and cash flowsfor the fiscal year then ended, and otherwise in conformity with Section 7.5(b)of the Credit Agreement. The Borrowers acknowledge and agree that the failure todeliver such financial statements and audit report by April 10, 2002 shallconstitute an immediate Event of Default.5. REPRESENTATIONS. In order to induce the Lenders to execute and deliver this Amendment,the Borrowers hereby represent to the Lenders that as of the date hereof, therepresentations and warranties set forth in Section 5 of the Credit Agreementare and remain true and correct in all material respects (except to the extentthe same expressly relate to an earlier date and except that for purposes ofthis paragraph the representations contained in Section 5.5 shall be deemed torefer to the most recent financial statements of the Public Hub Companydelivered to the Lenders) and the Borrowers are in full compliance with all ofthe terms and conditions of the Credit Agreement after giving effect to thisAmendment and no Default or Event of Default (other than the RestatementDefaults) has occurred and is continuing under the Credit Agreement or shallresult after giving effect to this Amendment. 36. MISCELLANEOUS. 6.01. Each Borrower and each Guarantor acknowledges and agrees that,except as modified by this Amendment, all of the Loan Documents to which it is aparty remain in full force and effect for the benefit and security of, amongother things, the Obligations as modified hereby. Each Borrower and eachGuarantor further acknowledges and agrees that all references in such LoanDocuments to the Obligations shall be deemed a reference to the Obligations asso modified. Each Borrower and each Guarantor further agrees to execute anddeliver any and all instruments or documents as may be reasonably required bythe Agent or the Required Lenders to confirm any of the foregoing. 6.02. Except as specifically amended hereby, the Credit Agreement shallcontinue in full force and effect in accordance with its original terms.Reference to this specific Amendment need not be made in the Credit Agreement,the Notes, or any other instrument or document executed in connection therewith,or in any certificate, letter or communication issued or made pursuant to orwith respect to the Credit Agreement, any reference in any of such items to theCredit Agreement being sufficient to refer to the Credit Agreement asspecifically amended hereby. 6.03. This Amendment may be executed in any number of counterparts, andby the different parties on different counterpart signature pages, all of whichtaken together shall constitute one and the same agreement. Any of the partieshereto may execute this Amendment by signing any such counterpart and each ofsuch counterparts shall for all purposes be deemed to be an original. ThisAmendment shall be governed by the internal laws of the State of Illinois. 6.04. The Borrowers agree to pay, jointly and severally, all reasonableout-of-pocket costs and expenses incurred by the Agent in connection with thepreparation, execution and delivery of this Amendment and the documents andtransactions contemplated hereby, including the reasonable fees and expenses ofcounsel for the Agent with respect to the foregoing. 4 Dated as of March 27, 2002. HUB GROUP, INC., a Borrower HUB CITY TERMINALS, INC., a Borrower By David P. Yeager Chief Executive Officer for each of the above Companies 5 GUARANTORS' CONSENT The undersigned heretofore executed and delivered to the Lenders theGuaranty Agreement. The undersigned hereby consent to the Amendment to theCredit Agreement as set forth above and confirm that the Guaranty Agreement andall of the obligations of the undersigned thereunder remain in full force andeffect. The undersigned further agree that their consent to any furtheramendments to the Credit Agreement shall not be required as a result of thisconsent having been obtained, except to the extent, if any, required by theGuaranty Agreement. HUB CHICAGO HOLDINGS, INC., a Guarantor By David P. Yeager Chief Executive Officer HLX COMPANY, L.L.C., a Guarantor By David P. Yeager Vice Chairman and Chief