Hub Group
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2017OR☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934Commission File No. 0-27754 HUB GROUP, INC.(Exact name of registrant as specified in its charter) Delaware 36-4007085 (State or other jurisdiction of incorporation of organization) (I.R.S. EmployerIdentification No.)2000 Clearwater DriveOak Brook, Illinois 60523(Address and zip code of principal executive offices)(630) 271-3600(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act:Class A Common Stock, $.01 par value(Title of Class) Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large Accelerated Filer☒ Accelerated Filer☐ Non-Accelerated Filer☐ Smaller Reporting Company☐Emerging Growth Company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of the Registrant’s voting stock held by non-affiliates on June 30, 2017, based upon the last reported sale price on that date on the NASDAQ Global SelectMarket of $38.35 per share, was $1,237,047,973.On February 16, 2018, the Registrant had 33,718,246 outstanding shares of Class A Common Stock, par value $.01 per share, and 662,296 outstanding shares of Class B CommonStock, par value $.01 per share.Documents Incorporated by ReferenceThe Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2018 (the “Proxy Statement”) is incorporated by reference in Part III of thisForm 10-K to the extent stated herein. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as apart hereof. PART I FORWARD LOOKING STATEMENTSThis annual report contains, and our officers and representatives may from time to time make, forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” “predicts,” “projects,”“potential,” “may,” “could,” “might,” “should,” and variations of these words and similar expressions are intended to identify these forward-lookingstatements. In particular, information appearing under “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition andResults of Operations” includes forward-looking statements. Forward-looking statements are neither historical facts nor assurance of futureperformance. Instead, they are based on our beliefs, expectations and assumptions regarding the future of our business, future plans and strategies,projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subjectto inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results andfinancial condition may differ materially from those indicated in the forward-looking statements. All forward-looking statements made by us in this annualreport are based upon information available to us on the date of this report and speak only as of the date in which they are made. Except as required by law,we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that may be made from time to time,whether as a result of new information, future developments or otherwise. Important factors that could cause our actual results and financial condition todiffer materially from those indicated in the forward looking statements, in addition to those described in detail under Items 1A “Risk Factors,” include thefollowing: •the degree and rate of market growth in the domestic intermodal, truck brokerage, dedicated and logistics markets served by us; •deterioration in our relationships, service conditions or provision of equipment with existing railroads or adverse changes to the railroads’ operatingrules; •further consolidation of railroads; •the impact of competitive pressures in the marketplace, including entry of new competitors, direct marketing efforts by the railroads or marketingefforts of asset-based carriers; •unanticipated changes in rail, drayage and trucking company capacity or costs of services; •increases in costs related to any reclassification or change in our treatment of drivers or owner-operators due to regulatory, judicial and legal changes; •labor unrest in the rail, drayage or trucking company communities; •significant deterioration in our customers’ financial condition, particularly in the retail, consumer products and durable goods sectors; •fuel shortages or fluctuations in fuel prices; •increases in interest rates; •acts of terrorism and military action and the resulting effects on security; •difficulties in maintaining or enhancing our information technology systems, implementing new systems or protecting against cyber-attacks; •increases in costs associated with changes to or new governmental regulations; •significant increases to employee health insurance costs; •loss of several of our largest customers; •awards received during annual customer bids not materializing; •inability to recruit or loss of Mode Transportation, LLC (“Mode LLC”) sales/operating agents known as Independent Business Owners (“IBOs”) andsales-only agents; •inability to recruit and retain company drivers and owner-operators; •changes in insurance costs and claims expense; •union organizing efforts and changes to current laws which will aid in these efforts; •inability to identify, close and successfully integrate any future business combinations; •imposition of new tariffs or trade barriers or withdrawal from or renegotiation of existing free trade agreements which could reduce international tradeand economic activity and1 •losses sustained on insured matters where the liability materially exceeds available insurance proceeds. Item 1.BUSINESSGeneralHub Group, Inc. (the “Company”, “we”, “us” or “our”) is a Delaware corporation that was incorporated on March 8, 1995. We are a world class provider ofmultimodal logistics solutions. We offer comprehensive intermodal, truck brokerage, dedicated and logistics services. Since our founding in 1971, we havegrown to become one of the largest intermodal and truck brokerage providers in the United States. Through our network, we have the ability to arrange for themovement of freight in and out of every major city in the United States, Canada and Mexico. We utilize an asset-light strategy in order to minimize ourinvestment in equipment and facilities and reduce our capital requirements. We arrange freight movement for our customers through transportation carriersand equipment providers.Hub Group Trucking, Inc. (“HGT”), a wholly owned subsidiary of Hub Group, Inc., acquired all of the outstanding equity interests of Estenson Logistics,LLC (“Estenson”) on July 1, 2017 (the “Estenson Acquisition”). Estenson is now our wholly owned subsidiary, operating under the name Hub GroupDedicated (“HGD”). As a result of the Estenson Acquisition, HGT acquired substantially all of the assets of Estenson, which include tractors and trailers, aswell as assumed certain liabilities, including equipment debt. HGT and HGD are included in the Hub segment.Mode Transportation, LLC (“Mode LLC”) is our wholly-owned subsidiary acquired in 2011, and operates independently. Mode LLC has approximately173 agents, consisting of 99 IBOs, who sell services and operate the business throughout North America and 74 sales only agents. Mode also has atemperature protected services division operated out of our Oak Brook, IL headquarters and corporate offices in Memphis, TN and Dallas, TX.Mode LLC diversifies Hub Group’s customer base with more small and medium sized customers, as Hub has traditionally focused, to a significant degree,on larger national accounts. Mode IBOs and sales agents are often able to devote more attention to smaller and medium sized shippers and develop long-term relationships with them.We report two distinct business segments. The first segment is “Mode,” which includes the Mode LLC business only. Mode LLC markets and operates itsfreight transportation services primarily through its network of IBOs who enter into contracts with Mode LLC. The second segment is “Hub,” which is allbusiness other than Mode. Hub operates through a network of operating centers throughout the United States, Canada and Mexico. Hub services a large anddiversified customer base in a broad range of industries, including consumer products, retail and durable goods. Hub includes our dedicated service offeringand both segments offer intermodal, truck brokerage and logistics services. “Hub Group” includes both segments.Services ProvidedOur transportation services for both the Hub and the Mode segments can be broadly placed into the following categories:Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers and trailers, typically over long distances of750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, knownas “drayage companies,” for pickup and delivery. As part of our intermodal services, we negotiate rail and drayage rates, electronically track shipments intransit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.As of December 31, 2017, we owned a total of approximately 32,000 53-foot private containers and we had exclusive access to approximately 2,500 rail-owned containers for our dedicated use on the Union Pacific (“UP”) and the Norfolk Southern (“NS”) rails. We use our network to access containers andtrailers owned by leasing companies, railroads and steamship lines. We are able to track trailers and containers entering a service area and reuse thatequipment to fulfill the customers’ outbound shipping requirements. This effectively allows us to “capture” containers and trailers that we do not own orhave exclusive access to and keep them within our network.During 2017, HGT accounted for approximately 54% of Hub’s drayage needs by assisting us in providing reliable, cost effective intermodal services toour customers. As of December 31, 2017 HGT had terminals in Atlanta, Birmingham, Charlotte, Chattanooga, Chicago, Dallas, Harrisburg, Huntsville,Indianapolis, Jacksonville, Kalamazoo, Kansas City, Milwaukee, Memphis, Nashville, Newark, Philadelphia, Portland (OR), Salt Lake City, Seattle, St. Louis,Stockton and Wilmington (IL) metro areas. As of December 31, 2017, HGT leased or owned approximately 900 tractors and 300 trailers, employedapproximately 1,000 drivers and contracted with approximately 1,500 owner-operators.2Dedicated: Our dedicated service line, HGD, contracts with customers looking to outsource a portion of their transportation needs. We offer a dedicatedfleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high serviceexpectations. Our dedicated service line currently operates a fleet of approximately 1,100 tractors and 4,700 trailers at 125 locations throughout the UnitedStates. As of December 31, 2017, HGD employed 1,294 drivers.Truck Brokerage (Highway Services). We are one of the largest truck brokers in the United States, providing customers with a highway service option fortheir transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combination. We havecontracts with a substantial base of carriers allowing us to meet the varied needs of our customers. As part of the truck brokerage services, we negotiate rates,track shipments in transit and handle claims for freight loss and damage on behalf of our customers.Logistics and Other Services. Hub’s logistics business operates under the name of Unyson Logistics. Unyson Logistics is comprised of a network oflogistics professionals dedicated to developing, implementing and operating customized logistics solutions for customers. Unyson Logistics offers a widerange of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carriermanagement, load planning and execution and web-based shipment visibility. Unyson Logistics operates throughout North America, providing servicesthrough its main operating location in St. Louis with additional support locations in the Boston, Chicago, Cleveland and Minneapolis metro areas. Inaddition, certain Mode LLC agents also provide logistics services. Our multi-modal transportation capabilities for both the Hub and Mode segments includesmall parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, railcar and international shipping.Hub and Mode LLC NetworksHub’s entire network is interactively connected through Hub’s proprietary Network Management System and Mode LLC’s network is connected throughits third party transportation management system. This enables us to arrange for the movement of freight into and out of every major city in the United States,Canada and Mexico.In a typical intermodal transaction, the customer contacts one of Hub’s intermodal operating centers or a Mode LLC IBO to place an order. The operatingcenter/IBO determines the price, obtains the necessary intermodal equipment, arranges for the equipment to be delivered to the customer by a drayagecompany and, after the freight is loaded, arranges for the transportation of the container or trailer to the rail ramp. Relevant information is entered into oursystem by the assigned operating center/IBO. Our predictive track and trace technology then monitors the shipment to ensure that it arrives as scheduled andalerts the customer service personnel if there are service delays. The operating center/IBO then arranges for and confirms delivery by a drayage company atthe destination. After unloading, the empty equipment is made available for reloading by the operating center/IBO for the delivery market.We provide truck brokerage services to our customers in a similar manner. In a typical truck brokerage transaction, the customer contacts one of Hub’shighway operating centers or a Mode LLC IBO to obtain a price quote for a particular freight movement. The customer then provides appropriate shippinginformation to the operating center/IBO. The operating center/IBO makes the delivery appointment and arranges with the appropriate carrier to pick up thefreight. Once it receives confirmation that the freight has been picked up, the operating center/IBO monitors the movement of the freight until it reaches itsdestination and the delivery has been confirmed. If the carrier notifies us that after delivering the load it will need additional freight, we may notify otheroperating centers/IBOs. Although under no obligation to do so, those operating centers/IBOs may then attempt to secure additional freight for the carrier.Marketing and CustomersAs one of the world’s leading transportation management companies, Hub Group is committed to providing multi-modal solutions throughout NorthAmerica, including intermodal, dedicated, truck brokerage and logistics services. We have transformed our organization from a traditional IMC into a multi-modal solutions provider. This change has revolutionized our offerings and the way we service our customers. We look at our customers’ entire network toprovide innovative multi-modal solutions to drive savings, improve service and offer full visibility. After 47 years in business, we continue to live by the simple mantra that "good" is not good enough. To ensure we grow and improve, we focus intently onour customers, listening to their needs, developing comprehensive transportation solutions and delivering superior service. We invest in our people,equipment and technology to maintain our competitive edge in order to be the best transportation provider for our customers.We face a continued need to help our customers meet consumer demands of having products and services through all buying channels. We have beendelivering to an already leaner supply chain, with our customers reporting an increase in speed and improved visibility. Our satellite tracking units help toensure our customers have the capacity they need. Our state-of-the-art technology helps to maintain our high levels of service while providing 24/7 visibilityinto any shipment; and our people have the skills, training and information to quickly respond to our customers' changing supply chain network. Supportingevery customer is a dedicated team of3professionals ready to service any and all of our customers' needs. We call this exceptional service approach the "One Hub" experience.The majority of our business is in the retail, consumer products, durable goods and automotive verticals. No one customer represented more than 10% ofour total revenue in 2017 and 2016 in either reporting segment.Information Technology SystemsBased on the technology requirements for our business strategy and to keep pace with changing technologies and customer demand, we are makinginvestments in both our back-office technology such as our ERP system and emerging technology. The investments to enhance our existing technologyinclude implementing new order management, transportation management and financial management processes and systems. In addition, we anticipatemaking investments in artificial intelligence and automation technology to further drive innovation and efficiency throughout the organization and tosupport enhanced service to our customers.In 2017, we launched Hub Group Connect, our new digital platform for customers. This product was developed using open source technology and isbased on a responsive design that allows our customers to use any type of device to connect with our services. Hub Group Connect allows all of ourcustomers to interact with their order throughout its lifecycle. During 2018 we will continue to provide additional features to Hub Group Connect which willcreate value for our customers.In 2017, we also introduced our first completely mobile solution for company and owner operator drivers. We deployed this differentiating applicationto drivers on tablets. The features of the application and tablet combination also allowed us to replace a legacy paper scanning solution used to submit orderpaperwork. This application also allows a driver to find a Hub Group container based on the location information provided via our GPS technology installedon our Hub Group containers. We will continue to deliver new technology capabilities in 2018 leveraging our cloud services for immediate deployment toall devices. Our Cloud First technology strategy is providing the expected benefit at the rate and pace at which we can deliver new and innovativetechnology solutions, while lowering the cost to serve our customers and maintain our high level of service quality.In addition, in 2017, we implemented solutions for several new Unyson customers using Oracle Transportation Management (OTM). These customersbenefited from our ability to create sophisticated solutions that included multi-leg order optimization and iterative consolidation as well as customer uniqueweb-based dashboards that provide insights to supply chain efficiency and vendor compliance. Mode LLC utilizes a dynamic transportation management platform that integrates best in class third party technologies to manage its business. Thisplatform includes an execution system that provides multi-modal solutions, visibility to status of shipments, facilitation of customer billing, and a robustportal that allows exchange of information about loads, capacity, and event status information between transportation providers and our customers. Additionally Mode LLC’s platform consists of components that allow for optimization of our customer’s order process, management of our diverse carrierbase, and robust analytics and business intelligence solutions that allow our customers to better understand outcomes and opportunities within their supplychain. This platform provides a robust and scalable technological solution that can meet the needs of a growing transportation network.Relationship with RailroadsA key element of our business strategy is to strengthen our close working relationships with the major intermodal railroads in North America. Due to oursize and relative importance, some railroads have dedicated support personnel to focus on our day-to-day service requirements. On a regular basis, our seniorexecutives and each of the railroads meet to discuss major strategic issues concerning intermodal transportation.We have relationships with each of the following major railroads: Burlington Northern Santa Fe Florida East CoastCanadian National Kansas City SouthernCanadian Pacific Norfolk SouthernCSX Union PacificFerromex Transportation rates are market driven. We sometimes negotiate with the railroads or other major service providers on a route or customer specific basis.Consistent with industry practice, some of the rates we negotiate are special commodity quotations (“SCQs”), which provide discounts from published pricelists based on competitive market factors and are designed by the railroads or major service providers to attract new business or to retain existingbusiness. SCQ rates apply to specific customers in specified shipping lanes for a specific period of time, usually up to 12 months.4Relationship with Drayage CompaniesHub has a “Quality Drayage Program,” under which participants commit to provide high quality drayage service along with clean and safe equipment,maintain a defined on-time performance level and follow specified procedures designed to minimize freight loss and damage. We negotiate drayage rates fortransportation between specific origin and destination points.We also provide drayage services with our own drayage operations, which we operate through our subsidiary HGT. Our drayage operations employ theirown drivers and also contract with owner-operators who supply their own trucks.Relationship with Trucking CompaniesOur truck brokerage operation has a large number of trucking companies that we use to transport freight. The Hub operating centers and Mode IBOs dealdaily with these carriers on an operational level. Our corporate headquarters handles the administrative and regulatory aspects of the trucking companyrelationships. Our relationships with these trucking companies are important since these relationships determine pricing, load coverage and overall service.Risk Management and InsuranceWe require all drayage companies participating in Hub’s Quality Drayage Program to carry general liability insurance, truckman’s auto liability insuranceand cargo insurance. Railroads, which are self-insured, provide limited cargo protection. To cover freight loss or damage when a carrier’s liability cannot beestablished or a carrier’s insurance is insufficient to cover the claim, we carry our own cargo insurance. We also carry general liability insurance with acompanion umbrella policy on this general liability insurance.We maintain separate insurance policies to cover potential exposure from our company-owned drayage and dedicated operations. We carry commercialgeneral liability insurance subject to a policy aggregate limit, and trucker’s automobile liability insurance with a limit per occurrence. Additionally, we havean umbrella excess liability policy and maintain motor truck cargo liability insurance.Government RegulationThe company and several of our subsidiaries, including HGD and Mode LLC, are licensed by the Department of Transportation as brokers in arranging forthe transportation of general commodities by motor vehicle. To the extent that the Hub operating centers and Mode LLC IBOs perform truck brokerageservices, they do so under these licenses. The Department of Transportation prescribes qualifications for acting in this capacity, including a $75,000 suretybond that we have posted. In addition, Hub and Mode LLC each have customs bonds. To date, compliance with these regulations has not had a materialadverse effect on our results of operations or financial condition; however, the transportation industry is subject to legislative or regulatory changes that canaffect the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services.Custom-Trade Partnership Against TerrorismWe achieved Custom-Trade Partnership Against Terrorism (C-TPAT) certification in 2013 and have maintained it since then. C-TPAT is a voluntarysupply chain security program led by U.S. Customs and Border Protection focused on improving the security of private companies’ supply chains withrespect to terrorism. Companies who achieve C-TPAT certification must have a documented process for determining and alleviating risks throughout theirinternational supply chain. This certification allows us to be considered low risk, resulting in expedited processing of our customers’ cargo, including fewercustoms examinations.CompetitionThe transportation services industry is highly competitive. We compete against intermodal providers, as well as logistics companies, third party brokers,trucking companies and railroads that market their own intermodal services. Several larger trucking companies have entered into agreements with railroads tomarket intermodal services nationwide. Competition is based primarily on freight rates, quality of service, reliability, transit time and scope of operations.Several transportation service companies and trucking companies, and all of the major railroads, may have substantially greater financial and other resourcesthan we do.GeneralEmployees: As of December 31, 2017, Hub Group had 4,377 employees. Hub Group had 2,030 employees excluding drivers at December 31, 2017. Hubhad 1,914 employees excluding drivers and Mode LLC had 116 employees. We