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Hub GroupUNITED 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, 2018OR☐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) Delaware36-4007085(State or other jurisdictionof 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 12 months (or for such shorter periodthat 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 posted pursuant to Rule 405 ofRegulation 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 such files). 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’s knowledge, in definitive proxy orinformation 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 “large accelerated 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 financial accounting standards providedpursuant 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, 2018, based upon the last reported sale price on that date on the NASDAQ Global Select Market of $49.80 pershare, was $1,613,285,990.On February 18, 2019, the Registrant had 34,111,819 outstanding shares of Class A Common Stock, par value $.01 per share, and 662,296 outstanding shares of Class B Common Stock, par value $.01 pershare.Documents Incorporated by ReferenceThe Registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2019 (the “Proxy Statement”) is incorporated by reference in Part III of this Form 10-K to the extentstated 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 a part 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 the PrivateSecurities 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; •inability to recruit and retain company drivers and owner-operators; •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, warehousing and trucking company capacity or costs of services; •increases in costs related to any reclassification or change in our treatment of drivers, owner-operators or other workers due to regulatory, judicial andlegal decisions; •joint employer claims alleging that the Company is a co-employer of any workers providing services to a Company contractor; •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; •inability to identify, close and successfully integrate any future business combinations; •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; •changes in insurance costs and claims expense; •union organizing efforts and changes to current laws which will aid in these efforts; •further consolidation of railroads;1 •imposition of new tariffs or trade barriers or withdrawal from or renegotiation of existing free trade agreements which could reduce international tradeand economic activity; and •losses sustained on insured matters where the liability materially exceeds available insurance proceeds. Item 1.BUSINESSGeneralHub Group, Inc. (the “Company”, “Hub”, “we”, “us” or “our”) is a leading, world class supply chain management company that provides value-added multi-modal transportation and logistics solutions by offering reliability, visibility and value to our customers. Our service offerings include comprehensiveintermodal, truck brokerage, dedicated trucking, managed transportation, freight consolidation, warehousing, international transportation and other logisticsservices. The Company is a Delaware corporation that was incorporated on March 8, 1995 as successor to a business that was founded in 1971.Today we are one of the largest freight transportation providers in the United States. Through our network, we have the ability to arrange for the movement offreight in and out of every major city in the United States, Canada and Mexico. We utilize an asset-light strategy that employs a combination of ourcompany-operated equipment as well as assets operated by third parties to transport and store our customers’ goods, which allows us to minimize ourinvestment in equipment and facilities and reduce our capital requirements. Hub services a large and diversified customer base in a broad range of industries,including consumer products, retail and durable goods. We believe our strategy to offer multi-modal supply chain management solutions serves tostrengthen and deepen our relationships with our customers and allows us to provide a more cost effective and higher service solution.Our strategy includes the following elements: •Deepen and diversify our customer relationships through a best-in-class customer experience across all solutions •Acquire and organically develop new service offerings for our customers that will diversify our revenue streams and deliver sophisticatedsupply chain logistics solutions •Selectively invest in assets to drive organic growth and reduce our costs •Build a world class information technology platform to drive growth and efficiency and support future innovation •Develop a culture that continues to enable innovation, service and teamworkIn support of our mission to provide multi-modal transportation and logistics solutions we regularly evaluate strategic transactions to enhance our corebusiness lines and diversify our service offerings. Our recent strategic transactions include the following:Estenson Acquisition. On July 1, 2017, our subsidiary Hub Group Trucking, Inc. (“HGT”), acquired the outstanding equity interests of Estenson Logistics,LLC (“Estenson”), a leading North American dedicated trucking company that operated over 1,000 trucks and employed approximately 1,300drivers. Estenson now operates under the name Hub Group Dedicated (“Dedicated”). Mode Sale. On August 31, 2018, we sold the membership interests of our Mode Transportation, LLC (“Mode”) subsidiary to an affiliate of York CapitalManagement (“Purchaser”). Mode’s temperature protected division (“Temstar”) was not included in the transaction and is now included in our intermodalline of business. Mode provided transportation management services to its customers through a network of approximately 170 agents. CaseStack Acquisition. On December 3, 2018, a subsidiary of Hub Group, Inc. completed a merger with CaseStack, Inc. (“CaseStack”). CaseStack is a non-asset based transportation and logistics provider operating in two lines of business. CaseStack’s logistics business provides warehouse and transportationlogistics services, including retailer-driven collaborative consolidation programs, to its customers who primarily consist of consumer-packaged goodscompanies selling into the North American retail channel. CaseStack’s transportation brokerage business offers truck brokerage services with a focus on less-than-truckload services. CaseStack does not own or operate any warehouses or transportation equipment. The financial results of CaseStack are included inour logistics line of business, except for their transportation brokerage business which is included in our truck brokerage line of business.Services Provided2 Our lines of business can be categorized as follows:Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers and trailers, typically over long distances of 750miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup anddelivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our HGT subsidiary and third-party local truckingcompanies. In a typical intermodal transaction, the customer contacts Hub to place an order. We determine the price, arrange for the necessary intermodal equipment(which includes a container and chassis or a trailer) to be delivered to the customer by HGT or a third-party drayage company and, after the freight is loaded,arrange for the transportation of the container or trailer to the rail terminal where it is transported by the railroad to the destination rail terminal. Ourpredictive track and trace technology then monitors the shipment to ensure that it arrives as scheduled and alerts our customer service personnel if there areservice delays. We then arrange for and confirm delivery by a drayage company at the destination. After unloading, the empty equipment is made availablefor reloading.As of December 31, 2018, we owned approximately 37,000 53-foot containers and we had exclusive access to approximately 1,200 rail-owned containers forour dedicated use on the Union Pacific (“UP”) and the Norfolk Southern (“NS”) railroads.During 2018, HGT accounted for approximately 53% of Hub’s drayage needs by providing reliable, cost effective intermodal services to our customers. As ofDecember 31, 2018, HGT had terminals in the 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 andWilmington (IL) metro areas. As of December 31, 2018, HGT leased or owned approximately 1,200 tractors and 200 trailers, employed approximately 1,300drivers and contracted with approximately 1,300 owner-operators.Dedicated Trucking. Our dedicated operation contracts with customers who seek to outsource a portion of their trucking transportation needs. We offer adedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high serviceexpectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which servesto reduce the financial risk we bear with respect to the utilization of our equipment. Our dedicated operation currently operates a fleet of approximately1,400 tractors and 4,500 trailers at 130 locations throughout the United States. As of December 31, 2018, Dedicated employed approximately 1,900 drivers.Truck Brokerage. We operate one of the largest truck brokerage operations in the U.S., providing customers with an over the road service option for theirtransportation needs. Our brokerage does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effectiveservice and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.In a typical truck brokerage transaction, the customer contacts Hub to obtain a price quote for a particular freight movement. We make the deliveryappointment and arrange with the appropriate carrier to pick up the freight. Once we receive confirmation that the freight has been picked up, we monitor themovement of the shipment until it reaches its destination and the delivery has been confirmed.In 2018, we expanded our truck brokerage service offering through the acquisition of CaseStack. CaseStack’s truck brokerage provides us with additionalcapabilities, particularly with respect to less-than-truckload freight.Logistics. Hub’s logistics business operates under the names Unyson Logistics and CaseStack. Unyson Logistics is comprised of a network of logisticsprofessionals dedicated to developing, implementing and operating customized logistics solutions for customers. Unyson Logistics offers a wide range oftransportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management,load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited,less-than-truckload, truckload, intermodal, railcar and international shipping. Our CaseStack logistics business leverages proprietary technology along withcollaborative partnerships with retailers and logistics providers to deliver cost savings and performance-enhancing supply chain services to consumer-packaged goods clients. CaseStack contracts with third-party warehouse providers in seven markets across North America to which its customers ship theirgoods to be stored and eventually consolidated, along with goods from other CaseStack customers, into full truckload shipments destined to major NorthAmerican retailers. CaseStack offers its customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasinglystringent supply chain requirements.Marketing and CustomersAs one of the leading transportation management companies in North America, Hub Group’s mission is to be a world-class supply chain managementcompany that provides innovative, value-added multi-modal solutions including intermodal, dedicated trucking,3 truck brokerage and logistics services. We have transformed our organization from a traditional intermodal marketing company (“IMC”) into a multi-modalsolutions provider delivering reliability, visibility and value to our customers every day.The focus on this mission has revolutionized our offerings and the way we service our customers. We seek to understand and analyze our customers’ entirenetwork to provide innovative multi-modal solutions to drive savings, improve service and offer full visibility into their supply chains. After 48 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.The supply-chain needs of our customers have become more complex, efficient and lean. We are committed to helping our customers meet these needs. Aparticular focus has been providing our customers with increased speed and improved visibility into their supply chains. Our state-of-the-art technology andsatellite tracking of intermodal containers helps to maintain our high levels of service while aiding capacity planning and providing 24/7 visibility into anyshipment; and our people have the skills, training and information to quickly respond to our customers' changing supply chain networks. Every customer hasa dedicated team of professionals ready to service all of their needs. We refer to this exceptional service approach the "One Hub" experience.The majority of our business is in the retail, consumer products and durable goods. No one customer represents more than 10% of our total revenue in 2018and 2017. Information Technology SystemsLeveraging strong technology at the core and emerging technologies on the edge to achieve our business goals and to keep pace with customer demandsremains the basis of our technology strategy. We purchase commercially available technology for commodity capabilities, we extend to create additionalvalue leveraging emerging technologies, and we build solutions where we can create differentiated experiences for our customers, drivers, carriers andemployees. In 2018 we initiated our multi-year investment and process enhancement initiative that we refer to as “Elevate” which includes implementingcore foundational technologies, Oracle enterprise resource planning (“ERP”) and Oracle Human Capital Management (“HCM”) and Oracle TransportationManagement (“OTM”) all of which are deployed in the cloud. Anchored on those common platforms our technology strategy includes the deployment ofdifferentiating solutions facing our customers and carriers through our Hub Connect application and for our drivers through our Hub Pro application. Inaddition, we have many initiatives focused on internal productivity and efficiency that will be a dramatic change from the processes and technology usedtoday.In 2018, we converted two of our HGT terminals to our newly designed process and technology solutions for fleet operations. This included changes to thetechnology used for the recruiting, qualifying, and onboarding of drivers. This allows drivers to immediately begin using the entire suite of solutions ontheir first day of employment. We also deployed our state-of-the-art transportation management system, OTM, allowing us to optimally plan drivers andloads. This positively impacts both driver and asset utilization while improving the customer experience with more efficient, responsive operations. Thisdeployment also added a significant set of capabilities to Hub Pro, our mobile solution for company drivers and owner operator drivers. These newcapabilities include visibility to work assignments, direct communication to their manager, verification of work completed, hours of service compliance,vehicle inspection and other features focused on value to our drivers. This end to end solution was deployed leveraging both purchased and custom-builtsolutions integrated through our API platform. The deployment of this solution to each of our fleet terminals will be completed by the end of 2019.Benefits of our Cloud First technology strategy include improvements to the rate and pace at which we can deliver technology solutions, while lowering thecost to serve and maintaining our high level of service quality. We also expect to deploy in 2019 ERP as our financial management solution as well asenabling HCM Cloud for driver payroll allowing us to leverage both solutions to improve efficiency and gain valuable insight. These and other newtechnology solutions are planned for 2019. 