Hub Group, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 33 Consolidated Balance Sheets - December 31, 2021 and December 31, 2020 34 Consolidated Statements of Income and Comprehensive Income – Years ended December 31, 2021, December 31, 2020 and December 31, 2019 35 Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2021, December 31, 2020 and December 31, 2019 36 Consolidated Statements of Cash Flows – Years ended December 31, 2021, December 31, 2020 and December 31, 2019 37 Notes to Consolidated Financial Statements 38 Schedule II – Valuation and Qualifying Accounts S- 1 32 REP ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Hub Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Hub Group, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(b) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Claims Accruals Description of the Matter At December 31, 2021, the Company’s aggregate accrued liability related to auto and workers’ compensation claims, inclusive of amounts expected to be paid above its self-insured retention limits, was $30.8 million. As explained in Note 1 of the consolidated financial statements, the Company recognizes a liability at the time of an incident based upon the nature and severity of the claim and analyses provided by third-party claims administrators. The Company utilizes actuarial methods to estimate this liability. Auditing the Company's claims accruals is complex due to the uncertainty associated with the claims, the application of significant management judgment, and the use of actuarial methods. In addition, the estimate of the accrual can fluctuate based on the assumptions used in the actuarial studies, including the frequency and severity of claims, the loss development factors for existing claims and the estimates of incurred but not reported claims. These assumptions have a significant effect on the claims accruals. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the claims accrual process. For example, we tested the controls over management’s assessment of the assumptions and underlying data used in the determination of the measurement and valuation of the reserve. To evaluate the claims accruals, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims data. Furthermore, we involved our actuarial specialist to assist in our evaluation of the methodologies applied and significant assumptions used by the Company in determining the calculated liability. We then compared the Company’s recorded liability amount to a range which our actuarial specialist developed based on independently selected assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002. Chicago, Illinois February 25, 2022 33 HUB GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 159,784 $ 124,506 Accounts receivable trade, net 701,512 518,975 Other receivables 3,022 1,265 Prepaid taxes 2,191 1,336 Prepaid expenses and other current assets 27,779 26,753 TOTAL CURRENT ASSETS 894,288 672,835 Restricted investments 24,256 23,353 Property and equipment, net 681,451 671,101 Right-of-use assets - operating leases 44,036 43,573 Right-of-use assets - financing leases 1,252 3,557 Other intangibles, net 196,672 163,953 Goodwill, net 576,913 508,555 Other assets 18,426 18,469 TOTAL ASSETS $ 2,437,294 $ 2,105,396 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable trade $ 424,923 $ 285,320 Accounts payable other 12,493 12,680 Accrued payroll 56,938 23,044 Accrued other 82,827 102,613 Lease liability - operating leases 11,364 10,093 Lease liability - financing leases 1,251 1,793 Current portion of long-term debt 97,273 93,562 TOTAL CURRENT LIABILITIES 687,069 529,105 Long-term debt 177,479 176,797 Non-current liabilities 41,572 42,910 Lease liability - operating leases 34,916 36,328 Lease liability - financing leases - 8 Deferred taxes 155,944 162,325 STOCKHOLDERS' EQUITY: Preferred stock, $ .01 par value; 2,000,000 shares authorized; no shares issued or outstanding in 2021 and 2020 - - Common stock Class A: $ .01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2021 and 2020; 33,907,734 shares outstanding in 2021 and 33,549,708 shares outstanding in 2020 412 412 Class B: $ .01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2021 and 2020 7 7 Additional paid-in capital 189,256 186,058 Purchase price in excess of predecessor basis, net of tax benefit of $ 10,306 ( 15,458 ) ( 15,458 ) Retained earnings 1,424,634 1,253,160 Accumulated other comprehensive loss ( 207 ) ( 191 ) Treasury stock; at cost, 7,317,058 shares in 2021 and 7,675,084 shares in 2020 ( 258,330 ) ( 266,065 ) TOTAL STOCKHOLDERS' EQUITY 1,340,314 1,157,923 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,437,294 $ 2,105,396 The accompanying notes to consolidated financial statements are an integral part of these statements. 34 HUB GROUP, INC. C ONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share amounts) Years Ended December 31, 2021 2020 2019 Revenue $ 4,232,383 $ 3,495,644 $ 3,668,117 Transportation costs 3,632,743 3,070,207 3,147,047 Gross margin 599,640 425,437 521,070 Costs and expenses: Salaries and benefits 247,240 188,777 235,963 General and administrative 76,476 99,597 104,206 Depreciation and amortization 37,467 31,237 28,481 Total costs and expenses 361,183 319,611 368,650 Operating income 238,457 105,826 152,420 Other income (expense): Interest expense ( 7,307 ) ( 9,746 ) ( 10,994 ) Interest income 5 403 2,103 Other, net ( 245 ) ( 383 ) 341 Total other income (expense) ( 7,547 ) ( 9,726 ) ( 8,550 ) Income from continuing operations before income taxes 230,910 96,100 143,870 Income tax expense 59,436 22,541 36,699 Net income $ 171,474 $ 73,559 $ 107,171 Other comprehensive (loss) income: Foreign currency translation adjustments ( 16 ) ( 5 ) ( 4 ) Total comprehensive income $ 171,458 $ 73,554 $ 107,167 Earnings per share net income Basic $ 5.13 $ 2.22 $ 3.22 Diluted $ 5.06 $ 2.19 $ 3.20 Basic weighted average number of shares outstanding 33,434 33,180 33,284 Diluted weighted average number of shares outstanding 33,892 33,543 33,480 The accompanying notes to consolidated financial statements are an integral part of these statements. 35 HUB GROUP, INC C ONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except shares) Purchase Price Class A & B of Excess of Accumulated Common Stock Additional Predecessor Other Treasury Shares Paid-in Basis, Net Retained Comprehensive Stock Issued Amount Capital of Tax Earnings Income Shares Amount Total Balance December 31, 2018 41,887,088 $ 419 $ 172,220 $ ( 15,458 ) $ 1,072,456 $ ( 182 ) ( 7,431,083 ) $ ( 248,621 ) $ 980,834 Purchase of treasury shares - - - - - - ( 626,320 ) ( 24,998 ) ( 24,998 ) Stock tendered for payments of withholding taxes - - - - - - ( 98,260 ) ( 3,984 ) ( 3,984 ) Issuance of restricted stock awards, net of forfeitures - - ( 8,869 ) - - - 284,775 8,869 - Share-based compensation expense - - 16,286 - - - - - 16,286 Net income - - - - 107,171 - - - 107,171 Adoption of ASC 842 - - - - ( 26 ) - - - ( 26 ) Foreign currency translation adjustment - - - - - ( 4 ) - - ( 4 ) Balance December 31, 2019 41,887,088 $ 419 $ 179,637 $ ( 15,458 ) $ 1,179,601 $ ( 186 ) ( 7,870,888 ) $ ( 268,734 ) $ 1,075,279 Stock tendered for payments of withholding taxes - - - - - - ( 148,242 ) ( 7,963 ) ( 7,963 ) Issuance of restricted stock awards, net of forfeitures - - ( 10,632 ) - - - 344,046 10,632 - Share-based compensation expense - - 17,053 - - - - - 17,053 Net income - - - - 73,559 - - - 73,559 Foreign currency translation adjustment - - - - - ( 5 ) - - ( 5 ) Balance December 31, 2020 41,887,088 $ 419 $ 186,058 $ ( 15,458 ) $ 1,253,160 $ ( 191 ) ( 7,675,084 ) $ ( 266,065 ) $ 1,157,923 Stock tendered for payments of withholding taxes - - - - - - ( 134,329 ) ( 9,123 ) ( 9,123 ) Issuance of restricted stock awards, net of forfeitures - - ( 16,858 ) - - - 492,355 16,858 - Share-based compensation expense - - 20,056 - - - - - 20,056 Net income - - - - 171,474 - - - 171,474 Foreign currency translation adjustment - - - - - ( 16 ) - - ( 16 ) Balance December 31, 2021 41,887,088 $ 419 $ 189,256 $ ( 15,458 ) $ 1,424,634 $ ( 207 ) ( 7,317,058 ) $ ( 258,330 ) $ 1,340,314 The accompanying notes to consolidated financial statements are an integral part of these statements. 