Item 9A. Controls and Procedures
Item 9A. CONTROLS AND PROCEDURES
MANAGEMENT’S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2023, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023.
No significant changes were made in our internal control over financial reporting during the fourth quarter of 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate controls over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023. Based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria), management concluded that our internal control over financial reporting was effective as of December 31, 2023.
On December 20, 2023, we completed the acquisition of Forward Air Final Mile (“FAFM”). We are currently integrating processes, employees, technologies and operations. As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), we excluded FAFM from our assessment of our internal control over financial reporting as of December 31, 2023. Management will continue to evaluate our internal controls over financial reporting as we complete our integration. As of December 31, 2023, FAFM represented 9.9% of total assets and 16.0% of net assets. For the year ended December 31, 2023, FAFM represented 0.2% of revenues and 0.1% of net income.
Management believes, however, that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Ernst & Young LLP, an independent registered public accounting firm, who audited and reported on the consolidated financial statements, included in this report, has issued an attestation report on the Company’s internal control over financial reporting.
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Hub Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Hub Group, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hub Group, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
As indicated in the accompanying Management Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Forward Air Final Mile (“FAFM”), which was acquired on December 20, 2023 and is included in the 2023 consolidated financial statements of the Company and constituted 9.9% and 16.0% of total and net assets, respectively, as of December 31, 2023 and 0.2% and 0.1% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of FAFM.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ( “ PCAOB ” ), the consolidated balance sheets of Hub Group, Inc. as of December 31, 2023 and 2022, 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, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(b), and our report dated February 27, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 27, 2024
53
Item 9B. OTHER INFORMATION
Not applicable
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated by reference to our Proxy Statement. The information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I, Item 1, beginning under “Information About Our Executive Officers.”
The Company has adopted a Code of Business Conduct and Ethics (“Code”) that applies to all of our employees, officers and Board members. The Code is posted on the “Investors” section of our internet website at www.hubgroup.com. If we make any substantive amendments to the finance code of ethics or grant any waiver from a provision of the code to our principal executive officer, principal financial officer or principal accounting officer, we will disclose the nature of the amendment or waiver on that website or in a report on Form 8-K.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to our Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a) Equity Compensation Plan Information. The following table sets forth information about securities authorized for issuance under our compensation plans (including individual compensation arrangements) as of December 31, 2023:
Plan Category
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
Equity compensation plans approved by security holders
—
$
—
2,888,438
Equity compensation plans not approved by security holders
—
—
—
Total
—
$
—
2,888,438
(b) Other Information. The information required by this Item 12 regarding security ownership of certain beneficial owners and our management is incorporated by reference to our Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated by reference to our Proxy Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated by reference to our Proxy Statement.
54
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
The following consolidated financial statements of the Registrant are included under Item 8 of this Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2023 and December 31, 2022
Consolidated Statements of Income and Comprehensive Income - Years ended December 31, 2023, December 31, 2022 and December 31, 2021
Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2023, December 31, 2022 and December 31, 2021
Consolidated Statements of Cash Flows - Years ended December 31, 2023, December 31, 2022 and December 31, 2021
Notes to Consolidated Financial Statements
(b) Financial Statement Schedules
The following financial statement schedules of Hub Group, Inc. are filed as part of this report and should be read in conjunction with the consolidated financial statements of Hub Group, Inc.:
55
S CHEDULE II
HUB GROUP, INC.
V ALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance for uncollectible trade accounts
Balance at
Charged to
Charged to
Balance at
Year Ended
Beginning of
Costs &
Other
End of
December 31:
Year
Expenses
Accounts (1)
Deductions (2)
Year
2023
$
38,580,000
$
1,426,000
$
( 5,295,000
)
$
( 2,000
)
$
34,709,000
2022
$
20,061,000
$
2,985,000
$
15,557,000
$
( 23,000
)
$
38,580,000
2021
$
8,280,000
$
308,000
$
11,510,000
$
( 37,000
)
$
20,061,000
Deferred tax valuation allowance
Balance at
Charged to
Balance at
Year Ended
Beginning of
Costs &
End of
December 31:
Year
Expenses
Year
2023
$
1,567,000
$
( 393,000
)
$
1,174,000
2022
$
5,023,000
$
( 3,456,000
)
$
1,567,000
2021
$
6,518,000
$
( 1,495,000
)
$
5,023,000
(1) Expected customer account adjustments charged to revenue and write-offs, net of recoveries.