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 our sizeand 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.4 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 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 their owndrivers and also contract with owner-operators who supply their own trucks.Relationship with Trucking CompaniesWe contract with a large number of trucking companies that we use to transport freight. Our relationships with these trucking companies are important sincethese relationships determine pricing, load coverage and overall service.Risk Management and InsuranceWe require all of our trucking company vendors to carry general liability insurance, truckman’s auto liability insurance and cargo insurance. Railroads,which are self-insured, provide limited cargo protection. To cover freight loss or damage when a carrier’s liability cannot be established or a carrier’sinsurance is insufficient to cover the claim, we carry our own cargo insurance. We also carry general liability insurance with a companion umbrella policy onthis 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 Dedicated and CaseStack, are licensed by the Department of Transportation as brokers in arrangingfor the transportation of general commodities by motor vehicle. To the extent that we perform truck brokerage services, they do so under these licenses. TheDepartment of Transportation prescribes qualifications for acting in this capacity, including a $75,000 surety bond that we have posted. In addition, Hub hascustoms bonds. To date, compliance with these regulations has not had a material adverse effect on our results of operations or financial condition; however,the transportation industry is subject to legislative or regulatory changes that can affect the economics of the industry by requiring changes in operatingpractices or influencing the demand for, and cost of providing, transportation services.Custom-Trade Partnership Against TerrorismOne of our operating subsidiaries achieved Custom-Trade Partnership Against Terrorism (C-TPAT) certification in 2013 and have maintained it since then. C-TPAT is a voluntary supply chain security program led by U.S. Customs and Border Protection focused on improving the security of private companies’supply chains with respect to terrorism. Companies who achieve C-TPAT certification must have a documented process for determining and alleviating risksthroughout their international supply chain. This certification allows us to be considered low risk, resulting in expedited processing of our customers’ cargo,including fewer customs 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 services. Several larger trucking companies have entered into agreements with railroads to marketintermodal services nationwide. Competition is based primarily on freight rates, quality of service, reliability, transit time and scope of operations. Severaltransportation service companies and trucking companies, and all of the major railroads, may have substantially greater financial and other resources than wedo.5 GeneralEmployees: As of December 31, 2018, Hub Group had approximately 5,400 employees, which included approximately 3,100 drivers. We are not a party toany collective bargaining agreements and consider our relationship with our employees to be satisfactory.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 we electronicallyfile 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, the SEC maintainsa website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information weelectronically 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’s Public ReferenceRoom at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.Item 1A.RISK FACTORSOur 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 intermodal, truck brokerage, dedicated and logistics services. Driver shortages and reliance on third-party companiesfor the operation of our intermodal, truck brokerage, dedicated and logistics services could adversely affect our profitability and limit our ability to expandour business or retain customers. Driver shortages may require increases to drivers’ compensation that we may be unable to pass on to our customers, therebyincreasing our cost of providing services and lowering our margins. Most drayage and certain less than truckload companies operate relatively small fleetsand have limited access to capital for fleet expansion. Particularly during periods of economic expansion, it may be difficult for Dedicated, HGT and third-party trucking companies to expand their fleets due to chronic driver shortages.Because 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 to one ora 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.To date, the railroads have chosen to rely on us and other intermodal competitors to market their intermodal services rather than fully developing their ownmarketing capabilities. If one or more of the major railroads were to decide to reduce their dependence on us, the volume of intermodal shipments we arrangewould 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 emerging6 technology to further drive innovation and efficiency. The back-office investments include implementing new order management, transportationmanagement, contract management and financial management processes and systems. In a transformation of this size and scope we must mitigate risk byengaging external expertise and hiring internal experts. If we fail to successfully implement critical technology, if it does not provide the anticipated benefitsor it does not meet market demands, we may be placed at a competitive disadvantage and could lose customers, materially adversely impacting our financialcondition and 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 the freightbrokerage market, our customers may be able to find alternatives to our services for matching shipments with available freight hauling capacity. We mustcontinue to develop innovative emerging technologies to source, track and provide visibility to capacity while exploiting machine learning and artificialintelligence to further improve customer outcomes.The inability to successfully implement our new enterprise resource planning system could materially adversely affect our business.We may experience difficulties implementing our new ERP. We are engaged in a multi-year implementation of a new enterprise resource planning system.The ERP is designed to efficiently maintain our books and records and provide information important to the operation of our business to our managementteam. The ERP will continue to require significant investment of human and financial resources. In implementing the ERP, we may experience significantdelays, increased costs and other difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely affect ourability to process orders, service customers, send invoices and track payments, fulfill contractual obligations, meet financial reporting obligations orotherwise operate our business.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.Our information technology systems are dependent upon global communications and cloud service providers, as well as their respective vendors, all of whomhave 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, malicious intrusion,random attacks and similar disruptions from unauthorized tampering with our computer systems. Failure to prevent or mitigate data loss or system intrusionsfrom cyber-attacks or other security breaches, system failures or outages could expose us, our vendors, customers or third parties to a risk of loss or misuse ofsuch information, which may adversely affect our operating results, result in litigation or otherwise harm our reputation or business. Likewise, data privacybreaches by employees and others who access our systems may pose a risk that sensitive customer, vendor or employee data may be exposed to unauthorizedpersons or to the public, materially adversely impacting our customer service, employee, customer and vendor relationships and our reputation. The Company is continuously working to install new, and upgrade its existing, information technology systems and provide employee awareness trainingaround phishing, malware, and other cyber risks to ensure that the Company is protected against cyber risks and security breaches. While we believe that wehave taken appropriate security measures to protect our data and information technology systems and prevent data loss, there can be no assurance that ourefforts 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, or otherwisehave 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 10 largest customers accounted for approximately 41% of our total revenue in 2018, 36% in 2017 and 33% in 2016. While our dedicated and logisticsbusinesses may involve long-term contracts, those contracts may contain cancellation clauses, and there is no assurance that our current customers willcontinue 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 customers couldhave a material adverse effect on our revenue and business.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 contingent uponreceipt of payment from our clients. If any of our key clients fail to pay for our services, our profitability would be negatively impacted.7 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 60% of our revenue from our intermodal services in 2018, 60% in 2017 and 66% in 2016. 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 transportation andlogistics 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.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 88% of our consolidated revenue in 2018, 89% in 2017 and 88% in 2016. 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. 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 a riskas consumers and businesses may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, whichcould have a material negative effect on demand for transportation services. We are unable to predict the likely duration and severity of disruptions in thefinancial markets and adverse economic conditions, and our business and results of operations could be materially and adversely affected. Other factors thatcould influence demand include fluctuations in fuel costs, labor costs, consumer confidence, and other macroeconomic factors affecting consumer spendingbehavior. 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 HGT owner-operators, consistent with longstanding industry practices. Legislative,judicial, and regulatory (including tax) authorities have taken actions and rendered decisions that could affect the independent contractor classifications. Class action and individual lawsuits have been filed against us and others in our industries, challenging the independent contractor classifications. See Item3 - Legal Proceedings for further discussion and see Note 15 to the consolidated financial statements under “Legal Matters” for a description of materialpending litigation and regulatory matters affecting us and certain risks to our business presented by such matters. If independent contractors are determinedto be employees, or the Company a joint-employer of warehousemen used for our consolidation business, then we may incur legal liabilities associated withthat determination, such as liability for unpaid wages, overtime, employee health insurance and taxes. If we were to change how8 we treat independent contractors or reclassify independent contractors to employees, then we would likely incur expenses associated with thatreclassification and could incur additional ongoing expenses. The costs associated with these matters could have a material adverse effect on results ofoperations and our financial position.Insurance and claims expenses could significantly reduce our earnings.We maintain insurance, with a high self-insured retention, with licensed insurance companies. Our future insurance and claims expenses might exceedhistorical levels, which could reduce our earnings. If the number or severity of claims increases, our operating results could be adversely affected and the costto renew our insurance could increase when our current coverage expires. If these expenses increase, and we are unable to offset the increase with higherfreight rates to our customers, our earnings 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 maintenance organizations. Wegenerally have an individual stop loss deductible per enrollee unless specific exposures are separately insured. We accrue a contingent liability based uponexamination of historical trends, historical actuarial analysis, our claims experience, total plan enrollment (including employee contributions), populationdemographics, and other various estimates. Self-insurance reserves, net income, and cash flows could be materially affected if future claims differsignificantly 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.The ability to hire or retain management and other key personnel is critical to our continued success, and the loss of or inability to hire such personnelcould have a material adverse effect on our business, financial condition and results of operations.There is substantial competition for qualified personnel in the transportation services industry. Many individuals in the industry are required to sign non-competition agreements, severely limiting our ability to hire qualified personnel to compete in the market-place. As all key personnel devote their full timeto our business, the loss of any member of our management team, or other key persons, or the inability to hire key persons, could have an adverse effect on us.We do not have written employment agreements with any of our executive officers and do not maintain key man insurance on any of our executive officers,although we do have non-competition agreements with them. If we lose key members of our senior management team or are unable to effect smoothtransitions from one executive to another as part of our succession plan, we may not be able to effectively manage our current operations or meet ongoing andfuture business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.Our growth could be adversely affected if we are not able to successfully integrate acquisition prospects.We believe that the failure to integrate an acquired business or assets could significantly impact financial results. We cannot guarantee that we will be ableto execute and integrate acquisitions on commercially acceptable terms. Financial results most likely to be impacted include, but are not limited to, revenue,gross margin, salaries and benefits, selling general and administrative expenses, depreciation and amortization, interest expense, net income and our debtlevel.Our business