36 HUB GROUP, INC. C ONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net Income $ 171,474 $ 73,559 $ 107,171 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 130,629 123,679 116,887 Deferred taxes ( 3,992 ) 7,463 1,821 Compensation expense related to share-based compensation plans 20,056 17,053 16,286 (Gain) loss on sale of assets ( 19,173 ) 907 ( 745 ) Other operating activities - 6,385 - Changes in operating assets and liabilities, net of acquisitions: Restricted investments ( 903 ) ( 752 ) ( 3,365 ) Accounts receivable, net ( 115,568 ) ( 47,219 ) 32,732 Prepaid taxes ( 856 ) ( 707 ) ( 14 ) Prepaid expenses and other current assets ( 647 ) ( 2,508 ) 3,447 Other assets ( 2,883 ) ( 2,177 ) ( 3,786 ) Accounts payable 78,448 5,594 ( 14,933 ) Accrued expenses 9,686 ( 4,408 ) ( 122 ) Non-current liabilities ( 13,436 ) ( 1,915 ) ( 870 ) Net cash provided by operating activities 252,835 174,954 254,509 Cash flows from investing activities: Proceeds from sale of equipment 45,177 3,289 10,025 Purchases of property and equipment ( 132,952 ) ( 115,306 ) ( 94,847 ) Acquisitions, net of cash acquired ( 122,360 ) ( 84,845 ) ( 734 ) Proceeds from the disposition of discontinued operations - - 19,439 Net cash used in investing activities ( 210,135 ) ( 196,862 ) ( 66,117 ) Cash flows from financing activities: Proceeds from issuance of debt 112,001 187,475 56,494 Repayments of long-term debt ( 107,608 ) ( 198,741 ) ( 105,653 ) Stock tendered for payments of withholding taxes ( 9,123 ) ( 7,963 ) ( 3,984 ) Purchase of treasury stock - - ( 24,998 ) Finance lease payments ( 2,682 ) ( 3,066 ) ( 2,954 ) Net cash used in financing activities ( 7,412 ) ( 22,295 ) ( 81,095 ) Effect of exchange rate changes on cash and cash equivalents ( 10 ) ( 20 ) ( 3 ) Net increase (decrease) in cash and cash equivalents 35,278 ( 44,223 ) 107,294 Cash and cash equivalents beginning of the year 124,506 168,729 61,435 Cash and cash equivalents end of the year $ 159,784 $ 124,506 $ 168,729 Supplemental disclosures of cash paid for: Interest $ 7,602 $ 9,458 $ 11,262 Income taxes $ 58,593 $ 18,388 $ 40,289 The accompanying notes to consolidated financial statements are an integral part of these statements. 37 HUB GROUP, INC. N OTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Description of Business and Summary of Significant Accounting Policies Business : Hub Group, Inc. (“Hub”, “we”, “us” or “our”) is a leading supply chain solutions provider that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with whom we contract. Our transportation services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Our logistics services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, final mile delivery, parcel and international services. On October 19, 2021, we acquired Choptank Transport, LLC ("Choptank") and on December 9, 2020, we acquired NonstopDelivery, LLC (“NSD”). Refer to Note 4 ” Aquisitions“ for additional information. Principles of Consolidation : The consolidated financial statements include our accounts and all entities in which we have more than a 50 % equity ownership or otherwise exercise unilateral control. All significant intercompany balances and transactions have been eliminated. Cash and Cash Equivalents : We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of December 31, 2021 and 2020 , our cash and temporary investments were with high quality financial institutions in demand deposit accounts (“DDAs”), savings accounts and an interest-bearing checking account. Accounts Receivable and Allowance for Uncollectible Accounts: On January 1, 2020, we adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the Current Expected Credit Loss (“CECL”). The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables. The impact of adopting the standard was immaterial. In accordance with the standard, trade receivables are reported at amortized cost net of the allowance for credit losses. The allowance for credit losses is a valuation account that is deducted from the trade receivables’ amortized cost basis to present the net amount expected to be collected on the receivables. Trade receivables are charged off against the allowance when we believe the uncollectibility of a receivable balance is confirmed, and the expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management continuously reviews and assesses the environment, especially with the COVID-19 pandemic, and its potential impact on the credit worthiness and collectability of our accounts receivable with customers most affected by the COVID-19 pandemic. Our allowance for credit losses is presented in the allowance for uncollectible trade accounts and is immaterial at December 31, 2021 and 2020. The allowance for uncollectible trade accounts also includes estimated adjustments to revenue for items such as billing disputes. Our reserve for uncollectible accounts was approximately $ 20.1 million and $ 8.3 million as of December 31, 2021 and 2020 , respectively. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously charged off are recorded when received. Property and Equipment : Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method at rates adequate to depreciate the cost of the applicable assets over their expected useful lives: building and improvements, up to 40 years; leasehold improvements, the shorter of useful life or lease term ; computer equipment and software, up to 10 years; furniture and equipment, up to 10 years; and transportation equipment up to 16 years. Direct costs related to internally developed software projects are capitalized and amortized over their expected useful life on a straight-line basis not to exceed 10 years. Interest is capitalized on qualifying assets under development for internal use. Maintenance and repairs are charged to operations as incurred and major improvements are capitalized. The cost of assets retired or otherwise disposed of and the accumulated depreciation thereon are removed from the accounts with any gain or loss realized upon sale or disposal charged or credited to operations. We review long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event that the undiscounted future cash flows resulting from the use of the asset is less than the carrying amount, an impairment loss equal to the excess of the assets carrying amount over its fair value, less cost to dispose, is recorded. 38 Capitalized Internal Use Software and Cloud Computing Costs: We capitalize internal and external costs, which include costs related to the development of our cloud computing or hosting arrangements, incurred to develop internal use software per ASC Subtopic 350-40. Internal use software has both the of the following characteristics: the software is acquired, internally developed, or modified solely to meet our needs and during the development or modification, no substantive plan exists or is being developed to market the software externally. Only costs incurred during the application development stage and costs to develop or obtain software that allows for access to or conversion of old data by new systems are capitalized. Capitalization of costs begins when the preliminary project stage is complete, management has committed to funding the project and it is probable the project will be completed, and the software will be used to perform its intended function. The measurement of the costs to capitalize include fees paid to third parties, costs incurred to obtain software from third parties, travel expenses incurred by employees in their duties associated with developing software, payroll related costs for employees who spend time directly on the project and interest costs incurred while developing internal-use software or implementing a hosting arrangement. Capitalization ceases no later than when the project is substantially complete and ready for its intended use, after all substantial testing is complete. Goodwill and Other Intangibles : Goodwill represents the excess of purchase price over the fair market value of net assets acquired in connection with our business combinations. Goodwill and intangible assets that have indefinite useful lives are not amortized but are subject to annual impairment tests. We test goodwill for impairment annually in the fourth quarter or when events or changes in circumstances indicate the carrying value of this asset might exceed the current fair value. We test goodwill for impairment at the reporting unit level. We only have one reporting unit. We assess qualitative factors such as current company performance and overall economic factors to determine if it is more-likely-than-not that the fair value of our reporting unit was less than its carrying value and whether it is necessary to perform the quantitative goodwill impairment test. In the quantitative goodwill test, a company compares the carrying value of a reporting unit to its fair value. If the fair value of the reporting unit is less than the carrying amount, then a goodwill impairment charge will be recognized in the amount by which carrying amount exceeds fair value, limited to the total amount of goodwill allocated to that reporting unit. We performed our annual assessment in the fourth quarter of 2021 and 2020 as required and determined it was not more-likely-than-not that the fair value of our reporting unit was less than its carrying value. We evaluate the potential impairment of finite-lived acquired intangible assets when impairment indicators exist. