NOTE 2.

Discontinued Operations

On August 31, 2018, Hub Group, Inc. entered into the Purchase Agreement with Mode LLC, a direct wholly-owned subsidiary of the Company, and Mode Purchaser, Inc., an affiliate of York Capital Management (“Purchaser”) pursuant to which the Company sold all of the issued and outstanding membership interests of Mode LLC to Purchaser (the “Disposition”). Total consideration received for the transaction was $238.5 million in cash, subject to customary purchase price adjustments.

For the three months ended September 30, 2018 and 2017, respectively, Mode LLC had revenue of $10.6 million and $12.7 million from Hub and Hub had revenue of $2.7 million and $12.5 million from Mode LLC. During the nine months ended September 30, 2018 and 2017, respectively, Mode LLC had revenue of $42.2 million and $37.0 million from Hub and Hub had revenue of $17.9 million and $37.4 million from Mode LLC. These sales were eliminated on our Consolidated Statements of Income. In connection with the Disposition, the Company and Mode LLC have entered into a transition services agreement pursuant to which both the Company and Mode will provide certain immaterial transition services to the other party for a period of time following the closing.

Results associated with Mode LLC are classified as income from discontinued operations, net of income taxes, in our Consolidated Statements of Income. Prior year results have been adjusted to conform with the current presentation. Income from discontinued operations is comprised of the following:

	Three Months Ended			Three Months Ended		Nine Months Ended			Nine Months Ended
	September 30, 2018			September 30, 2017		September 30, 2018			September 30, 2017
Revenue	$	196,546		$	228,858	$	739,534		$	656,288
Transportation costs		172,949			198,662		648,986			567,886
Gross margin		23,597			30,196		90,548			88,402

Costs and expenses:
Salaries and benefits		3,317			3,148		11,043			9,700
Agent fees and commissions		15,572			19,039		56,631			54,005
General and administrative		1,255			1,800		5,795			5,758
Depreciation and amortization		153			288		632			884
Total costs and expenses		20,297			24,275		74,101			70,347

Operating income from discontinued operations		3,300			5,921		16,447			18,055

Other income
Interest and dividend income		3			17		22			56
Other, net		(1	)		49		(15	)		64
Gain on Disposition		113,601			-		113,601			-
Total other income		113,603			66		113,608			120

Income from discontinued operations before income taxes		116,903			5,987		130,055			18,175
Provision for income taxes		28,057			2,241		31,213			6,665

Income from discontinued operations	$	88,846		$	3,746	$	98,842		$	11,510

Selling, general and administrative expenses recorded in discontinued operations include corporate costs incurred directly in support of Mode LLC.

See the table below for a reconciliation of the gain recorded on the sale of Mode LLC:

Net proceeds received from Disposition (1)	$	227,986

Mode LLC assets:
Accounts receivable		173,669
Accounts receivable other		22
Prepaid expenses		260
Property and equipment		2,501
Restricted investments		4,467
Other intangibles, net		9,032
Goodwill, net		29,389
Other assets		209
Total Mode LLC assets		219,549

Mode LLC liabilities:
Accounts payable (2)		97,535
Accrued payroll		3,072
Accrued other		6,286
Non-current liabilities		3,936
Total Mode LLC liabilities		110,829

Transaction costs for Disposition (3)		5,665

Gain on sale of the Mode LLC business before income taxes	$	113,601

(1)

The proceeds received from the Disposition are net of working capital adjustments outlined in the sale agreement.

(2)

Includes $2.3 million of bank overdrafts assumed by the Purchaser.

(3)

Costs include investment bank fees, legal fees and professional fees.

Due to the Disposition, the related assets and liabilities transferred to the Purchaser were reclassified as held for sale in the Consolidated Balance Sheet as of December 31, 2017 based on the nature of the asset or liability.

Assets and liabilities classified as held for sale in our Consolidated Balance Sheet are comprised of the following:

	December 31,
	2017
Accounts receivable, net	$	159,314
Accounts receivable, other		19
Prepaid expenses and other current assets		283
TOTAL CURRENT ASSETS HELD FOR SALE		159,616

Restricted investments		4,038
Property and equipment, net		937
Other intangibles, net		9,601
Goodwill, net		29,389
Other assets		51
TOTAL NON-CURRENT ASSETS HELD FOR SALE		44,016

TOTAL ASSETS HELD FOR SALE	$	203,632

Accounts payable	$	99,067
Accrued payroll		2,320
Accrued other		5,798
TOTAL CURRENT LIABILITIES HELD FOR SALE		107,185

Non-current liabilities		4,328

TOTAL LIABILITIES HELD FOR SALE	$	111,513

Proceeds from the sale of Mode LLC have been presented in the Consolidated Statements of Cash Flows under investing activities for the nine months ended September 30, 2018. Total operating and investing cash flows of discontinued operations for the nine months ended September 30, 2018 and 2017 are comprised of the following, which exclude the effect of income taxes:

(in thousands)	2018			2017
Net cash (used in) provided by operating activities		(4,184	)		24,910
Net cash (used in) provided by investing activities		226,358			(235	)