are not a party to any collective bargaining agreements and consider ourrelationship with our employees to be satisfactory.As of December 31, 2017, Mode LLC had 99 IBOs and 74 sales-only agents. Nearly all of the sales-only agents and IBOs are under written contracts withMode LLC.5Other: No material portion of our operations is subject to renegotiation of profits or termination of contracts at the election of the federal government. Ourbusiness is seasonal to the extent that certain customer groups, such as retail, are seasonal.Periodic ReportsOur annual report to the Securities and Exchange Commission (“SEC”) on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to such reports, are available free of charge on our website at www.hubgroup.com as soon as reasonably practicable after weelectronically file or furnish such reports to the SEC. Information on our website does not constitute part of this annual report on Form 10-K. In addition, theSEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and otherinformation we electronically file with, or furnish to, the SEC. Any materials we file with, or furnish to, the SEC may also be read and/or copied at the SEC’sPublic Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained bycalling the SEC at 1-800-SEC-0330.Item 1A.RISK FACTORSBecause we depend on railroads for our operations, our operating results and financial condition are likely to be adversely affected by any increase inrates, reduction or deterioration in rail service or change in the railroads’ reliance on us to market their intermodal transportation services.We depend on the major railroads in the United States for virtually all of the intermodal services we provide. In many markets, rail service is limited toone or a few railroads. Consequently, a reduction in, or elimination of, rail service to a particular market is likely to adversely affect our ability to provideintermodal transportation services to some of our customers. Rate increases would result in higher intermodal transportation costs, reducing the attractivenessof intermodal transportation compared to truck or other transportation modes, which could cause a decrease in demand for our services. Further, our ability tocontinue to expand our intermodal transportation business is dependent upon the railroads’ ability to increase capacity for intermodal freight and provideconsistent and reliable service. Our business could also be adversely affected by a work stoppage at one or more railroads or by adverse weather conditions orother factors that hinder the railroads’ ability to provide reliable transportation services.In the past, there have been service issues when railroads have merged. As a result, we cannot predict what effect, if any, further consolidations amongrailroads may have on intermodal transportation services or our results of operations.To date, the railroads have chosen to rely on us and other intermodal competitors to market their intermodal services rather than fully developing theirown marketing capabilities. If one or more of the major railroads were to decide to reduce their dependence on us, the volume of intermodal shipments wearrange would likely decline, which could have a material adverse effect on our results of operations and financial condition.If we fail to maintain and enhance our information technology systems, or if we fail to successfully implement new technology or enhancements, we maybe at a competitive disadvantage and lose customers.Hub Group continues to see technology as key to driving internal efficiencies as well as providing additional capabilities to customers and carriers. Inaddition, Hub Group’s systems are critical to our operations and our ability to compete effectively as an intermodal provider, dedicated and drayage carrier,truck broker and logistics provider. We expect our customers to continue to demand more sophisticated technology-driven solutions from their suppliers andwe must enhance or replace our information technology systems in response. This may involve significant research and development costs, implementationcosts and potential challenges. To keep pace with changing technologies and customer demand, we are making investments in our technology, as well asinvesting in emerging technology to further drive innovation and efficiency. The back-office investments include implementing new order management,transportation management and financial management processes and systems. In a transformation of this size and scope we must mitigate risk by engagingexternal expertise and hiring internal experts. If we fail to successfully implement critical technology, if it does not provide the anticipated benefits or it doesnot meet market demands, we may be placed at a competitive disadvantage and could lose customers, materially adversely impacting our financial conditionand results of operations. Technology and new market entrants may also disrupt the way we and our competitors operate. As technology improves and new companies enter thefreight brokerage market, our customers may be able to find alternatives to our services for matching shipments with available freight hauling capacity. Wemust continue to develop innovative emerging technologies to source, track and provide visibility to capacity while exploiting machine learning andartificial intelligence to further improve customer outcomes.Our information technology systems are subject to breaches in data security and other risks and the inability to use our information technology systemscould materially adversely affect our business.6Our information technology systems are dependent upon global communications and cloud service providers, as well as their respective vendors, all ofwhom have at some point experienced significant system failures and outages in the past. These providers’ systems are susceptible to outages from fire,floods, power loss, telecommunications failures, break-ins and similar events. Our infrastructure may also be vulnerable to computer viruses, maliciousintrusion, random attacks and similar disruptions from unauthorized tampering with our computer systems. Failure to prevent or mitigate data loss or systemintrusions from cyber-attacks or other security breaches, system failures or outages could expose us, our vendors, customers or third parties to a risk of loss ormisuse of such information, which may adversely affect our operating results, result in litigation or otherwise harm our reputation or business. Likewise, dataprivacy breaches by employees and others who access our systems may pose a risk that sensitive customer, vendor or employee data may be exposed tounauthorized persons or to the public, materially adversely impacting our customer service, employee, customer and vendor relationships and ourreputation. The Company is continuously working to install new, and upgrade its existing, information technology systems and provide employee awarenesstraining around phishing, malware, and other cyber risks to ensure that the Company is protected against cyber risks and security breaches. While we believethat we have taken appropriate security measures to protect our data and information technology systems and prevent data loss, there can be no assurance thatour efforts may not prevent breakdowns or breaches in our systems that could result in a loss of customers or a reduction in demand for our services, orotherwise have a material adverse effect on our business.We derive a significant portion of our revenue from our largest customers and the loss of one or more of these customers could have a material adverseeffect on our revenue and business.Our 20 largest customers accounted for approximately 39% of our total revenue in 2017, 38% in 2016 and 35% in 2015. While our dedicated andlogistics businesses may involve long-term contracts, those contracts may contain cancellation clauses, and there is no assurance that our current customerswill continue to utilize our services or continue at the same levels. A reduction in or termination of our services by one or more of our largest customerscould have a material adverse effect on our revenue and business.Our ability to expand our business or maintain our profitability may be adversely affected by a shortage of drivers and capacity.We derive significant revenue from our truck brokerage, dedicated and logistics services. Driver shortages and reliance on third-party companies for theoperation of our intermodal, truck brokerage, dedicated and logistics services could adversely affect our profitability and limit our ability to expand ourbusiness or retain customers. Most drayage and certain less than truckload companies operate relatively small fleets and have limited access to capital forfleet expansion. Particularly during periods of economic expansion, it may be difficult for HGD, HGT and third-party trucking companies to expand theirfleets due to chronic driver shortages. Driver shortages may require increases to drivers’ compensation that we may be unable to pass on to our customers,thereby increasing our cost of providing services. Truckload capacity could be tighter as a result of the ELD mandate that was effective in December 2017. Our obligation to pay our carriers is not contingent upon receipt of payment from our clients and we extend credit to certain clients as part of ourbusiness model.In most cases, we take full risk of credit loss for the transportation services we procure from carriers. Our obligation to pay our carriers is not contingentupon receipt of payment from our clients. If any of our key clients fail to pay for our services, our profitability would be negatively impacted.Because our business is concentrated on intermodal services, any decrease in demand for intermodal transportation services compared to othertransportation services could have an adverse effect on our results of operations.We derived 57% of our revenue from our intermodal services in 2017, 61% in 2016 and 62% in 2015. As a result, any decrease in demand for intermodaltransportation services compared to other transportation services could have a material adverse effect on our results of operations.We operate in a highly competitive industry and our business may suffer if we are unable to adequately address potential downward pricing pressuresand other competitive factors.There are numerous competitive factors which could impair our ability to maintain our current profitability. We compete with many other transportationand logistics service providers, some of which have greater capital resources than we do. Some of our competitors periodically reduce their prices to gainbusiness, and some of our competitors may have lower cost structures than we do, which may limit our ability to maintain or increase prices to preservemarket share. Additionally, our customers may decide to in-source the services we currently provide for them using their own assets.7An economic downturn and cyclical fluctuations in the economy could materially adversely affect our business.Our operations and performance depend significantly on economic conditions. Uncertainty about United States and global economic conditions poses arisk as consumers and businesses may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values,which could have a material negative effect on demand for transportation services. We are unable to predict the likely duration and severity of disruptions inthe financial markets and adverse economic conditions, and our business and results of operations could be materially and adversely affected. Other factorsthat could influence demand include fluctuations in fuel costs, labor costs, consumer confidence, and other macroeconomic factors affecting consumerspending behavior. We have little or no control over any of these factors or their effects on the transportation industry. Economic recession or a downturn incustomers’ business cycles also may have an adverse effect on our results of operations and growth by reducing demand for our services. Therefore, ourresults of operations, like the entire freight transportation industry, are cyclical and subject to significant period-to-period fluctuations. There could be anumber of follow-on effects from a credit crisis on our business, including the insolvency of key transportation providers and the inability of our customers toobtain credit to finance development and/or manufacture products resulting in a decreased demand for transportation services. Our revenues and grossmargins are dependent upon this demand, and if demand for transportation services declines, our revenues and gross margins could be adversely affected.Although we believe we have adequate liquidity and capital resources to fund our operations internally, our inability to access the capital markets onfavorable terms, or at all, may adversely affect our ability to engage in strategic transactions. The inability to obtain adequate financing from debt or capitalsources could force us to self-fund strategic initiatives or even forgo certain opportunities, which in turn could potentially harm our performance.Uncertainty about global economic conditions could also increase the volatility of our stock price.We use a significant number of independent contractors, such as owner operators, in our businesses. Legislative, judicial and regulatory authoritiesmay continue to take actions or render decisions that could affect the independent contractor classification, which could have a significant impact onour gross margin and operating income.We do business with a large number of independent contractors, such as Mode LLC IBO’s and sales agents and HGT owner-operators, consistent withlongstanding industry practices. Legislative, judicial, and regulatory (including tax) authorities have taken actions and rendered decisions that could affectthe independent contractor classifications. Class action and individual lawsuits have been filed against us and others in our industries, challenging theindependent contractor classifications. See Item 3 - Legal Proceedings for further discussion and see Note 14 to the consolidated financial statements under“Legal Matters” for a description of material pending litigation and regulatory matters affecting us and certain risks to our business presented by suchmatters. If independent contractors are determined to be employees, then we may incur legal liabilities associated with that determination, such as liabilityfor unpaid wages, overtime, employee health insurance and taxes. If we were to change how we treat independent contractors or reclassify independentcontractors to employees, then we would likely incur expenses associated with that reclassification and could incur additional ongoing expenses. The costsassociated with these matters could have a material adverse effect on results of operations and our financial position.Relatively small increases in our transportation costs that we are unable to pass through to our customers are likely to have a significant effect on ourgross margin and operating income.Transportation costs represented 89% of our consolidated revenue in 2017, 87% in 2016 and 88% in 2015. Because transportation costs represent such asignificant portion of our costs, any increases in the operating costs of railroads, trucking companies or drayage companies can be expected to result in higherfreight rates. Transportation costs may increase if we are unable to sign on owner-operators or recruit employee drivers as this may increase driver costs orforce us to use more expensive purchased transportation. The inability to pass cost increases to our customers is likely to have a significant effect on ourgross margin and operating income. Insurance and claims expenses could significantly reduce our earnings.We maintain insurance with licensed insurance companies. Our future insurance and claims expenses might exceed historical levels, which could reduceour earnings. If the number or severity of claims increases, our operating results could be adversely affected and the cost to renew our insurance couldincrease when our current coverage expires. If these expenses increase, and we are unable to offset the increase with higher freight rates to our customers, ourearnings could be materially and adversely affected.We are partially self-insured for certain losses related to employee medical coverage. Our self-insurance reserves may not be adequate to coverour medical claim liabilities.We are partially self-insured for certain losses related to employee medical coverage, excluding employees covered by health maintenanceorganizations. We generally have an individual stop loss deductible per enrollee unless specific exposures are separately insured. We accrue a contingentliability based upon examination of historical trends, historical actuarial analysis, our8claims experience, total plan enrollment (including employee contributions), population demographics, and other various estimates. Self-insurance reserves,net income, and cash flows could be materially affected if future claims differ significantly from our historical trends and assumptions.We depend on third parties for equipment essential to operate our business, and if we fail to secure sufficient equipment, we could lose customers andrevenue.We depend on third parties for transportation equipment, such as tractors, containers, chassis, trailers and cross docks necessary for the operation of ourbusiness. Our industry has experienced equipment shortages in the past, particularly during the peak shipping season in the fall. A substantial amount ofintermodal freight originates at or near the major West Coast ports, which have historically had the most severe equipment shortages. As an asset-light freighttransportation management company, if we cannot secure sufficient transportation equipment at a reasonable price from third parties to meet our customers’needs, our customers may seek to have their transportation needs met by other providers with their own assets. This could have a material adverse effect onour business, results of operations and financial position.Losing a member of our management team or one or more key Mode LLC sales only agents or IBOs could have an adverse effect on revenue and netincome.There is substantial competition for qualified personnel in the transportation services industry. As all key personnel devote their full time to our business,the loss of any member of our management team, key Mode LLC sales only agents or IBOs or other key persons could have an adverse effect on us. We do nothave written employment agreements with any of our executive officers and do not maintain key man insurance on any of our executive officers. Nearly allMode LLC sales-only agents and IBOs are under written contract with Mode LLC. Mode’s success depends upon attracting and retaining the services ofMode LLC sales-only agents and IBOs, as well as our ability to attract and retain a sufficient number of other qualified personnel to run our business. CertainMode LLC IBOs and sales-only agents represent a large portion of Mode’s overall revenues. If one or more large IBOs or sales-only agents were to terminatetheir relationship with Mode LLC, there could be an adverse effect on Mode’s business and results of operations.Our growth could be adversely affected if we are not able to identify, successfully acquire and integrate acquisition prospects.We believe that future acquisitions, the failure to make such acquisitions or the failure to integrate such acquired business could significantly impactfinancial results. We cannot guarantee that we will be able to identify suitable acquisitions or execute acquisitions on commercially acceptableterms. Financial results most likely to be impacted include, but are not limited to, revenue, gross margin, salaries and benefits, selling general andadministrative expenses, depreciation and amortization, interest expense, net income and our debt level.Our business could be adversely affected by strikes or work stoppages by draymen, truckers, port workers and railroad workers.There may be labor unrest, including strikes and work stoppages, among workers at various transportation providers and in industries affecting thetransportation industry, such as port workers. We could lose business due to any significant work stoppage or slowdown and, if labor unrest results inincreased rates for transportation providers such as draymen, we may not be able to pass these cost increases on to our customers. Strikes amonglongshoreman and clerical workers at ports in the past few years have slowed down the ports for a time, creating a major impact on the transportationindustry. Work stoppages occurring among owner-operators in a specific market have increased our operating costs periodically in the past. In the pastseveral years, there have been strikes involving railroad workers. Future strikes by railroad workers in the United States, Canada or anywhere else that ourcustomers’ freight travels by railroad would impact our operations. Any significant work stoppage, slowdown or other disruption involving port workers,railroad workers, truckers or draymen could adversely affect our business and results of operations.The transportation industry is subject to government regulation, and regulatory changes could have a material adverse effect on our operating resultsor financial condition.The Company and various subsidiaries, including HGD and Mode LLC, are licensed by the Department of Transportation (“DOT”) as motor carrier freightbrokers. The DOT prescribes qualifications for acting in this capacity, including surety bond requirements. Our HGT and HGD subsidiaries are licensed by theDOT to act as motor carriers. The transportation industry is subject to DOT regulations regarding, among other things, driver breaks, “restart” rules, and theuse of Electronic Logging Devices (“ELD’s”) that can affect the economics of the industry by requiring changes in operating practices or influencing thedemand for, and cost of providing, transportation services. We are audited periodically by the DOT to ensure that we are in compliance with various safety,hours-of-service, and other rules and regulations. If we were found to be out of compliance, the DOT could levy fines and restrict or otherwise impact ouroperations. To date, compliance with these regulations has not had a material adverse effect on our results of operations or financial condition. We may alsobecome subject to new or more restrictive regulations relating to carbon emissions under climate change legislation or limits on vehicle weight and size.Future laws and regulations may be more stringent and require changes in9operating practices, influence the demand for transportation services or increase the cost of providing transportation services, any of which could materiallyadversely affect our business and results of operations.We are not able to accurately predict how new governmental laws and regulations, or changes to existing laws and regulations, will affect thetransportation industry generally, or us in particular. We are also unable to predict how the change in administration will affect government regulation of thetransportation industry. Although government regulation that affects us and our competitors may simply result in higher costs that can be passed along tocustomers, that may not be the case.Our operations may be subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.From time to time, we arrange for the movement of hazardous materials at the request of our customers. As a result, we may be subject to variousenvironmental laws and regulations relating to the handling of hazardous materials. If we are involved in a spill or other accident involving hazardousmaterials, or if we are found to be in violation of applicable laws or regulations, we could be subject to substantial fines or penalties and to civil and criminalliability, any of which could have an adverse effect on our business and results of operations. The Company is also subject to certain EnvironmentalProtection Agency (“EPA”) and California Air Resources Board (“CARB”) regulations. We may become subject to enforcement actions, new or morerestrictive regulations, or differing interpretations of existing regulations, which may increase the cost of providing transportation services or adversely affectour results of operations. Any attempt by the current administration to impose new tariffs or withdraw from or materially modify NAFTA and certain other international tradearrangements could adversely affect our business, financial condition and results of operations.We arrange for the movement of freight into and out of every major city in Mexico and Canada, and we import 53-foot intermodal containersmanufactured in China. If the current administration takes action to withdraw