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset. Claims Accruals: We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents, and cargo damage. Certain insurance arrangements include high self-insurance retention limits or deductibles applicable to each claim. We have umbrella policies to limit our exposure to large claim costs. Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and severity of the claims and analyses provided by third-party claims administrators, as well as legal and regulatory factors. Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated cost of each claim. The ultimate cost of a claim develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available. Accordingly, we use an actuarial method to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the use of loss-development factors based on our historical claims experience. In doing so, the recorded liability factors in future growth of claims and an allowance for incurred-but-not-reported claims. We do not discount our estimated losses. In addition, we record receivables for amounts expected to be reimbursed for payments made in excess of self-insurance levels on covered claims related to auto liability and workers’ compensation. At December 31, 2021 and 2020, we had an accrual of approximately $ 30.8 million and $ 32.1 million, respectively for estimated claims. We had no significant receivables recorded for payments in excess of our self-insu red levels. Our claims accruals are classified in accrued other and non-current liabilities in the consolidated balance sheets, based on when the claim is estimated to be paid. Concentration of Credit Risk : Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and temporary investments with high quality financial institutions in DDAs, savings accounts and an interest-bearing checking account. We primarily serve customers located throughout the United States with no significant concentration in any one region. In each of the years ended December 31, 2021 and 2020, one customer accounted for more than 10 % of our annual revenue. No one customer accounted for more than 10 % of our annual revenue for the year ended December 31, 2019. We revie w a customer’s credit history before extending credit. In addition, we routinely assess the financial strength of our customers and, as a consequence, believe that our trade accounts receivable risk is limited. 39 Revenue Recognition : In accordance with the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers our significant accounting policy for revenue is as follows: Revenue is recognized when we transfer services to our customer in an amount that reflects the consideration we expect to receive. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We generally recognize revenue over time because of continuous transfer of control to the customer. Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based on the extent of progress towards completion of the related performance obligation. We enter into contracts that can include various combinations of services, which are capable of being distinct and accounted for as separate performance obligations. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Further, in most cases, we report our revenue on a gross basis because we are the primary obligor as we are responsible for providing the service desired by the customer. Our customers view us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick-up and delivery and tracing shipments in transit. We have discretion in setting prices to our customers and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from multiple suppliers for the services ordered by our customers. These factors, discretion in setting prices and discretion in selecting vendors, further support reporting revenue on a gross basis for most of our revenue. Provision for Income Taxes: Significant judgment is required in determining and assessing the impact of complex tax laws and certain tax-related contingencies on our provision for income taxes. As part of our calculation of the provision for income taxes, we assess whether the benefits of our tax positions are at least more likely than not to be sustained upon audit based on the technical merits of the tax position. For tax positions that are not more likely than not to be sustained upon audit, we accrue the largest amount of the benefit that is not more likely than not to be sustained in our financial statements. Such accruals require us to make estimates and judgments, whereby actual results could vary materially from these estimates. Further, years may elapse before a particular matter for which we have established an accrual is audited and resolved or its statute of limitations expires. We recognize interest expense and penalties related to income tax liabilities in our provision for income taxes. Deferred income taxes are recognized for the future tax effects of temporary differences between financial statement and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We believe that it is more likely than not that our deferred tax assets will be realized based on future taxable income projections, with one exception. We have established a valuation allowance of $ 5.0 million related to federal and state tax credit carryforwards. In the event the probability of realizing the remaining deferred tax assets does not meet the more likely than not threshold in the future, a valuation allowance would be established for the deferred tax assets deemed unrecoverable. Earnings Per Common Share : Basic earnings per common share are based on the average quarterly weighted average number of Class A and Class B shares of common stock outstanding. Diluted earnings per common share are adjusted for restricted stock using the treasury stock method. Stock Based Compensation: Share-based compensation includes the restricted stock awards expected to vest based on the grant date fair value. Compensation expense is amortized straight-line over the vesting period and is included in salaries and benefits . New Pronouncements: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis difference in an investment, among other updates. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. We adopted the standard as of January 1, 2021, but it did not have an impact on our financial statement. Use of Estimates : The preparation of financial statements in conformity with United States generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for uncollectible trade accounts, exposure for self-insured claims under our insurance policies and useful lives of assets. Actual results could differ from these estimates. Reclassifications: Certain prior year immaterial amounts have been reclassified in Note 5, Revenue from Contracts with Customers, to conform with the current year presentation. 