Executive Officer QSSC, INC. QUALITY SERVICES, L.L.C., QUALITY SERVICES OF KANSAS, L.L.C. QUALITY SERVICES OF NEW JERSEY, L.L.C. Q.S. OF ILLINOIS, L.L.C. Q.S. OF GEORGIA, L.L.C. By David P. Yeager Chief Executive Officer for each of the above Guarantors HUB GROUP ALABAMA, LLC HUB GROUP ATLANTA, LLC HUB GROUP BOSTON, LLC HUB GROUP CANADA, L.P. HUB GROUP CLEVELAND, LLC HUB GROUP DETROIT, LLC HUB GROUP FLORIDA, LLC HUB GROUP GOLDEN GATE, LLC HUB GROUP INDIANAPOLIS, LLC HUB GROUP KANSAS CITY, LLC HUB GROUP LOS ANGELES, LLC HUB GROUP MID ATLANTIC, LLC HUB GROUP NEW ORLEANS, LLC HUB GROUP NEW YORK STATE, LLC HUB GROUP NEW YORK-NEW JERSEY, LLC HUB GROUP NORTH CENTRAL, LLC HUB GROUP OHIO, LLC HUB GROUP PHILADELPHIA, LLC HUB ROUP PITTSBURGH, LLC HUB GROUP PORTLAND, LLC HUB GROUP ST. LOUIS, LLC HUB GROUP TENNESSEE, LLC HUB CITY TEXAS, L.P. HUB GROUP TRANSPORT, LLC HUB GROUP ASSOCIATES, INC. HUB FREIGHT SERVICES, INC. By David P. Yeager Chief Executive Officer for each of the above Guarantors 2 Accepted and agreed to as of the date and year last above written. HARRIS TRUST AND SAVINGS BANK By Name:______________________________________ Title:_____________________________________ U.S. BANK NATIONAL ASSOCIATION By Name:______________________________________ Title:_____________________________________ FIRSTAR BANK, N.A. By Name:______________________________________ Title:_____________________________________ LASALLE BANK NATIONAL ASSOCIATION By Name:______________________________________ Title:_____________________________________ NATIONAL CITY BANK By Name:______________________________________ Title:_____________________________________ ================================================================================ HUB GROUP, INC. and HUB CITY TERMINALS, INC. ----------------------------------- FOURTH AMENDMENT Dated as of March 27, 2002 to NOTE PURCHASE AGREEMENTS Dated as of June 15, 1999 ----------------------------------- Re: $50,000,000 8.64% Senior Notes Due June 25, 2009================================================================================ FOURTH AMENDMENT TO NOTE PURCHASE AGREEMENTS THIS FOURTH AMENDMENT dated as of March 27, 2002 (the or this "FourthAmendment") to the Note Purchase Agreements each dated as of June 15, 1999, asamended by the First Amendment to Note Purchase Agreements dated as of February26, 2001, the Second Amendment to Note Purchase Agreements dated as of March 30,2001 and the Third Amendment to Note Purchase Agreements dated as of November 8,2001, is among HUB GROUP, INC., a Delaware corporation ("Public Hub Company"),HUB CITY TERMINALS, INC., a Delaware corporation, for itself and as successor bymerger to Hub Holdings, Inc. ("Hub Chicago"; Public Hub Company and Hub Chicagobeing individually referred to herein as an "Obligor" and collectively as the"Obligors"), and each of the institutions which is a signatory to this FourthAmendment (collectively, the "Noteholders"). RECITALS: A. The Obligors and each of the Noteholders have heretofore enteredinto separate and several Note Purchase Agreements each dated as of June 15,1999 (as amended by the First Amendment to Note Purchase Agreements dated as ofFebruary 26, 2001, the Second Amendment to Note Purchase Agreements dated as of March 30, 2001 and the Third Amendment to Note Purchase Agreements dated as ofNovember 8, 2001, collectively, the "Note Purchase Agreements"). The Obligorshave heretofore issued the $50,000,000 8.64% Senior Notes Due June 25, 2009 (the"Notes") dated June 25, 2000 pursuant to the Note Purchase Agreements. B. The Obligors and the Noteholders now desire to amend the NotePurchase Agreements in the respects, but only in the respects, hereinafter setforth. C. Capitalized terms used herein shall have the respective meaningsascribed thereto in the Note Purchase Agreements unless herein defined or thecontext shall otherwise require. D. All requirements of law have been fully complied with and all otheracts and things necessary to make this Fourth Amendment a valid, legal andbinding instrument according to its terms for the purposes herein expressed havebeen done or