could be adversely affected by strikes or work stoppages by draymen, truckers, warehousemen, 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 slowdown9 and, if labor unrest results in increased rates for transportation providers such as draymen, we may not be able to pass these cost increases on to our customers.Strikes among longshoreman and clerical workers at ports in the past few years have slowed down the ports for a time, creating a major impact on thetransportation industry. Work stoppages occurring among owner-operators in a specific market have increased our operating costs periodically in the past. Inthe past several years, there have been strikes involving railroad workers. Future strikes by railroad workers in the United States, Canada or anywhere else thatour customers’ 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 Dedicated and CaseStack, are licensed by the Department of Transportation (“DOT”) as motor carrierfreight brokers. The DOT prescribes qualifications for acting in this capacity, including surety bond requirements. Our HGT and Dedicated subsidiaries arelicensed by the DOT to act as motor carriers. The transportation industry is subject to DOT regulations regarding, among other things, driver breaks and“restart” rules that can affect the economics of the industry by requiring changes in operating practices or influencing the demand 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 andregulations. If we were found to be out of compliance, the DOT could levy fines and restrict or otherwise impact our operations. To date, compliance withthese regulations has not had a material adverse effect on our results of operations or financial condition. We may also become subject to new or morerestrictive regulations relating to carbon emissions under climate change legislation or limits on vehicle weight and size. Future laws and regulations may bemore stringent and require changes in operating practices, influence the demand for transportation services or increase the cost of providing transportationservices, any of which could materially adversely 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 the transportationindustry generally, or us in particular. We are also unable to predict how the change in administration will affect government regulation of the transportationindustry. Although government regulation that affects us and our competitors may simply result in higher costs that can be passed along to customers, thatmay 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, the future withdrawal from NAFTA or the withdrawal from or material modificationof other international trade arrangements could adversely affect our business, financial condition and results of operations.We arrange for the movement of freight, much of which originates from China, into and out of every major city in Mexico and Canada, and we import 53-footintermodal containers manufactured in China. The potential withdrawal from the North American Free Trade Agreement (“NAFTA”) and entry into the UnitedStates-Mexico-Canada Agreement (“USMCA”), any future withdrawal from other international trade arrangements, or the imposition of tariffs on imports offoreign-manufactured goods into the United States, could adversely affect our business, financial condition and results of operations. Additionally, theimposition of substantial tariffs on foreign-made intermodal containers or other products we utilize may increase the cost of providing transportation servicesor 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.10 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.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, 2019 with respect to each person who is an executive officer of the Company. Name Age PositionDavid P. Yeager 65 Chairman of the Board of Directors and Chief Executive Officer Donald G. Maltby 64 President, Chief Operating Officer and Director Phillip D. Yeager 31 Chief Commercial Officer Terri A. Pizzuto 60 Executive Vice President, Chief Financial Officer and Treasurer Vava R. Dimond 52 Executive Vice President, Chief Information Officer John C. Vesco 56 Executive Vice President, President of Hub Group Trucking Brian D. Alexander 39 Executive Vice President, Unyson Logistics Vincent C. Paperiello 48 Executive Vice President, Pricing and Yield Management Douglas G. Beck 52 Executive Vice President, Secretary and General Counsel Nicholas J. Hannigan 39 Executive Vice President, Truck Brokerage David P. Yeager has served as our Chairman of the Board since November 2008 and as Chief Executive Officer since March 1995. From March 1995 throughNovember 2008, Mr. Yeager served as Vice Chairman of the Board. From October 1985 through December 1991, Mr. Yeager was President of Hub Chicago.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 as itsPresident from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 and served as its President from 1975 to 1977. Mr. Yeager received a Masters inBusiness Administration degree from the University of Chicago in 1987 and a Bachelor of Arts degree from the University of Dayton in 1975. Mr. Yeager isthe 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. Maltby servedas Chief Supply Chain Officer of Hub Supply Chain Solutions from January 2011 to May 2014. From February 2004 to December 2010, Mr. Maltby servedas Executive Vice President-Logistics Services. Mr. Maltby previously served as President of Hub Online, our e-commerce division, from February 2000through 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 Masters11 in Business Administration from Baldwin Wallace College in 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. Prior to joining Hub Group, Mr. Yeager served as Assistant Vice President of Commercial Banking at BMO Harris Bank, and as an investmentbanking analyst for Lazard Freres & Co. Mr. Yeager earned his Bachelor of Arts degree from Trinity College in Hartford, Connecticut, and a Master ofBusiness Administration from the University of Chicago Booth School of Business. Mr. Yeager is the son of 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 22 years holding various positions and serving numerous transportationcompanies. Ms. Pizzuto received a Bachelor of Science in Accounting from the University of Illinois in 1981. Ms. Pizzuto is a CPA and a member of theAmerican Institute of Certified Public Accountants.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.John C. Vesco was named Executive Vice President, President of Hub Group Trucking in January 2016. Mr. Vesco has led Hub Group Trucking’s operationsas its President since January 2015, after serving as Executive Vice President of Hub Group Trucking from March 2012 to December 2014. Prior to joiningHub Group, Mr. Vesco held several management positions with Schneider National, most recently as Vice President and General Manager of SchneiderLogistics. 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.Nicholas J. Hannigan was named Executive Vice President, Truck Brokerage in September 2018 after serving as Senior Vice President, Account Managementsince February 2018, and Vice President, Account Management upon joining Hub Group in January 2016. Mr. Hannigan joined Hub Group from EchoGlobal Logistics, where he held several roles including developing and executing Echo’s Managed Transportation solution and, most recently, as VicePresident of Corporate Development. Prior to joining Echo, Mr.12 Hannigan was a management consultant with a boutique firm in Chicago and participated in management development program with McMaster-Carr. Mr.Hannigan graduated from University of Chicago with an AB in Economics.Directors of the RegistrantIn addition to David P. Yeager and Donald G. Maltby, the following six individuals are also on our Board of Directors: James C. Kenny – Director of KennyIndustries, LLC, an asset holding company, and Director of Kerry Group, PLC, a company traded on the London and Dublin stock exchanges; Peter B. McNitt– former Vice Chair of BMO Harris Bank, a United States bank; Charles R. Reaves – Chief Executive Officer of Reaves Enterprises, Inc., a real estatedevelopment company; Martin P. Slark – former Chief Executive Officer of Molex Incorporated, a manufacturer of electronic, electrical and fiber opticinterconnection products and systems; Jonathan P. Ward – Operating Partner at Kohlberg & Co., a leading U.S. private equity firm; and Mary H. Boosalis –President and CEO of Premier Health, a health network in the Dayton, OH region. Item 2.PROPERTIESAs of December 31, 2018, 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 HGT terminals located throughout the United States. We have corporate offices in Mesa, AZ,Fayetteville, AR and Santa Monica, CA. All of our office space except for our corporate headquarters is leased. Most office leases have initial terms of morethan one year, and many include options to renew. While some of our leases expire in the near term, we do not believe that we will have difficulty inrenewing them or in finding alternative office space. 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, and claimsregarding freight lost or damaged in transit, improperly shipped or improperly billed. Some of the lawsuits to which we are party are covered by insurance andare being defended by our insurance carriers. Some of the lawsuits are not covered by insurance and we defend those ourselves. We do not believe that theoutcome of this litigation will have a materially adverse effect on our financial position or results of operations. See Item 1 Business—Risk Management andInsurance and see Note 15 to the consolidated financial statements under “Legal Matters” for a detailed discussion of our ongoing legal proceedings.Item 4.MINE SAFETY DISCLOSURESNot applicable. 13 PART IIItem 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 in2018 and 2017. 2018 2017 High Low High Low First Quarter$52.25 $40.30 $52.50 $41.55 Second Quarter$54.46 $38.40 $47.80 $33.45 Third Quarter$56.60 $44.90 $43.85 $33.17 Fourth Quarter$49.35 $34.02 $48.90 $37.90On February 22, 2019, there were approximately 459 stockholders of record of the Class A Common Stock and, in addition, there were an estimated 8,972beneficial owners of the Class A Common Stock whose shares were held by brokers and other fiduciary institutions. On February 22, 2019, there were 9holders 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 declaration andpayment of dividends are subject to the discretion of the Board of Directors. Any determination as to the payment of dividends will depend upon our resultsof 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. Our certificate ofincorporation requires that any cash dividends must be paid equally on each outstanding share of Class A Common Stock and Class B Common Stock. Ourcredit facility prohibits us from paying dividends on the Common Stock if there has been, or immediately following the payment of a dividend there wouldbe, a default or an event of default under the credit facility. We are currently in compliance with the covenants contained in the credit facility.14 Performance GraphThe following line graph compares the Company’s cumulative total stockholder return on its Class A Common Stock since December 31, 2013 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, 2013 in each index and in the Company’s Class A Common Stock and the reinvestment of dividends. 15 Item 6.SELECTED FINANCIAL DATASelected Financial Data(in thousands except per share data) Years Ended December 31, 2018 (1) 2017 (2) 2016 2015 2014 Statement of Income Data: Revenue$3,683,593 $3,123,063 $2,750,449 $2,699,236 $2,747,188 Gross margin 445,601 337,630 331,319 295,725 264,313 Operating income 124,919 72,669 96,557 90,983 61,525 Income from continuing operations before provisionfor income taxes 116,726 66,931 94,027 85,973 59,557 Income from continuing operations, net of incometaxes 87,661 120,014 57,646 54,954 37,677 Income from discontinued operations net of incometaxes 114,079 15,139 17,159 15,995 13,881 Net income 201,740 135,153 74,805 70,949 51,558 Earnings per share from continuing operations Basic$2.62 $3.61 $1.70 $1.53 $1.03 Diluted$2.61 $3.60 $1.70 $1.53 $1.03 Earnings per share from discontinued operations Basic$3.42 $0.46 $0.51 $0.45 $0.38 Diluted$3.40 $0.45 $0.51 $0.44 $0.37 Earnings per share from net income Basic$6.04 $4.07 $2.21 $1.98 $1.41 Diluted$6.01 $4.05 $2.20 $1.97 $1.40 As of December 31, 2018 (1) 2017 (2) 2016 2015 2014 Balance Sheet Data: Total assets$1,924,898 $1,670,941 $1,360,259 $1,301,146 $1,212,127 Long-term debt, including capital lease 233,810 222,504 126,105 114,194 88,397 Stockholders' equity 980,834 769,872 628,179 647,840 600,784 (1)Includes the results of operations for CaseStack from December 3, 2018, the date of its merger with a subsidiary of Hub Group, Inc. (2)Includes the results of operations for Dedicated from July 1, 2017, the date of its acquisition by HGT.On August 31, 2018, Hub entered into the Purchase Agreement with Purchaser, pursuant to which the Company sold all of the issued and outstandingmembership interests of Mode to Purchaser. In our 2018 consolidated financial statements Mode is presented as discontinued operations for that year and allprior periods presented. The balance sheet data above includes Mode’s assets for the years 2016, 2015 and 2014. In 2017, Mode’s assets were classified asheld for sale. The selected financial data for 2018 and prior years reflect Mode as discontinued operations. Refer to the Note 4 Discontinued Operations foradditional information regarding the sale of Mode. 16 Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSEXECUTIVE SUMMARYWe are a world class provider of multimodal logistics solutions. We offer comprehensive intermodal, truck brokerage, dedicated trucking and logisticsservices. We operate through a nationwide network of operating centers.As an intermodal provider, we arrange for the movement of our customers’ freight in containers and trailers, typically over long distances of 750 miles ormore. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and deliveryservices between origin or destination and rail terminals (referred to as “drayage”) are provided by our HGT subsidiary and third-party local truckingcompanies.We also arrange for the transportation of freight by truck, providing customers with another option for their transportation needs. We match our 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 dedicated service line, Dedicated, 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 line of business consists of complex transportation management services, including load consolidation, mode optimization and carriermanagement. These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of theirtransportation needs. Our acquisition of CaseStack added consolidation and warehousing services that are marketed to consumer-packaged goods companieswho serve the North American retail channel.