(2) Represents bad debt recoveries.
S-1
(c) Exhibits INDEX TO EXHIBITS
Number
Exhibit
3.1
Certificate of Incorporation of Hub Group, Inc. (Amended as of June 26, 2023) (incorporated by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q filed August 4, 2023)
3.2
Amended and Restated By-Laws of Hub Group, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s report on Form 8-K filed February 28, 2023)
4.1
Description of Hub Group, Inc. Class A Common Stock, $.01 par value
10.1
DPY Stockholders’ Agreement dated February 22, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-K filed February 24, 2023)
10.2
Common Stock Exchange and Repurchase Agreement (incorporated by reference to Exhibit 10.1 to the Registrant's report on Form 8-K filed August 9, 2022)
10.3*
Hub Group’s Nonqualified Deferred Compensation Plan Basic Plan Document as amended and restated as of January 1, 2008 (incorporated by reference to Exhibit 10.4 to the Registrant’s report on Form 10-K filed February 22, 2008)
10.4*
Hub Group’s Nonqualified Deferred Compensation Plan Adoption Agreement as amended and restated as of January 1, 2008 (incorporated by reference to Exhibit 10.5 to the Registrant’s report on Form 10-K filed February 22, 2008)
10.5
Credit Agreement, dated February 24, 2022, among the Registrant, the Guarantors, the Lenders and Bank of Montreal (incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K filed March 1, 2022)
10.6
Hub Group’s 2017 Long Term Incentive Plan (incorporated by reference from Exhibit A to the Registrant’s definitive proxy statement on Schedule 14A filed March 22, 2017)
10.7*
Hub Group’s 2022 Long Term Incentive Plan (incorporated by reference from Exhibit A to the Registrant’s definitive proxy statement on Schedule 14A filed April 12, 2022)
10.8*
Form of Terms of Restricted Stock Award to Non-Employee Directors under Hub Group, Inc. 2017 and 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K filed May 16, 2017)
10.9*
Form of Terms of Restricted Stock Award under Hub Group, Inc. 2017 and 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s report on Form 8-K filed May 16, 2017)
10.10*
Form of Terms of Performance Based Restricted Stock Award under Hub Group, Inc. 2017 and 2022 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s report on Form 8-K filed January 5, 2018)
21
Subsidiaries of the Registrant
23.1
Consent of Ernst & Young LLP
24.1
Powers of Attorney (included as part of the signature pages hereto)
31.1
Rule 13a-14(a) Certification of Phillip D. Yeager, Chief Executive Officer
31.2
Rule 13a-14(a) Certification of Kevin W. Beth, Chief Financial Officer
32.1
Section 1350 Certifications of Phillip D. Yeager and Kevin W. Beth, Chief Executive Officer and Chief Financial Officer, respectively
97
Hub Group, Inc. Compensation Clawback Policy
101
Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K
104
Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set
* Management contract or compensatory plan or arrangement.
Item 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2024
HUB GROUP, INC.
By
/s/ PHILLIP D. YEAGER
Phillip D. Yeager
Vice Chairman of the Board of Directors, President and Chief Executive Officer
W e, the undersigned directors and officers of the registrant, hereby severally constitute Phillip D. Yeager and Kevin W. Beth and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Title
Date
/s/ Phillip D. Yeager
Vice Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)
February 27, 2024
Phillip D. Yeager
/s/ Kevin W. Beth
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
February 27, 2024
Kevin W. Beth
/s/ David P. Yeager
Executive Chairman of the Board of Directors
February 27, 2024
David P. Yeager
/s/ Phillip D. Yeager
Director
February 27, 2024
Phillip D. Yeager
/s/ Mary H. Boosalis
Director
February 27, 2024
Mary H. Boosalis
/s/ Lisa Dykstra
Director
February 27, 2024
Lisa Dykstra
/s/ Michael E. Flannery
Director
February 27, 2024
Michael E. Flannery
/s/ James C. Kenny
Director
February 27, 2024
James C. Kenny
/s/ Peter B. McNitt
Director
February 27, 2024
Peter B. McNitt
/s/ Jenell Ross
Director
February 27, 2024
Jenell Ross
/s/ Martin P. Slark
Director
February 27, 2024
Martin P. Slark
/s/ Gary Yablon
Director
February 27, 2024
Gary Yablon