performed. NOW, THEREFORE, upon the full and complete satisfaction of theconditions precedent to the effectiveness of this Fourth Amendment set forth inSection 4.1 hereof, and in consideration of good and valuable consideration thereceipt and sufficiency of which is hereby acknowledged, the Obligors and theNoteholders do hereby agree as follows:SECTION 1. AMENDMENTS. Section 1.1. Each of Section 10.2 and 10.3 to the Note PurchaseAgreements shall be amended by adding the following sentence immediately at theend of each such Section: 2 "Notwithstanding anything contained in this Agreement to the contrary, for purposes of computing the Public Hub Company and its Restricted Subsidiaries' compliance with this Section, the Public Hub Company and its Restricted Subsidiaries's adjustment of earnings for the 2001 fiscal year (which was an aggregate earnings adjustment of $1,800,000 for such year) shall be treated as if such adjustment had occurred evenly in each fiscal quarter of such year (i.e. $450,000 per fiscal quarter)."SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS. Section 2.1. To induce the Noteholders to execute and deliver thisFourth Amendment (which representations shall survive the execution and deliveryof this Fourth Amendment), the Obligors, jointly and severally, represent andwarrant to the Noteholders that: (a) this Fourth Amendment has been duly authorized, executed and delivered by each Obligor and this Fourth Amendment constitutes the legal, valid and binding obligation, contract and agreement of each Obligor enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Note Purchase Agreements, as amended by this Fourth Amendment, constitute the legal, valid and binding obligations, contracts and agreements of the Obligors enforceable against them in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Obligors of this Fourth Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which any Obligor is a party or by which any Obligor's properties or assets are or may be bound, including, without limitation, the Credit Agreement dated as of April 30, 1999, among the Obligors, the Lenders party thereto and Harris Trust and Savings Bank, individually and as Agent, and all amendments, supplements and modifications thereto, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 2.1(c); (d) as of the date hereof and after giving effect to this Fourth Amendment, no Default or Event of Default has occurred which is continuing; 3 (e) all the representations and warranties contained in Section 5 of the Note Purchase Agreements (other than those contained in Sections 5.3, 5.4(a), 5.4(b) and 5.9) are true and correct in all material respects with the same force and effect as if made by the Obligors on and as of the date hereof (other than any representation and warranty that expressly relates to a specified earlier date, which was true and correct in all material respects as of such date); provided, that, notwithstanding any reference in Sections 5.4(c) and 5.4(d) of the Note Purchase Agreements to the Restricted Subsidiaries listed on Schedule 5.4 to the Note Purchase Agreements, the representations and warranties hereby made by the Obligors with reference to Sections 5.4(c) and 5.4(d) of the Note Purchase Agreements shall relate to the Restricted Subsidiaries existing on the date hereof; (f) the statements and information furnished to the Noteholders in connection with the negotiation of this Amendment do not, taken as a whole, and other than financial projections or forecasts, contain any untrue statements of a material fact or omit a material fact necessary to make the material statements contained herein or therein not misleading, the Noteholders acknowledging that as to any projections furnished to the Noteholders, the Obligors and the Constituent Company Guarantors only represent that the same were prepared on the basis of information and estimates the Obligors believed to be reasonable; and (g) all tax returns with respect to any income tax or other material tax required to be filed by the Obligors and the Restricted Subsidiaries