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 multimodal solutions group works with pricing, account management and operations to enhance Hub’s customer margins across all lines ofbusiness. We are working on margin enhancement projects including pricing optimization, matching of inbound and outbound loads, reducing empty miles,improving our recovery of accessorial costs, optimizing our drayage costs, reducing repositioning costs, providing holistic solutions and reviewing andimproving low profit freight.Hub’s top 50 customers represent approximately 68% of revenue for the year ended December 31, 2018. We use various performance indicators to manageour business. We closely monitor margin and gains and losses for our top 50 customers. We also evaluate on-time performance, customer service, cost perload and daily sales outstanding by customer account. Vendor cost changes and vendor service issues are also monitored closely.Strategic TransactionsOn August 31, 2018, we sold the membership interests of our Mode Transportation, LLC (“Mode”) subsidiary to an affiliate of York Capital Management(“Purchaser”). Mode’s temperature protected division (“Temstar”) was not included in the transaction and is now included in our intermodal line ofbusiness. Prior to the decision to sell Mode, Hub historically reported two distinct and reportable business segments. As a result of the decision to sell Mode, which isnow classified as discontinued operations, we have one reporting segment. Revenue and costs related to Hub’s business that did not comprise Mode arereported within results from continuing operations. All revenues and costs related to Mode’s business are presented in results from discontinuedoperations. Prior year information has been adjusted to conform with the current presentation. Unless otherwise stated, the information disclosed inManagement’s Discussion and Analysis refers to continuing operations. See Note 4 of the Consolidated Financial Statements for additional informationregarding results from discontinued operations.On December 3, 2018, a subsidiary of Hub Group, Inc. closed on the Agreement and Plan of Merger (the “Merger Agreement”) to acquire CaseStack, Inc.(“CaseStack”). Total consideration for the transaction is $252.1 million. To facilitate the acquisition we paid $248.7 million in cash and $3.5 million was adeferred purchase consideration to be paid equally over twenty four months. 17 RESULTS OF OPERATIONSYear Ended December 31, 2018 Compared to Year Ended December 31, 2017The following table summarizes our revenue by business line (in thousands): Twelve Months Twelve Months Ended December 31, 2018 Ended December 31, 2017 Intermodal$2,195,316 $1,870,873 Truck brokerage 497,282 481,635 Logistics 698,138 655,543 Dedicated 292,857 115,012 Total revenue$3,683,593 $3,123,063The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue: Twelve Months Ended December 31, 2018 2017 Revenue$3,683,593 100.0% $3,123,063 100.0% Transportation costs 3,237,992 87.9% 2,785,433 89.2% Gross margin 445,601 12.1% 337,630 10.8% Costs and expenses: Salaries and benefits 222,786 6.0% 175,567 5.6% General and administrative 81,272 2.2% 77,239 2.5% Depreciation and amortization 16,624 0.5% 12,155 0.4% Total costs and expenses 320,682 8.7% 264,961 8.5% Operating income$124,919 3.4% $72,669 2.3%RevenueHub’s revenue increased 17.9% to $3.7 billion in 2018 from $3.1 billion in 2017. Intermodal revenue increased 17.3% to $2.2 billion primarily due toimproved pricing, 4.3% higher volume, and higher fuel revenue. Truck brokerage revenue increased 3.2% to $497.3 million due to a 5.8% increase in fuel,mix and price combined, partially offset by a 2.6% decrease in volume. Logistics revenue increased 6.5% to $698.1 million related primarily to growth withexisting customers and the addition of CaseStack. Dedicated’s revenue increased 154.6% to $292.9 million due primarily to having a full year of results in2018 versus six months of results in 2017 and growth with new customers. Transportation CostsHub’s transportation costs increased to $3.2 billion in 2018 from $2.8 billion in 2017. Transportation costs in 2018 consisted of purchased transportationcosts of $2.6 billion and equipment and driver related costs of $607.8 million compared to 2017, which consisted of purchased transportation costs of $2.3billion and equipment and driver related costs of $449.8 million. The 12.6% increase in purchased transportation costs was due primarily to rail costincreases, an increase in fuel costs, higher third-party carrier costs, higher volumes primarily in intermodal, and the addition of CaseStack. Equipment anddriver related costs increased 35.1% in 2018 due primarily to having a full year of results in 2018 versus six months of results in 2017 for Dedicated.Gross MarginHub’s gross margin increased 32.0% to $445.6 million in 2018 from $337.6 million in 2017. The $108.0 million gross margin increase was the result ofincreases in all lines of business. Intermodal gross margin increased primarily due to improved pricing and higher volume. Partially offsetting the intermodalmargin growth were higher rail and drayage costs. Truck brokerage gross margin increased due to growth with strategic customers and increased spotactivity. Logistics gross margin increased due to the addition of CaseStack partially offset by lost customers and changes in customer mix. Dedicated grossmargin increased due to having a full year of results in 2018 versus six months of results in 2017.As a percentage of revenue, gross margin increased to 12.1% in 2018 from 10.8% in 2017. Intermodal gross margin as a percentage of sales increased 220basis points due to improved prices, partially offset by rail and drayage cost increases. Average rail transit times were up 0.7 days which negatively impactedour results. Truck brokerage gross margin as a percentage of sales was flat due18 primarily increased purchase transportation costs and changes in customer mix. Logistics gross margin as a percentage of sales was flat due to changes incustomer mix. Dedicated gross margin as a percentage of sales decreased 550 basis points due to increased costs for third party carriers, temporary drivers,rented trucks and higher start-up costs associated with new customers.CONSOLIDATED OPERATING EXPENSESSalaries and BenefitsHub’s salaries and benefits increased to $222.8 million in 2018 from $175.6 million in 2017. As a percentage of revenue, Hub’s salaries and benefitsincreased to 6.0% in 2018 from 5.6% in 2017.Hub’s salaries and benefits increase of $47.2 million was due primarily to an increase in bonus expense of $23.9 million, a $13.6 million increase related toincluding Dedicated employees for twelve months in 2018 versus six months in 2017, increases of $4.6 million for restricted stock, an increase of $2.5million for payroll taxes, and additional increases of $1.7 million for commissions, $0.6 million for employee benefits and $0.3 million for salaries.Hub’s headcount as of December 31, 2018 and 2017 was 2,312 and 1,923, respectively, which excludes drivers, as driver costs are included in transportationcosts. The increase in Hub’s headcount is primarily due to the acquisition of CaseStack. General and AdministrativeHub’s general and administrative expenses increase to $81.3 million in 2018 from $77.2 million in 2017. As a percentage of revenue, these expensesdecreased to 2.2% in 2018 from 2.5% in 2017.The increase of $4.1 million in general and administrative expense was due primarily to the $10.8 million increase for the addition of Dedicated for twelvemonths in 2018 versus six months in 2017, partially offset by income from a decrease of $4.7 million in the Dedicated contingent consideration, a decrease intravel expense of $1.0 million, a decrease in IT maintenance and office equipment expense of $0.7 million and a decrease in bad debt expense of $0.4million.Depreciation and AmortizationHub’s depreciation and amortization increased to $16.6 million in 2018 from $12.2 million in 2017. This expense as a percentage of revenue increased to0.5% in 2018 from 0.4% in 2017. This increase is primarily due to an additional $1.8 million of amortization due to Dedicated having twelve months ofresults in 2018 versus six months in 2017, amortization of $0.9 million for the addition of CaseStack, as well as an increase of $1.7 million of softwaredepreciation expense.Other Income (Expense)Hub’s other expense increased to $8.2 million in 2018 from $5.7 million in 2017 due primarily to an increase in interest expense due to the addition ofDedicated’s equipment loans for twelve months in 2018 versus six months in 2017, partially offset by an increase in interest income. The interest incomeresulted from having a large cash balance between the sale of Mode on August 31, 2018 and the purchase of CaseStack on December 3, 2018.Provision for Income TaxesThe provision for income taxes increased to an expense of $29.1 million in 2018 from a benefit $53.1 million in 2017 due primarily to the favorable impacton 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”) in 2017. Oureffective tax rate was an expense of 24.9% in 2018 and a benefit of 79.3% in 2017. Net IncomeNet income decreased to $87.7 million in 2018 from $120.0 million in 2017 due primarily to the revaluation of deferred tax liabilities in connection with theAct, resulting in an income tax benefit in 2017 and higher operating expenses, partially offset by higher margin. Twelve months ended December 31 2018 2017 2016 Income from discontinued operations before gain on sale of Mode$16,454 $24,006 $27,394 Gain on sale of Mode 132,448 - - Income from discontinued operations before income taxes 148,902 24,006 27,394 Provision for income taxes 34,823 8,867 10,235 Income from discontinued operations$114,079 $15,139 $17,15919 Year Ended December 31, 2017 Compared to Year Ended December 31, 2016The following table summarizes our revenue by business line (in thousands): Twelve Months Ended December 31, 2017 2016 Intermodal$1,870,873 $1,803,974 Truck brokerage 481,635 389,700 Logistics 655,543 556,775 Dedicated 115,012 - Total revenue$3,123,063 $2,750,449The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue: Twelve Months Ended December 31, 2017 2016 Revenue$3,123,063 100.0% $2,750,449 100.0% Transportation costs 2,785,433 89.2% 2,419,130 88.0% Gross margin 337,630 10.8% 331,319 12.0% Costs and expenses: Salaries and benefits 175,567 5.6% 166,118 6.0% General and administrative 77,239 2.5% 60,932 2.2% Depreciation and amortization 12,155 0.4% 7,712 0.3% Total costs and expenses 264,961 8.5% 234,762 8.5% Operating income$72,669 2.3% $96,557 3.5%RevenueHub’s revenue increased 13.5% to $3.1 billion in 2017 from $2.8 billion in 2016. Intermodal revenue increased 3.7% 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 23.6% to $481.6 million due toan 8.8% increase volume and a 14.8% 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. Transportation CostsHub’s transportation costs increased to $2.8 billion in 2017 from $2.4 billion in 2016. The increase was primarily due to an increase in rail and fuel costs andhigher volumes. Transportation costs in 2017 consisted of purchased transportation costs of $2.3 billion and equipment and driver related costs of $449.8million compared to 2016 which consisted of purchased transportation costs of $2.1 billion and equipment and driver related costs of $360.4 million. Thisincrease is primarily due to the equipment and driver related costs of Dedicated.Gross MarginHub’s gross margin increased 1.9% to $337.6 million in 2017 from $331.3 million in 2016. Hub Group’s gross margin as a percentage of revenue decreasedto 10.8% in 2017 from 12.0% in 2016.Hub Group’s gross margin increase resulted from the addition of Dedicated and growth in truck brokerage margin, partially offset by decreases in intermodaland logistics margin. Truck brokerage gross margin increased due to changes in customer mix and more spot business. Intermodal gross margin decreasedprimarily because of lower customer prices than last year and rail cost increases partially offset by slightly improved volume. Logistics gross margindecreased due to tighter truck capacity that resulted in higher purchased transportation costs and changes in customer mix.20 CONSOLIDATED OPERATING EXPENSESSalaries and BenefitsHub’s salaries and benefits increased to $175.6 million in 2017 from $166.1 million in 2016. The increase was due primarily to the acquisition ofDedicated. In addition, increases in salaries expense of $9.0 million, related to employee raises and higher severance expense of $3.1 million, an increase incompensation expense related to restricted stock awards of $1.3 million and an increase in employee benefits expense of $1.0 million, which were partiallyoffset by decreases in employee bonus expense of $14.3 million, payroll taxes of $0.5 million and sales commissions of $0.3 million. As a percentage ofrevenue, Hub’s salaries and benefits decreased to 5.6% from 6.0% in 2016.Hub’s headcount as of December 31, 2017 and 2016 was 1,923 and 1,667, respectively, which excludes drivers, as driver costs are included in transportationcosts. The increase was primarily a result of the Dedicated acquisition.General and AdministrativeHub’s general and administrative expenses increased to $77.2 million in 2017 from $60.9 million in 2016. As a percentage of revenue, these expensesincreased to 2.5% in 2017 from 2.2% in 2016.The increase of $16.3 million in general and administrative expense was due partly to the acquisition of Dedicated and increases in IT consulting andprofessional service expense of $4.0 million, expenses related to due diligence and acquisition costs of $1.7 million, increases in temporary labor 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 related to a networkoptimization study of $0.6 million in 2017, increases in rent expense of $0.6 million, equipment lease expense of $0.3 million, and bad debt expense of $0.2million, partially offset by decreases in outside sales commissions of $0.4 million and meals and entertainment of $0.2 million.Depreciation and AmortizationHub’s depreciation and amortization increased to $12.2 million in 2017 from $7.7 million in 2016. This increase was related primarily to the amortization ofthe Dedicated trade name and customer relationships as well as depreciation of additional computer software.Other Income (Expense)Hub’s other expense increased to $5.7 million in 2017 from $2.5 million in 2016 due primarily to the additional interest expense related to the acquisition ofDedicated, 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 $53.1 million in 2017 from an expense of $36.4 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 79.3% in 2017 and an expense of 38.7% in 2016. Net IncomeNet income increased to $120.0 million in 2017 from $57.6 million in 2016 to the revaluation of deferred tax liabilities in connection with the Act, resultingin an income tax benefit in 2017 and increased margin, partially offset by higher operating expenses.Results from discontinued operationsResults associated with Mode are classified as income from discontinued operations, net of taxes, in our Consolidated Statements of Income. Prior yearresults have been adjusted to conform to current presentation. Below is a summary of results from discontinued operations for the twelve months endedDecember 31, 2018, 2017 and 2016. Twelve months ended December 31 2018 2017 2016 Income from discontinued operations before gain on sale of Mode$16,454 $24,006 $27,394 Gain on sale of Mode 132,448 - - Income from discontinued operations before income taxes 148,902 24,006 27,394 Provision for income taxes 34,823 8,867 10,235 Income from discontinued