from or materially modify the North American Free Trade Agreement(“NAFTA”) or certain other international trade arrangements, or to impose tariffs on imports of foreign-manufactured goods into the United States, ourbusiness, financial condition and results of operations could be adversely affected. Additionally, the imposition of substantial tariffs on foreign-madeintermodal containers or other products we utilize may increase the cost of providing transportation services or adversely affect our results of operations.Changes in immigration laws could increase the costs of doing business or otherwise disrupt our operations.We have hired individuals, including Information Technology (“IT”) employees, from outside the United States. We have employee drivers and owner-operator drivers who are immigrants to the U.S. We engage third party consultants, including for various IT projects, who may utilize personnel from outsidethe United States. If immigration laws are changed or if new more restrictive government regulations are enacted or increased, our access to qualified andskilled personnel may be limited, the costs of doing business may increase and our operations may be disrupted.We are exposed to credit risk and fluctuations in the market values of our investment portfolio.Although we have not recognized any material losses on our cash and cash equivalents, future declines in their market values could have a materialadverse effect on our financial condition and operating results. The value or liquidity of our cash and cash equivalents could decline, which could have amaterial adverse effect on our financial condition and operating results.We face litigation risks that could have a material adverse effect on the operation of our business.We face litigation risks regarding a variety of issues, including without limitation, accidents involving our trucks and employees, alleged violations offederal and state labor and employment laws, securities laws, environmental liability and other matters. These proceedings may be time-consuming,expensive and disruptive to normal business operations. The defense of such lawsuits could result in significant expense and the diversion of ourmanagement’s time and attention from the operation of our business. In recent years, several insurance companies have stopped offering coverage to truckingcompanies as a result of increases in the severity of automobile liability claims and higher costs of settlements and verdicts. This trend could adversely affectour ability to obtain suitable insurance coverage or could significantly increase our cost for obtaining such coverage, which would adversely affect ourfinancial condition, results of operations, liquidity and cash flows. Costs we incur to defend or to satisfy a judgment or settlement of these claims may not becovered by insurance or could exceed the amount of that coverage or increase our insurance costs and could have a material adverse effect on our financialcondition, results of operations, liquidity and cash flows.Item 1B.UNRESOLVED STAFF COMMENTSNone.10Item 1C.EXECUTIVE OFFICERS OF THE REGISTRANTIn reliance on General Instruction G to Form 10-K, information on executive officers of the Registrant is included in this Part I. The table sets forth certaininformation as of February 1, 2018 with respect to each person who is an executive officer of the Company. Name Age PositionDavid P. Yeager 64 Chairman of the Board of Directors and Chief Executive Officer Donald G. Maltby 63 President, Chief Operating Officer and Director Phillip D. Yeager 30 Chief Commercial Officer Terri A. Pizzuto 59 Executive Vice President, Chief Financial Officer and Treasurer David L. Marsh 50 Executive Vice President, Chief Highway Solutions Officer Vava R. Dimond 51 Executive Vice President, Chief Information Officer James J. Damman 60 Executive Vice President, President of Mode Transportation John C. Vesco 55 Executive Vice President, President of Hub Group Trucking Brian D. Alexander 38 Executive Vice President, Unyson Logistics Vincent C. Paperiello 47 Executive Vice President, Pricing and Yield Management Douglas G. Beck 51 Executive Vice President, Secretary and General Counsel David P. Yeager has served as our Chairman of the Board since November 2008 and as Chief Executive Officer since March 1995. From March 1995through November 2008, Mr. Yeager served as Vice Chairman of the Board. From October 1985 through December 1991, Mr. Yeager was President of HubChicago. From 1983 to October 1985, he served as Vice President, Marketing of Hub Chicago. Mr. Yeager founded the St. Louis Hub in 1980 and served asits President from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 and served as its President from 1975 to 1977. Mr. Yeager received aMasters in Business Administration degree from the University of Chicago in 1987 and a Bachelor of Arts degree from the University of Dayton in 1975.Mr. Yeager is the father of Phillip D. Yeager.Donald G. Maltby was appointed a Director of the Company in May 2016 and President and Chief Operating Officer in September 2015. Mr. Maltbyserved as Chief Supply Chain Officer of Hub Supply Chain Solutions from January 2011 to May 2014. From February 2004 to December 2010, Mr. Maltbyserved as Executive Vice President-Logistics Services. Mr. Maltby previously served as President of Hub Online, our e-commerce division, from February2000 through January 2004. Mr. Maltby also served as President of Hub Cleveland from July 1990 through January 2000 and from April 2002 to January2004. Prior to joining Hub Group, Mr. Maltby served as President of Lyons Transportation, a wholly owned subsidiary of Sherwin Williams Company, from1988 to 1990. In his career at Sherwin Williams, which began in 1981 and continued until he joined us in 1990, Mr. Maltby held a variety of managementpositions including Vice-President of Marketing and Sales for its Transportation Division. Mr. Maltby has been in the transportation and logistics industrysince 1976, holding various executive and management positions. Mr. Maltby received a Masters in Business Administration from Baldwin Wallace Collegein 1982 and a Bachelor of Science degree from the State University of New York in 1976.Phillip D. Yeager was named Chief Commercial Officer in January 2018 after serving as Executive Vice President, Account Management and IntermodalOperations since January 2016. Mr. Yeager previously served as Vice President of Account Management and Business Development from February 2014 toJanuary 2016. Mr. Yeager is responsible for managing Hub Group’s overall customer experience, including customer service, intermodal operations and railrelationships. Mr. Yeager joined Hub Group in 2011 as the Director of Strategy and Acquisitions to focus on strategic initiatives and acquisitions throughoutthe company and lead the integration of Mode Transportation. Prior to joining Hub Group, Mr. Yeager served as Assistant Vice President of CommercialBanking at BMO Harris Bank, and as an investment banking analyst for Lazard Freres & Co. Mr. Yeager earned his Bachelor of Arts degree from TrinityCollege in Hartford, Connecticut, and a Master of Business Administration from the University of Chicago Booth School of Business. Mr. Yeager is the sonof David P. Yeager.Terri A. Pizzuto has been our Executive Vice President, Chief Financial Officer and Treasurer since March 2007. Prior to this promotion, Ms. Pizzuto wasVice President of Finance from July 2002 through February 2007. Prior to joining us, Ms. Pizzuto was a partner in the Assurance and Business AdvisoryGroup at Arthur Andersen LLP. Ms. Pizzuto worked for Arthur Andersen LLP for 2211years holding various positions and serving numerous transportation companies. Ms. Pizzuto received a Bachelor of Science in Accounting from theUniversity of Illinois in 1981. Ms. Pizzuto is a CPA and a member of the American Institute of Certified Public Accountants.David L. Marsh was named Executive Vice President in May 2016 and Chief Highway Solutions Officer in September 2015 after having served as ChiefSupply Chain Officer since May 2014. Previously, Mr. Marsh served as Chief Marketing Officer from October 2007 to May 2014. Mr. Marsh was ExecutiveVice President-Highway from February 2004 through September 2007. Mr. Marsh previously served as President of Hub Ohio from January 2000 throughJanuary 2004. Mr. Marsh joined us in March 1991 and became General Manager with Hub Indianapolis in 1993, a position he held through December 1999.Prior to joining Hub Group, Mr. Marsh worked for Carolina Freight Corporation, a less than truckload carrier, starting in January 1990. Mr. Marsh received aBachelor of Science degree in Marketing and Physical Distribution from Indiana University-Indianapolis in 1989. Mr. Marsh has been a member of theAmerican Society of Transportation and Logistics, the Indianapolis Traffic Club, the Council for Logistics Management and served as an advisor to theIndiana University-Indianapolis internship program for transportation and logistics. Mr. Marsh was honored as the Indiana Transportation Person of the Yearin 1999.Vava R. Dimond was named an Executive Vice President of the Company in May 2016 and Chief Information Officer in April 2015 after serving as theInterim Chief Information Officer since September 2014. Ms. Dimond began her career with Hub Group in June 2013 as the Vice President of BusinessEngineering, responsible for overseeing Hub Group’s Business Intelligence, Business Engineering and Program Management projects and processes.Previously, Ms. Dimond spent 16 years with Schneider National and held several leadership positions within IT, most recently serving as Vice President ofTechnology Services. Ms. Dimond earned her Bachelor of Science degree in Economics from South Dakota State University in 1991. Ms. Dimond is thespouse of Mr. John C. Vesco.James J. Damman was appointed Executive Vice President in May 2016 after he assumed the role of President of Mode LLC, following the acquisition ofExel Transportation Services from Deutsche Post DHL in April 2011. Prior to this transaction, Mr. Damman served as a President of Exel TransportationServices and President of Technology, Aerospace and Service Logistics Americas for DHL/Exel. Before Exel, he served as a President of Transentric LLC, asupply chain technology provider. Prior to this, Mr. Damman held senior executive roles in operations, marketing, sales and customer service with the UnionPacific Railroad. Mr. Damman has been in Transportation and Supply Chain Management since 1980, holding various executive and management positions.Mr. Damman received a Bachelor of Science degree in Business from Central Michigan University in 1980 and a Master of Business Administration fromSouthern Illinois University at Edwardsville in 1986.John C. Vesco was named Executive Vice President, President of Hub Group Trucking in January 2016. Mr. Vesco has led Hub Group Trucking’soperations as its President since January 2015, after serving as Executive Vice President of Hub Group Trucking from March 2012 to December 2014. Prior tojoining Hub Group, Mr. Vesco held several management positions with Schneider National, most recently as Vice President and General Manager ofSchneider Logistics. Mr. Vesco earned a Bachelor of Arts degree in Finance and Business Administration from Walsh University and a Master of BusinessAdministration degree from Silver Lake College. Mr. Vesco is the spouse of Ms. Vava R. Dimond.Brian D. Alexander was named Executive Vice President of Unyson Logistics in September 2015. Before being named Executive Vice President, Mr.Alexander served as Vice President of Operations of Unyson Logistics from December 2010 to September 2015 and was responsible for the operationalexecution and excellence for Fortune 500 manufacturing, retail and consumer packaged goods clients. Prior to that, Mr. Alexander was Unyson’s SeniorDirector of Strategic Accounts, where he had a ten-year history of managing and directing continuous improvement initiatives for key accounts. Mr.Alexander earned a Bachelor’s degree in Business Administration from Marquette University and Master of Business Administration degree from CardinalStritch University.Vincent C. Paperiello was named Executive Vice President, Pricing and Yield Management in February 2016 after serving as Vice President, Pricing andYield Management from March 2014 to February 2016. Since joining Hub Group in 1993, Mr. Paperiello has held a variety of operational, logisticsmanagement and business intelligence positions with the Company. In his current role, he is responsible for intermodal and regional trucking pricing strategyand execution, along with rail relations. Mr. Paperiello received a Bachelor of Arts degree in History from Western Illinois University and a Master ofBusiness Administration – Finance degree from DePaul University, graduating with honors both times.Douglas G. Beck was named Executive Vice President, Secretary and General Counsel in May 2016, after serving as Vice President, Secretary and GeneralCounsel since July 2015, and Interim General Counsel since January 2015. In his role, Mr. Beck is responsible for managing the Legal, Human Resources andCompliance departments. Mr. Beck began his career with Hub Group in June 2011 as Assistant General Counsel. Prior to joining Hub Group, Mr. Beck was aSenior Attorney with Alberto-Culver Company from 2007 to 2011. Mr. Beck previously held counsel positions at Navistar International Corporation,Allegiance Healthcare Corporation and Seyfarth Shaw. Mr. Beck earned a Bachelor of Arts degree from the University of Illinois in 1987 graduating summacum laude and received his Juris Doctor from Northwestern University School of Law in 1992.12Directors of the RegistrantIn addition to David P. Yeager and Donald G. Maltby, the following six individuals are also on our Board of Directors: Gary D. Eppen – currently retiredand formerly the Ralph and Dorothy Keller Distinguished Service Professor of Operations Management and Deputy Dean for part-time Masters in BusinessAdministration Programs at The University of Chicago Booth School of Business; James C. Kenny – Director of Kenny Industries, LLC, an asset holdingcompany, and Director of Kerry Group, PLC, a company traded on the London and Dublin stock exchanges; Peter B. McNitt – Vice Chair of BMO HarrisBank, a United States bank; Charles R. Reaves – Chief Executive Officer of Reaves Enterprises, Inc., a real estate development company; Martin P. Slark –Chief Executive Officer of Molex Incorporated, a manufacturer of electronic, electrical and fiber optic interconnection products and systems; and Jonathan P.Ward – Operating Partner at Kohlberg & Co., a leading U.S. private equity firm. Item 2.PROPERTIESAs of December 31, 2017, we directly, or indirectly through our subsidiaries, operated 33 offices throughout the United States, Canada and Mexico,including our headquarters in Oak Brook, Illinois and our Company-owned drayage operations located throughout the United States. We have corporateoffices in Mesa, AZ, Memphis, TN and Dallas, TX and Mode has a temperature protected services division operated out of our Oak Brook, IL headquarters.All of our office space except for our corporate headquarters is leased. Most office leases have initial terms of more than one year, and many include optionsto renew. While some of our leases expire in the near term, we do not believe that we will have difficulty in renewing them or in finding alternative officespace. We believe that our offices are adequate for the purposes for which they are currently used.Item 3.LEGAL PROCEEDINGSWe are a party to litigation incident to our business, including claims for personal injury and/or property damage, bankruptcy preference claims, andclaims regarding freight lost or damaged in transit, improperly shipped or improperly billed. Some of the lawsuits to which we are party are covered byinsurance and are being defended by our insurance carriers. Some of the lawsuits are not covered by insurance and we defend those ourselves. We do notbelieve that the outcome of this litigation will have a materially adverse effect on our financial position or results of operations. See Item 1 Business—RiskManagement and Insurance and see Note 14 to the consolidated financial statements under “Legal Matters” for a detailed discussion of our ongoing legalproceedings.Item 4.MINE SAFETY DISCLOSURESNot applicable. 13PART II Item 5.MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESOur Class A Common Stock (“Class A Common Stock”) trades on the NASDAQ Global Select Market tier of the NASDAQ Stock Market under the symbol“HUBG.” There is no established trading market for shares of our Class B Common Stock (the “Class B Common Stock” together with the Class A CommonStock, the “Common Stock”). Set forth below are the high and low closing prices for shares of the Class A Common Stock for each full quarterly period in2017 and 2016. 2017 2016 High Low High Low First Quarter$52.50 $41.55 $40.96 $28.19 Second Quarter$47.80 $33.45 $41.35 $36.69 Third Quarter$43.85 $33.17 $43.51 $37.64 Fourth Quarter$48.90 $37.90 $46.15 $34.35On February 16, 2018, there were approximately 496 stockholders of record of the Class A Common Stock and, in addition, there were an estimated 7,508beneficial owners of the Class A Common Stock whose shares were held by brokers and other fiduciary institutions. On February 16, 2018, there were 10holders of record of our Class B Common Stock.We were incorporated in 1995 and have never paid cash dividends on either the Class A Common Stock or the Class B Common Stock. The declarationand payment of dividends are subject to the discretion of the Board of Directors. Any determination as to the payment of dividends will depend upon ourresults of operations, capital requirements and financial condition of the Company, and such other factors as the Board of Directors may deem relevant.Accordingly, there can be no assurance that the Board of Directors will declare or pay cash dividends on the shares of Common Stock in the future. Ourcertificate of incorporation requires that any cash dividends must be paid equally on each outstanding share of Class A Common Stock and Class B CommonStock. Our credit facility prohibits us from paying dividends on the Common Stock if there has been, or immediately following the payment of a dividendthere would be, a default or an event of default under the credit facility. We are currently in compliance with the covenants contained in the credit facility.See Note 15 to the consolidated financial statements for information on share repurchases.14Performance GraphThe following line graph compares the Company’s cumulative total stockholder return on its Class A Common Stock since December 31, 2012 with thecumulative total return of the Nasdaq Stock Market Index (NQUSBT) and the Nasdaq Trucking and Transportation Index (NQUSB27707). These comparisonsassume the investment of $100 on December 31, 2012 in each index and in the Company’s Class A Common Stock and the reinvestment of dividends. Item 6.SELECTED FINANCIAL DATASelected Financial Data(in thousands except per share data) Years Ended December 31, 2017 (1) 2016 2015 2014 2013 Statement of Income Data: Revenue$4,034,897 $3,572,790 $3,525,595 $3,571,126 $3,373,898 Gross margin 457,517 454,785 412,695 370,435 371,023 Operating income 96,551 123,834 117,030 83,877 113,747 Income before provision for income taxes 90,937 121,421 111,582 81,867 112,555 Net income 135,153 74,805 70,949 51,558 69,110 Basic earnings per common share$4.07 $2.21 $1.98 $1.41 $1.88 Diluted earnings per common share$4.05 $2.20 $1.97 $1.40 $1.8715 (1)Includes the results of operations for HGD from July 1, 2017, the date of its acquisition by Hub Group. As of December 31, 2017 (1) 2016 2015 2014 2013 Balance Sheet Data: Total assets$1,670,941 $1,360,259 $1,301,146 $1,212,127 $1,047,943 Long-term debt, including capital lease 222,504 126,105 114,194 88,397 24,952 Stockholders' equity 769,872 628,179 647,840 600,784 561,227 Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSEXECUTIVE SUMMARYHub Group, Inc. (the “Company”, “we”, “us” or “our”) reports two distinct business segments, Hub and Mode. The Mode segment includes only thebusiness we acquired on April 1, 2011. The Hub segment includes all businesses other than Mode. Hub Group refers to the consolidated results for thecompany, including both the Mode and Hub segments. For the segment financial results, refer to Note 5 to the consolidated financial statements.We are a world class provider of multimodal transportation solutions. We offer intermodal, truck brokerage, dedicated and logistics services. We operatethrough a nationwide network of operating centers and independent business owners.We also arrange for the transportation of freight by truck, providing customers with another option for their transportation needs. We match the customers’needs with carriers’ capacity to provide the most effective service and price combinations. As part of our truck brokerage services, we negotiate rates, trackshipments in transit and handle claims for freight loss or damage on behalf of our customers.Our new dedicated service line, HGD, contracts with customers looking to outsource a portion of their transportation needs. We offer a dedicated fleet ofequipment and drivers, as well as the management and infrastructure to operate according to the customers’ high service expectations.Our logistics service consists of complex transportation management services, including load consolidation, mode optimization and carrier management.These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of their transportation needs.Hub has full time marketing representatives throughout North America who service local, regional and national accounts. We believe that fostering long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation servicesto them.Hub’s account management group works with pricing, sales and operations to enhance Hub’s customer margins. We are working on margin enhancementprojects including using the most cost effective drayage carriers, improving utilization, improving our accessorial management, reducing empty miles,improving network balance and routinely reviewing and improving low margin loads.Hub’s top 50 customers represent approximately 66% of the Hub segment revenue for the year ended December 31, 2017. We use various performanceindicators to manage our business. We closely monitor margin and gains and losses for our top 50 customers. We also evaluate on-time performance,customer service, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service issues are also monitored closely.Mode has approximately 173 agents, consisting of 99 sales/operating agents, known as Independent Business Owners (“IBOs”), who sell and operate thebusiness throughout North America, and 74 sales only agents. Mode also has a temperature protected services division operated out of our Oak Brook, ILheadquarters and corporate offices in Memphis, TN and Dallas, TX. Mode’s top 20 customers represent approximately 39% of the Mode segment revenue forthe year ended December 31, 2017. We closely monitor revenue and margin for these customers. We believe Mode brings us highly complementary serviceofferings, more scale and a talented sales channel that allows us to better reach small and midsize customers.16RESULTS OF OPERATIONSYear Ended December 31, 2017 Compared to Year Ended December 31, 2016The following table summarizes our revenue by segment and business line (in thousands): Twelve Months Twelve Months Ended December 31, 2017 Ended December 31, 2016 Inter- Hub Inter- Hub Segment Group Segment Group Hub Mode Elims Total Hub Mode Elims Total Intermodal$1,852,884 $496,733 $(56,587)$2,293,030 $1,785,865 $486,758 $(81,556)$2,191,067 Truck brokerage 483,955 340,330 (1,990) 822,295 391,901 308,055 (1,456) 698,500 Logistics 655,543 192,097 (43,061) 804,579 556,775 153,922 (27,474) 683,223 Dedicated 115,012 - (19) 114,993 - - - - Total revenue$3,107,394 $1,029,160 $(101,657)$4,034,897 $2,734,541 $948,735 $(110,486)$3,572,790 RevenueHub Group’s revenue increased 12.9% to $4.0 billion in 2017 from $3.6 billion in 2016.The Hub segment revenue increased 13.6% to $3.1 billion. Intermodal revenue increased 3.8% to $1.9 billion primarily due to higher fuel revenue, 1.1%higher volume and favorable mix, partially offset by a decrease in customer pricing. Truck brokerage revenue increased 23.5% to $484.0 million due to an8.8% volume increase as well as a 14.7% increase in fuel, mix and price combined. Logistics revenue increased 17.7% to $655.5 million related primarily tonew customers on-boarded during the year. Dedicated revenue was $115.0 million from the date of acquisition to December 31, 2017. Mode’s revenue increased 8.5% to $1,029.2 million in 2017 from $948.7 million in 2016. Mode intermodal revenue increased 2.0%, truck brokeragerevenue increased 10.5% and logistics revenue increased 24.8%.The following is a summary of operating results for our business segments (in thousands): Twelve Months Twelve Months Ended December 31, 2017 Ended December 31, 2016 Inter- Hub Inter- Hub Segment Group Segment Group Hub Mode Elims Total Hub Mode Elims Total Revenue$3,107,394 $1,029,160 $(101,657)$4,034,897 $2,734,541 $948,735 $(110,486)$3,572,790 Transportation costs 2,771,291 907,746 (101,657) 3,577,380 2,404,946 823,545 (110,486) 3,118,005 Gross margin 336,103 121,414 - 457,517 329,595 125,190 - 454,785 Costs and expenses: Salaries and benefits 174,573 13,816 - 188,389 165,136 15,323 - 180,459 Agent fees and commissions 58 74,024 - 74,082 66 72,830 - 72,896 General and administrative 77,085 8,097 - 85,182 60,811 7,819 - 68,630 Depreciation and amortization 12,139 1,174 - 13,313 7,698 1,268 - 8,966 Total costs and expenses 263,855 97,111 - 360,966 233,711 97,240 - 330,951 Operating income$72,248 $24,303 $- $96,551 $95,884 $27,950 $- $123,834 Transportation CostsHub Group’s transportation costs increased to $3.6 billion in 2017 from $3.1 billion in 2016. Transportation costs in 2017 consisted of purchasedtransportation costs of $3.1 billion and equipment and driver related costs of $449.8 million compared to 2016 which consisted of purchased transportationcosts of $2.8 billion and equipment and driver related costs of $360.8 million.The Hub segment transportation costs increased to $2.8 billion in 2017 from $2.4 billion in 2016. Hub segment transportation costs in 2017 consisted of$2.3 billion in purchased transportation costs up from $2.0 billion in 2016. The 13.5% increase was primarily due to an increase in rail and fuel costs andhigher volumes. Equipment and driver related costs increased 24.9% to $446.5 million in 2017 from $357.3 million in 2016 due primarily to the equipmentand driver related costs of HGD.17The Mode segment transportation costs increased 10.2% to $907.7 million in 2017 from $823.5 million in 2016. Mode segment transportation costs areprimarily purchased transportation costs which increased due primarily to increased business in logistics, an increase in rail and fuel costs and higher volumein truck brokerage.Gross MarginHub Group’s gross margin increased 0.6% to $457.5 million in 2017 from $454.8 million in 2016. Hub Group’s gross margin as a percentage of revenuedecreased to 11.3% in 2017 from 12.7% in 2016.The Hub segment gross margin increased 2.0% to $336.1 million. Hub’s $6.5 million gross margin increase resulted from the addition of HGD and growthin truck brokerage margin, partially offset by decreases in intermodal and logistics margin. Truck brokerage gross margin increased due to changes incustomer mix. Intermodal gross margin decreased primarily because of lower customer prices than last year and rail cost increases partially offset by slightlyimproved volume. Logistics gross margin decreased due to tighter truck capacity that resulted in higher purchased transportation costs and changes incustomer mix.As a percentage of Hub segment revenue, Hub segment gross margin decreased to 10.8% in 2017 from 12.1% in 2016. Intermodal gross margin as apercentage of sales decreased 170 basis points because of lower customer prices than last year and rail cost increases. Truck brokerage gross margin as apercentage of sales decreased 170 basis points due to lower customer contract rates, increased costs, and a change in customer mix. Logistics gross margin asa percentage of sales decreased 190 basis points due to changes in customer mix and start-up costs associated with new customer on-boardings. The additionof HGD partially offset these declines. Mode’s gross margin decreased 3.0% to $121.4 million in 2017 from $125.2 million in 2016 due primarily to decreases in intermodal and truck brokeragepartially offset by an increase in logistics margin. Mode’s gross margin as a percentage of revenue decreased to 11.8% in 2017 from 13.2% in 2016.CONSOLIDATED OPERATING EXPENSESThe following table presents certain items in the Consolidated Statements of Income as a percentage of revenue: Twelve Months Ended December 31, 2017 2016 Revenue100.0% 100.0% Transportation costs 88.7 87.3 Gross margin 11.3 12.7 Costs and expenses: Salaries and benefits 4.7 5.1 Agent fees and commissions 1.8 2.0 General and administrative 2.1 1.9 Depreciation and amortization 0.3 0.2 Total costs and expenses 8.9 9.2 Operating income 2.4 3.5 Salaries and BenefitsHub Group’s salaries and benefits increased to $188.4 million in 2017 from $180.5 million in 2016. As a percentage of revenue, Hub Group’s salaries andbenefits decreased to 4.7% in 2017 from 5.1% in 2016.The Hub segment salaries and benefits increase of $9.4 million was due primarily to the acquisition of HGD. In addition, increases in salaries expense of$9.0 million, related to employee raises and higher severance expense of $3.1 million, compensation related to restricted stock awards of $1.3 million and anincrease in employee benefits expense of $1.0 million, which were offset by decreases in employee bonus expense of $14.3 million, payroll taxes of $0.5million and sales commissions of $0.3 million.Mode’s salaries and benefits expense decreased to $13.8 million in 2017 from $15.3 million in 2016. The decrease was due primarily to decreases of $1.0million related to employee bonus expense and $0.5 million related to salaries expense, employee benefits expense and payroll taxes.18Hub’s headcount as of December 31, 2017 and 2016 was 1,914 and 1,657, respectively, which excludes drivers, as driver costs are included intransportation costs. The increase in Hub’s headcount is due to the acquisition of HGD. As of December 31, 2017 and 2016, Mode had 116 and 127employees, respectively.Agent Fees and CommissionsHub Group’s agent fees and commissions increased to $74.1 million in 2017 from $72.9 million in 2016. As a percentage of revenue, these expensesdecreased to 1.8% in 2017 from 2.0% in 2016. The $1.2 million increase was primarily related to Mode’s conversion of the company managed operation toan IBO location in January 2017. General and AdministrativeHub Group’s general and administrative expenses increased to $85.2 million in 2017 from $68.6 million in 2016. As a percentage of revenue, theseexpenses increased to 2.1% in 2017 from 1.9% in 2016.The Hub segment increase of $16.3 million in general and administrative expense was due primarily to the acquisition of HGD and increases in ITconsulting and professional service expense of $4.0 million, expenses related to due diligence and acquisition costs of $1.7 million, increases in temporarylabor expense of $1.1 million, increased IT maintenance expense of $0.9 million, a change in the gain/loss on sale of assets of $0.9 million, expenses relatedto a network optimization study of $0.6 million in 2017, increases in rent expense of $0.6 million, equipment lease expense of $0.3 million, and bad debtexpense of $0.2 million, partially offset by decreases in outside sales commissions of $0.4 million and meals and entertainment of $0.2 million.Mode’s general and administrative expenses increased to $8.1 million in 2017 from $7.8 million in 2016. The increase was primarily due to increases inbad debt expense of $0.4 million, IT maintenance expense of $0.3 million and gross receipts taxes of $0.2 million, partially offset by a decrease in anintercompany charge from Hub of $0.6 million.Depreciation and AmortizationHub Group’s depreciation and amortization increased to $13.3 million in 2017 from $9.0 million in 2016. This expense as a percentage of revenueincreased to 0.3% in 2017 from 0.2% in 2016.The Hub segment’s depreciation and amortization expense increased to $12.1 million in 2017 from $7.7 million in 2016. This increase was relatedprimarily to the amortization of the HGD trade name and customer relationships as well as depreciation of additional computer software.Mode’s depreciation and amortization expense decreased to $1.2 million in 2017 from $1.3 million in 2016. Other Income (Expense)Hub Group’s other expense increased to $5.6 million in 2017 from $2.4 million in 2016 due primarily to the additional interest costs related to theacquisition of HGD, an increase in interest expense related to our equipment debt and less foreign currency translation gains in 2017.Provision for Income TaxesThe provision for income taxes decreased to a benefit of $44.2 million in 2017 from an expense $46.6 million in 2016 due primarily to the favorableimpact on income tax expense from the revaluation of deferred tax liabilities as a result of the enactment of the U.S. Tax Cuts and Jobs Act (the “Act”). Oureffective tax rate was a benefit of 48.6% in 2017 and an expense of 38.4% in 2016. Net IncomeNet income increased to $135.2 million in 2017 from $74.8 million in 2016 due primarily to the revaluation of deferred tax liabilities in connection withthe Act, resulting in an income tax benefit in 2017 and increased margin, partially offset by higher operating expenses. 19Year Ended December 31, 2016 Compared to Year Ended December 31, 2015The following table summarizes our revenue by segment and business line (in thousands): Twelve Months Twelve Months Ended December 31, 2016 Ended December 31, 2015 Inter- Hub Inter- Hub Segment Group Segment Group Hub Mode Elims Total Hub Mode Elims Total Intermodal$1,785,865 $486,758 $(81,556)$2,191,067 $1,792,046 $483,910 $(78,688)$2,197,268 Truck brokerage 391,901 308,055 (1,456) 698,500 355,402 314,498 (1,908) 667,992 Logistics 556,775 153,922 (27,474) 683,223 531,870 130,253 (1,788) 660,335 Total revenue$2,734,541 $948,735 $(110,486)$3,572,790 $2,679,318 $928,661 $(82,384)$3,525,595 RevenueHub Group’s revenue increased 1.3% to $3.6 billion in 2016 from $3.5 billion in 2015 due primarily to higher volume across our business lines.The Hub segment revenue increased 2.1% to $2.7 billion. Hub segment intermodal revenue was flat at $1.8 billion. Intermodal volume increased 2% andprice and mix combined were also up. These increases were offset by a decline in fuel revenue. Hub segment truck brokerage revenue increased 10% to $392million. Truck brokerage handled 14% more loads, but fuel, mix and price combined were down 4%. Hub segment logistics revenue increased 5% to $557million related primarily to growth with new customers.Mode’s revenue increased 2.2% to $948.7 million in 2016 from $928.7 million in 2015. Mode’s intermodal revenue increased 1% primarily due to a 2%increase in volume which was partially offset by a decline in fuel revenue. Mode’s truck brokerage revenue decreased 2% and Mode’s logistics revenueincreased 18%.The following is a summary of operating results for our business segments (in thousands): Twelve Months Twelve Months Ended December 31, 2016 Ended December 31, 2015 Inter- Hub Inter- Hub Segment Group Segment Group Hub Mode Elims Total Hub Mode Elims Total Revenue$2,734,541 $948,735 $(110,486)$3,572,790 $2,679,318 $928,661 $(82,384)$3,525,595 Transportation costs 2,404,946 823,545 (110,486) 3,118,005 2,385,197 810,087 (82,384) 3,112,900 Gross margin 329,595 125,190 - 454,785 294,121 118,574 - 412,695 Costs and expenses: Salaries and benefits 165,136 15,323 - 180,459 143,993 14,945 - 158,938 Agent fees and commissions 66 72,830 - 72,896 56 68,668 - 68,724 General and administrative 60,811 7,819 - 68,630 53,023 6,992 - 60,015 Depreciation and amortization 7,698 1,268 - 8,966 6,688 1,300 - 7,988 Total costs and expenses 233,711 97,240 - 330,951 203,760 91,905 - 295,665 Operating income$95,884 $27,950 $- $123,834 $90,361 $26,669 $- $117,030 Transportation CostsHub Group’s transportation costs remained consistent at $3.1 billion in both 2016 and 2015. Transportation costs in 2016 consisted of purchasedtransportation costs of $2.8 billion and equipment and driver related costs of $360.8 million compared to 2015 which consisted of purchased transportationcosts of $2.7 billion and equipment and driver related costs of $386.4 million. As a percentage of revenue, transportation costs decreased in 2016 to 87.3%from 88.3% in 2015. The Hub segment transportation costs remained consistent at $2.4 billion in both 2016 and 2015. Hub segment transportation costs in 2016 consisted of$2.0 billion in purchased transportation costs, which was consistent with 2015. Equipment and driver related costs decreased 7% to $357.3 million in 2016from $383.0 million in 2015 due primarily to a decrease in fuel costs and shutting down our Southern California drayage operation in the first quarter of2016.20The Mode segment transportation costs increased 1.7% to $823.5 million in 2016 from $810.1 million in 2015. Mode segment transportation costs areprimarily purchased transportation costs which increased due primarily to higher volume in intermodal and truck brokerage.Gross MarginHub Group’s gross margin increased 10.2% to $454.8 million in 2016 from $412.7 million in 2015. Hub Group’s gross margin as a percentage of revenueincreased to 12.7% in 2016 from 11.7% in 2015.The Hub segment gross margin increased 12.1% to $329.6 million. Hub’s $35.5 million gross margin increase resulted from an increase in gross margin inall three business lines. Intermodal margin increased due to price increases, a 2% increase in loads, improved accessorial management, lower dray costs andimproved mix and lane balance. Rail cost increases partially offset some of this improvement. Truck brokerage margin increased as a result of growth withtargeted customer accounts. Logistics margin increased due to providing additional services to existing accounts and growth with new customers. As apercentage of revenue, Hub segment gross margin increased to 12.1% in 2016 from 11.0% in 2015. Intermodal gross margin as a percentage of salesincreased 90 basis points because of price increases, lower drayage costs and improved accessorial management. Truck brokerage gross margin as apercentage of sales was up 150 basis points due to more value added services and better purchasing. Logistics gross margin as a percentage of sales was up120 basis points due to improved customer mix, operational efficiencies and more cost effective purchasing.Mode’s gross margin increased 5.6% to $125.2 million in 2016 from $118.6 million in 2015 due to growth in all three business lines. Mode’s grossmargin as a percentage of revenue increased to 13.2% in 2016 from 12.8% in 2015 due to a 140 basis point improvement in truck brokerage yield and a 30basis point improvement in intermodal yield.CONSOLIDATED OPERATING EXPENSESThe following table presents certain items in the Consolidated Statements of Income as a percentage of revenue: Twelve Months Ended December 31, 2016 2015 Revenue 100.0% 100.0% Transportation costs 87.3 88.3 Gross margin 12.7 11.7 Costs and expenses: Salaries and benefits 5.1 4.5 Agent fees and commissions 2.0 2.0 General and administrative 1.9 1.7 Depreciation and amortization 0.2 0.2 Total costs and expenses 9.2 8.4 Operating income 3.5 3.3 Salaries and BenefitsHub Group’s salaries and benefits increased to $180.5 million in 2016 from $158.9 million in 2015. As a percentage of revenue, Hub Group’s salaries andbenefits increased to 5.1% in 2016 from 4.5% in 2015.The Hub segment salaries and benefits increase of $21.1 million was due primarily to increases of $10.2 million related to higher headcount and meritincreases, $6.5 million of employee bonus expense, $1.8 million of commissions, $1.4 million of employee benefits, $0.7 million of payroll taxes and $0.5million of compensation related to restricted stock awards.Mode’s salaries and benefits expense increased to $15.3 million in 2016 from $14.9 million in 2015. The increase was due primarily to increases of $0.7million related to higher headcount and merit increases and $0.1 million of compensation related to restricted stock awards partially offset by a decrease inemployee bonus expense of $0.4 million. Hub’s headcount as of December 31, 2016 and 2015 was 1,657 and 1,480, respectively, which excludes drivers, as driver costs are included intransportation costs. As of December 31, 2016 and 2015, Mode had 127 and 117 employees, respectively.21Agent Fees and CommissionsHub Group’s agent fees and commissions increased to $72.9 million in 2016 from $68.7 million in 2015. As a percentage of revenue, these expensesremained consistent at 2.0% in both 2016 and 2015. The increase in the expense was primarily related to Mode’s increase in gross margin. The Mode segment agent fees and commissions expense increase of $4.2 million was primarily due to the increase in gross margin.General and AdministrativeHub Group’s general and administrative expenses increased to $68.6 million in 2016 from $60.0 million in 2015. As a percentage of revenue, theseexpenses increased to 1.9% in 2016 from 1.7% in 2015.The Hub segment increase of $7.8 million was due primarily to increases in IT consulting expenses of $3.8 million, IT maintenance expense of $1.4million, legal expenses of $1.0 million, office expenses and travel and entertainment of $0.9 million each, recruiting expenses of $0.4 million, generalconsulting expenses of $0.3 million, rent expense and employee training of $0.2 million each and equipment leases of $0.1 million. These increases werepartially offset by more gains on the sale of fixed assets of $0.6 million, an intercompany charge to Mode of $0.6 million and a reduction in bad debt expenseof $0.2 million.Mode’s general and administrative expenses increased to $7.8 million in 2016 from $7.0 million in 2015. The increase was primarily due to anintercompany charge from Hub of $0.6 million and repairs and maintenance expenses, fewer gains on the sale of fixed assets and consulting services of $0.1million each. These increases were partially offset by a decrease in bad debt expense of $0.1 million.Depreciation and AmortizationHub Group’s depreciation and amortization increased to $9.0 million in 2016 from $8.0 million in 2015. This expense as a percentage of revenueremained consistent at 0.2% in both 2016 and 2015.The Hub segment’s depreciation expense increased to $7.7 million in 2016 from $6.7 million in 2015. This increase was related primarily to moredepreciation related to additional computer software.Mode’s depreciation expense remained consistent at $1.3 million in 2016 and 2015. Other Income (Expense)Hub Group’s other expense decreased to $2.4 million in 2016 from $5.4 million in 2015 due primarily to gains on foreign currency translation of $0.8million in 2016 compared to losses of $2.6 million in 2015, partially offset by increases of $0.7 million in interest expense in 2016 related to our tractor andcontainer debt.Provision for Income TaxesThe provision for income taxes increased to $46.6 million in 2016 from $40.6 million in 2015 due primarily to an increase in our pretax income and to alesser extent an increase in our effective tax rate. Our effective tax rate was 38.4% in 2016 and 36.4% in 2015. The 2016 effective tax rate increasedprimarily due to the effects of income tax law changes enacted by the state of Connecticut in 2016 which raised our 2016 rate and income tax law changesenacted by the state of Missouri in 2015 which lowered our 2015 rate.Net IncomeNet income increased to $74.8 million in 2016 from $70.9 million in 2015 due primarily to increased margin, partially offset by higher operatingexpenses and higher income tax expense.22LIQUIDITY AND CAPITAL RESOURCESDuring 2017, we funded operations, capital expenditures, an acquisition, capital leases, repayments of debt and stock buy backs related to employeewithholding upon vesting of restricted stock through cash flows from operations, proceeds from the issuance of long-term debt and cash on hand. We believethat our cash, cash flows from operations and borrowings available under our Credit Agreement will be sufficient to meet our cash needs for at least the nexttwelve months.Cash provided by operating activities for the year ended December 31, 2017 was approximately $125.2 million, which resulted primarily from income of$135.2 million adjusted for non-cash charges of $31.1 million and a decrease in operating assets and liabilities of $41.1 million.Cash provided by operating activities increased $22.7 million in 2017 versus 2016. The increase was due primarily to higher net income in 2017 of $60.3million resulting primarily from a revaluation of deferred tax liabilities in connection with the recently enacted Tax Cuts and Job Act. As a result of thisdeferred tax revaluation, non-cash charges decreased by $34.6 million which included a change in deferred tax liabilities of $55.1 million partially offset byan increase in depreciation and amortization expense of $17.5 million. The negative change in operating assets and liabilities of $3.0 million was caused bya decrease in the change of accrued expenses of $12.2 million, an increase in the cash used for prepaid taxes of $11.9 million and prepaid expenses of $8.7million, partially offset by an increase in the change of accounts payable of $23.3 million due to the timing of vendor payments.Cash provided by operating activities was approximately $102.5 million and $171.7 million for the years ended December 31, 2016 and 2015,respectively. The cash provided by operating activities in 2016 resulted primarily from income of $74.8 million plus the adjustment for non-cash charges of$65.7 million less the change in operating assets and liabilities of $38.0 million. The $69.2 million decrease in cash flow provided by operating activities for2016 compared to 2015 was primarily attributed to a negative cash change in operating assets and liabilities of $77.7 million offset by an increase in non-cash charges of $4.6 million and net income of $3.9 million. The negative cash change in assets and liabilities in 2016 versus 2015 resulted from higherDays Sales Outstanding (“DSO”) in 2016 versus 2015 caused by extended terms by select customers, partially offset by slower payments to our vendors.Net cash used in investing activities for the year ended December 31, 2017 was $235.1 million which includes acquisition payments related to HGD of$165.9 million, capital expenditures of $74.5 million and proceeds from the sale of equipment of $5.3 million. Capital expenditures of $74.5 millionincluded containers of $25.0 million, technology investments of $19.0 million, tractor purchases of $15.4 million, transportation equipment of $12.8 million,and the remainder for leasehold improvements. Capital expenditures decreased by approximately $32.9 million in 2017 as compared to 2016. The 2017 decrease was due to decreases in containerpurchases of $34.4 million and land of $14.9 million. These decreases were partially offset by approximately $9.5 million more of tractor purchases,increased technology investments of $6.0 million and an increase in transportation equipment purchases of $1.2 million in 2016.Net cash used in investing activities for the year ended December 31, 2016 was $105.3 million as compared to $80.7 million in 2015. Capitalexpenditures increased by approximately $24.4 million in 2016 as compared to 2015. The 2016 increase was due to increases in container purchases of $38.9million, land of $14.9 million, technology of $7.2 million and leasehold improvements of $1.7 million. These increases were partially offset byapproximately $39.4 million more of tractor purchases in 2015.In 2018, we estimate capital expenditures will range from $150.0 million to $170.0 million. We expect equipment purchases to range from $120.0million to $130.0 million and technology investments will range from $30.0 million to $40.0 million.Net cash provided by financing activities for the year ended December 31, 2017 was $11.1 million which includes proceeds from the issuance of debt$98.5 million, offset by repayments of long-term debt of $79.9 million, cash for stock tendered for payments of withholding taxes of $3.4 million, capitallease payments of $2.8 million and payment of debt issuance costs of $1.4 million.The $88.4 million increase in cash provided by financing activities for 2017 compared to 2016 was primarily due to the decrease in treasury stockpurchases of $100.0 million and an increase in the proceeds from issuance of debt of $36.4 million, partially offset by increases in debt payments of $45.1million, debt issuance costs of $1.4 million and cash for stock tendered for payments of withholding taxes of $0.9 million.Net cash used in financing activities for the year ended December 31, 2016 was $77.4 million. We used $100.0 million to purchase treasury stock, $34.8million for repayment of long-term debt, $2.6 million for capital lease payments and $2.5 million of cash for stock tendered for payments of withholdingtaxes. These payments were partially offset by