in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Obligors or the Restricted Subsidiaries or upon any of their respective properties, income or franchises, which are shown to be due and payable in such returns, have been paid. The Obligors do not know of any proposed additional tax assessment against the Obligors or any Restricted Subsidiary for which adequate provision in accordance with GAAP has not been made. Adequate provisions in accordance with GAAP for taxes on the books of the Obligors and each Restricted Subsidiary have been made for all open years, and for its current fiscal period.SECTION 3. WAIVER. Section 3.1. Upon and by virtue of this Fourth Amendment becomingeffective as herein contemplated, the failure of the Public Hub Company and itsRestricted Subsidiaries to comply with the obligations under Section 10.3 (CashFlow Leverage Ratio) for the fiscal quarters ending March 31, 2000, September 30, 2000, December 31, 2000 and September 30, 2001 which failures constituteEvents of Default under the Note Purchase Agreements shall be deemed to havebeen waived by the Noteholders. The Obligors understand and agree that thewaiver contained in this Section 3.1 pertains only to the matters and to theextent herein described and not to any other actions of the Obligors under, ormatters arising in connection with, the Note Purchase Agreements or to anyrights which the Noteholders have arising by virtue of any such other actions ormatters. 4SECTION 4. CONDITIONS TO EFFECTIVENESS OF THIS FOURTH AMENDMENT. Section 4.1. This Fourth Amendment shall not become effective until,and shall become effective when, each and every one of the following conditionsshall have been satisfied: (a) executed counterparts of this Fourth Amendment, duly executed by the Obligors and the holders of at least 51% of the outstanding principal of the Notes, shall have been delivered to the Noteholders; (b) the Noteholders shall have received a copy of the resolutions of the Board of Directors of each Obligor authorizing the execution, delivery and performance by such Obligor of this Fourth Amendment, certified by such Obligor's Secretary or an Assistant Secretary; (c) the representations and warranties of the Obligors set forth in Section 2 hereof are true and correct on and with respect to the date hereof; (d) the Noteholders shall have received an amendment fee in an amount equal to 0.40% times the aggregate outstanding principal amount of the Notes held by such Noteholder; and (e) the Noteholders shall have received a true, correct and complete copy of the Amendment to the Bank Credit Agreement dated the date hereof.Upon receipt of all of the foregoing, this Fourth Amendment shall becomeeffective as of March 27, 2002.SECTION 5. CONDITION SUBSEQUENT. Section 5.1. As soon as possible, but not later than April 10, 2002,the Obligors shall furnish to the Noteholders a copy of the consolidated balancesheet of the Public Hub Company as of the close of the 2001 fiscal year and theconsolidated statements of income, retained earnings and cash flows of thePublic Hub Company for such period, and accompanying notes thereto, each inreasonable detail showing in comparative form the figures for the previousfiscal year, accompanied by an unqualified opinion thereon of Arthur AndersenLLP or another firm of independent public accountants of recognized nationalstanding, to the effect that the financial statements have been prepared inaccordance with GAAP and present fairly in accordance with GAAP the consolidatedfinancial condition of the Public Hub Company as of the close of such fiscalyear and the results of their operations and cash flows for the fiscal year thenended, and otherwise in conformity with Section 7.1(b) of the Note PurchaseAgreements. The Obligors acknowledge and agree that the failure to deliver suchfinancial statements and audit report by April 10, 2002 shall constitute andimmediate Event of Default. 