operations$114,079 $15,139 $17,15921 LIQUIDITY AND CAPITAL RESOURCESDuring 2018, we funded operations, capital expenditures, capital leases, repayments of debt, the acquisition of CaseStack and the purchase of our stockrelated to employee withholding upon vesting of restricted stock through cash flows from operations, proceeds from the sale of Mode, issuance of long-termdebt and cash on hand. We believe that our cash, cash flows from operations and borrowings available under our Credit Agreement will be sufficient to meetour cash needs for at least the next twelve months.Cash provided by operating activities for the year ended December 31, 2018 was approximately $210.8 million, which resulted primarily from income of$201.7 million and operating assets and liabilities of $16.2 million, offset by the transaction costs for the disposition of $5.8 million and non-cash charges of$1.3 million.Cash provided by operating activities increased $85.6 million in 2018 versus 2017. The increase was due to higher net income in 2018 of $66.6 million anda $57.2 million change in operating assets and liabilities, partially offset by $32.4 million of non-cash items and $5.8 million of transaction costs related tothe Disposition in 2018. The positive change in operating assets and liabilities of $57.2 million was caused by increases in the change of accounts receivableof $53.3 million, accrued expenses of $46.4 million, prepaid expenses of $5.8 million and restricted investments of $4.1 million as well as a decrease in thecash used for prepaid taxes of $23.3 million. These increases were partially offset by decreases in accounts payable of $53.5 million due to the timing ofvendor payments, non-current liabilities of $14.1 million and other assets of $8.1 million. The decrease in non-cash charges primarily resulted from the gainon Disposition of $132.5 million plus the $4.7 million contingent consideration adjustment and the higher gain of the sale of equipment of $1.4 million,partially offset by increases in deferred taxes of $80.9 million, depreciation and amortization of $21.7 million and compensation expense related to stock-based compensation plans of $3.6 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.Net cash used in investing activities for the year ended December 31, 2018 was $209.5 million which includes acquisition payments related to CaseStack of$248.7 million and capital expenditures of $199.8 million. Proceeds included $228.0 million from the Disposition and $11.0 million from the sale ofequipment. Capital expenditures of $199.8 million included tractor purchases of $96.0 million, containers of $42.5 million, transportation equipment of$33.6 million, technology investments of $26.5 million and the remainder for leasehold improvements. Capital expenditures increased by approximately $125.3 million in 2018 as compared to 2017. The 2018 increase was due to increases in tractor purchasesof $80.6 million, transportation equipment of $20.8 million, containers of $17.5 million and technology investments of $7.5 million, offset by less leaseholdimprovements.Net cash used in investing activities for the year ended December 31, 2017 was $235.1 million which includes acquisition payments related to Dedicated 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. In 2019, we estimate capital expenditures will range from $90 million to $100 million. We expect equipment purchases to range from $70 million to $75million and technology investments will range from $20 million to $25 million.Net cash provided by financing activities for the year ended December 31, 2018 was $31.6 million which includes proceeds from the issuance of debt $172.1million, offset by repayments of long-term debt of $133.4 million, cash for stock tendered for payments of withholding taxes of $4.3 million and capital leasepayments of $2.8 million.The $20.5 million increase in cash provided by financing activities for 2018 compared to 2017 was primarily due to the increase in proceeds from theissuance of debt of $73.6 million and less debt issuance costs of $1.4 million, partially offset by increases in debt payments of $53.6 million and cash usedfor purchase of our stock related to employee withholding taxes of $0.9 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 $98.5million, offset by repayments of long-term debt of $79.9 million, cash for stock tendered for payments of withholding taxes of $3.4 million, capital leasepayments of $2.8 million and payment of debt issuance costs of $1.4 million.22 Cash paid for income taxes of $13.6 million was less than our income tax expense of $29.1 million. This was a result of significant favorable timingdifferences, primarily related to depreciation. We expect our cash paid for income taxes in 2019 to be less than our income tax expense as a result offavorable timing differences.See Note 11 of the consolidated financial statements for details related to interest rates and commitment fees.We have standby letters of credit that expire in 2019. As of December 31, 2018, our letters of credit were $27.0 million.As of December 31, 2018, we had no borrowings under our bank revolving line of credit and our unused and available borrowings were $323.0 million. Ourunused and available borrowings were $284.9 million as of December 31, 2017. We believe our line of credit is adequate to meet our cash needs. We were incompliance with our debt covenants as of December 31, 2018.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, 2018 is presented in the following table (in thousands).Future Payments Due: Operating Leases and Long Capital Other Term Lease Commitments Debt Total 2019$3,091 $14,942 $101,713 $119,746 2020 3,099 11,879 83,589 98,567 2021 1,795 9,308 65,521 76,624 2022 - 8,350 49,327 57,677 2023 - 6,770 29,507 36,277 2024 and thereafter - 9,831 1,127 10,958 $7,985 $61,080 $330,784 $399,849Deferred CompensationUnder our Nonqualified Deferred Compensation Plan (the “Plan”), participants can elect to defer certain compensation. Payments under the Plan are due asfollows (in thousands):Future Payments Due: 2019$2,523 2020 2,593 2021 1,633 2022 1,135 2023 833 2024 and thereafter 10,227 $18,944CRITICAL 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 different amounts would be reported related to the accounting policies described below. However,application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual resultscould differ from these estimates. The following is a brief discussion of the more significant accounting policies and estimates. These critical accountingpolicies are further discussed in Note 1 of the consolidated financial statements.23 Revenue RecognitionOn January 1, 2018 we adopted the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers. Under this new standardour significant accounting policy for revenue is as follows:Revenue: Revenue is recognized when we transfer services to our customers in an amount that reflects the consideration we expect to receive. We accountfor a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract hascommercial substance and collectability of consideration is probable. We generally recognize revenue over time because of continuous transfer of control tothe customer. Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based onthe extent of progress towards completion of the related performance obligation. We enter into contracts that can include various combinations of services,which are capable of being distinct and accounted for as separate performance obligations. Taxes assessed by a governmental authority that are bothimposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded fromrevenue. 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 servicedesired by the customer. Our customers view us as responsible for fulfillment including the acceptability of the service. Service requirements may include, forexample, on-time delivery, handling freight loss and damage claims, setting up appointments for pick-up and delivery and tracing shipments in transit. Wehave discretion in setting sales prices and as a result, the amount we earn varies. In addition, we have the discretion to select our vendors from multiplesuppliers for the services ordered by our customers. These factors, discretion in setting prices and discretion in selecting vendors, further support reportingrevenue on a gross basis for most 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 established through ananalysis 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. We reserve for accounts less than one year old based on specifically identified uncollectible balances and our historiccollection percentage, including receivable adjustments charged through revenue for items such as billing disputes. 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. Our historical collection percentage has been over 98%for receivables that are less than a year old. Once a receivable ages over one year, our collection percentage is much lower, thus a separate calculation is donefor open receivables that have aged over one year. We also review our collection percentage after a customer has gone into bankruptcy. Although thesecollection percentages may change both negatively and positively, since only a small portion of our receivables are aged over one year or are involved in abankruptcy case, a large change in the either of those collection percentages would not have a material impact on our financial statements. Our level ofreserves for customer accounts receivable fluctuate depending upon all the factors mentioned above. Historically, our reserve for uncollectible accounts hasapproximated actual accounts written off and we do not expect the reserve for uncollectible accounts to change significantly relative to our accountsreceivable balance. The allowance for uncollectible accounts is reported on the balance sheet in net accounts receivable. Recoveries of receivablespreviously charged off are recorded when received.New PronouncementsIn 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, 2018. 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. Weplan to adopt this standard on January 1, 2020, as required. We are evaluating the impact of adopting this new accounting guidance on our financialstatements.In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for allleases. We adopted the standard as of January 1, 2019, as required. The standard also provides an additional transition method to assist entities with theimplementation. Entities that elect this option would adopt the new standard using a modified retrospective transition method, but they would recognize acumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. We elected toapply a package of practical expedients and did not reassess at the date of initial adoption (1) whether any expired or existing contracts are or contain leases,(2) the lease24 classification for any expired or existing leases, or (3) initial direct costs for existing leases. Lessees can also make an accounting policy election to notrecognize an asset and liability for leases with a term of twelve months or less which we elected.In January 2017, the FASB issued ASU No. 2017-04 Intangibles – Goodwill and other (Topic 350): simplifying the test for goodwill impairment. This ASUsimplifies how all entities assess goodwill for impairment by eliminating step two from the goodwill impairment test. As amended, the goodwill impairmenttest will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment chargefor the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard is effective for fiscal years beginning after December 15,2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We have evaluatedthe adopting of this new accounting guidance and do not believe it will have a material effect on our financial statements upon adoption.In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, Customer’s Accounting for ImplementationCosts Incurred in a Cloud Computing (Hosting) Arrangement That Is a Service Contract. The amendment aligns the requirements for capitalizingimplementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred todevelop or obtain internal-use software. The amendment is effective for public business entities for fiscal years beginning after December 15, 2019, andinterim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, for all entities and should be applied eitherretrospectively or prospectively. We early adopted the amendment in the fourth quarter of 2018 and applied prospectively to all implementation costsincurred after the date of adoption. In accordance with this ASU, capitalized implementation costs are classified as Other assets and related amortization ofcapitalized implementation costs are classified as general and administrative expense in the same line item as the expense for fees for the associated hostingarrangement. In addition, the cash flows from capitalized implementation costs are classified as a change in other assets in the same manner as the cash flowsfor the fees for the associated hosting arrangement.As a result of the early adoption of this ASU, capitalized implementation costs of $10.6 million incurred in our hosting arrangements for various corporatesoftware services that were previously presented as part of property and equipment are included in Other assets in our consolidated balance sheet as ofDecember 31, 2018.The corresponding cash flows from capitalized implementation costs incurred in our hosting arrangements of $7.1 million for the year ended December 31,2018 is classified as a change in other assets in cash flows from operating activities. The capitalized implementation costs incurred in our hostingarrangements are amortized, once ready for intended use, over the term of the associated hosting arrangement of 3 to 10 years, representing the fixed non-cancelable term of each of the hosting arrangements plus the periods covered by the options to extend that the Company is reasonably certain to exercise.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.RevenueWe believe that the performance of our railroad vendors 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 that may not be provided by Hub. We expect that these customers maychoose to continue to utilize other services even when intermodal service levels are restored. Other factors that could negatively influence our growth rateinclude, but are not limited to, the elimination of fuel surcharges, lower fuel prices, the entry of new competitors, poor customer retention, inadequate drayageand 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, changes inthe transportation business mix, start-up costs for new business, changes in logistics services between transactional business and management fee business,changes in truck brokerage services between spot, committed and special, insurance and claim costs, driver recruiting costs, driver compensation changes,impact of regulations on drayage costs, trailer and container capacity, vendor cost increases, fuel costs, equipment utilization, intermodal industry growth,intermodal industry service levels, accessorials, competitive pricing and accounting estimates. 