proceeds from the issuance of debt of $62.2 million and excess tax benefits from share-based compensation of$0.4 million as a financing cash in-flow. The $84.5 million increase in cash used in financing activities for 2016 compared to 2015 was primarily due to theincrease in treasury stock purchases of $71.2 million, an increase in debt payments of $11.6 million and a decrease in the proceeds from issuance of debt of$2.3 million.23Cash paid for income taxes of $13.1 million was higher than our income tax benefit of $44.2 million. This was due primarily to the favorable impact onincome tax expense from the revaluation of deferred tax liabilities as a result of the enactment of the Act. If the Act had not been enacted, cash paid forincome taxes would have been less than income tax expense due to favorable timing differences between our tax returns and financial statements. The Actincluded modifications to depreciation rules, generally allowing for additional accelerated depreciation beginning in September 2017. As a result ofanticipated favorable timing differences related to depreciation, we expect our cash paid for income taxes in 2018 to be significantly less than our income taxexpense. See Note 10 of the consolidated financial statements for details related to interest rates and commitment fees.We have standby letters of credit that expire in 2018. As of December 31, 2017, our letters of credit were $20.1 million.As of December 31, 2017, we had $45.0 million of borrowings under our bank revolving line of credit and our unused and available borrowings were$284.9 million. Our unused and available borrowings under our 2013 Credit Agreement were $38.2 million as of December 31, 2016. We believe our line ofcredit is adequate to meet our cash needs. We were in compliance with our debt covenants as of December 31, 2017.CONTRACTUAL OBLIGATIONSAggregated information about our obligations and commitments to make future contractual payments, such as debt and lease obligations, and contingentcommitments as of December 31, 2017 is presented in the following table (in thousands).Future Payments Due: Operating Leases and Long Capital Other Term Lease Commitments Debt Total 2018$3,137 $10,755 $77,266 $91,158 2019 3,137 8,622 70,033 81,792 2020 3,145 7,700 50,268 61,113 2021 1,821 7,272 30,704 39,797 2022 - 6,576 13,092 19,668 2023 and thereafter - 7,494 50,711 58,205 $11,240 $48,419 $292,074 $351,733In November 2016, we committed to acquire 4,000 53’ containers. As of December 31, 2017 we received 2,670 containers, which were financed withdebt and we expect to receive the remaining 1,330 units in 2018, which we expect to finance with debt.Deferred CompensationUnder our Nonqualified Deferred Compensation Plan (the “Plan”), participants can elect to defer certain compensation. Payments under the Plan are dueas follows (in thousands):Future Payments Due: 2018$1,990 2019 1,964 2020 2,545 2021 1,575 2022 1,179 2023 and thereafter 15,141 $24,394CRITICAL ACCOUNTING POLICIESThe preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates andassumptions. In certain circumstances, those estimates and assumptions can affect amounts reported in the accompanying consolidated financial statements.We have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do notbelieve there is a great likelihood that materially different24amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise ofjudgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. The following is a brief discussionof the more significant accounting policies and estimates. These critical accounting policies are further discussed in Note 1 of the consolidated financialstatements.Revenue RecognitionRevenue is recognized at the time 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the sales price is fixed anddeterminable and 4) collectability is reasonably assured. Revenue and related transportation costs are recognized based on relative transit time. Fortransportation services not completed at the end of a reporting period, we use a percentage of completion method to allocate the appropriate revenue to eachseparate reporting period. Further, in most cases, we report revenue on a gross basis because we are the primary obligor and are responsible for providing theservice desired by the customer. The customer views us as responsible for fulfillment including the acceptability of the service. Service requirements mayinclude, for example, on-time delivery, handling freight loss and damage claims, setting up appointments for pick-up and delivery and tracing shipments intransit. We have discretion in setting sales prices and as a result, our earnings vary. In addition, we have the discretion to select our vendors from multiplesuppliers for the services ordered by our customers. Finally, we have credit risk for our receivables. These three factors, discretion in setting prices, discretionin selecting vendors and credit risk, further support reporting revenue on the gross basis for substantially all of our revenue.Allowance for Uncollectible Trade Accounts ReceivableWe extend credit to customers after a review of each customer’s credit history. An allowance for uncollectible trade accounts has been establishedthrough an analysis of the accounts receivable aging, an assessment of collectability based on historical trends and an evaluation based on current economicconditions. Annually we review, in hindsight, the percentage of receivables that are collected that aged over one year, those that are not one year old and theaccounts that went into bankruptcy. Due primarily to the difference in customer mix, the percentage of receivables collected in the Hub segment has beenhigher than the Mode segment although both have been over 98%. We reserve for accounts less than one year old based on specifically identifieduncollectible balances and our historic collection percentage, including receivable adjustments charged through revenue for items such as billingdisputes. In establishing a reserve for certain account balances specifically identified as uncollectible, we consider the aging of the customer receivables, thespecific details as to why the receivable has not been paid, the customer’s current and projected financial results, the customer’s ability to meet and sustain itsfinancial commitments, the positive or negative effects of the current and projected industry outlook and the general economic conditions. Once a receivableages over one year, our collection percentage is much lower for both the Hub and Mode segments, thus a separate calculation is done for open receivablesthat have aged over one year. We also review our collection percentage after a customer has gone into bankruptcy. Although these collection percentagesmay change both negatively and positively, since only a small portion of our receivables are aged over one year or are involved in a bankruptcy case, a largechange in the either of those collection percentages would not have a material impact on our financial statements. Our level of reserves for customer accountsreceivable fluctuate depending upon all the factors mentioned above. Historically, our reserve for uncollectible accounts has approximated actual accountswritten off and we do not expect the reserve for uncollectible accounts to change significantly relative to our accounts receivable balance. The allowance foruncollectible accounts is reported on the balance sheet in net accounts receivable. Recoveries of receivables previously charged off are recorded whenreceived.EquipmentWe operate tractors and utilize containers, trailers and chassis in connection with our business. This equipment may be purchased or leased as part of anoperating or capital lease. In addition, we rent equipment from third parties and various railroads under short term rental arrangements. Equipment which ispurchased is depreciated on the straight line method over the estimated useful life. Our equipment leases have five to ten year terms and, in some cases,contain renewal options.New PronouncementsIn March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of theaccounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholdingrequirements, as well as classification of related amounts within the statement of cash flows. The new standard became effective beginning with the firstquarter of 2017. We adopted ASU 2016-09 in the first quarter of 2017 and the adoption did not have a material impact on our consolidated financialstatements. We have applied the reclassification of excess tax benefits prospectively and therefore the prior period has not been adjusted.In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts withCustomers (Topic 606), which will provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. Thecore principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amountthat reflects the consideration to which the company expects to25be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospective method, in whichcase the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at theearliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date ofinitial application. The new standard is effective for annual reporting periods beginning after December 15, 2017.We have been closely monitoring FASB activity related to the new standard. In the first half of 2017, we made significant progress toward completing ourevaluation of the potential changes from adopting the new standard on our future financial reporting and disclosures. In the second half of 2017, we finalizedour contract reviews and our detailed accounting policy. Based on our evaluation, we adopted the requirements of the new standard on January 1, 2018 andwill use the full retrospective transition method. The impact of adopting Topic 606 primarily relates to recording all taxes assessed by a governmental authority that are both, imposed on and concurrentwith a specific revenue-producing transaction and collected by Hub Group from a customer on a net basis, which previously were recorded on a gross basis.We expect this election to have approximately a $3.0 million impact on our consolidated financial statements in 2017 and 2016. The impact to our results isrestricted to taxes because the analysis of our contracts under the new revenue recognition standard supports the recognition of revenue over time for themajority of our contracts, which is consistent with our current revenue recognition model. Revenue on our contracts will continue to be recognized over timebecause of the continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contracts thatallow the customer to terminate the contract for convenience or by our rights to payment for work performed to date. In addition, the number of ourperformance obligations under the new standard is not materially different from our contract segments under the existing standard. Lastly, the accounting forthe estimate of variable consideration is not materially different compared to our current practice.The new standard clarifies how to account for principal (gross) versus agent (net) in revenue recognition. We have concluded that the adoption of thisstandard will not have a material impact on our consolidated financial statements.In 2016, the FASB issued new guidance which clarifies the classification of certain cash receipts and cash payments in the statement of cash flows,including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlementproceeds, and distributions from certain equity method investees. The new standard is effective for fiscal years, and interim periods within those fiscal years,beginning after December 15, 2017. This standard was adopted on January 1, 2018.In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This ASU clarifies thedefinition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standardis effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This standard was adopted on January 1, 2018and we are evaluating the effect that this guidance will have on any future acquisitions.In 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amountexpected to be collected, not based on incurred losses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginningafter December 15, 2019. Early adoption for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. Weare evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-to-use asset and a lease obligation for allleases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months orless. The new standard will become effective beginning with the first quarter of 2019. Early adoption of the standard is permitted. We plan to adopt thisstandard January 1, 2019, as required. We are currently evaluating the impact the adoption of this accounting guidance will have on the consolidatedfinancial statements.OUTLOOK, RISKS AND UNCERTAINTIESBusiness Combinations/DivestituresWe believe that any future acquisitions or divestitures that we may make could significantly impact financial results. Financial results most likely to beimpacted include, but are not limited to, revenue, gross margin, salaries and benefits, selling general and administrative expenses, depreciation andamortization, interest expense, net income and our debt level.26RevenueWe believe that the performance of the railroads and a severe or prolonged slow-down of the economy are the most significant factors that couldnegatively influence our revenue growth rate. Should there be further consolidation in the rail industry causing a service disruption, we believe ourintermodal business would likely be negatively impacted. Should there be a significant service disruption, we expect that there may be some customers whowould switch from using our intermodal service to other transportation services. We expect that these customers may choose to continue to utilize otherservices even when intermodal service levels are restored. Other factors that could negatively influence our growth rate include, but are not limited to, theelimination of fuel surcharges, lower fuel prices, the entry of new competitors, the loss of Mode LLC IBOs and/or sales agents, poor customer retention,inadequate drayage and intermodal service and inadequate equipment supply.Gross MarginWe expect fluctuations in gross margin as a percentage of revenue from quarter-to-quarter caused by various factors including, but not limited to, changesin the transportation business mix, start-up costs for new business, changes in logistics services between transactional business and management fee business,insurance and claim costs, driver recruiting costs, driver compensation changes, impact of regulations on drayage costs, trailer and container capacity, vendorcost increases, fuel costs, equipment utilization, intermodal industry growth, intermodal industry service levels, accessorials, competitive pricing andaccounting estimates. Salaries and BenefitsWe estimate that salaries and benefits as a percentage of revenue could fluctuate from quarter-to-quarter as there are timing differences between volumeincreases and changes in levels of staffing. Factors that could cause the percentage not to stay in the recent historical range include, but are not limited to,revenue growth rates significantly higher or lower than forecasted, a management decision to invest in additional personnel to stimulate new or existingbusinesses, changes in customer requirements, changes in our operating structure, severance, how well we perform against our EPS and other bonus goals, andchanges in railroad intermodal service levels which could result in a lower or higher cost of labor per move. Agent Fees and CommissionsAgent fees and commissions are directly related to the gross margin earned by the Mode agents. This expense will fluctuate as Mode’s gross marginfluctuates.General and AdministrativeWe believe there are several factors that could cause general and administrative expenses to fluctuate as a percentage of revenue. As customerexpectations and the competitive environment require the development of web-based business interfaces and the restructuring of our information systems andrelated platforms, we believe there could be significant expenses incurred. Other factors that could cause selling, general and administrative expense tofluctuate include, but are not limited to, changes in insurance premiums, technology expense related to software and services, claim expense, bad debtexpense, professional services expense and costs related to acquisitions or divestitures.Depreciation and AmortizationWe estimate that depreciation and amortization of property and equipment will increase significantly due to technology related investments andequipment investments for replacement and growth, as well as intangible assets acquired in connection with the acquisition of HGD.Impairment of Property and Equipment, Goodwill and Indefinite-Lived IntangiblesOn an ongoing basis, we assess the realizability of our assets. If, at any point during the year, we determine that an impairment exists, the carrying amountof the asset is reduced by the estimated impairment with a corresponding charge to earnings which could have a material adverse impact on earnings.Other Income (Expense)We expect interest expense to increase in 2018 because we financed our 2017 tractor and container purchases with debt. In addition, we expect interestexpense to increase because we assumed debt and entered into a new credit agreement in connection with the HGD acquisition. Factors that could cause achange in interest expense include, but are not limited to, change in interest rates, change in investments, funding working capital needs, funding capitalexpenditures, funding an acquisition and purchase of treasury stock. See Note 10 of the consolidated financial statements for additional information on ournew credit agreement. 27Provision for Income TaxesBased on our initial assessments of the impact of the enactment of the U.S. Tax Cuts and Jobs Act, we estimate that our effective tax rate will beapproximately 25% in 2018.Leasing on Owner-OperatorsOur HGT drivers are comprised of 58% independent contractors and 42% employees. HGD drivers are comprised of 100% employees. We had difficultiessigning on owner-operators in 2017 and we were more successful recruiting employee drivers. If this trend continues, the Company may have to recruit moreemployee drivers in certain markets.Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to market risk related to changes in interest rates on our bank line of credit which may adversely affect our results of operations andfinancial condition. The Company has both fixed and variable rate debt as described in Note 10 to the Consolidated Financial Statements. Any material increase in marketinterest rates would not have a material impact on the results of operations for the year ended December 31, 2017.We have standby letters of credit that expire in 2018. As of December 31, 2017, our letters of credit were $20.1 million.As of December 31, 2017, we had $45.0 million of borrowings under our bank revolving line of credit and our unused and available borrowings were$284.9 million. We were in compliance with our debt covenants as of December 31, 2017.Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations,or cash flows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the year ended December 31, 2017.Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencieswould have on our future costs or on future cash flows we would receive from our foreign investment. To date, we have not entered into any foreign currencyforward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. We donot use financial instruments for trading purposes. 28Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULE Report of Independent Registered Public Accounting Firm 30 Consolidated Balance Sheets – December 31, 2017 and December 31, 2016 31 Consolidated Statements of Income and Comprehensive Income – Years ended December 31, 2017, December 31, 2016 and December 31, 2015 32 Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2017, December 31, 2016 and December 31, 2015 33 Consolidated Statements of Cash Flows – Years ended December 31, 2017, December 31, 2016 and December 31, 2015 34 Notes to Consolidated Financial Statements 35 Schedule II – Valuation and Qualifying Accounts S-56 29REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders 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, 2017 and 2016, the relatedconsolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(b) (collectively referred to as the “consolidated financialstatements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity withU.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'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2018 expressed an unqualifiedopinion 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 financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin 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 reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto 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 includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion. /s/ ERNST & YOUNG LLP We have served as the Company’s auditor since 2002.Chicago, IllinoisFebruary 28, 2018 30HUB GROUP, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share amounts) December 31, 2017 2016 ASSETS CURRENT ASSETS: Cash and cash equivalents$28,557 $127,404 Accounts receivable trade, net 583,994 473,608 Accounts receivable other 5,722 4,331 Prepaid taxes 12,088 294 Prepaid expenses and other current assets 25,697 16,653 TOTAL CURRENT ASSETS 656,058 622,290 Restricted investments 24,181 20,877 Property and equipment, net 562,150 438,594 Other intangibles, net 74,348 11,844 Goodwill, net 348,661 262,376 Other assets 5,543 4,278 TOTAL ASSETS$1,670,941 $1,360,259 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable trade$338,933 $266,555 Accounts payable other 12,268 21,070 Accrued payroll 28,994 36,223 Accrued other 59,305 46,013 Current portion of capital lease 2,777 2,697 Current portion of long-term debt 77,266 45,163 TOTAL CURRENT LIABILITIES 519,543 417,721 Long-term debt 214,808 115,529 Non-current liabilities 37,927 23,595 Long-term portion of capital lease 7,696 10,576 Deferred taxes 121,095 164,659 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued or outstanding in 2017 and 2016- - Common stock Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2017 and 2016; 33,447,070 shares outstandingin 2017 and 33,192,982 shares outstanding in 2016 412 412 Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2017 and 2016 7 7 Additional paid-in capital 173,011 173,565 Purchase price in excess of predecessor basis, net of tax benefit of $10,306 (15,458) (15,458)Retained earnings 870,716 735,563 Accumulated other comprehensive loss (194) (273)Treasury stock; at cost,7,777,722 shares in 2017 and 8,031,810 shares in 2016 (258,622) (265,637)TOTAL STOCKHOLDERS' EQUITY 769,872 628,179 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,670,941 $1,360,259The accompanying notes to consolidated financial statements are an integral part of these statements. 31HUB GROUP, INC.CONSOLIDATED STATEMENTS OF INCOMEAND COMPREHENSIVE INCOME(in thousands, except per share amounts). Years Ended December 31, 2017 2016 2015 Revenue$4,034,897 $3,572,790 $3,525,595 Transportation costs 3,577,380 3,118,005 3,112,900 Gross margin 457,517 454,785 412,695 Costs and expenses: Salaries and benefits 188,389 180,459 158,938 Agent fees and commissions 74,082 72,896 68,724 General and administrative 85,182 68,630 60,015 Depreciation and amortization 13,313 8,966 7,988 Total costs and expenses 360,966 330,951 295,665 Operating income 96,551 123,834 117,030 Other income (expense): Interest expense (6,754) (3,625) (2,971)Interest and dividend income 416 393 83 Other, net 724 819 (2,560)Total other expense (5,614) (2,413) (5,448) Income before provision for income taxes 90,937 121,421 111,582 Income tax (benefit) expense (44,216) 46,616 40,633 Net income$135,153 $74,805 $70,949 Other comprehensive income (loss): Foreign currency translation adjustments 79 (95) (101) Total comprehensive income$135,232 $74,710 $70,848 Basic earnings per common share$4.07 $2.21 $1.98 Diluted earnings per common share$4.05 $2.20 $1.97 Basic weighted average number of shares outstanding 33,220 33,841 35,876 Diluted weighted average number of shares outstanding 33,350 33,949 35,968 The accompanying notes to consolidated financial statements are an integral part of these statements. 