40 NOTE 2. Capital Structure We have authorized common stock comprised of Class A Common Stock and Class B Common Stock. The rights of holders of Class A Common Stock and Class B Common Stock are identical, except each share of Class B Common Stock entitles its holder to approximately 84 votes, while each share of Class A Common Stock entitles its holder to one vote. We have authorized 2,000,000 shares of preferred stock. NOTE 3. Earnings Per Share The following is a reconciliation of our earnings per share (in thousands, except for per share data): Years Ended December 31, 2021 2020 2019 Net income $ 171,474 $ 73,559 $ 107,171 Weighted average shares outstanding - basic 33,434 33,180 33,284 Dilutive effect of restricted stock 458 363 196 Weighted average shares outstanding - diluted 33,892 33,543 33,480 Earnings per share net income Basic $ 5.13 $ 2.22 $ 3.22 Diluted $ 5.06 $ 2.19 $ 3.20 NOTE 4. Acquisitions Choptank Transport, LLC Acquisition On October 19, 2021 , we acquired 100 % of the equity interests of Choptank. Total consideration for the transaction w as $ 127.6 million in cash and the settlement of accounts receivable due from Choptank of $ 0.3 million. In connection with the acquisition, we granted approximately $ 22 million of restricted stock to Choptank's owners and senior management team, which is subject to certain vesting conditions. The grants of restricted stock were made pursuant to award agreements and issued under our 2017 Long Term Incentive Plan. The acquisition of Choptank enhanced our refrigerated trucking transportation solutions offering and complemented our growing fleet of refrigerated intermodal containers. Choptank has developed a best-in-class proprietary technology platform that we will leverage to enhance our truck brokerage service line. The initial accounting for the acquisition of Choptank is incomplete as we, with the support of our valuation specialist, are in the process of finalizing the fair market value calculations of the acquired net assets. In addition, we are preparing a review of the applicable future cash flows used in determining the purchase accounting. Finally, certain post-closing activities outlined in the acquisition agreement remain incomplete. As a result, the amounts recorded in the consolidated financial statements related to the Choptank acquisition are preliminary and subject to change. 41 The following table summarizes the preliminary allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the acquisition (in thousands): October 19, 2021 Cash and cash equivalents $ 5,596 Accounts receivable trade 71,576 Prepaid expenses and other current assets 419 Property and equipment 169 Right of use assets - operating leases 872 Goodwill, net 54,553 Other intangibles 60,500 Total assets acquired $ 193,685 Accounts payable trade $ 60,970 Accrued payroll 3,458 Accrued other 519 Lease liability - operating leases short-term 311 Lease liability - operating leases long-term 561 Total liabilities assumed $ 65,819 Total consideration $ 127,866 Cash paid, net $ 122,270 The Choptank acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of October 19, 2021 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the Choptank acquisition was primarily attributable to potential expansion and future development of the acquired business. Tax history and attributes are not inherited in an equity purchase of this kind, however, the goodwill and other intangibles recognized in this purchase will be fully tax deductible over a period of 15 years. We incurred approximately $ 1.1 million of transaction costs associated with this transaction prior to the closing date that are reflected in general and administrative expense in the accompanying Consolidated Statements of Income for the year ended December 31, 2021. The components of “Other intangibles” listed in the above table as of the acquisition date are preliminarily estimated as follows (in thousands): Accumulated Balance at Estimated Useful Amount Amortization December 31, 2021 Life Customer relationships $ 36,300 $ 605 $ 35,695 15 years Carrier network $ 14,400 $ 900 $ 13,500 4 years Developed technology $ 6,500 $ 232 $ 6,268 7 years Trade name $ 3,300 $ 550 $ 2,750 18 months The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the year ended December 31, 2021 was $ 2.3 million. The intangible assets have a weighted average useful life of approximately 10.7 years. Amortization expense related to Choptank for the next five years is as follows (in thousands): Total Year 1 $ 9,149 Year 2 7,499 Year 3 6,949 Year 4 6,049 Year 5 3,349 From the date of the acquisition through December 31, 2021, Choptank’s revenue was $ 112.2 million and operating income was $ 0.3 million. 42 NonstopDelivery, LLC Acquisition On December 9, 2020 , we acquired 100 % of the equity interests of NSD. Total consideration for the transaction was $ 105.9 million which consisted of cash paid of $ 89.8 million, of which $ 0.1 million was paid in the second quarter of 2021 as part of the post-closing true-up, and the settlement of Hub’s accounts receivable due from NSD of $ 16.1 million. The acquisition of NSD expanded our logistics service offering to include final mile logistics. NSD provides residential final mile delivery services through a non-asset business model, working with a network of nearly 200 carriers throughout the country. The financial results, since the acquisition date, of NSD are included in our logistics line of business. The following table summarizes the allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the acquisition (in thousands): December 9, 2020 Cash and cash equivalents $ 4,775 Accounts receivable trade 25,927 Prepaid expenses and other current assets 207 Property and equipment 1,018 Right of use assets - operating leases 1,295 Goodwill, net 38,156 Other intangibles 47,700 Other assets 14 Total assets acquired $ 119,092 Accounts payable trade $ 9,972 Accrued payroll 1,324 Accrued other 578 Lease liability - operating leases short-term 373 Lease liability - operating leases long-term 922 Total liabilities assumed $ 13,169 Total consideration $ 105,923 Cash paid, net $ 84,989 The NSD acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of December 9, 2020 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the NSD acquisition was primarily attributable to potential expansion and future development of the acquired business. Tax history and attributes are not inherited in an equity purchase of this kind, however, the goodwill and other intangibles recognized in this purchase will be fully tax deductible over a period of 15 years . We incurred approximately $ 1.0 million of transaction costs associated with this transaction prior to the closing date that are reflected in general and administrative expense in the accompanying Consolidated Statements of Income for the year ended December 31, 2020. The components of “Other intangibles” listed in the above table as of the acquisition date are estimated as follows (in thousands): Accumulated Balance at Estimated Useful Amount Amortization December 31, 2021 Life Customer relationships $ 46,200 $ 3,337 $ 42,863 15 years Trade name $ 900 $ 650 $ 250 18 months Agent relationships $ 600 $ 163 $ 437 4 years The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the year ended December 31, 2021 was $ 3.7 million. The intangible assets have a weighted average useful life of approximately 13.73 years. 43 From the date of the acquisition through December 31, 2020, NSD’s revenue was $ 10.2 million and operating income was $ 0.9 million. The following unaudited pro forma consolidated results of operations presents the effects of Choptank as though it had been acquired as of January 1, 2020 and NSD as though it had been acquired as of January 1, 2019 (in thousands, except for per share amounts): Years Ended December 31, 2021 December 31, 2020 December 31, 2019 Revenue $ 4,624,385 $ 3,887,189 $ 3,733,507 Net income $ 173,254 $ 79,578 $ 107,998 Earnings per share Basic $ 5.18 $ 2.40 $ 3.24 Diluted $ 5.11 $ 2.37 $ 3.23 The unaudited pro forma consolidated results for the annual periods were prepared using the acquisition method of accounting and are based on the historical financial information of Hub, NSD and Choptank. The historical financial information has been adjusted to give effect to the pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the Choptank acquisition as of January 1, 2020 and the NSD acquisition on January 1, 2019. NOTE 5. Revenue from Contracts with Customers See Note 1 – Description of Business and Summary of Significant Accounting Policies for significant accounting policy for revenue. Hub offers comprehensive multimodal solutions including intermodal, logistics, truck brokerage and dedicated services throughout the United States, Canada and Mexico. Intermodal. We offer high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. Our service offering is well positioned to assist our customers in reducing their transportation spend and achieving their carbon emissions objectives. As an intermodal provider, we arrange for the movement of our customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our Hub Group Trucking, Inc. (“HGT”) subsidiary and third-party local trucking companies. Logistics . Our logistics business offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, and shipment visibility. We offer multi-modal transportation services including full truckload, LTL, intermodal, final mile, railcar, small parcel and international transportation. We leverage proprietary technology along with collaborative relationships with third party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our transportation management offering also serves as a source of volume for our intermodal and truck brokerage service lines. Our logistics offering also includes warehousing, cross-docking and consolidation services. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. We do not own or operate any warehouses or cross-docks. We contract with third-party warehouse providers in seven markets across North America to which our customers ship their goods to be stored and consolidated, along with goods from other customers, into full truckload shipments destined to major retailers. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements. In December 2020, we acquired NSD which added residential final mile transportation services to our logistics offering. Our final mile services include warehousing, product assembly, inbound transportation to warehouses, delivery of goods to residential locations, and reverse logistics services. Customers for our final mile services include retailers and consumer goods companies. We contract with nearly 200 agents across the United States who provide warehousing and transportation to support our final mile offering. Truck Brokerage. We operate one of the largest truck brokerage operations in the United States, providing customers with a trucking option for their transportation needs. Our brokerage does not operate any trucks; instead we match customers’ needs with trucking carriers’ capacity to provide the most effective combination of service and price. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers. Approximately half of our truck brokerage volume is generated from transactions in which we offer lane-based pricing at a fixed rate for periods of up to one year. The remaining portion of our volume is generated based on shorter term transactional lane-based rates which expire in a short time. 44 We offer a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed. We substantially increased the size of our brokerage service line and increased our refrigerated transportation capabilities through the acquisition of Choptank in October 2021. Dedicated. Our dedicated trucking operation contracts with customers who require high service transportation using equipment dedicated to their needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment. As of December 31, 2021, dedicated employed approximately 1,100 drivers. The following table summarizes our disaggregated revenue by business line (in thousands) for the years ended December 31: 2021 2020 2019 Intermodal $ 2,391,494 $ 2,029,186 $ 2,083,464 Logistics 887,388 767,279 852,113 Truck brokerage 688,867 431,127 433,793 Dedicated 264,634 268,052 298,747 Total revenue $ 4,232,383 $ 3,495,644 $ 3,668,117 NOTE 6. Goodwill and Other Intangible Assets In accordance with the FASB issued guidance in the Intangibles-Goodwill and Other Topic of the Codification, we completed the required annual impairment test. We performed a qualitative and quantitative assessment on goodwill and determined it was not, more-likely-than-not, that the fair value of our reporting unit was less than its carrying value. There were no accumulated impairment losses of goodwill at the beginning of the period. The following table presents the carrying amount of goodwill (in thousands): Goodwill Balance at December 31, 2019 $ 484,459 Acquisition $ 24,315 Other ( 219 ) Balance at December 31, 2020 $ 508,555 Acquisitions 68,395 Other ( 37 ) Balance at December 31, 2021 $ 576,913 The changes noted as “other” in the table above for both 2021 and 2020 refer to the amortization of the income tax benefit of tax goodwill in excess of financial statement goodwill. The components of the “Other intangible assets” are as follows (in thousands): Net Gross Accumulated Carrying Amount Amortization Value Life As of December 31, 2021: Customer relationships $ 226,623 $ ( 53,156 ) $ 173,467 5 - 15 years Carrier network and agent relationships $ 15,000 $ ( 1,063 ) $ 13,937 4 years Developed technology $ 6,500 $ ( 232 ) $ 6,268 7 years Trade name $ 5,500 $ ( 2,500 ) $ 3,000 18 months Total $ 253,623 $ ( 56,951 ) $ 196,672 45 Net Gross Accumulated Carrying Amount Amortization Value Life As of December 31, 2020: Customer relationships $ 196,806 $ ( 36,765 ) $ 160,041 5 - 15 years Carrier network and agent relationships $ 2,432 $ ( 51 ) $ 2,381 4 years Trade name $ 2,921 $ ( 1,390 ) $ 1,531 18 months Total $ 202,159 $ ( 38,206 ) $ 163,953 The above intangible assets are amortized using the straight-line method. Amortization expense was $ 18.7 million and $ 13.8 million for each of the years ended December 31, 2021 and 2020 , respectively. The remaining weighted average life of all definite lived intangible assets was 10.30 years and 10.98 years for the years ended December 31, 2021 and 2020, respectively. Amortization expense for the next five years is as follows (in thousands): Total Year 1 $ 25,329 Year 2 23,284 Year 3 21,126 Year 4 20,089 Year 5 17,389 NOTE 7. Income Taxes The following is a reconciliation of our effective tax rate to the federal statutory tax rate: Years Ended December 31, 2021 2020 2019 U.S. federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 3.5 3.6 3.5 Federal and state incentives ( 0.5 ) ( 1.1 ) ( 0.9 ) State law changes 1.1 ( 0.2 ) 0.7 Permanent differences 0.6 0.2 1.2 Net effective rate 25.7 % 23.5 % 25.5 % The following is a summary of our provision for income taxes (in thousands): Years Ended December 31, 2021 2020 2019 Current Federal $ 51,918 $ 11,913 $ 31,209 State and local 13,876 3,597 3,979 Foreign 38 11 84 65,832 15,521 35,272 Deferred Federal ( 5,125 ) 6,548 ( 344 ) State and local ( 1,254 ) 465 1,788 Foreign ( 17 ) 7 ( 17 ) ( 6,396 ) 7,020 1,427 Total provision $ 59,436 $ 22,541 $ 36,699 46 The following is a summary of our deferred tax assets and liabilities (in thousands): December 31, 2021 2020 Accrued compensation 19,226 12,467 Other reserves 17,896 14,154 Tax credit carryforwards 8,286 8,715 Operating loss carryforwards 881 2,845 Lease accounting liability 11,956 11,669 Total gross deferred income taxes 58,245 49,850 Valuation allowances ( 5,023 ) ( 6,518 ) Total deferred tax assets 53,222 43,332 Prepaids ( 6,607 ) ( 6,404 ) Property and equipment ( 135,768 ) ( 132,669 ) Intangibles ( 55,466 ) ( 55,166 ) Lease right-of-use asset ( 11,325 ) ( 11,418 ) Total deferred tax liabilities ( 209,166 ) ( 205,657 ) Total deferred taxes $ ( 155,944 ) $ ( 162,325 ) We are subject to income taxation in the United States, numerous state jurisdictions, Mexico and Canada. Because income tax return formats vary among the states, we file both unitary and separate company state income tax returns. We do not permanently reinvest our foreign earnings, all amounts are accrued and accounted for, though not material. We acquired a federal net operating loss carryforward of $ 4.1 million through the acquisition by way of merger with CaseStack, LLC in December 2018. The Internal Revenue Service ("IRS") loss limitation rules allowed us to utilize $ 1.3 million in each of the 2021, 2020 and 2019 tax years. The remaining net operating loss of $ 0.2 million is expected to be fully utilized in 2022. Our state tax net operating losses total $ 0.6 million. Some of those state losses have no expiration date while others will expire between December 31, 2022 , and December 31, 2040 . Management believes it is more likely than not that the loss carryforward deferred tax assets will be realized. Our federal incentive tax credit carryforward of $ 0.1 million expires between December 31, 2025 , and December 31, 2028 . Our state incentive tax credit carryforwards of $ 8.2 million expire between December 31, 2022 , and December 31, 2026 . Management believes it is more likely than not that approximately $ 3.4 million of the incentive carryforward deferred tax assets will be realized and a valuation allowance of $ 5.0 million has been established for the remainder which are not expected to be realized. As of December 31, 2021 and December 31, 2020 , the amount of unrecognized tax benefits was $ 6.6 million and $ 4.3 million, respectively. If recognized, these benefits would decrease our income tax provision by $ 5.4 million and $ 3.7 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 2021 2020 Gross unrecognized tax benefits - beginning of the year $ 4,292 $ 4,069 Gross increases (decreases) related to prior year tax positions 997 ( 52 ) Gross increases related to current year tax positions 1,794 1,484 Lapse of applicable statute of limitations ( 436 ) ( 1,209 ) Gross unrecognized tax benefits - end of year $ 6,647 $ 4,292 We recognize interest and penalties related to income tax liabilities in our provision for income taxes. In 2021, we included $ 0.1 million in our provision for income taxes. 