25 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. General and AdministrativeWe believe there are several factors that could cause general and administrative expenses to fluctuate as a percentage of revenue. As customer expectationsand the competitive environment require the development of new technology interfaces and the restructuring of our information systems and relatedplatforms, we believe there could be significant expenses incurred. Other factors that could cause general and administrative expense to fluctuate include, butare not limited to, changes in insurance premiums, technology expense related to software and services, claim expense, bad debt expense, professionalservices expense and costs related to acquisitions or divestitures.Equipment, Depreciation and AmortizationWe 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.We estimate that depreciation and amortization of property and equipment will increase significantly due to technology related investments and equipmentinvestments for replacement and growth, as well as intangible assets acquired in connection with the acquisition of CaseStack.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 amount ofthe 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 2019 because we financed our 2018 tractor and container purchases with debt. Factors that could cause a change ininterest expense include, but are not limited to, change in interest rates, change in investments, funding working capital needs, funding capital expenditures,funding an acquisition and purchase of treasury stock.Provision for Income TaxesBased on current tax legislation, we estimate that our effective tax rate will be between 25% and 26% in 2019.Leasing on Owner-OperatorsOur HGT drivers are comprised of 50% independent contractors and 50% employees. Dedicated drivers are comprised of 100% employees. In 2017 and 2018we encountered difficulties in recruiting and retaining owner-operators and we were more successful recruiting and retaining employee drivers. Owner-operator retention and recruiting has been showing improvement in 2019.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 and financialcondition. The Company has both fixed and variable rate debt as described in Note 11 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, 2018.We have standby letters of credit that expire in 2019. As of December 31, 2018, our letters of credit were $27.0 million.26 As of December 31, 2018, we had no borrowings under our bank revolving line of credit and our unused and available borrowings were $323.0 million. Wewere in compliance with our debt covenants as of December 31, 2018.Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations, orcash flows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the year ended December 31, 2018.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. 27 Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULE Report of Independent Registered Public Accounting Firm 29 Consolidated Balance Sheets – December 31, 2018 and December 31, 2017 30 Consolidated Statements of Income and Comprehensive Income – Years ended December 31, 2018, December 31, 2017 and December 31, 2016 31 Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2018, December 31, 2017 and December 31, 2016 32 Consolidated Statements of Cash Flows – Years ended December 31, 2018, December 31, 2017 and December 31, 2016 33 Notes to Consolidated Financial Statements 34 Schedule II – Valuation and Qualifying Accounts S-1 28 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, 2018 and 2017, the relatedconsolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December31, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 March 1, 2019 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, IllinoisMarch 1, 2019 29 HUB GROUP, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share amounts) December 31, 2018 2017 ASSETS CURRENT ASSETS: Cash and cash equivalents$61,435 $28,557 Accounts receivable trade, net 477,088 424,679 Other receivables 22,021 5,704 Prepaid taxes 616 12,088 Prepaid expenses and other current assets 27,533 25,414 Current assets held for sale - 159,616 TOTAL CURRENT ASSETS 588,693 656,058 Restricted investments 19,236 20,143 Property and equipment, net 681,859 561,214 Other intangibles, net 134,788 64,747 Goodwill, net 483,584 319,272 Other assets 16,738 5,491 Non-current assets held for sale - 44,016 TOTAL ASSETS$1,924,898 $1,670,941 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable trade$272,859 $238,230 Accounts payable other 10,906 13,903 Accrued payroll 55,535 26,674 Accrued other 82,900 53,508 Current portion of capital lease 2,845 2,777 Current portion of long-term debt 101,713 77,266 Current liabilities held for sale - 107,185 TOTAL CURRENT LIABILITIES 526,758 519,543 Long-term debt 229,071 214,808 Non-current liabilities 29,619 33,599 Long-term portion of capital lease 4,739 7,696 Deferred taxes 153,877 121,095 Non-current liabilities held for sale - 4,328 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares issued or outstanding in 2018 and 2017- - Common stock Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2018 and 2017; 33,793,709 shares outstandingin 2018 and 33,447,070 shares outstanding in 2017 412 412 Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2018 and 2017 7 7 Additional paid-in capital 172,220 173,011 Purchase price in excess of predecessor basis, net of tax benefit of $10,306 (15,458) (15,458)Retained earnings 1,072,456 870,716 Accumulated other comprehensive loss (182) (194)Treasury stock; at cost, 7,431,083 shares in 2018 and 7,777,722 shares in 2017 (248,621) (258,622)TOTAL STOCKHOLDERS' EQUITY 980,834 769,872 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,924,898 $1,670,941The accompanying notes to consolidated financial statements are an integral part of these statements. 30 HUB GROUP, INC.CONSOLIDATED STATEMENTS OF INCOMEAND COMPREHENSIVE INCOME(in thousands, except per share amounts). Years Ended December 31, 2018 2017 2016 Revenue$3,683,593 $3,123,063 $2,750,449 Transportation costs 3,237,992 2,785,433 2,419,130 Gross margin 445,601 337,630 331,319 Costs and expenses: Salaries and benefits 222,786 175,567 166,118 General and administrative 81,272 77,239 60,932 Depreciation and amortization 16,624 12,155 7,712 Total costs and expenses 320,682 264,961 234,762 Operating income 124,919 72,669 96,557 Other income (expense): Interest expense (9,611) (6,754) (3,625)Interest income 1,359 349 346 Other, net 58 667 749 Total other income (expense) (8,194) (5,738) (2,530) Income from continuing operations before income taxes 116,725 66,931 94,027 Income tax expense (benefit) 29,064 (53,083) 36,381 Income from continuing operations 87,661 120,014 57,646 Income from discontinued operations, net of income taxes$114,079 $15,139 $17,159 Net income$201,740 $135,153 $74,805 Other comprehensive income (loss): Foreign currency translation adjustments 12 79 (95) Total comprehensive income$201,752 $135,232 $74,710 Earnings per share from continuing operations Basic$2.62 $3.61 $1.70 Diluted$2.61 $3.60 $1.70 Earnings per share from discontinued operations Basic$3.42 $0.46 $0.51 Diluted$3.40 $0.45 $0.51 Earnings per share net income Basic$6.04 $4.07 $2.21 Diluted$6.01 $4.05 $2.20 Basic weighted average number of shares outstanding 33,393 33,220 33,841 Diluted weighted average number of shares outstanding 33,560 33,350 33,949The accompanying notes to consolidated financial statements are an integral part of these statements. 31 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, 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 Stock tendered for paymentsof withholding taxes - - - - - - (87,381) (4,270) (4,270)Issuance of restricted stock awards,net of forfeitures - - (14,271) - - - 434,020 14,271 - Share-based compensation expense - - 13,480 - - - - - 13,480 Net income - - - - 201,740 - - - 201,740 Foreign currency translationadjustment - - - - - 12 - - 12 Balance December 31, 2018 41,887,088 $419 $172,220 $(15,458) $1,072,456 $(182) (7,431,083) $(248,621) $980,834 The accompanying notes to consolidated financial statements are an integral part of these statements. 32 HUB GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Years Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net Income$201,740 $135,153 $74,805 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 83,910 62,173 44,712 Deferred taxes 39,499 (41,351) 13,801 Compensation expense related to share-based compensation plans 13,480 9,873 8,479 Contingent consideration adjustment (4,703) - - (Gain) loss on sale of assets (1,007) 441 (573) Excess tax benefits from share based compensation - - (733)Gain on Disposition (132,448) - - Transaction costs for Disposition (5,798) - - Changes in operating assets and liabilities: Restricted investments 827 (3,304) 231 Accounts receivable, net (31,475) (84,775) (87,629) Prepaid taxes 11,472 (11,794) 66 Prepaid expenses and other current assets (1,750) (7,543) 1,099 Other assets (8,029) 56 570 Accounts payable 5,521 59,037 35,709 Accrued expenses 43,476 (2,931) 9,238 Non-current liabilities (3,876) 10,185 2,698 Net cash provided by operating activities 210,839 125,220 102,473 Cash flows from investing activities: Proceeds from sale of equipment 10,975 5,327 2,061 Purchases of property and equipment (199,791) (74,541) (107,409) Acquisitions, net of cash acquired (248,656) (165,933) - Proceeds from the disposition of discontinued operations 227,986 - - Net cash used in investing activities (209,486) (235,147) (105,348) Cash flows from financing activities: Proceeds from issuance of debt 172,146 98,544 62,155 Repayments of long-term debt (133,436) (79,869) (34,767) Stock tendered for payments of withholding taxes (4,270) (3,412) (2,489) Purchase of treasury stock - - (100,000) Capital lease payments (2,889) (2,800) (2,634) Excess tax benefits from share based compensation - - 372 Payment of debt issuance costs - (1,397) - Net cash provided by (used in) financing activities 31,551 11,066 (77,363) Effect of exchange rate changes on cash and cash equivalents (26) 14 (107) Net increase (decrease) in cash and cash equivalents 32,878 (98,847) (80,345)Cash and cash equivalents beginning of the year 28,557 127,404 207,749 Cash and cash equivalents end of the year$61,435 $28,557 $127,404 Supplemental disclosures of cash paid for: Interest$9,677 $6,162 $3,665 Income taxes$13,606 $13,149 $33,233 The accompanying notes to consolidated financial statements are an integral part of these statements. 33 HUB GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Description of Business and Summary of Significant Accounting PoliciesFor all periods presented in our Consolidated Statements of Income and Comprehensive Income, all sales, costs, expenses, gains and income taxesattributable to Mode have been reported under the captions, “Income from Discontinued Operations, Net of Income Taxes.” Cash flows used in or providedby Mode have been reported in the Consolidated Statements of Cash Flows under operating and investing activities. Business: Hub Group, Inc. (“Hub”, “we”, “us” or “our”) provides intermodal transportation services utilizing primarily third party arrangements withrailroads. Drayage can be provided by our subsidiary, Hub Group Trucking, Inc., or a third party company. We offer a dedicated fleet of equipment anddrivers through Hub Group Dedicated. We also arrange for transportation of freight by truck and perform logistics services.On August 31, 2018, Hub Group, Inc. entered into the Purchase Agreement with Mode Transportation, LLC (“Mode”), a direct wholly-owned subsidiary ofthe Company, and Mode Purchaser, Inc., an affiliate of York Capital Management (“Purchaser”) pursuant to which the Company sold all of the issued andoutstanding membership interests of Mode to Purchaser (the “Disposition”). Refer to Note 4 – Discontinued Operations for additional information regardingresults from discontinued operations.On December 3, 2018, a subsidiary of Hub Group, Inc. closed on the Agreement and Plan of Merger (the “Merger Agreement”) to acquire CaseStack, Inc.(“CaseStack”). Refer to Note 5 – Acquisition for additional information regarding CaseStack.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, 2018 and 2017, our cash and temporary investments were with high quality financial institutions in demand deposit accounts (“DDAs”),savings accounts and an interest bearing checking account.Accounts Receivable and Allowance for Uncollectible Accounts: 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. Specifically, 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 to determine experience in collecting account balances over one year old and account balances in bankruptcy. We then use this hindsight analysisto establish our reserves for receivables over one year and in bankruptcy. In establishing a reserve for certain account balances specifically identified asuncollectible, we consider the aging of the customer receivables, the specific details as to why the receivable has not been paid, the customer’s current andprojected financial results, the customer’s ability to meet and sustain its financial commitments, the positive or negative effects of the current and projectedindustry outlook and the general economic conditions. The allowance for uncollectible accounts is reported on the balance sheet in net accounts receivable.Our reserve for uncollectible accounts was approximately $6.7 million and $6.0 million as of December 31, 2018 and 2017, respectively. Receivables arewritten off once collection efforts have been exhausted. Recoveries of receivables previously charged off are recorded when received.Property and Equipment: Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method 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 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.34 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. Due to the Disposition, we only have one reporting unit. We assessqualitative factors such as current company performance and overall economic factors to determine if it is more-likely-than-not that the fair value of ourreporting unit was less than its carrying value and whether it is necessary to perform the quantitative goodwill impairment test. In the quantitative goodwilltest, a company compares the carrying value of a reporting unit to its fair value. If the carrying value of the reporting unit exceeds the estimated fair value, asecond step is performed, which compares the implied fair value of goodwill to the carrying value, to determine the amount of impairment. In 2018 and 2017,we performed the qualitative assessment and determined it was not, more-likely-than-not, that the fair value of our reporting unit was less than its carryingvalue.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, savings accounts and an interest bearingchecking account. 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 2018, 2017 or 2016. 