32HUB GROUP, INCCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except shares) PurchasePrice 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, 2014 41,887,088 $419 $171,235 $(15,458) $589,809 $(77) (4,977,468) $(145,144) $600,784 Purchase of treasury shares - - - - - - (735,524) (28,823) (28,823)Stock tendered for paymentsof withholding taxes - - - - - - (77,732) (2,916) (2,916)Issuance of restricted stock awards,net of forfeitures - - (4,897) - - - 199,893 4,897 - Share-based compensation expense - - 7,833 - - - - - 7,833 Tax benefit of share-basedcompensation plans - - 114 - - - - - 114 Net income - - - - 70,949 - - - 70,949 Foreign currency translationadjustment - - - - - (101) - - (101)Balance December 31, 2015 41,887,088 $419 $174,285 $(15,458) $660,758 $(178) (5,590,831) $(171,986) $647,840 Purchase of treasury shares - - - - - - (2,672,227) (100,000) (100,000)Stock tendered for paymentsof withholding taxes - - - - - - (73,546) (2,489) (2,489)Issuance of restricted stock awards,net of forfeitures - - (8,838) - - - 304,794 8,838 - Share-based compensation expense - - 8,479 - - - - - 8,479 Tax benefit of share-basedcompensation plans - - (361) - - - - - (361)Net income - - - - 74,805 - - - 74,805 Foreign currency translationadjustment - - - - - (95) - - (95)Balance December 31, 2016 41,887,088 $419 $173,565 $(15,458) $735,563 $(273) (8,031,810) $(265,637) $628,179 Stock tendered for paymentsof withholding taxes - - - - - - (77,988) (3,412) (3,412)Issuance of restricted stock awards,net of forfeitures - - (10,427) - - - 332,076 10,427 - Share-based compensation expense - - 9,873 - - - - - 9,873 Net income - - - - 135,153 - - - 135,153 Foreign currency translationadjustment - - - - - 79 - - 79 Balance December 31, 2017 41,887,088 $419 $173,011 $(15,458) $870,716 $(194) (7,777,722) $(258,622) $769,872 The accompanying notes to consolidated financial statements are an integral part of these statements. 33HUB GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Years Ended December 31, 2017 2016 2015 Cash flows from operating activities: Net Income$135,153 $74,805 $70,949 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 62,173 44,712 37,042 Deferred taxes (41,351) 13,801 16,378 Compensation expense related to share-based compensation plans 9,873 8,479 7,833 Loss (gain) on sale of assets 441 (573) (129) Excess tax benefits from share based compensation - (733) (81) Changes in operating assets and liabilities: Restricted investments (3,304) 231 836 Accounts receivable, net (84,775) (87,629) 36,373 Prepaid taxes (11,794) 66 14,575 Prepaid expenses and other current assets (7,543) 1,099 (3,401) Other assets 56 570 (805) Accounts payable 59,037 35,709 (25,736) Accrued expenses (2,931) 9,238 20,505 Non-current liabilities 10,185 2,698 (2,642) Net cash provided by operating activities 125,220 102,473 171,697 Cash flows from investing activities: Proceeds from sale of equipment 5,327 2,061 2,309 Purchases of property and equipment (74,541) (107,409) (83,042) Cash used in acquisition (165,933) - - Net cash used in investing activities (235,147) (105,348) (80,733) Cash flows from financing activities: Proceeds from issuance of debt 98,544 62,155 64,442 Repayments of long-term debt (79,869) (34,767) (23,217) Stock tendered for payments of withholding taxes (3,412) (2,489) (2,916) Purchase of treasury stock - (100,000) (28,823) Capital lease payments (2,800) (2,634) (2,534) Excess tax benefits from share-based compensation - 372 195 Payment of debt issuance costs (1,397) - - Net cash provided by (used in) financing activities 11,066 (77,363) 7,147 Effect of exchange rate changes on cash and cash equivalents 14 (107) (131) Net (decrease) increase in cash and cash equivalents (98,847) (80,345) 97,980 Cash and cash equivalents beginning of the year 127,404 207,749 109,769 Cash and cash equivalents end of the year$28,557 $127,404 $207,749 Supplemental disclosures of cash paid for: Interest$6,162 $3,665 $2,977 Income taxes$13,149 $33,233 $6,990 The accompanying notes to consolidated financial statements are an integral part of these statements. 34HUB GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Description of Business and Summary of Significant Accounting PoliciesBusiness: Hub Group, Inc. (“we”, “us” or “our”) provides intermodal transportation services utilizing primarily third party arrangements with railroads.Drayage can be provided by our subsidiary, Hub Group Trucking, Inc., or a third party company. We offer a dedicated fleet of equipment and drivers throughHub Group Dedicated. We also arrange for transportation of freight by truck and perform logistics services. Transportation services are provided through HubGroup and our subsidiary Mode Transportation, LLC. We report two distinct business segments. The first segment is Mode, which includes the Modebusiness we acquired in 2011. The other segment is Hub, which is all business other than Mode. “Hub Group” includes both segments.Principles of Consolidation: The consolidated financial statements include our accounts and all entities in which we have more than a 50% equityownership 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 ofDecember 31, 2017 and 2016, our cash and temporary investments were with high quality financial institutions in DDAs (Demand Deposit Accounts) andSavings Accounts.Accounts Receivable and Allowance for Uncollectible Accounts: In the normal course of business, we extend credit to customers after a review of eachcustomer’s credit history. An allowance for uncollectible trade accounts has been established through an analysis of the accounts receivable aging, anassessment of collectability based on historical trends, including receivable adjustments charged through revenue for items such as disputes, and anevaluation based on current economic conditions. To be more specific, we reserve a portion of every account balance that has aged over one year, a portion ofreceivables for customers in bankruptcy and certain account balances specifically identified as uncollectible. On an annual basis, we perform a hindsightanalysis on Hub and Mode separately to determine each segment’s experience in collecting account balances over one year old and account balances inbankruptcy. We then use this hindsight analysis to establish our reserves for receivables over one year and in bankruptcy. In establishing a reserve for certainaccount balances specifically identified as uncollectible, we consider the aging of the customer receivables, the specific details as to why the receivable hasnot been paid, the customer’s current and projected financial results, the customer’s ability to meet and sustain its financial commitments, the positive ornegative effects of the current and projected industry outlook and the general economic conditions. The allowance for uncollectible accounts is reported onthe balance sheet in net accounts receivable. Our reserve for uncollectible accounts was approximately $8.5 million and $5.4 million as of December 31,2017 and 2016, respectively. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously charged off arerecorded when received.Property and Equipment: Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method atrates adequate to depreciate the cost of the applicable assets over their expected useful lives: building and improvements, up to 40 years; leaseholdimprovements, the shorter of useful life or lease term; computer equipment and software, up to 10 years; furniture and equipment, up to 10 years; andtransportation equipment up to 15 years. Direct costs related to internally developed software projects are capitalized and amortized over their expecteduseful life on a straight-line basis not to exceed 10 years. Interest is capitalized on qualifying assets under development for internal use. Maintenance andrepairs are charged to operations as incurred and major improvements are capitalized. The cost of assets retired or otherwise disposed of and the accumulateddepreciation 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 theundiscounted future cash flows resulting from the use of the asset group is less than the carrying amount, an impairment loss equal to the excess of the assetscarrying amount over its fair value, less cost to dispose, is recorded.Goodwill and Other Intangibles: Goodwill represents the excess of purchase price over the fair market value of net assets acquired in connection with ourbusiness 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 mightexceed the current fair value. We test goodwill for impairment at the reporting unit level. We assess qualitative factors such as current company performanceand overall economic factors to determine if it is more-likely-than-not that the goodwill might be impaired and whether it is necessary to perform thequantitative goodwill impairment test. In the quantitative goodwill test, a company compares the carrying value of a reporting unit to its fair value. If thecarrying value of the reporting unit exceeds the estimated fair value, a second step is performed, which compares the implied fair value of goodwill to thecarrying value, to determine the amount of impairment. In 2017 and 2016, we performed the qualitative assessment on both the Hub and Mode reportingunits and determined it was not, more-likely-than-not, that goodwill might be impaired.35We evaluate the potential impairment of finite-lived acquired intangible assets when impairment indicators exist. If the carrying value is no longerrecoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and thefair value of the asset.Concentration of Credit Risk: Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents andaccounts receivable. We place our cash and temporary investments with high quality financial institutions in DDAs (Demand Deposit Accounts) and SavingsAccounts. We primarily serve customers located throughout the United States with no significant concentration in any one region. No one customeraccounted for more than 10% of revenue in 2017, 2016 or 2015. We review a customer’s credit history before extending credit. In addition, we routinelyassess the financial strength of our customers and, as a consequence, believe that our trade accounts receivable risk is limited.Revenue Recognition: Revenue is recognized at the time 1) persuasive evidence of an arrangement exists, 2) services have been rendered, 3) the sales price isfixed and determinable and 4) collectability is reasonably assured. Revenue and related transportation costs are recognized based on relative transit time.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 thecustomer. 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 discretionin setting sales prices and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from multiple suppliers for theservices ordered by our customers. Finally, we have credit risk for our receivables. These three factors, discretion in setting prices, discretion in selectingvendors and credit risk, further support reporting revenue on a gross basis for substantially all of our revenue.Provision for Income Taxes: Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income taxreporting 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 taxassets will be realized based on future taxable income projections with two exceptions for which we have established valuation allowances. We haveestablished valuation allowances of $0.1 million related to state tax net operating losses and $1.6 million related to state incentive tax creditcarryforwards. In the event the probability of realizing the remaining deferred tax assets do not meet the more likely than not threshold in the future, avaluation allowance would be established for the deferred tax assets deemed unrecoverable.Tax liabilities are recorded when, in management’s judgment, a tax position does not meet the more likely than not threshold for recognition as prescribed bythe guidance. For tax positions that meet the more likely than not threshold, a tax liability may be recorded depending on management’s assessment of howthe tax position will ultimately be settled. We recognize interest expense and penalties related to income tax liabilities in our provision for income taxes.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 ofcommon stock outstanding. Diluted earnings per common share are adjusted for the assumed exercise of dilutive stock options and for restricted stock whichare both computed 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. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based paymenttransactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amountswithin the statement of cash flows. The new standard became effective beginning with the first quarter of 2017. We adopted ASU 2016-09 in the first quarterof 2017 and the adoption did not have a material impact on our consolidated financial statements. We have applied the reclassification of excess tax benefitsprospectively and therefore the prior period has not been adjusted.We presented in both 2016 and 2015 excess tax benefits resulting from the exercise of share-based compensation as financing cash in-flows and as operatingcash out-flows in the Consolidated Statements of Cash Flows.New Pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue fromContracts with Customers (Topic 606), which will provide companies with a single revenue recognition model for recognizing revenue from contracts withcustomers. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The twopermitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reportingperiod presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method,in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The new standard is effective for annualreporting periods beginning after December 15, 2017.36We have been closely monitoring FASB activity related to the new standard. In the first half of 2017, we made significant progress toward completing ourevaluation of the potential changes from adopting the new standard on our future financial reporting and disclosures. In the second half of 2017, we finalizedour contract reviews and our detailed accounting policy. Based on our evaluation, we adopted the requirements of the new standard on January 1, 2018 andwill use the full retrospective transition method.The impact of adopting Topic 606 primarily relates to recording all taxes assessed by a governmental authority that are both, imposed on and concurrent witha specific revenue-producing transaction and collected by Hub Group from a customer on a net basis, which previously were recorded on a gross basis. Weexpect this election to have approximately a $3.0 million impact on our consolidated financial statements in 2017 and 2016. The impact to our results isrestricted to taxes because the analysis of our contracts under the new revenue recognition standard supports the recognition of revenue over time for ourcontracts, which is consistent with our current revenue recognition model. Revenue on the majority of our contracts will continue to be recognized over timebecause of the continuous transfer of control to the customer. This continuous transfer of control to the customer is supported by clauses in the contracts thatallow the customer to terminate the contract for convenience or by our rights to payment for work performed to date. In addition, the number of ourperformance obligations under the new standard is not materially different from our contract segments under the existing standard. Lastly, the accounting forthe estimate of variable consideration is not materially different compared to our current practice.The new standard clarifies how to account for principal (gross) versus agent (net) in revenue recognition. We have concluded that the adoption of thisstandard will not have a material impact on our consolidated financial statements.In 2016, the FASB issued new guidance which clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, includingdebt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, anddistributions from certain equity method investees. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2017. This standard was adopted on January 1, 2018.In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This ASU clarifies thedefinition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standardis effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This standard was adopted on January 1, 2018and we are evaluating the effect that this guidance will have on any future acquisitions.In 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amountexpected to be collected, not based on incurred losses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginningafter December 15, 2019. Early adoption for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. Weare evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-to-use asset and a lease obligation for allleases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months orless. The new standard will become effective beginning with the first quarter of 2019. Early adoption of the standard is permitted. We plan to adopt thisstandard January 1, 2019, as required. We are currently evaluating the impact the adoption of this accounting guidance will have on the consolidatedfinancial statements.Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenue and expense during the reporting period. Significant estimates include the allowance for doubtful accounts, exposureunder our insurance policies and useful lives of assets. Actual results could differ from those estimates. NOTE 2. Capital StructureWe have authorized common stock comprised of Class A Common Stock and Class B Common Stock. The rights of holders of Class A Common Stockand Class B Common Stock are identical, except each share of Class B Common Stock entitles its holder to 84 votes, while each share of Class A CommonStock entitles its holder to one vote. We have authorized 2,000,000 shares of preferred stock. 37NOTE 3. Earnings Per ShareThe following is a reconciliation of our earnings per share (in thousands, except for per share data): Years Ended, December 31, 2017 2016 2015 Net income for basic and diluted earnings per share$135,153 $74,805 $70,949 Weighted average shares outstanding - basic 33,220 33,841 35,876 Dilutive effect of stock options and restricted stock 130 108 92 Weighted average shares outstanding - diluted 33,350 33,949 35,968 Earnings per share - basic$4.07 $2.21 $1.98 Earnings per share - diluted$4.05 $2.20 $1.97 NOTE 4.Acquisition Hub Group Trucking (HGT), a wholly owned subsidiary of Hub Group, Inc., acquired all of the outstanding equity interests of Estenson Logistics, LLC(“Estenson”) on July 1, 2017 (the “Estenson Acquisition”). Estenson is now our wholly owned subsidiary, operating under the name Hub Group Dedicated(“HGD”). As a result of the Estenson Acquisition, HGT acquired substantially all of the assets of Estenson, which include tractors and trailers, as well asassumed certain liabilities, including equipment debt. HGD is included in the Hub segment.HGD has an operating fleet of approximately 1,100 tractors and 4,700 trailers. Dedicated services have been requested by our customers and we believeHGD is an excellent service offering that we can provide to our customers.The base purchase price for Estenson was approximately $284.7 million, including contingent consideration related to an earn-out provision included inthe Purchase Agreement, which will not exceed $6.0 million and is based on Estenson’s EBITDA results through June 30, 2019. In accordance with theagreement, the base purchase price was adjusted by the assumed debt to arrive at the final consideration of $172.0 million. To facilitate the acquisition, weassumed $112.7 million of Estenson debt and paid $165.9 million in cash, including $55.0 million of cash, which was borrowed under our new creditagreement (See Note 10).The following table summarizes the total purchase price allocated to the net assets acquired (in thousands):Cash paid$165,945 Consideration payable 1,366 Contingent consideration, fair value 4,703 Total consideration 172,014 Equipment debt assumed 112,677 Total base purchase price$284,69138Pending finalization of the fair market value of assets acquired and liabilities assumed, the measurement period remains open. The following tablesummarizes the preliminary allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the acquisition (in thousands): July 1, 2017 Cash and cash equivalents$12 Accounts receivable trade 26,830 Accounts receivable other 165 Prepaid expenses and other current assets 1,500 Property and equipment 128,477 Other intangibles 66,400 Goodwill 86,504 Other assets 64 Total assets acquired$309,952 Accounts payable trade$4,542 Accrued payroll 5,661 Accrued other 15,058 Equipment debt 112,677 Total liabilities assumed$137,938 Total consideration$172,014 The Estenson acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquiredand liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of July 1, 2017 with the remainingunallocated purchase price recorded as goodwill. The goodwill recognized in the Estenson acquisition was primarily attributable to potential expansion andfuture development of the acquired business. The fair value assigned to the customer relationships identifiable intangible was determined using an incomeapproach based on management’s estimates and assumptions. The fair value assigned to the property and equipment was determined based on a marketapproach. A probability weighted expected return model was used to estimate the value of the contingent consideration. Equipment debt was valued using adiscounted cash flow analysis whereby future contractual principal repayments and interest payments for each instrument were discounted to the purchasedate at a risk-adjusted discount rate.We incurred approximately $1.6 million of acquisition costs associated with this transaction prior to the closing date that are reflected in general andadministrative expense in the accompanying Consolidated Statements of Income for the twelve months ended December 31, 2017.The total amount of tax deductible goodwill as of December 31, 2017 is $80.6 million, which will be amortized over 15 years. As of December 31, 2017,there are $5.9 million of assumed liabilities which, as they are paid, will result in additional tax deductible goodwill which can be amortized over theremainder of the 15 year period which started in July 2017.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, 2017 LifeCustomer relationships $66,000 $2,200 $63,800 15 yearsTrade name $400 $400 $0 3 monthsThe above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the twelve month periodended December 31, 2017 was $2.6 million. The intangible assets have a weighted average useful life of approximately 15 years. Amortization expenserelated to HGD for the next five years is as follows (in thousands): 2018 $4,400 2019 4,400 2020 4,400 2021 4,400 2022 4,40039 The following unaudited pro forma consolidated results of operations for 2017 and 2016 assume that the acquisition of Estenson was completed as ofJanuary 1, 2016 (in thousands, except for per share amounts): Twelve Months Twelve Months Ended Ended December 31, 2017 December 31, 2016 Revenue$4,148,918 $3,784,604 Net income$139,300 $81,984 Earnings per share Basic$4.19 $2.42 Diluted$4.18 $2.41The unaudited pro forma consolidated results for the twelve month period was prepared using the acquisition method of accounting and are based on thehistorical financial information of Hub Group and HGD. The historical financial information has been adjusted to give effect to the pro forma adjustmentsthat are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. Theunaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had wecompleted the acquisition on January 1, 2016. NOTE 5. Business SegmentsWe report two distinct business segments. The first segment is Mode, which includes the Mode LLC business we acquired on April 1, 2011. The secondsegment is Hub, which is all business other than Mode.Hub offers comprehensive intermodal, truck brokerage, logistics and dedicated services. Our employees operate the freight through a network of operatingcenters located in the United States, Canada and Mexico. Each operating center is strategically located in a market with a significant concentration ofshipping customers and one or more railheads. Hub has full time employees located throughout the United States, Canada and Mexico.Mode LLC markets and operates its freight transportation services, consisting of intermodal, truck brokerage and logistics, primarily through agents whoenter into contractual arrangements with Mode LLC.The following is a summary of operating results for our business segments for the years ended December 31, 2017, 2016 and 2015 (in thousands): Twelve Months Twelve Months Ended December 31, 2017 Ended December 31, 2016 Inter- Hub Inter- Hub Segment Group Segment Group Hub Mode Elims Total Hub Mode Elims Total Revenue$3,107,394 $1,029,160 $(101,657)$4,034,897 $2,734,541 $948,735 $(110,486)$3,572,790 Transportation costs 2,771,291 907,746 (101,657) 3,577,380 2,404,946 823,545 (110,486) 3,118,005 Gross margin 336,103 121,414 - 457,517 329,595 125,190 - 454,785 Costs and expenses: Salaries and benefits 174,573 13,816 - 188,389 165,136 15,323 - 180,459 Agent fees and commissions 58 74,024 - 74,082 66 72,830 - 72,896 General and administrative 77,085 8,097 - 85,182 60,811 7,819 - 68,630 Depreciation and amortization 12,139 1,174 - 13,313 7,698 1,268 - 8,966 Total costs and expenses 263,855 97,111 - 360,966 233,711 97,240 - 330,951 Operating income$72,248 $24,303 $- $96,551 95,884 27,950 - 123,834 Capital expenditures$73,772 $769 $- $74,541 $106,316 $1,093 $- $107,40940 Twelve Months Ended December 31, 2015 Inter- Hub Segment Group Hub Mode Elims Total Revenue$2,679,318 $928,661 $(82,384)$3,525,595 Transportation costs 2,385,197 810,087 (82,384) 3,112,900 Gross margin 294,121 118,574 - 412,695 Costs and expenses: Salaries and benefits 143,993 14,945 - 158,938 Agent fees and commissions 56 68,668 - 68,724 General and administrative 53,023 6,992 - 60,015 Depreciation and amortization 6,688 1,300 - 7,988 Total costs and expenses 203,760 91,905 - 295,665 Operating income$90,361 $26,669 $- $117,030 Capital expenditures$79,860 $3,182 $- $83,042 41 As of December 31, 2017 As of December 31, 2016 Inter- Hub Inter- Hub Segment Group Segment Group Hub Mode Elims Total Hub Mode Elims Total Total assets$1,470,792 $210,088 $(9,939)$1,670,941 $1,178,110 $191,374 $(9,225)$1,360,259 Goodwill$319,272 $29,389 $- 348,661 $232,987 $29,389 $- 262,376 The following tables summarize our revenue by segment and business line (in thousands): Twelve Months Twelve Months Ended December 31, 2017 Ended December 31, 2016 Inter- Hub Inter- Hub Segment Group Segment Group Hub Mode Elims Total Hub Mode Elims Total Intermodal$1,852,884 $496,733 $(56,587)$2,293,030 $1,785,865 $486,758 $(81,556)$2,191,067 Truck brokerage 483,955 340,330 (1,990) 822,295 391,901 308,055 (1,456) 698,500 Logistics 655,543 192,097 (43,061) 804,579 556,775 153,922 (27,474) 683,223 Dedicated 115,012 - (19) 114,993 - - - - Total revenue$3,107,394 $1,029,160 $(101,657)$4,034,897 $2,734,541 $948,735 $(110,486)$3,572,790 Twelve Months Ended December 31, 2015 Inter- Hub Segment Group Hub Mode Elims Total Intermodal$1,792,046 $483,910 $(78,688)$2,197,268 Truck brokerage 355,402 314,498 (1,908) 667,992 Logistics 531,870 130,253 (1,788) 660,335 Total revenue$2,679,318 $928,661 $(82,384)$3,525,595 NOTE 6. Goodwill and Other Intangible AssetsIn accordance with the FASB issued guidance in the Intangibles-Goodwill and Other Topic of the Codification, we completed the required annualimpairment tests. We performed a qualitative assessment on both the Hub segment goodwill and the Mode segment goodwill and determined it was not,more-likely-than-not, that goodwill might be impaired. 