47 On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19 pandemic. Among other things, the CARES Act includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. Though some provisions of the CARES Act do impact the Company, there was no material effect on the Company’s consolidated financial condition or results of operations for the year ended December 31, 2020. On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was enacted in further response to the COVID-19 pandemic, in combination with omnibus spending for the 2021 federal fiscal year. The CAA extended many of the provisions enacted by the CARES Act, the extension of which likewise did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2021. NOTE 8. Fair Value Measurement The carrying value of cash and cash equivalents, accounts receivable and accounts payable materially approximated fair value as of December 31, 2021 and 2020. As of December 31, 2021, the $ 274.8 million carrying value of the Company's fixed-rate borrowings approximated the fair value. As of December 31, 2020 , the fair value of the Company’s fixed-rate borrowings was $ 6.1 million more than the historical carrying value of $ 270.4 million. The fair value of the fixed -rate borrowings was estimated using an income approach based on current interest rates available to the Company for borrowings on similar terms and maturities. We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of December 31, 2021 and 2020, our cash and temporary investments were with high quality financial institutions in Demand Deposit Accounts, savings accounts and an interest-bearing checking account. Restricted investments included $ 24.3 million and $ 23.4 million as of December 31, 2021 and 2020, respectively, of mutual funds which are reported at fair value. These investments relate to the nonqualified deferred compensation plan that is described in Note 14 and insurance deposits. Our assets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2), or unobservable inputs (Level 3). Cash and cash equivalents, accounts receivable, accounts payable and mutual funds and related liabilities are defined as “Level 1,” while long-term debt is defined as “Level 2” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification. NOTE 9. Property and Equipment Property and equipment consist of the following (in thousands): December 31, 2021 2020 Land $ 24,724 $ 24,708 Building and improvements 36,617 36,649 Leasehold improvements 7,955 7,686 Computer equipment and software 156,169 145,139 Furniture and equipment 14,775 14,732 Transportation equipment 863,956 862,247 Construction in process 45,248 33,467 1,149,444 1,124,628 Less: Accumulated depreciation ( 467,993 ) ( 453,527 ) Property and Equipment, net $ 681,451 $ 671,101 Depreciation expense related to property and equipment was $ 95.5 million, $ 95.3 million and $ 89.5 million for the years ended December 31, 2021, 2020 and 2019 , respectively. 48 NOTE 10. Long-Term Debt and Financing Arrangements On July 1, 2017, we entered into a five-year , $ 350 million unsecured credit agreement (the "Credit Agreement"). Borrowings under the Credit Agreement generally bear interest at a variable rate equal to (i) LIBOR plus a specified margin based upon Hub’s total net leverage ratio (as defined in the Credit Agreement) (the "Total Net Leverage Ratio"), or (ii) the base rate (which is the highest of (a) the administrative agent's prime rate, (b) the federal funds rate plus 0.50 % or (c) the sum of 1 % plus one-month LIBOR ) plus a specified margin based upon the Total Net Leverage Ratio. The specified margin for Eurodollar loans varies from 100.0 to 200.0 basis points per annum. The specified margin for base rate loans varies from 0.0 to 100.0 basis points per annum. Hub must also pay (1) a commitment fee ranging from 10.0 to 25.0 basis points per annum (based upon the Total Net Leverage Ratio) on the aggregate unused commitments and (2) a letter of credit fee ranging from 100.0 to 200.0 basis points per annum (based upon the Total Net Leverage Ratio) on the undrawn amount of letters of credit. Refer to Note 17 "Subsequent Event" for information regarding the new credit agreement. We have standby letters of credit that expire in 2022 . As of December 31, 2021 , our letters of credit were $ 41.3 million. As of December 31, 2021 , we had no borrowings under the Credit Agreement and our unused and available borrowings were $ 308.7 million. We were in compliance with our debt covenants as of December 31, 2021. We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers, containers and refrigeration units. The Notes are secured by the underlying equipment financed in the agreements. Our outstanding Notes are as follows (in thousands): December 31, December 31, 2021 2020 Interim funding for equipment received and expected to be converted to an equipment note in subsequent year; interest paid at a variable rate $ 17,186 $ 8,902 Secured Equipment Notes due on various dates in 2026 commencing on various dates in 2021 ; interest is paid monthly at a fixed annual rate between 1.48 % and 2.41 % 94,766 - Secured Equipment Notes due on various dates in 2025 commencing on various dates in 2020 and 2021 ; interest is paid monthly at a fixed annual rate between 1.51 % and 1.80 % 63,308 74,494 Secured Equipment Notes due on various dates in 2024 commencing on various dates in 2017 , 2019 and 2020 ; interest is paid monthly at a fixed annual rate between 2.50 % and 3.59 % 34,432 49,920 Secured Equipment Notes due on various dates in 2023 commencing on various dates from 2016 to 2019 ; interest is paid monthly at a fixed annual rate between 2.20 % and 4.20 % 61,824 112,668 Secured Equipment Notes due on various dates in 2022 commencing on various dates from 2015 to 2017 ; interest is paid monthly at a fixed annual rate of between 2.20 % and 2.96 % 3,236 8,943 Secured Equipment Notes due on various dates in 2021 commencing on various dates from 2014 and 2016 ; interest is paid monthly at a fixed annual rate between 2.02 % and 2.96 % - 15,432 274,752 270,359 Less current portion ( 97,273 ) ( 93,562 ) Total long-term debt $ 177,479 $ 176,797 Aggregate principal payments, in thousands, due subsequent to December 31, 2021, are as follows: Year 1 $ 97,273 Year 2 72,971 Year 3 48,031 Year 4 37,257 Year 5 19,220 $ 274,752 49 NOTE 11. Leases The FASB issued ASC 842, Leases, (“ASC 842”) which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for all leases. We elected this option when we adopted the new standard using a modified retrospective transition method and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. In addition, we elected to apply a package of practical expedients and as such did not reassess at the date of initial adoption (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, or (3) initial direct costs for existing leases. Lessees can also make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less which we elected. As of December 31, 2021 , we recorded $ 45.3 million of ROU assets and $ 47.5 million of lease liabilities on our consolidated balance sheet. As of December 31, 2020 , we recorded $ 47.1 million of ROU assets and $ 48.2 million of Lease liabilities on our consolidated balance sheet. The lease liabilities recognized are measured based upon the present value of minimum future payments. The ROU assets are equal to lease liabilities upon initial recording, adjusted for prepaid and accrued rent balances which are recorded in the Consolidated Balance Sheets. Hub currently does not have any variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate). Some leases have options to extend or terminate the agreement, which management assesses in determining the estimated lease