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Hub Group, Inc. - 10-Q Summary (Period Ended June 30, 2006)

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Hub Group, Inc., the largest intermodal marketing company in the United States, for the period ended June 30, 2006. The company provides intermodal, truck brokerage, and logistics services. The reporting period reflects the impact of a two-for-one stock split effected in June 2006, a strategic acquisition of Comtrak, Inc. in February 2006, and the divestiture of Hub Group Distribution Services (HGDS) in May 2006, which is now reported as discontinued operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 9.2% for the quarter and 8.8% for the six-month period compared to 2005. This was driven by a 10.2% increase in Intermodal revenue (partially due to the Comtrak acquisition) and a 14.9% increase in Truck Brokerage revenue. Logistics revenue declined 9.4% due to the loss of several customers.
• Margin Expansion: Gross margin percentage improved to 14.0% in Q2 2006 from 12.1% in Q2 2005, attributed to margin enhancement efforts and growth in truck brokerage and drayage operations.
• Profitability: Net income from continuing operations increased significantly (69% for the quarter, 73% for six months) due to higher gross margins, lower depreciation, and increased interest income.
• Acquisition and Divestiture: The company acquired Comtrak, Inc. for approximately $39.2 million (including working capital adjustments) to expand intermodal drayage capabilities. Conversely, HGDS was sold for $12.2 million, with its results reclassified to discontinued operations.
• Accounting Changes: The company adopted SFAS No. 123(R) regarding share-based compensation effective January 1, 2006, resulting in the recognition of compensation expense previously not recorded.

Guidance, Outlook, and Risks

Outlook: Management expects capital expenditures for the full year 2006 to be between $5.0 million and $7.0 million. The company aims to grow net income through revenue increases, margin improvements, and successful integration of acquisitions.

Risks and Contingencies:

• Market Risks: Exposure to fuel price fluctuations, railroad service conditions, and competitive pressures in the intermodal and trucking markets.
• Customer Concentration: The top 50 customers represent approximately 50% of transportation revenue. The company recently reduced exposure to the automotive sector.
• Regulatory: Potential impact of new governmental regulations and homeland security requirements.
• Accounting: Implementation of FASB Interpretation No. 48 (FIN 48) regarding uncertainty in income taxes is required for fiscal years beginning after December 15, 2006; the impact is currently not estimable.

Unusual Items: The filing includes a $7.8 million excess tax benefit from share-based compensation classified as a financing cash inflow due to the adoption of SFAS 123(R). Additionally, a $0.1 million pre-tax loss was recorded on the disposal of HGDS.

Investor Verification Checklist

• Verify the integration progress and revenue contribution of the Comtrak, Inc. acquisition.
• Monitor the replacement of lost Logistics revenue and the stability of the top 50 customer base.
• Review the impact of the two-for-one stock split on share count and per-share metrics (already restated in filing).
• Assess the future cash flow impact of the $18.0 million equipment purchase contract for 2,000 containers.
• Confirm compliance with debt covenants (minimum net worth of $175.0 million and leverage ratio of 2.0 to 1.0).