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): Hub Group Hub Mode Total Balance at January 1, 2016$233,205 $29,389 $262,594 Other (218)- (218)Balance at December 31, 2016 232,987 29,389 262,376 Acquisition$86,504 $- $86,504 Other (219)- (219)Balance at December 31, 2017$319,272 $29,389 $348,661 The changes noted as “other” in the table above for both 2017 and 2016 refer to the amortization of the income tax benefit of tax goodwill in excess offinancial statement goodwill. 42The components of the “Other intangible assets” are as follows (in thousands): Net Gross Accumulated Carrying As of December 31, 2017:Amount Amortization Life Hub Customer relationships$71,181 $(6,434)$64,747 7-15 years Trade name$400 $(400)$- 3 months Mode Agency/customer relationships$15,362 $(5,761)$9,601 18 years Hub Group Total$86,943 $(12,595)$74,348 Net Gross Accumulated Carrying As of December 31, 2016:Amount Amortization Value Life Hub Customer relationships$5,181 $(3,792)$1,389 7-15 years Mode Agency/customer relationships$15,362 $(4,907)$10,455 18 years Hub Group Total$20,543 $(8,699)$11,844 The above intangible assets are amortized using the straight-line method. Amortization expense for year ended December 31, 2017 was $3.9 million and$1.3 million for each of the years ended December 31, 2017 and 2016. The remaining weighted average life of all definite lived intangible assets as ofDecember 31, 2017 was 14.33 years and 11.25 years for Hub and Mode, respectively. Amortization expense for the next five years is as follows (inthousands): Hub Group Hub Mode Total 2018$4,795 $853 $5,648 2019 4,655 853 5,508 2020 4,655 853 5,508 2021 4,442 853 5,295 2022 4,400 853 5,253 43 NOTE 7. Income TaxesThe Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies topay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourcedearnings. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as describedbelow, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we have notbeen able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and theprovisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, werecognized a tax benefit of $75.2 million, which is included as a component of income tax expense from continuing operations. In all cases, we will continueto make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thoroughunderstanding of the tax law.Due to the complexities involved in accounting for the enactment of the Act, the SEC Staff Accounting Bulletin No. 118 (“SAB No. 118”) allowed theCompany to record provisional amounts in earnings for the year ended December 31, 2017. Where reasonable estimates can be made, the provisionalaccounting should be based on such estimates. When no reasonable estimate can be made, the provisional accounting may be based on the tax law in effectbefore the Act. The Company is required to complete its tax accounting for the Act within a one year period when it has obtained, prepared, and analyzed theinformation to complete the income tax accounting.Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in thefuture, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect themeasurement of these balances or potentially give rise to new deferred tax amounts. The tax benefit recorded related to the remeasurement of our deferred taxbalance was $75.2 million.The following is a reconciliation of our effective tax rate to the federal statutory tax rate: Years Ended December 31, 2017 2016 2015 U.S. federal statutory rate 34.9 % 35.0 % 35.0 %Federal tax law changes (82.7) - - State taxes, net of federal benefit 2.8 2.6 2.4 Federal and state incentives (5.2) (0.2) (0.5) State law changes 1.5 0.3 (0.9) Permanent differences 0.1 0.7 0.4 Net effective rate (48.6)% 38.4 % 36.4 %The following is a summary of our provision for income taxes (in thousands): Years Ended December 31, 2017 2016 2015 Current Federal$(2,429) $30,324 $21,363 State and local 1,718 3,296 2,900 Foreign 59 108 284 (652) 33,728 24,547 Deferred Federal (46,247) 11,981 16,538 State and local 2,686 971 (346) Foreign (3) (64) (106) (43,564) 12,888 16,086 Total provision$(44,216) $46,616 $40,633 The following is a summary of our deferred tax assets and liabilities (in thousands): 44 December 31, 2017 2016 Accrued compensation 9,441 20,651 Other reserves 6,736 8,580 Tax credit carryforwards 3,411 1,694 Operating loss carryforwards 1,388 1,399 Total gross deferred income taxes 20,976 32,324 Valuation allowances (1,681) (456)Total deferred tax assets 19,295 31,868 Prepaids (3,587) (3,401)Other receivables (2,462) (3,051)Property and equipment (79,224) (105,905)Goodwill (55,117) (84,170)Total deferred tax liabilities (140,390) (196,527) Total deferred taxes$(121,095) $(164,659) We are subject to income taxation in the U.S., numerous state jurisdictions, Mexico and Canada. Because income tax return formats vary among thestates, we file both unitary and separate company state income tax returns. Our state tax net operating losses of $1.4 million expire between December 31,2018 and December 31, 2037. Our state incentive tax credit carryforwards of $3.4 million expire between December 31, 2019 and December 31,2022. Management believes it is more likely than not that these deferred tax assets will be realized with the exception of $0.1 million related to state tax netoperating losses, and $1.6 million related to state tax incentive credit carryforwards. Valuation allowances totaling $1.7 million have been established foreach of these amounts.As of December 31, 2017 and December 31, 2016, the amount of unrecognized tax benefits was $3.8 million and $1.8 million, respectively. Of theseamounts, our income tax provision would decrease $2.8 million and $1.2 million, respectively, if recognized. A reconciliation of the beginning and endingamount of unrecognized tax benefits is as follows (in thousands): 2017 2016 Gross unrecognized tax benefits - beginning of the year$1,832 $1,139 Gross increases related to prior year tax positions 1,830 394 Gross increases related to current year tax positions 290 488 Lapse of applicable statute of limitations (125) (189)Gross unrecognized tax benefits - end of year$3,827 $1,832 We estimate it is reasonably possible that our reserve could either increase or decrease by up to $1.0 million during the next twelve months. We recognize interest expense and penalties related to income tax liabilities in our provision for income taxes. In our 2017 provision for income taxes,we recognized approximately three thousand dollars of expense for combined income tax interest and income tax penalty. In 2017, we were selected for examinations by Illinois for our 2014 and 2015 tax years, by Michigan for our 2012 through 2015 tax years, by Minnesotafor our 2013 through 2015 tax years and by Massachusetts for our 2013 through 2015 tax years. In addition, examinations that began in 2016 by the IRS forour 2014 year and California for our 2012 and 2013 years continued in 2017. The Minnesota and California examinations are still ongoing. TheMassachusetts audit was settled for approximately $10,000, and the Illinois, Michigan and IRS audits closed with no additional tax due. NOTE 8. Fair Value MeasurementThe carrying value of cash and cash equivalents, accounts receivable, accounts payable and debt materially approximated fair value as of December 31,2017 and 2016 due to their short-term nature.We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of December 31, 2017 and 2016, ourcash and temporary investments were with high quality financial institutions in (DDAs) Demand Deposit Accounts and Savings Accounts.45Restricted investments included $24.2 million and $20.9 million as of December 31, 2017 and 2016, respectively, of mutual funds which are reported atfair value. These investments relate to the nonqualified deferred compensation plan that is described in Note 13.Our assets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated bymarket transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) orinputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2). Cash and cash equivalents, accounts receivableand accounts payable are defined as “Level 1,” while long-term debt is defined as “Level 2” of the fair value hierarchy in the Fair Value Measurements andDisclosures Topic of the Codification. NOTE 9. Property and EquipmentProperty and equipment consist of the following (in thousands): December 31, 2017 2016 Land$24,708 $24,708 Building and improvements 36,459 36,269 Leasehold improvements 6,372 5,016 Computer equipment and software 109,336 91,302 Furniture and equipment 14,555 13,852 Transportation equipment 620,951 472,634 Construction in process 1,460 450 813,841 644,231 Less: Accumulated depreciation and amortization (251,691) (205,637)Property and Equipment, net$562,150 $438,594The increase in transportation equipment to $621.0 million in 2017 from $472.6 million in 2016 was due primarily to the purchase of containers andassets related to the acquisition of HGD comprised primarily of trailers and tractors.The increase in computer software and hardware to $109.3 million in 2017 from $91.3 million in 2016 was related to our transportation managementsystem.Included in the transportation equipment is a capital lease obligation entered into for $26.4 million in 2011. The balances as of December 31, 2017 and2016, net of accumulated amortization, were $10.0 million and $12.3 million, respectively.Depreciation and amortization expense related to property and equipment was $58.1 million, $43.4 million and $35.9 million for 2017, 2016 and 2015,respectively, which includes amortization expense associated with a capital lease of $2.2 million for 2017, $2.3 million for 2016 and $2.6 million for 2015.This amortization expense is included in transportation costs. Transportation equipment depreciation is included in transportation costs. NOTE 10. Long-Term Debt and Financing ArrangementsOn July 1, 2017, we entered into a $350 million unsecured credit agreement (the "Credit Agreement"). The Credit Agreement replaces the Amendedand Restated Credit Agreement dated December 12, 2013 (“2013 Credit Agreement”). The Company used the Credit Agreement to finance, in part, theEstenson Acquisition.Borrowings under the Credit Agreement generally bear interest at a variable rate equal to (i) LIBOR plus a specified margin based upon the Borrowers'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) theadministrative 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 theTotal 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 rateloans varies from 0.0 to 100.0 basis points per annum. The Borrowers 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 perannum (based upon the Total Net Leverage Ratio) on the undrawn amount of letters of credit.The Credit Agreement contains various restrictions and covenants, including negative covenants that limit or restrict dividends, indebtedness ofsubsidiaries, mergers and fundamental changes, asset sales, acquisitions, liens and encumbrances, transactions with affiliates, changes in fiscal year and othermatters customarily restricted in such agreements. The Company must maintain a Total Net Leverage Ratio of (a) total funded debt as of such date, minus upto $50.0 million in unrestricted cash and cash equivalents (each as defined in the Credit Agreement) to (b) consolidated EBITDA (as defined in the creditagreement) of not more than 3.00 to 1.00;46provided that as of the close of each of the four fiscal quarters occurring after the consummation of a permitted acquisition (as defined in the CreditAgreement) with an aggregate consideration of $150.0 million or more, such ratio shall not be more than 3.25 to 1.00. The Company must maintain aninterest coverage ratio of consolidated EBITDA to consolidated cash interest expense of not less than 3.00 to 1.00.We have standby letters of credit that expire in 2018. As of December 31, 2017, our letters of credit were $20.1 million.Our unused and available borrowings under our bank revolving line of credit were $284.9 million as of December 31, 2017. Our unused and availableborrowings under the 2013 Credit Agreement were $38.2 million as of December 31, 2016. We were in compliance with our debt covenants as ofDecember 31, 2017.We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers and containers. The Notes are secured by the underlyingequipment financed in the agreements. Our outstanding debt is as follows (in thousands): December 31, December 31, 2017 2016 (in thousands except principal and interest payments) Revolving line of credit$45,000 $- Secured Equipment Notes due on various dates in 2024 with monthly principal and interest payments between$403 and $83,000 commencing on various dates in 2017 and 2018; interest is paid monthly at a fixed annual ratebetween 2.85% and 3.41% 13,586 - Secured Equipment Notes due on various dates in 2023 with monthly principal and interest payments between$669 and $62,665 commencing on various dates in 2016, 2017 and 2018; interest is paid monthly at a fixedannual rate between 2.23% and 3.28% 36,981 - Secured Equipment Notes due on various dates in 2022 with monthly principal and interest payments between$3,030 and $254,190 commencing on various dates from 2015 to 2017; interest is paid monthly at a fixed annualrate of between 2.16% and 2.87% 30,301 - Secured Equipment Notes due on various dates in 2021 with monthly principal and interest payments between$1,940 and $326,333 commencing on various dates from 2014 to 2017; interest is paid monthly at a fixed annualrate between 2.04% and 2.96% 76,885 59,836 Secured Equipment Notes due on various dates in 2020 with monthly principal and interest payments between$6,175 and $398,496 commencing on various dates from 2013 to 2016; interest is paid monthly at a fixed annualrate between 1.72% and 2.78% 50,737 48,633 Secured Equipment Notes due on various dates in 2019 with monthly principal and interest payments between$1,594 and $444,000 commencing on various dates from 2013 to 2015; interest is paid monthly at a fixed annualrate between 1.87% and 2.62% 36,178 49,464 Secured Equipment Notes due on various dates in 2018 with monthly principal and interest payments between$6,480 and $163,428 commencing on various dates in 2012, 2013 and 2014; interest is paid monthly at a fixedannual rate between 2.05% and 2.70% 2,406 2,759 292,074 160,692 Less current portion (77,266) (45,163)Total long-term debt$214,808 $115,52947Aggregate principal payments, in thousands, due subsequent to December 31, 2017, are as follows:2018$77,266 2019 70,033 2020 50,268 2021 30,704 2022 13,092 2023 and thereafter 50,711 $292,074 In 2011, we entered into a lease agreement for 3,126 chassis for a period of 10 years. We are accounting for this lease as a capital lease. Interest on thiscapital lease obligation is based on interest rates that approximate currently available interest rates; therefore, indebtedness under this capital leaseobligation approximates fair value. We paid interest of $0.5 million, $0.6 million and $0.7 million in 2017, 2016 and 2015, respectively, related to thiscapital lease. In February 2018, we entered in a secured equipment note for the purchase of 29 tractors and 36 trailers for $5.0 million. The note calls for 60 monthlypayments of $91,986 and has a fixed interest rate of 3.56%. NOTE 11. Leases, User Charges and CommitmentsMinimum annual capital and operating lease payments, as of December 31, 2017, under non-cancelable leases, principally for chassis, other equipmentand real estate, as well as other commitments are payable as follows (in thousands):Future Payments Due: Operating Leases and Capital Other Lease Commitments Total 2018$3,137 $10,755 $13,892 2019 3,137 8,622 11,759 2020 3,145 7,700 10,845 2021 1,821 7,272 9,093 2022 - 6,576 6,576 2023 and thereafter - 7,494 7,494 $11,240 $48,419 $59,659 Less: Imputed interest (767) Net capital lease liability$10,473 Total rental expense included in general and administrative expense, which relates primarily to real estate, was approximately $9.8 million in 2017, $8.3million in 2016 and $8.0 million in 2015. Many of the real estate leases contain renewal options and escalation clauses which require payments of additionalrent to the extent of increases in the related operating costs. We straight-line rental expense in accordance with the FASB guidance in the Leases Topic of theCodification.We incur rental expense for our leased containers, tractors and trailers that are included in transportation costs and totaled $6.0 million, $3.6 million, and$11.9 million for 2017, 2016 and 2015, respectively.We incur user charges for use of a fleet of rail owned chassis, chassis under capital lease and dedicated rail owned containers on the Union Pacific andNorfolk Southern railroads which are included in transportation costs. Such charges were $77.6 million, $73.7 million and $74.3 million for 2017, 2016 and2015, respectively. We have the ability to return the majority of the containers and pay for the rail owned chassis only when we are using them under theseagreements. As a result, no minimum commitments related to these rail owned chassis and containers have been included in the table above. 48 NOTE 12. Stock-Based Compensation PlansThe 2017 Long-Term Incentive Plan (the “2017 Incentive Plan”) was approved by the Board of Directors and subsequently approved by the Company’sstockholders 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 theCompany’s executive officers), directors, consultants, independent contractors or agents of us or a related company. The 2017 Incentive Plan is effective as ofMarch 15, 2017.The 2017 Incentive Plan replaced the Company’s 2002 Long-Term Incentive Plan, as amended (the “2002 Incentive Plan”). Under the 2002 IncentivePlan, stock options, stock appreciation rights, restricted stock, restricted stock units and performance units could be granted for the purpose of attracting andmotivating our key employees and non-employee directors. As of the effective date of the 2017 Incentive Plan, there were a total of 707,273 shares of ourClass A common stock (“Common Stock”) under the 2002 Incentive Plan available to be issued upon exercise or settlement of outstanding awards.As of December 31, 2017, 1,948,363 shares were available for future grant under the 2017 Incentive Plan.We have not granted any stock options since 2003 and have no stock options outstanding. Restricted stock vests over a three to five year period for allrecipients other than the Company’s non-employee Directors. The non-employee Directors restricted stock vests over a one to three year period.Share-based compensation expense for 2017, 2016 and 2015 was $9.9 million, $8.5 million and $7.8 million or $6.5 million, $5.2 million and $5.0million, net of taxes, respectively.The following table summarizes the non-vested restricted stock activity for the year ended December 31, 2017: Weighted Average Grant Date Non-vested restricted stockShares Fair Value Non-vested January 1, 2017 780,940 $35.48 Granted 428,333 $43.31 Vested (237,690) $35.60 Forfeited (96,257) $39.10 Non-vested at December 31, 2017 875,326 $38.88 The following table summarizes the restricted stock granted during the respective years: Restricted stock grants2017 2016 2015 Employees 396,708 394,243 316,531 Outside directors 31,625 26,125 22,000 Total 428,333 420,368 338,531 Weighted average grant date fair value$43.31 $33.46 $37.60 Vesting period3-5 years 3-5 years 3-5 years 49 The fair value of non-vested restricted stock is equal to the market price of our stock at the date of grant.The total fair value of restricted shares vested during the years ended December 31, 2017, 2016 and 2015 was $10.4 million, $7.5 million and $8.7million, respectively.As of December 31, 2017, there was $25.5 million of unrecognized compensation cost related to non-vested share-based compensation that is expected tobe recognized over a weighted average period of 2.99 years.During January 2018, we granted 323,347 shares of restricted stock, which includes 89,143 performance based shares and 234,204 time based shares, tocertain employees and 33,000 shares of restricted stock to outside directors with a weighted average grant date fair value of $49.20. The stock vests over athree to five year period for employees and one year for outside directors. NOTE 13. Employee Benefit PlansWe have a profit-sharing plan as of December 31, 2017, 2016 and 2015, under section 401(k) of the Internal Revenue Code. At our discretion, we partiallymatch qualified contributions made by employees to the plan. We incurred expense of $3.0 million related to this plan in 2017, $2.4 million in 2016 and$1.9 million in 2015.In January 2005, we established the Hub Group, Inc. Nonqualified Deferred Compensation Plan (the “Plan”) to provide added incentive for the retentionof certain key employees. Under the Plan, which was amended in 2008, participants can elect to defer certain compensation. Accounts will 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 othersecurity investments related to the Plan as of December 31, 2017 and 2016. Both realized and unrealized gains and losses are included in income andexpense and offset the change in the deferred compensation liability. We provide a 50% match on the first 6% of employee compensation deferred under thePlan, with a maximum match equivalent to 3% of base salary. In addition, we have a legacy deferred compensation plan. There are no new contributionsbeing made into this legacy plan.We incurred expense of $0.3 million per year related to the employer match for these plans in 2017, 2016 and 2015. The liabilities related to these plansas of December 31, 2017 and 2016 were $24.4 million and $21.1 million, respectively. NOTE 14. Legal Matters RoblesOn January 25, 2013, a complaint was filed in the U.S. District Court for the Eastern District of California (Sacramento Division) by Salvador Roblesagainst our subsidiary Hub Group Trucking, Inc (“HGT”). The action is brought on behalf of a class comprised of present and former California-based truckdrivers for HGT who were classified as independent contractors, from January 2009 to August 2014. It alleges HGT has