term. If any of the options to extend a lease are exercised, this change will be reflected as a remeasurement of the ROU asset and lease liability accordingly. As of December 31, 2021, the ROU asset and lease liabilities do not reflect any options to extend or terminate a lease as management is not reasonably certain it will exercise any of these options. Also, current leases do not contain any restrictions or covenants imposed by the leases or residual value guarantees. As of December 31, 2021 , Hub signed new property lease contracts which had not commenced. Based on the present value of the lease payments, the estimated ROU assets and lease liabilities related to these contracts will total approximately $ 1.6 million. Discount rates are not specified on the individual lease contracts at the commencement date. To determine the present value of the lease payments, Hub used its incremental borrowing rate which was determined based on Hub’s credit standing and factoring in the current 12-month LIBOR rate published at the time of the lease commencement. This incremental borrowing rate represents the rate of interest that Hub would have to pay to borrow on a collateralized basis over a similar term and amounts equal to the lease payments in a similar economic environment. The following table summarizes the lease costs (in thousands), which are included in transportation costs and general and administrative costs in the accompanying consolidated statement of income: Years Ended December 31, 2021 2020 2019 Amortization of finance right-of-use assets $ 2,304 $ 2,309 $ 2,326 Interest on finance lease liabilities 29 135 252 Finance lease cost 2,333 2,444 2,578 Operating lease cost 12,343 10,946 10,861 Short-term lease cost 171 238 289 Sublease income ( 327 ) ( 469 ) ( 507 ) Total lease cost $ 14,520 $ 13,159 $ 13,221 50 The following table represents the maturity of operating and finance lease liabilities (in thousands): December 31, 2021 Operating Leases Finance Leases Total Year 1 $ 12,253 $ 1,257 $ 13,510 Year 2 9,904 - 9,904 Year 3 8,133 - 8,133 Year 4 6,842 - 6,842 Year 5 5,320 - 5,320 Thereafter 6,436 - 6,436 Total 48,888 1,257 50,145 Imputed interest 2,608 6 2,614 Present value of lease payments 46,280 1,251 47,531 Less: current lease liabilities 11,364 1,251 12,615 Long-term lease liabilities $ 34,916 $ - $ 34,916 December 31, 2020 Operating Leases Finance Leases Total Year 1 $ 11,082 $ 1,817 $ 12,899 Year 2 9,714 8 9,722 Year 3 7,607 - 7,607 Year 4 6,369 - 6,369 Year 5 6,312 - 6,312 Thereafter 8,803 - 8,803 Total 49,887 1,825 51,712 Imputed interest 3,466 24 3,490 Present value of lease payments 46,421 1,801 48,222 Less: current lease liabilities 10,093 1,793 11,886 Long-term lease liabilities $ 36,328 $ 8 $ 36,336 The following table presents supplemental cash flow and noncash information related to leases: Years Ended December 31, 2021 2020 2019 Operating cash flows from operating leases $ 11,523 $ 9,419 $ 9,702 Financing cash flows from finance leases 2,682 3,066 2,954 Operating cash flows from finance leases 29 135 252 Cash paid for lease liabilities $ 14,234 $ 12,620 $ 12,908 Right-of-use assets obtained in exchange for new $ ( 72 ) $ ( 71 ) $ 6 financing lease liabilities (net of disposals) Rights-of-use assets obtained in exchange for new $ 11,684 $ 17,875 $ 13,242 operating lease liabilities (net of disposals) The weighted average remaining lease term and discount rates as of December 31, are as follows (in thousands): December 31, 2021 December 31, 2020 Weighted average remaining lease term — finance leases 0.6 years 0.6 years Weighted average remaining lease term — operating leases 5.11 years 5.61 years Weighted average discount rate — finance leases 1.56 % 3.88 % Weighted average discount rate — operating leases 2.14 % 2.64 % 51 NOTE 12. Internal-Use Software We capitalize internal and external costs, which include costs related to the development of our cloud computing or hosting arrangements, incurred to develop internal use software per ASC Subtopic 350-40. Refer to Note 1 "Description of Business and Summary of Significant Accounting Policies" for information regarding accounting policy. We had total capitalized internal use software costs, which include costs related to the development of our cloud computing or hosting arrangements, net of accumulated amortization, of $ 58.7 million and $ 64.1 million as of December 31, 2021 and 2020, respectively. The 2021 balance consists of capitalized implementation costs of $ 12.4 million, net of accumulated amortization, related to our cloud hosting arrangements, which are classified in other assets in our consolidated balance sheet and capitalized internal-use software costs of $ 46.3 million, net of accumulated amortization, which are classified in property and equipment in our consolidated balance sheet. The 2020 balance consists of capitalized implementation costs of $ 13.9 million, net of accumulated amortization, related our cloud hosting arrangements, which are classified in other assets in our consolidated balance sheet and capitalized internal-use software costs of $ 50.2 million, net of accumulated amortization, which are classified in property and equipment in our consolidated balance sheet. We capitalized total implementation and internal-use software costs of $ 13.7 million and $ 12.7 million in 2021 and 2020 , respectively. Implementation and internal-use software costs are amortized, once ready for intended use, over its expected useful life or the term of the associated hosting arrangements of generally up to 10 years. NOTE 13. Stock-Based Compensation Plans The 2017 Long-Term Incentive Plan (the “2017 Incentive Plan”) was approved by the Board of Directors and subsequently approved by the Company’s stockholders at the 2017 annual meeting. The 2017 Incentive Plan authorizes a broad range of awards including stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares or units, other stock-based awards, and cash incentive awards to all employees (including the Company’s executive officers), directors, consultants, independent contractors or agents of us or a related company. The 2017 Incentive Plan is effective as of March 15, 2017. As of December 31, 2021 , 401,451 s hares were available for future grant under the 2017 Incentive Plan. We have awarded time-based restricted stock to our employees and the Company’s non-employee directors (“Outside Directors”). This restricted stock generally vests ratably (once per year) over a three to five-year period for recipients other than Outside Directors. Outside Directors’ restricted stock vests over a one-year period. In 2021, 2020 and 2019 we also granted performance-based restricted stock to our executive officers. The performance-based restricted stock vests upon the third anniversary of its issuance if certain financial targets are achieved. Share-based compensation expense for 2021, 2020 and 2019 was $ 20.1 million, $ 17.1 million and $ 16.3 million or $ 14.9 million, $ 13.1 million and $ 12.1 million, net of taxes, respectively. Included in the 2021, 2020 and 2019 share-based compensation expense was $ 5.8 million, $ 4.5 million and $ 3.4 million of performance-based share expenses o r $ 4.3 million, $ 3.5 million and $ 2.6 million, net of taxes, respectively. 