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: On January 1, 2018 we adopted the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customersusing the full retrospective method. Under this new standard our significant accounting policy for revenue is as follows:Revenue is recognized when we transfer services to our customer in an amount that reflects the consideration we expect to receive. We account for a contractwhen it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercialsubstance and collectability of consideration is probable. We generally recognize revenue over time because of continuous transfer of control to thecustomer. Since control is transferred over time, revenue and related transportation costs are recognized based on relative transit time, which is based on theextent of progress towards completion of the related performance obligation. We enter into contracts that can include various combinations of services,which are capable of being distinct and accounted for as separate performance obligations. Taxes assessed by a governmental authority that are both imposedon and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Further, inmost cases, we report our revenue on a gross basis because we are the primary obligor as we are responsible for providing the service desired by the customer.Our customers view us as responsible for fulfillment including the acceptability of the service. Service requirements may include, for example, on-timedelivery, handling freight loss and damage claims, setting up appointments for pick-up and delivery and tracing shipments in transit. We have discretion insetting 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 the servicesordered by our customers. These factors, discretion in setting prices and discretion in selecting vendors, further support reporting revenue on a gross basis formost 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 forty-nine thousand dollars related to state tax net operating losses and $3.1 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.35 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. We adopted ASU 2016-09 in the first quarter of 2017 and the adoption did not have a material impact on our consolidatedfinancial statements. New Pronouncements: In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. ThisASU clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This standard was adopted onJanuary 1, 2018 and did not have a material impact to our accounting for the acquisition of CaseStack.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. Weplan to adopt this standard on January 1, 2020, as required. We are evaluating the impact of adopting this new accounting guidance on our financialstatements.In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for allleases. We adopted the standard as of January 1, 2019, see Note 12 for the effect of the adoption. The standard also provides an additional transition methodto assist entities with the implementation. Entities that elect this option would adopt the new standard using a modified retrospective transition method, butthey would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest periodpresented. We elected to apply a package of practical expedients and did not reassess at the date of initial adoption (1) whether any expired or existingcontracts are or contain leases, (2) the lease classification for any expired or existing leases, or (3) initial direct costs for existing leases. Lessees can alsomake an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less, which we elected. See Note 12 formore information.In January 2017, the FASB issued ASU No. 2017-04 Intangibles – Goodwill and other (Topic 350): simplifying the test for goodwill impairment. This ASUsimplifies how all entities assess goodwill for impairment by eliminating step two from the goodwill impairment test. As amended, the goodwill impairmenttest will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment chargefor the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard is effective for fiscal years beginning after December 15,2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We have evaluatedthe adopting of this new accounting guidance and do not believe it will have a material effect on our financial statements upon adoption.In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, Customer’s Accounting for ImplementationCosts Incurred in a Cloud Computing (Hosting) Arrangement That Is a Service Contract. The amendment aligns the requirements for capitalizingimplementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred todevelop or obtain internal-use software. The amendment is effective for public business entities for fiscal years beginning after December 15, 2019, andinterim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, for all entities and should be applied eitherretrospectively or prospectively. We early adopted the amendment in the fourth quarter of 2018 and applied prospectively to all implementation costsincurred after the date of adoption. In accordance with this ASU, capitalized implementation costs are classified as Other assets and related amortization ofcapitalized implementation costs are classified as general and administrative expense in the same line item as the expense for fees for the associated hostingarrangement. In addition, the cash flows from capitalized implementation costs are classified as a change in other assets in the same manner as the cash flowsfor the fees for the associated hosting arrangement.As a result of the early adoption of this ASU, capitalized implementation costs of $10.6 million incurred in our hosting arrangements for various corporatesoftware services that were previously presented as part of property and equipment are included in Other assets in our consolidated balance sheet as ofDecember 31, 2018.36 The corresponding cash flows from capitalized implementation costs incurred in our hosting arrangements of $7.1 million for the year ended December 31,2018 is classified as a change in other assets in cash flows from operating activities. The capitalized implementation costs incurred in our hostingarrangements are amortized, once ready for intended use, over the term of the associated hosting arrangement of 3 to 10 years, representing the fixed non-cancelable term of each of the hosting arrangements plus the periods covered by the options to extend that the Company is reasonably certain to exercise.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 Stock andClass 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 Common Stockentitles its holder to one vote. We have authorized 2,000,000 shares of preferred stock. 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, 2018 2017 2016 Net income from continuing operations for basic and diluted earnings per share$87,661 $120,014 $57,646 Net income from discontinued operations for basic and diluted earnings per share 114,079 15,139 17,159 Net income 201,740 135,153 74,805 Weighted average shares outstanding - basic 33,393 33,220 33,841 Dilutive effect of stock options and restricted stock 167 130 108 Weighted average shares outstanding - diluted 33,560 33,350 33,949 Earnings per share from continuing operations Basic$2.62 $3.61 $1.70 Diluted$2.61 $3.60 $1.70 Earnings per share from discontinued operations Basic$3.42 $0.46 $0.51 Diluted$3.40 $0.45 $0.51 Earnings per share net income Basic$6.04 $4.07 $2.21 Diluted$6.01 $4.05 $2.20 37 NOTE 4.Discontinued Operations On August 31, 2018, Hub Group, Inc. entered into the Purchase Agreement with Mode, a direct wholly-owned subsidiary of the Company, and ModePurchaser, Inc., an affiliate of York Capital Management (“Purchaser”) pursuant to which the Company sold all of the issued and outstanding membershipinterests of Mode to Purchaser (the “Disposition”). Total consideration received by the Company for the Disposition in the third quarter of 2018 was $238.5million in cash, subject to customary purchase price adjustments. An additional $19.0 million consideration receivable was recorded in the fourth quarter of2018 due to net working capital and other contractual adjustments. The receivable is recorded in other receivables in the Consolidated Balance Sheet andthe additional gain is recorded as other income in discontinued operations.During the eight months we owned Mode in 2018, Mode had revenue of $42.2 million from Hub and Hub had revenue of $17.9 million from Mode LLC. Forthe twelve months ended December 31, 2017 and 2016, respectively, Mode had revenue of $50.6 million and $34.4 million from Hub and Hub had $51.0million and $76.1 million from Mode. These sales were eliminated on our Consolidated Statements of Income. In connection with the Disposition, theCompany and Mode have entered into a transition services agreement pursuant to which both the Company and Mode will provide certain immaterialtransition services to the other party for a period of time following the closing.Results associated with Mode are classified as income from discontinued operations, net of income taxes, in our Consolidated Statements of Income. Prioryear results have been adjusted to conform with the current presentation. Income from discontinued operations is comprised of the following: Years Ended December 31, 2018 2017 2016 Revenue$739,534 $908,870 $819,572 Transportation costs 648,986 788,982 696,107 Gross margin 90,548 119,888 123,465 Costs and expenses: Salaries and benefits 11,043 12,821 14,340 Agent fees and commissions 56,631 73,955 72,754 General and administrative 5,795 8,071 7,841 Depreciation and amortization 632 1,158 1,253 Total costs and expenses 74,101 96,005 96,188 Operating income from discontinued operations 16,447 23,883 27,277 Other income Interest income 22 67 47 Other, net (15) 56 70 Gain on Disposition 132,448 - - Total other income 132,455 123 117 Income from discontinued operations before income taxes 148,902 24,006 27,394 Provision for income taxes 34,823 8,867 10,235 Income from discontinued operations$114,079 $15,139 $17,159 Selling, general and administrative expenses recorded in discontinued operations include corporate costs incurred directly in support of Mode.38 See the table below for a reconciliation of the gain recorded on the sale of Mode: Net proceeds received from Disposition (1)$227,986 Consideration receivable due from Mode (2) 18,981 Adjusted proceeds from Disposition$246,967 Mode assets: Accounts receivable 173,669 Accounts receivable other 22 Prepaid expenses 260 Property and equipment 2,501 Restricted investments 4,467 Other intangibles, net 9,033 Goodwill, net 29,389 Other assets 209 Total Mode assets 219,550 Mode liabilities: Accounts payable (3) 97,536 Accrued payroll 3,072 Accrued other 6,285 Non-current liabilities 3,936 Total Mode liabilities 110,829 Transaction costs for Disposition (4) 5,798 Gain on sale of the Mode business before income taxes$132,448 (1)The proceeds received from the Disposition are net of working capital adjustments outlined in the Disposition agreement. (2)Additional consideration to be received as a result of post close contractual adjustments (3)Includes $2.3 million of bank overdrafts assumed by the Purchaser. (4)Costs include advisory fees, legal fees and professional fees.Due to the Disposition, the related assets and liabilities transferred to the Purchaser were reclassified as held for sale in the Consolidated Balance Sheet as ofDecember 31, 2017 based on the nature of the asset or liability.39 Assets and liabilities classified as held for sale in our Consolidated Balance Sheet are comprised of the following: December 31, 2017 Accounts receivable, net $159,314 Accounts receivable, other 19 Prepaid expenses and other current assets 283 Total current assets held for sale 159,616 Restricted investments 4,038 Property and equipment, net 937 Other intangibles, net 9,601 Goodwill, net 29,389 Other assets 51 Total non-current assets held for sale 44,016 Total assets held for sale $203,632 Accounts payable $99,067 Accrued payroll 2,320 Accrued other 5,798 Total current liabilities held for sale 107,185 Non-current liabilities 4,328 Total liabilities held for sale $111,513 Proceeds from the sale of Mode have been presented in the Consolidated Statements of Cash Flows under investing activities for the twelve months endedDecember 31, 2018. Total operating and investing cash flows of discontinued operations for the twelve months ended December 31, 2018, 2017 and 2016are comprised of the following, which exclude the effect of income taxes: (in thousands)2018 2017 2016 Net cash (used in) provided by operating activities (4,318) 25,147 25,183 Net cash provided by (used in) investing activities 245,339 (823) (127) NOTE 5.Acquisitions 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 Group Dedicated(“Dedicated”). 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.Dedicated has an operating fleet of approximately 1,400 tractors and 4,500 trailers. Dedicated services have been requested by our customers and we believeDedicated 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 in theEstenson Acquisition purchase agreement, which will not exceed $6.0 million and is based on Estenson’s EBITDA results through June 30, 2019. Inaccordance with the agreement, the base purchase price was adjusted by the assumed debt to arrive at the final consideration of $172.0 million. To facilitatethe Estenson Acquisition, we assumed $112.7 million of Estenson debt and paid $165.9 million in cash, including $55.0 million of cash which was borrowedunder our credit agreement.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$284,69140 The following table summarizes the preliminary allocation of the total consideration to the assets acquired and liabilities assumed as of the date of theacquisition (in thousands): July 1, 2017 Cash and cash equivalents$12 Accounts receivable trade 26,830 Other receivables 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$172,014The Estenson Acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired andliabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of July 1, 2017 with the excess of purchaseprice over fair value of net assets acquired recorded as goodwill. The goodwill recognized in the Estenson acquisition was primarily attributable to potentialexpansion and future development of the acquired business. The fair value assigned to the customer relationships identifiable intangible was determinedusing an income approach based on management’s estimates and assumptions. The fair value assigned to the property and equipment was determined basedon a market approach. A probability weighted expected return model was used to estimate the value of the contingent consideration., see Note 9 for moreinformation. Equipment debt was valued using a discounted cash flow analysis whereby future contractual principal repayments and interest payments foreach instrument were discounted to the purchase date 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.On December 3, 2018, a subsidiary of Hub Group, Inc. closed on the Agreement and Plan of Merger (the “Merger Agreement”) to acquire CaseStack, Inc.