misclassified such drivers asindependent contractors and that such drivers were employees. It asserts various violations of the California Labor Code and claims that HGT has engaged inunfair competition practices. The complaint seeks, among other things, declaratory and injunctive relief, monetary damages and attorney’s fees. In May2013, the complaint was amended to add similar claims based on Mr. Robles’ status as an employed company driver. These additional claims are only onbehalf of Mr. Robles and not a putative class. The Company believes that the California independent contractor truck drivers were properly classified as independent contractors at alltimes. Nevertheless, because lawsuits are expensive, time-consuming and could interrupt our business operations, HGT decided to make settlement offers toindividual drivers with respect to the claims alleged in this lawsuit, without admitting liability. As of December 31, 2017, 96% of the California drivers haveaccepted the settlement offers. In late 2014, HGT decided to convert its model from independent contractors to employee drivers in California (the“Conversion”). In early 2016, HGT closed its operations in Southern California. On April 3, 2015, the Robles case was transferred to the U.S. District Court for the Western District of Tennessee (Western Division) in Memphis. On May15, 2015, Plaintiffs filed a Second Amended Complaint (“SAC”) which names 334 current and former HGT drivers as “interested putative class members.” Inaddition to reasserting their existing claims, the SAC includes claims post-Conversion, added two Plaintiffs (who had signed the settlement agreement above)and seeks a judicial declaration that the settlement agreements are unenforceable. On June 8, 2015, HGT filed a motion to dismiss the SAC and on July 19,2016, HGT’s motion to dismiss was granted in part, and denied in part, by the District Court. The motion to dismiss was granted for the claims of allpurported class members who have signed settlement agreements and for the plaintiffs’ claims based on quantum merit. It was50denied with respect to federal preemption and choice of law. On August 11, 2016, Plaintiffs filed a motion to clarify whether the Court’s dismissal of theclaims of all purported class members who signed settlement agreements was with or without prejudice and, if the dismissal was with prejudice, Plaintiffsmoved the Court to revise and reconsider the order. Plaintiffs’ motion for clarification/reconsideration has been fully briefed and the parties are awaiting adecision by the Court. AdameOn August 5, 2015, the Plaintiffs’ law firm in the Robles case filed a lawsuit in state court in San Bernardino County, California on behalf of 63 namedPlaintiffs against HGT and five Hub and HGT employees. The lawsuit alleges claims similar to those being made in Robles and seeks penalties underCalifornia’s Private Attorneys General Act (“PAGA”). Of the 63 named Plaintiffs, at least 58 signed settlement agreements. On October 29, 2015, Defendants filed a notice of removal to move the case from state court in San Bernardino to federal court in the Central District ofCalifornia. On November 19, 2015, Plaintiffs filed a motion to remand the case back to state court, claiming that the federal court lacks jurisdiction over thecase because there is not complete diversity of citizenship between the parties and the amount in controversy threshold is not satisfied. The court grantedPlaintiffs’ motion to remand to the state court in San Bernardino County on April 7, 2016.On July 11, 2016, Defendants filed dismissal papers in state court, asking the court to dismiss Plaintiffs’ suit for various reasons, including that theagreement between HGT and its former California owner operators requires that this action be brought in Memphis, Tennessee, or stay the action pending theoutcome of Robles. Defendants also asked the court to dismiss the individual defendants because PAGA’s language does not allow for individualliability. During a hearing on October 5, 2016, the judge issued an oral tentative ruling stating that the choice of forum provision was unenforceable. OnFebruary 17, 2017, with the stipulation of the parties, the Court entered an order dismissing, without prejudice, all of the individual Defendants andaccepting the parties’ agreement that jurisdiction and venue are proper in the San Bernardino Superior Court and that Defendants will not seek to remove thecase to federal district court. On April 12, 2017, the Court denied Defendant’s motion to dismiss based on insufficiency of the PAGA letter notice. OnOctober 19, 2017, Plaintiffs filed an amended complaint, dismissing the previously named individuals as Defendants. On December 4, 2017, Defendantsfiled an Answer to Plaintiffs’ First Amended Complaint and a Memorandum of Points and Authorities in Support of their Motion for Judgment on thePleadings. On January 31, 2018, a hearing was held on the motion to dismiss, and on February 1, 2018, the motion was denied. A trial setting conference isset for April 12, 2018. NOTE 15. Stock Buy Back PlansOn February 2, 2016, our Board of Directors authorized the purchase of up to $100 million of our Class A Common Stock. This authorization expired onDecember 31, 2016. We purchased 2,672,227 shares under this authorization during the year ended December 31, 2016, completing the authorization. Therewas no purchase authorized in 2017. We purchased 77,988 shares for $3.4 million and 73,546 shares for $2.5 million during the years ended December 31, 2017 and 2016, respectively,related to employee withholding upon vesting of restricted stock. NOTE 16. Selected Quarterly Financial Data (Unaudited)The following table sets forth the selected quarterly financial data for each of the quarters in 2017 (in thousands, except per share amounts): Quarter Ended March 31, June 30, September 30, December 31, 2017 2017 2017 2017 Year Ended December 31, 2017: Revenue$893,448 $924,513 $1,054,360 $1,162,576 Gross margin 101,585 101,317 116,524 138,091 Operating income 17,177 16,578 21,669 41,127 Net income 10,334 9,542 15,334 99,943 Basic earnings per share$0.31 $0.29 $0.46 $3.01 Diluted earnings per share$0.31 $0.29 $0.46 $2.9951The following table sets forth the selected quarterly financial data for each of the quarters in 2016 (in thousands, except per share amounts): Quarter Ended March 31, June 30, September 30, December 31, 2016 2016 2016 2016 Year Ended December 31, 2016: Revenue$805,859 $855,557 $932,814 $978,560 Gross margin 108,387 114,490 111,454 120,454 Operating income 28,843 34,297 29,855 30,839 Net income 17,965 20,671 17,924 18,244 Basic earnings per share$0.51 $0.61 $0.54 $0.55 Diluted earnings per share$0.51 $0.61 $0.54 $0.55 Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.Item 9A.CONTROLS AND PROCEDURESMANAGEMENT’S REPORT ON DISCLOSURE CONTROLS AND PROCEDURESAs of December 31, 2017, an evaluation was carried out under the supervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(f) and Rule 15d-15(f)under the Securities Exchange Act of 1934. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that thesedisclosure controls and procedures were effective.No significant changes were made in our internal control over financial reporting during the fourth quarter of 2017 that has materially affected, or isreasonably 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 evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGOur management is responsible for establishing and maintaining adequate controls over financial reporting as defined in Rule 13a-15(f) of the ExchangeAct. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, weconducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017. Based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria),management believes our internal control over financial reporting was effective as of December 31, 2017.On July 1, 2017, we completed the acquisition of HGD. We are currently integrating processes, employees, technologies and operations. As permitted bythe rules and regulations of the SEC, we excluded HGD from our assessment of our internal control over financial reporting as of December 31,2017. Management will continue to evaluate our internal controls over financial reporting as we complete our integration. As of December 31, 2017, HGDrepresented 17.8% of total assets and 22.8% of net assets. For the year ended December 31, 2017, HGD represented 2.9% of revenues and 2.4% of net income.Management believes, however, that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectivesof the control system are met, and no evaluation controls can provide absolute assurance that all control issues and instances of fraud, if any, within theCompany have been detected.Ernst & Young LLP, an independent registered public accounting firm, who audited and reported on the consolidated financial statements, included inthis report, has issued an attestation report on the Company’s internal control over financial reporting. 52REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors of Hub Group, Inc. Opinion on Internal Control over Financial ReportingWe have audited Hub Group, Inc.’s internal control over financial reporting as of December 31, 2017, 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 ouropinion, Hub Group, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,based on the COSO criteria. As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusionon the effectiveness of internal control over financial reporting did not include the internal controls of Hub Group Dedicated, which is included in the 2017consolidated financial statements of the Company and constituted 17.8% and 22.8% of total assets and net assets, respectively, as of December 31, 2017 and2.9% and 2.4% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company alsodid not include an evaluation of the internal control over financial reporting of Hub Group Dedicated. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of Hub Group, Inc. as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedulelisted in the Index at Item 15(b), and our report dated February 28, 2018 expressed an unqualified opinion thereon. Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable 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 reasonableassurance 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 andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ Ernst & Young LLPChicago, IllinoisFebruary 28, 2018 53 Item 9B.OTHER INFORMATIONNone. PART III Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEA list of our executive officers and biographical information appears in Part I of this report. Information about our directors, and additional informationabout our executive officers, may be found under the caption "Election of Directors" in our proxy statement for the 2018 annual meeting of stockholders tobe held May 22, 2018 (the "Proxy Statement"). Information about our Audit Committee may be found under the captions "Meetings and Committees of theBoard "and "Audit Committee Report” in the Proxy Statement. Information about the procedures by which security holders may recommend nominees to theBoard may be found under the caption "Nomination of Directors" in the Proxy Statement. That information is incorporated herein by reference.The information in the Proxy Statement set forth under the captions "Section 16(a) Beneficial Ownership Reporting Compliance" and "Code of Ethics" isincorporated herein by reference.Item 11.EXECUTIVE COMPENSATIONThe section entitled “Compensation of Directors and Executive Officers” appearing in our Proxy Statement sets forth certain information with respect tothe compensation of our management and is incorporated herein by reference.Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe section entitled “Ownership of the Capital Stock of the Company” appearing in our Proxy Statement sets forth certain information with respect to theownership of our Common Stock and are incorporated herein by reference.Equity Compensation Plan InformationThe following chart contains certain information regarding the Company’s Long-Term Incentive Plans: Plan Category Number of securitiesto be issuedupon exercise ofoutstanding options,warrants and rights(a) Weighted-averageexercise price ofoutstanding options,warrants and rights Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a)) Equity compensation plans approved by security holders — $ — 1,948,363 Equity compensation plans not approved by security holders — — — Total — $— 1,948,363 Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe sections entitled “Review of Related Party Transactions,” Transactions with Related Persons” and “Meetings and Committees of the Board”appearing in our Proxy Statement set forth certain information with respect to certain business relationships and transactions between us and our directors andofficers and the independence of our directors and is incorporated herein by reference.Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe section entitled “Principal Accountant Fees and Services” appearing in our Proxy Statement sets forth certain information with respect to certain feeswe have paid to our principal accountant for services and is incorporated herein by reference. 54PART IV Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) Financial StatementsThe 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, 2017 and December 31, 2016 Consolidated Statements of Income and Comprehensive Income - Years ended December 31, 2017, December 31, 2016 and December 31, 2015 Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2017, December 31, 2016 and December 31, 2015 Consolidated Statements of Cash Flows - Years ended December 31, 2017, December 31, 2016 and December 31, 2015 Notes to Consolidated Financial Statements (b) Financial Statement SchedulesThe following financial statement schedules of Hub Group, Inc. are filed as part of this report and should be read in conjunction with the consolidatedfinancial statements of Hub Group, Inc.: PageII. Valuation and qualifying accounts and reserves S-1All other schedules are omitted because they are not required, are not applicable, or the required information is shown in the consolidated financialstatements or notes thereto.(c) ExhibitsThe exhibits included as part of this Form 10-K are set forth in the Exhibit Index immediately preceding such Exhibits and are incorporated herein byreference.Item 16.FORM 10-K SUMMARYNone. 55 SCHEDULE IIHUB GROUP, INC.VALUATION AND QUALIFYING ACCOUNTS AND RESERVESAllowance for uncollectible trade accounts Balance at Charged to Charged to Balance at Year EndedBeginning of Costs & Other End of December 31:Year Expenses Accounts (1) Deductions (2) Year 2017$5,411,000 $1,051,000 $2,044,000 $(13,000) $8,493,000 2016$5,215,000 $90,000 $146,000 $(40,000) $5,411,000 2015$6,990,000 $270,000 $(2,037,000) $(8,000) $5,215,000 Deferred tax valuation allowance Balance at Charged to Balance at Year EndedBeginning of Costs & End of December 31:Year Expenses Year 2017$456,000 $1,225,000 $1,681,000 2016$108,000 $348,000 $456,000 2015$108,000 $- $108,000(1)Expected customer account adjustments charged to revenue and write-offs, net of recoveries.(2)Represents bad debt recoveries. S-1INDEX TO EXHIBITS Number Exhibit 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s quarterlyreport on Form 10-Q filed July 23, 2007, File No. 000-27754) 3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s report on Form 8-K dated February 18, 2016 and filedFebruary 23, 2016, File No. 000-27754) 10.1 Amended and Restated Stockholders’ Agreement (incorporated by reference to Exhibit 10.1 to the Registrants report on Form 10-Q dated andfiled July 30, 2014, File No 000-27754) 10.2 Class B Common Stock Issuance Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s report on Form 10-Q dated and filedJuly 30, 2014, File No. 000-27754) 10.3* Hub Group’s Nonqualified Deferred Compensation Plan Basic Plan Document as amended and restated as of January 1, 2008 (incorporated byreference to Exhibit 10.4 to the Registrant’s report on Form 10-K dated February 21, 2008 and filed February 22, 2008, File No. 000-27754) 10.4* Hub Group’s Nonqualified Deferred Compensation Plan Adoption Agreement as amended and restated as of January 1, 2008 (incorporated byreference to Exhibit 10.5 to the Registrant’s report on Form 10-K dated February 21, 2008 and filed February 22, 2008, File No. 000-27754) 10.7* Hub Group’s 2002 Long Term Incentive Plan (as amended and restated effective May 7, 2007) (incorporated by reference from Appendix B tothe Registrant’s definitive proxy statement on Schedule 14A dated and filed March 26, 2007) 10.8 Credit Agreement, dated July 1, 2017, among the Registrant, Hub City Terminals, Inc., the Guarantors, the Lenders and Bank of Montreal(incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K dated July 1, 2017 and filed July 7, 2017, File No. 000-27754) 10.9 Lease Agreement dated as of May 10, 2005, between Banc of America Leasing & Capital, LLC and Hub City Terminals, Inc., with form ofSchedule thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s report on Form 8-K dated May 10, 2005 and filed May 16,2005, File No. 000-27754) 10.10 Guaranty of Corporation, dated as of May 10, 2005, made by Registrant to, and for the benefit of, Banc of America Leasing & Capital, LLC(incorporated by reference to Exhibit 10.2 to the Registrant’s report on Form 8-K dated May 10, 2005 and filed May 16, 2005, File No. 000-27754) 10.11* Form of Terms of Restricted Stock Award under Hub Group, Inc. 2002 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 tothe Registrant’s report on Form 8-K dated May 22, 2006 and filed May 26, 2006, File No. 000-27754) 10.12 Hub Group’s 2017 Long Term Incentive Plan (incorporated by reference from Exhibit A to the Registrant’s definitive proxy statement onSchedule 14A dated and filed March 22, 2017) 10.13* Form of Terms of Restricted Stock Award to Directors under Hub Group, Inc. 2017 Long-Term Incentive Plan (incorporated by reference toExhibit 10.1 to the Registrant’s report on Form 8-K dated May 10, 2017 and filed May 16, 2017, File No. 000-27754) 10.14* Form of Terms of Restricted Stock Award to non-directors under Hub Group, Inc. 2017 Long-Term Incentive Plan (incorporated by reference toExhibit 10.2 to the Registrant’s report on Form 8-K dated May 10, 2017 and filed May 16, 2017, File No. 000-27754) 10.15* Form of Terms of Performance Based Restricted Stock Award under Hub Group, Inc. 2017 Long-Term Incentive Plan (incorporated by referenceto Exhibit 10.3 to the Registrant’s report on Form 8-K dated January 2, 2018 and filed January 5, 2018, File No. 000-27754) Number Exhibit 14 Hub Group’s Code of Business Conduct and Ethics (incorporated by reference from Exhibit 14 to the Registrant’s report on Form 8-K datedFebruary 17, 2017 and filed on February 23, 2017, File No. 000-27754) 21 Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP 31.1 Certification of David P. Yeager, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) promulgated under the SecuritiesExchange Act of 1934 31.2 Certification of Terri A. Pizzuto, Executive Vice President, Chief Financial Officer and Treasurer, Pursuant to Rule 13a-14(a) promulgatedunder the Securities Exchange Act of 1934 32.1 Certification of David P. Yeager and Terri A. Pizzuto, Chief Executive Officer and Chief Financial Officer respectively, Pursuant to 18 U.S.C.Section 1350 101 The following financial statements from our Annual Report on Form 10-K for the year ended December 31, 2017, filed on February 28, 2018,formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2017 and 2016, (ii) Consolidated Statements of Income andComprehensive Income for the years ended December 31, 2017, 2016, and 2015, (iii) Consolidated Statements of Cash Flows for the yearsended December 31, 2017, 2016, and 2015, (iv) Consolidated Statements of Stockholders’ Equity for the years ended 2017, 2016, and 2015,and (v) the Notes to the Consolidated Financial Statements. *Management contract or compensatory plan or arrangement. SIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized. Date: February 28, 2018 HUB GROUP, INC. By /s/ DAVID P. YEAGER David P. Yeager Chairman and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and onthe dates indicated: Title Date /s/ David P. Yeager David P. Yeager Chairman and Chief Executive Officer February 28, 2018 /s/ Donald G. Maltby Donald G. Maltby President and Chief Operating Officer February 28, 2018 /s/ Terri A. Pizzuto Terri A. Pizzuto Executive Vice President, Chief Financial Officer and Treasurer (PrincipalFinancial and Accounting Officer) February 28, 2018 /s/ Charles R. Reaves Charles R. Reaves Director February 28, 2018 /s/ Martin P. Slark Martin P. Slark Director February 28, 2018 /s/ Gary D. Eppen Gary D. Eppen Director February 28, 2018 /s/ Jonathan P. Ward Jonathan P. Ward Director February 28, 2018 /s/ James Kenny James Kenny Director February 28, 2018 /s/ Peter McNitt Peter McNitt Director February 28, 2018 EXHIBIT 21Subsidiaries of Hub Group, Inc. SUBSIDIARIES JURISDICTION OF INCORPORATION/ORGANIZATION Hub City Terminals, Inc. DelawareHub Group Atlanta, LLC Delaware Hub Group Associates, Inc. Illinois Hub Chicago Holdings, Inc. Delaware Hub Group Transport, LLC Delaware Hub Freight Services, Inc. Delaware Hub Group Trucking, Inc. Delaware HGNA Group de Mexico, S. de RL de C.V. Mexico HGNA Services, S. de RL de C.V.Mode Transportation, LLC MexicoDelawareMode Freight Services, LLC DelawareHub Group Canada Inc. Ontario EXHIBIT 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statements Form S-8 Nos. 333-218509 pertaining to the Hub Group, Inc. 2017 Long Term Incentive Plan andForm S-8 No. 333-107745 pertaining to the Hub Group Employee Profit Sharing Plan and Trust of our reports dated February 28, 2018, with respect to the consolidated financialstatements and schedule of Hub Group, Inc., and the effectiveness of internal control over financial reporting of Hub Group, Inc., included in this Annual Report (Form 10-K) forthe year ended December 31, 2017. /s/ Ernst & Young LLPChicago, IllinoisFebruary 28, 2018EXHIBIT 31.1CERTIFICATIONI, David P. Yeager, certify that:1)I have reviewed this report on Form 10-K of Hub Group, Inc.;2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light ofthe circumstances under which such statements were made, not misleading with respect to the period covered by this report;3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presented in this report;4)The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles; c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and;5)The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performing the equivalent function): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adverselyaffect the registrant's ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financialreporting.Date: February 28, 2018 /s/ David P.YeagerName: David P. YeagerTitle: Chairman and Chief Executive Officer EXHIBIT 31.2CERTIFICATIONI, Terri A. Pizzuto, certify that:1)I have reviewed this report on Form 10-K of Hub Group, Inc.;2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light ofthe circumstances under which such statements were made, not misleading with respect to the period covered by this report;3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presented in this report;4)The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles; c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and;5)The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and theaudit committee of registrant's board of directors (or persons performing the equivalent function): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adverselyaffect the registrant's ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financialreporting.Date: February 28, 2018 /s/ Terri A. PizzutoName: Terri A. PizzutoTitle: Executive Vice President, Chief Financial Officer and Treasurer EXHIBIT 32.1Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002The following statement is provided by the undersigned to accompany the Annual Report on Form 10-K for the year ended December 31, 2017 of Hub Group, Inc. pursuantto Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and shall not be deemed filed pursuant to any provision of the Exchange Act of 1934 or any other securitieslaw.Each of the undersigned certifies that the foregoing Report on Form 10-K fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15U.S.C. 78m) and that the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Hub Group, Inc.Date: February 28, 2018 /s/David P. Yeager /s/Terri A. PizzutoDavid P. Yeager Terri A. PizzutoChairman and Chief Executive Officer Executive Vice President, Chief Financial Officer and Treasurer 

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