52 The fair value of non-vested restricted stock is equal to the market price of our stock at the date of grant. The following table summarizes the non-vested restricted stock activity for the year ended December 31, 2021: Time-Based Performance-Based Restricted Stock Restricted Stock Weighted Weighted Time-Based Average Performance-Based Average Restricted Stock Grant Date Restricted Stock Grant Date Shares Fair Value Shares Fair Value Non-vested January 1, 2021 792,483 $ 46.01 129,478 $ 45.64 Granted 534,580 $ 66.02 117,608 $ 50.60 Vested ( 303,995 ) $ 44.08 ( 76,000 ) $ 37.20 Forfeited ( 117,701 ) $ 48.48 ( 42,132 ) $ 47.77 Non-vested at December 31, 2021 905,367 $ 59.00 128,954 $ 54.45 The following table summarizes the restricted stock granted during the respective years: Time-based restricted stock grants 2021 2020 2019 Employees 510,017 312,855 355,579 Outside directors 24,563 26,341 32,262 Total 534,580 339,196 387,841 Weighted average grant date fair value $ 66.02 $ 52.07 $ 38.02 Vesting period 1 - 5 years 1 - 5 years 1 - 5 years The performance-based restricted stock granted in 2019 earned a 200 % award therefore an additional 38,000 shares were issued to settle the award on the vesting date of December 21, 2021 . The 2021 grant of performance-based restricted stock resulted in the issuance of 79,608 shares. The performance-based restricted stock grants were 75,288 in 2020 and 76,500 in 2019. The weighted average grant date fair value of these shares was $ 57.00 in 2021 , $ 51.07 in 2020 , and $ 37.20 in 2019. The total fair value of restricted shares vested during the years ended December 31, 2021, 2020 and 2019 was $ 25.4 million, $ 17.8 million and $ 14.7 million, respectively. As of December 31, 2021, 2020, and 2019, there was $ 45.5 million, $ 27.5 million and $ 27.4 million of unrecognized compensation cost related to non-vested time-based compensation, respectively, that is expected to be recognized over a weighted average period for 2021, 2020, and 2019 of 3.11 years, 2.47 years and 2.91 years, respectively. Additionally, as of December 31, 2021, 2020, and 2019 there was $ 6.5 million, $ 4.0 million and $ 3.7 million of unrecognized compensation cost, respectively, related to the non-vested performance-based restricted stock compensation that is expected to be recognized over a weighted average period of 1.5 years for 2021, 2020 and 2019. During January 2022, we granted 198,051 shares of restricted stock, which includes 51,794 performance-based shares and 129,632 time-based shares, to certain employees and 16,625 shares of restricted stock to our Outside Directors with a weighted average grant date fair value of $ 84.24 . These time-based grants generally vest ratably (once per year) over a three to five-year period for employees and a one-year period for Outside Directors. Performance-based grants vest after three years . 53 NOTE 14. Employee Benefit Plans We have a profit-sharing plan under section 401(k) of the Internal Revenue Code. At our discretion, we partially match qualified contributions made by employees to the plan. We incurred expense of $ 3.1 million related to this plan in 2021 and $ 3.3 million in each of 2020 and 2019. In January 2005, we established the Hub Group, Inc. Nonqualified Deferred Compensation Plan (the “Plan”) to provide added incentive for the retention of certain key employees. Under the Plan, which was amended in 2008, participants can elect to defer certain compensation. Accounts grow on a tax-deferred basis to the participant. Restricted investments included in the Consolidated Balance Sheets represent the fair value of the mutual funds and other security investments related to the Plan as of December 31, 2021 and 2020. Both realized and unrealized gains and losses are included in income and expense and offset the change in the deferred compensation liabilit y. We provide a 50 % match on the first 6% of employee compensation deferred under the Plan which vests over three years with a maximum match equivalent to 3 % of base salary. We incurred expense of $ 0.3 million per year related to the employer match for these plans in 2021, 2020 and 2019. The liabilities related to these plans as of December 31, 2021 and 2020 were $ 24.1 million and $ 23.4 million, respectively. NOTE 15. Legal Matters Robles and Adame O n January 25, 2013 , a complaint was filed in the United States District Court for the Eastern District of California by Salvador Robles against our subsidiary HGT. The action was brought on behalf of a putative class comprised of present and former California-based truck drivers who, from January 2009 to September 2014, were classified as independent contractors. The complaint included allegations that HGT misclassified these drivers as independent contractors, as well as various violations of the California Labor Code and that HGT engaged in unfair competition practices. In 2014, most of the subject drivers accepted settlements that were expensed in 2014 and paid. In 2015, the lawsuit was transferred to the United States District Court for the Western District of Tennessee. The complaint sought, among other things, declaratory and injunctive relief, monetary damages and attorney’s fees. In May 2013, the complaint was amended to add similar claims based on Mr. Robles’ status as an employed company driver. These additional claims were only on behalf of Mr. Robles and not a putative class. On August 5, 2015, a suit was filed in state court in San Bernardino County, California on behalf of 63 named plaintiffs against HGT and five Company employees. Plaintiffs in the Adame litigation are represented by the same counsel as represents the plaintiffs in Robles. The Adame lawsuit alleges claims similar to those asserted in the Robles litigation and seeks monetary penalties under the California Private Attorneys General Act. In September 2019, the Company and the plaintiffs in the Robles and Adame matters agreed in principle to settle all claims in both lawsuits for $ 4.8 million, which the Company recorded in the third quarter of 2019 and is included in "Accrued other" current liabilities on the accompanying Consolidated Balance Sheet. The parties are finalizing the settlement agreements, which are subject to final court approval. The Company is involved in certain other claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, failure to reimburse incurred business expenses and other items. Based on management's present knowledge, management does not believe that loss contingencies arising from these pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period. NOTE 16. Stock Repurchase Plans On May 23, 2019, our Board of Directors authorized the purchase of up to $ 100 million of our Class A Common Stock. Under the program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. Other than fro m employee withholdings as described below, we did no t purchase any stock under this authorization during the year ended December 31, 2021 and 2020 . We purchased 626,320 shares for $ 25.0 million under this authorization from shareholders on the open market dur ing the year ended December 31, 2019. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be extended, modified, suspended, or discontinued at any time. 54 We purchased 134,329 shares for $ 9.1 million during 2021 , 148,242 shares for $ 8.0 million during 2020 and 98,260 shares for $ 4.0 million in 2019 related to employee withholding upon vesting of restricted stock. The table below summarizes the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during 2021: Maximum Value of Total Total Number of Shares that May Yet Number of Average Shares Purchased as Be Purchased Under Shares Price Paid Part of Publicly the Plan Purchased Per Share Announced Plan (in 000’s) 1/1/2021 - 1/31/2021 63,349 $ 57.00 - $ - 2/1/2021 - 2/28/2021 2,630 $ 56.29 - $ - 3/1/2021 - 3/31/2021 - $ - - $ - 4/1/2021 - 4/30/2021 968 $ 66.89 - $ - 5/1/2021 - 5/31/2021 1,144 $ 66.50 - $ - 6/1/2021 - 6/30/2021 1,117 $ 65.24 - $ - 7/1/2021 - 7/31/2021 703 $ 65.48 - $ - 8/1/2021 - 8/31/2021 53 $ 67.38 - $ - 9/1/2021 - 9/30/2021 212 $ 69.85 - $ - 10/1/2021 - 10/31/2021 409 $ 77.76 - $ - 11/1/2021 - 11/30/2021 1,700 $ 82.28 - $ - 12/1/2021 - 12/31/2021 62,044 $ 79.18 - $ - Total 134,329 $ 67.91 - $ 75,002 NOTE 17. Subsequent Event In February 2022, we entered into a five year , $ 350 million unsecured credit agreement (the "Credit Agreement"). Borrowings under the Credit Agreement generally bear interest at a variable rate equal to (i) the secured overnight financing rate (published by the Federal Reserve Bank of New York, “SOFR”), plus a specified margin based on the term of such borrowing, plus a specified margin based upon Hub’s total net leverage ratio (as defined in the Credit Agreement) (the "Total Net Leverage Ratio"), or (ii) the base rate (which is the highest of (a) the administrative agent's prime rate, (b) the federal funds rate plus 0.50 % or (c) the sum of 1 % and one-month SOFR ) plus a specified margin based upon the Total Net Leverage Ratio. The specified margin for SOFR loans varies from 100.0 to 175.0 basis points per annum. The specified margin for base rate loans varies from 0.0 to 75.0 basis points per annum. Hub must also pay (1) a commitment fee ranging from 10.0 to 25.0 basis points per annum (based upon the Total Net Leverage Ratio) on the aggregate unused commitments and (2) a letter of credit fee ranging from 100.0 to 175.0 basis points per annum (based upon the Total Net Leverage Ratio) on the undrawn amount of letters of credit. 55 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.