5SECTION 6. PAYMENT OF NOTEHOLDERS' COUNSEL FEES AND EXPENSES. Section 6.1. The Obligors agrees to pay upon demand, the reasonablefees and expenses of Chapman and Cutler, counsel to the Noteholders, inconnection with the negotiation, preparation, approval, execution and deliveryof this Fourth Amendment.SECTION 7. MISCELLANEOUS. Section 7.1. This Fourth Amendment shall be construed in connectionwith and as part of each of the Note Purchase Agreements, and except as modifiedand expressly amended by this Fourth Amendment, all terms, conditions andcovenants contained in the Note Purchase Agreements and the Notes are herebyratified and shall be and remain in full force and effect. Section 7.2. Any and all notices, requests, certificates and otherinstruments executed and delivered after the execution and delivery of thisFourth Amendment may refer to the Note Purchase Agreements without makingspecific reference to this Fourth Amendment but nevertheless all such referencesshall include this Fourth Amendment unless the context otherwise requires. Section 7.3. The descriptive headings of the various Sections or partsof this Fourth Amendment are for convenience only and shall not affect themeaning or construction of any of the provisions hereof. SECTION 7.4. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUEDIN ACCORDANCE WITH ILLINOIS LAW. Section 7.5. The execution hereof by you shall constitute a contractbetween us for the uses and purposes hereinabove set forth, and this FourthAmendment may be executed in any number of counterparts, each executedcounterpart constituting an original, but all together only one agreement. [Signature Pages Begin on Next Page] 6 IN WITNESS WHEREOF, the Obligors and the Noteholders have caused thisinstrument to be executed as of March 27, 2002. HUB GROUP, INC. HUB CITY TERMINALS, INC. By ______________________________________ David P. Yeager Chief Executive Officer for each of the above CompaniesConsented, Accepted and Agreedas of March 27, 2002 HUB CHICAGO HOLDINGS, INC., a Constituent Company Guarantor By ______________________________________ David P. Yeager Chief Executive Officer for each of the above Companies HLX COMPANY, L.L.C., a Constituent Company Guarantor By ______________________________________ David P. Yeager Vice Chairman and Chief Executive Officer QSSC, INC. QUALITY SERVICES, L.L.C., QUALITY SERVICES OF KANSAS, L.L.C. QUALITY SERVICES OF NEW JERSEY, L.L.C. Q.S. OF ILLINOIS, L.L.C. Q.S. OF GEORGIA, L.L.C. By ______________________________________ David P. Yeager Chief Executive Officer for each of the above Constituent Company Guarantors HUB GROUP ALABAMA, LLC (formerly known as Hub City Alabama, L.P.) HUB GROUP ATLANTA, LLC (formerly known as Hub City Atlanta, L.P.) HUB GROUP BOSTON, LLC (formerly known as Hub City Boston, L.P.) HUB GROUP CANADA, L.P. HUB GROUP CLEVELAND, LLC (formerly known as Hub City Cleveland, L.P.) HUB GROUP DETROIT, LLC (formerly known as Hub City Detroit, L.P.) HUB GROUP FLORIDA, LLC (formerly known as Hub City Florida, L.P.) HUB GROUP GOLDEN GATE, LLC (formerly known as Hub City Golden Gate, L.P.) HUB GROUP INDIANAPOLIS, LLC (formerly known as Hub City Indianapolis, L.P.) HUB GROUP KANSAS CITY, LLC (formerly known as Hub City Kansas City, L.P.) HUB GROUP LOS ANGELES, LLC (formerly known as Hub City Los Angeles, L.P.) HUB GROUP MID ATLANTIC, LLC (formerly known as Hub City Mid Atlantic, L.P.) HUB GROUP NEW ORLEANS, LLC (formerly known as Hub City New Orleans, L.P.) HUB GROUP NEW YORK STATE, LLC (formerly known as Hub City New York State, L.P.) HUB GROUP NEW YORK-NEW JERSEY, LLC (formerly known as Hub City New York-New Jersey, L.P.) HUB GROUP NORTH CENTRAL, LLC (formerly known as Hub City North Central, L.P.) HUB GROUP OHIO, LLC (formerly known as Hub City Ohio, L.P.) HUB GROUP PHILADELPHIA, LLC (formerly known as Hub City Philadelphia, L.P.) HUB GROUP PITTSBURGH, LLC (formerly known as Hub City Pittsburgh, L.P.) HUB GROUP PORTLAND, LLC (formerly known as Hub City Portland, L.P.) HUB GROUP ST. LOUIS, LLC (formerly known as Hub City St. Louis, L.P.) HUB GROUP TENNESSEE, LLC (formerly known as Hub City Tennessee, L.P.) HUB CITY TEXAS, L.P. HUB GROUP TRANSPORT, LLC By ______________________________________ David P. Yeager Chief Executive Officer for each of the above Constituent Company GuarantorsConsented, Accepted and Agreed as of March 27, 2002: BAYSTATE HEALTH SYSTEM, INC. By: David L. Babson & Company Inc. as Investment Adviser By________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: C.M. LIFE INSURANCE COMPANY By: David L. Babson & Company Inc. as Investment Sub-Adviser By________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: David L. Babson & Company Inc., as Investment Adviser By________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: INVESTORS PARTNER LIFE INSURANCE COMPANY By______________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: JOHN HANCOCK LIFE INSURANCE COMPANY By_____________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY By_____________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: MELLON BANK, N.A., solely in its capacity as Trustee for the Bell Atlantic Master Trust (as directed by John Hancock Life Insurance Company), and not in its individual capacity By_____________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: RELIASTAR LIFE INSURANCE COMPANY By: ING INVESTMENT MANAGEMENT LLC, as agent By_____________________________________ Name: Title:Consented, Accepted and Agreed as of March 27, 2002: RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK By: ING INVESTMENT MANAGEMENT LLC, as agent By_____________________________________ Name: Title: Consented, Accepted and Agreed as of March 27, 2002: UNITED OF OMAHA LIFE INSURANCE COMPANY By_____________________________________ Name: Title: EXHIBIT 21Subsidiaries of Hub Group, Inc.SUBSIDIARIES JURISDICTION OF INCORPORATION/ORGANIZATIONHub City Terminals, Inc. DelawareHub Group Atlanta, LLC DelawareHub Group Boston, LLC DelawareHub Group Canada, LP DelawareHub Group Cleveland, LLC DelawareHub Group Detroit, LLC DelawareHub Group Florida, LLC DelawareHub Group Golden Gate, LLC DelawareHub Group Indianapolis, LLC DelawareHub Group Kansas City, LLC DelawareHub Group Los Angeles, LLC DelawareHub Group Mid-Atlantic, LLC DelawareHub Group New Orleans, LLC DelawareHub Group New York State, LLC DelawareHub Group New York-New Jersey, LLC DelawareHub Group North Central, LLC DelawareHub Group Ohio, LLC DelawareHub Group Pittsburgh, LLC DelawareHub Group Portland, LLC DelawareHub Group St. Louis, LLC DelawareHub Group Tennessee, LLC DelawareHub City Texas, L.P. DelawareHub Group Associates, Inc. IllinoisHub Highway Services IllinoisHub Group Distribution Services IllinoisQ.S. of Illinois, LLC MichiganQ.S.S.C., Inc. DelawareQuality Services L.L.C. MissouriQuality Services of Kansas, L.L.C. KansasQuality Services of New Jersey, L.L.C. New JerseyQ.S. of Georgia, L.L.C. GeorgiaHLX Company, L.L.C. DelawareHub Chicago Holdings, Inc. Delaware CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTSAs independent public accountants, we hereby consent to the incorporation of ourreport dated March 27, 2002 included in this Form 10-K, into the Company'spreviously filed Registration Statement File No. 333-33006 on Form S-8,Registration Statement File No. 333-06327 on Form S-8, and RegistrationStatement File No. 333-48185 on Form S-8.ARTHUR ANDERSEN LLPChicago, IllinoisMarch 27, 2002 Hub Group, Inc. 377 E. Butterfield Road Suite 700 Lombard, Illinois 60148March 27, 2002Securities and Exchange Commission450 Fifth Street, N.W.Washington, D.C. 20549To Whom It May Concern:In accordance with requirements of the Securities and Exchange Commission (the"SEC"), Hub Group, Inc. ("Hub Group") hereby represents to the SEC that ArthurAndersen, LLP ("Andersen") has represented to Hub Group that the audit wassubject to Andersen's quality control system for the U.S. accounting andauditing practice to provide reasonable assurance that the engagement wasconducted in compliance with professional standards and that there wasappropriate continuity of Andersen personnel working on audits, availability ofnational office consultation and availability of personnel at foreign affiliatesof Andersen to conduct the relevant portions of the audit.Yours sincerely,/s/ David C. ZeilstraDavid C. ZeilstraVice President, Secretary and General CounselHub Group, Inc.