(“CaseStack”). Total consideration for the transaction was $252.1 million. To facilitate the acquisition we paid $248.7 million in cash and $3.5 million wasa deferred purchase consideration. The deferred purchase consideration is included in Accrued Other and will be paid equally over twenty-four months. The acquisition of CaseStack expanded our logistics service offering to include transportation and warehousing consolidation solutions for consumerpackaged goods companies selling into the North American retail channel. The acquisition also added scale to our truck brokerage service offering,particularly in the less-than-truckload segment of the market.The following table summarizes the total purchase price allocated to the net assets acquired (in thousands): Cash paid$248,656 Deferred purchase consideration 3,469 Total consideration$252,125 The initial accounting for the acquisition of CaseStack is incomplete as we, with the support of our valuation specialist, are still in the process of finalizingthe fair market value calculations of the acquired net assets. In addition, the Company is in the preparation and final review process of the applicable futurecash flows used in determining the purchase accounting. Finally, certain post-closing activities outlined in the merger agreement need to be completed. As aresult, the amounts recorded in the consolidated financial statements related to the CaseStack merger are preliminary the measurement period remainsopen. The following table summarizes the preliminary allocation of the total consideration to the assets acquired and liabilities assumed as of the date of theacquisition (in thousands):41 December 3, 2018 Accounts receivable trade$32,057 Prepaid expenses and other current assets 694 Property and equipment 3,247 Deferred tax assets 6,433 Goodwill, net 164,976 Other intangibles 75,600 Other assets 120 Total assets acquired$283,127 Accounts payable trade$24,541 Accrued payroll 2,811 Accrued other 3,650 Total liabilities assumed$31,002 Total consideration$252,125 The CaseStack 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 December 3, 2018 with theremaining unallocated purchase price recorded as goodwill. The goodwill recognized in the CaseStack acquisition was primarily attributable to potentialexpansion and future development of the acquired business.Tax history and attributes including net operating loss carryovers and other deferred tax assets are inherited in an equity purchase such as this, whilegoodwill is not tax deductible.We incurred approximately $1.4 million of transaction 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, 2018.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, 2018 LifeCustomer relationships - logistics services$65,600 $547 $65,053 10 yearsCustomer relationships - transportation services$8,700 $145 $8,555 5 yearsTrade name$1,300 $72 $1,228 18 monthsThe above intangible assets are amortized using the straight -line method. Amortization expense related to this acquisition for the twelve month periodended December 31, 2018 was $0.8 million. The intangible assets have a weighted average useful life of approximately 9 years. Amortization expenserelated to CaseStack for the next five years is as follows (in thousands): Total 2019 $9,167 2020 $8,661 2021 $8,300 2022 $8,300 2023 $8,155 From the date of the acquisition through December 31, 2018, CaseStack’s revenue was $20.8 million and operating income of $0.7 million. The following unaudited pro forma consolidated results of operations presents the effects of CaseStack as though it had been acquired as of January 1, 2017and Dedicated as though it had been acquired as of January 1, 2016 (in thousands, except for per share amounts):42 Twelve Months Ended December 31, 2018 December 31, 2017 December 31, 2016 Revenue$3,912,745 $3,449,373 $2,965,032 Income from continuing operations$133,310 $122,532 $64,825 Earnings per share (1) Basic$2.81 $3.69 $1.91 Diluted$2.79 $3.67 $1.90 (1)Earnings per share is from continuing operations. The unaudited pro forma consolidated results for the annual periods were prepared using the acquisition method of accounting and are based on the historicalfinancial information of Hub, Dedicated and CaseStack. 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, 2017 and January 1, 2016, respectively. NOTE 6. Revenue from Contracts with CustomersOn January 1, 2018, we adopted the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers. See Note 1 – Descriptionof Business and Summary of Significant Accounting Policies for significant accounting policy for revenue.The Company capitalizes commissions incurred in connection with obtaining a contract. The Company capitalized commissions associated with dedicatedservices of $0.2 million at December 31, 2018. Capitalized commission fees are amortized based on the transfer of services to which the assets relate and areincluded in selling, general and administrative expenses. In 2018, the amount of amortization was approximately $0.1 million.Costs incurred to obtain an intermodal, truck brokerage or logistics contract are expensed as incurred according to the practical expedient that allowscontract acquisition costs to be recognized immediately if the deferral period is one year or less. The Company applied Topic 606 retrospectively using the practical expedient in paragraph 606-10-65-1(f)(3), under which the Company does not disclosethe amount of consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount asrevenue for all reporting periods presented before January 1, 2018. We do not generally have a remaining performance obligation due to revenue generallybeing recognized using relevant transit time. We only had one significant accounting policy change that is disclosed below.Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by HubGroup from a customer were previously recorded on a gross basis. Under Topic 606, these taxes are excluded from revenue. This change had an effect of $3.0million and $2.8 million on revenue and transportation costs for the twelve months ended December 31, 2017 and 2016, respectively.Hub offers comprehensive multimodal solutions including intermodal, truck brokerage, logistics and dedicated services. Hub has full time employees locatedthroughout the United States, Canada and Mexico.Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers and trailers, typically over long distances of 750miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup anddelivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our HGT subsidiary and third-party local truckingcompanies.Truck Brokerage. We operate one of the largest truck brokerage operations, providing customers with an over the road service option for their transportationneeds. Our brokerage does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effective service and pricecombination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.Logistics. Hub’s logistics business operates under the names Unyson Logistics and CaseStack. Unyson Logistics is comprised of a network of logisticsprofessionals dedicated to developing, implementing and operating customized logistics solutions for customers. Unyson Logistics offers a wide range oftransportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management,load planning and execution and web-based shipment visibility.43 Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, railcar andinternational shipping. Our CaseStack logistics business leverages proprietary technology along with collaborative partnerships with retailers and logisticsproviders to deliver cost savings and performance-enhancing supply chain services to consumer-packaged goods clients. CaseStack contracts with third-party warehouse providers in seven markets across North America to which its customers ship their goods to be stored and eventually consolidated, alongwith goods from other CaseStack customers, into full truckload shipments destined to major North American retailers. CaseStack offers its customersshipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.Dedicated Trucking. Our dedicated operation contracts with customers who seek to outsource a portion of their trucking transportation needs. We offer adedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high serviceexpectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which servesto reduce the financial risk we bear with respect to the utilization of our equipment. The following table summarizes our disaggregated revenue by business line (in thousands) for the years ended December 31: 2018 2017 2016 Intermodal$2,195,316 $1,870,873 $1,803,974 Truck brokerage 497,282 481,635 389,700 Logistics 698,138 655,543 556,775 Dedicated 292,857 115,012 - Total revenue$3,683,593 $3,123,063 $2,750,449 44 NOTE 7. 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 goodwill and determined it was not, more-likely-than-not, that the fair value of our reporting unitwas less than its carrying value. There were no accumulated impairment losses of goodwill at the beginning of the period.The following table presents the carrying amount of goodwill (in thousands): Total Balance at January 1, 2017$262,376 Acquisition 86,504 Other (219)Balance at December 31, 2017 before adjustment to conform goodwill to current presentation 348,661 Goodwill associated with Disposition (29,389)Balance at December 31, 2017 319,272 Acquisition 164,976 Other (664)Balance at December 31, 2018$483,584 The changes noted as “other” in the table above for both 2018 and 2017 refer to the amortization of the income tax benefit of tax goodwill in excess offinancial statement goodwill and the changes in purchase accounting. The components of the “Other intangible assets” are as follows (in thousands): Net Gross Accumulated Carrying Amount Amortization Value LifeAs of December 31, 2018: Customer relationships$144,123 $(10,563)$133,560 5-15 years Trade name$1,300 $(72)$1,228 18 months Total$145,423 $(10,635)$134,788 Net Gross Accumulated Carrying Amount Amortization Value LifeAs of December 31, 2017: Customer relationships$71,581 $(6,834)$64,747 7-15 years The above intangible assets are amortized using the straight-line method. Amortization expense for year ended December 31, 2018 and 2017 was $5.7million and $3.0 million, respectively. The remaining weighted average life of all definite lived intangible assets as of December 31, 2018 was 11.07 years.Amortization expense for the next five years is as follows (in thousands): Total 2019$13,822 2020 13,316 2021 12,742 2022 12,700 2023 12,555 45 NOTE 8. Income TaxesThe Tax Cuts and Jobs Act (“The Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21% and requirescompanies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The Act also contained provisionsthat include the repeal of the domestic production activity deduction, established a new tax on Global Intangible Low-Taxed Income (“GILTI”), new baseerosion and anti-abuse tax provisions (“BEAT”), a new deduction for Foreign-Derived Intangible Income (“FDII”), and increased limitations on thedeductibility of certain executive compensation. Due to the complexities involved in accounting for the enactment of the Act, the SEC Staff Accounting Bulletin No. 118 (“SAB 118”) allowed the Companyto record provisional amounts in earnings for the year ended December 31, 2017. Where reasonable estimates could be made, the provisional accounting wasbased on such estimates. In situations where no reasonable estimate could be made, the provisional accounting could be based on the tax law in effect beforethe Act. The Company was 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 accounting. Throughout 2018, we continued to refine our calculations and we finalized our accounting for the Act during thefourth quarter of 2018 when we filed our U.S. tax returns for the period ended December 31, 2017. The changes to the tax positions for temporary differencescompared to the provisional amounts used at December 31, 2017 resulted in a $0.5 million adjustment of the income tax expense recorded as of December31, 2018. Despite the completion of our accounting for the Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance tobe issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments.Deferred tax assets and liabilities: In 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reversein the future, which is generally 21%. We recorded a provisional tax benefit related to the remeasurement of our deferred tax balance as of December 31,2017 of $75.2 million. Transition tax: Under the Act, the Company was subject to a one-time transition tax on the untaxed foreign earnings of its foreign subsidiaries by deemingthose earnings to be repatriated. Foreign earnings held in the form of cash and cash equivalents were taxed at a 15.5% rate and the remaining earnings weretaxed at an 8.0% rate. In calculating the Transition Tax, we were required to calculate the cumulative earnings and profits of all non-U.S. subsidiaries back to1987. We elected to pay the entire tax of thirty thousand dollars, in accordance with the Act, with our 2017 U.S. tax return.Global Intangible Low-Taxed Income (“GILTI”): We are required to make an accounting policy election of either (1) treating taxes due on future U.S.inclusions in taxable income related to GILTI as a current period expense when incurred or (2) factoring such amounts into our measurement of deferredtaxes. We made an accounting policy election to account for GILTI as a component of tax expense in the period in which we are subject and therefore willnot provide any deferred tax impacts of GILTI in our consolidated financial statements. The Company does not expect GILTI to be material or to be subjectto the tax.Base erosion and anti-abuse provisions (“BEAT”): The ACT introduced BEAT for companies that meet certain thresholds by effectively excludingdeductions on certain payments to foreign related entities. The BEAT provisions eliminate the deduction of certain base-erosion payments made to relatedforeign corporations and impose a minimum tax if greater than regular tax. The Company does not expect to be subject to the tax.Foreign-derived intangible income (“FDII”): The ACT introduced FDII which, through deductions, effectively creates a preferential tax rate for incomederived by domestic corporations from serving foreign markets. The FDII rules are complex and while we are still interpreting them, the Company does notexpect a significant benefit from FDII.The following is a reconciliation of our effective tax rate to the federal statutory tax rate: Years Ended December 31, 2018 2017 2016 U.S. federal statutory rate 21.0 % 34.9 % 35.0 %Federal tax law changes 0.5 (112.2) - State taxes, net of federal benefit 3.7 2.8 2.7 Federal and state incentives (0.9) (7.0) (0.4) State law changes - 2.0 0.4 Permanent differences 0.6 0.2 1.0 Net effective rate 24.9 % (79.3)% 38.7 %46 The following is a summary of our provision for income taxes (in thousands): Years Ended December 31, 2018 2017 2016 Current Federal$(13,750) $(10,426) $21,527 State and local 1,740 1,542 3,053 Foreign (234) 59 108 (12,244) (8,825) 24,688 Deferred Federal 36,968 (46,922) 10,867 State and local 4,134 2,667 890 Foreign 206 (3) (64) 41,308 (44,258) 11,693 Total provision$29,064 $(53,083) $36,381 The following is a summary of our deferred tax assets and liabilities (in thousands): December 31, 2018 2017 Accrued compensation 10,538 9,441 Other reserves 8,568 6,736 Tax credit carryforwards 5,062 3,411 Operating loss carryforwards 6,914 1,388 Total gross deferred income taxes 31,082 20,976 Valuation allowances (3,128) (1,681)Total deferred tax assets 27,954 19,295 Prepaids (5,409) (3,587)Other receivables (1,588) (2,462)Property and equipment (119,716) (79,224)Goodwill (55,118) (55,117)Total deferred tax liabilities (181,831) (140,390) Total deferred taxes$(153,877) $(121,095) We are subject to income taxation in the U.S., numerous state jurisdictions, Mexico and Canada. Because income tax return formats vary among the states,we file both unitary and separate company state income tax returns. We do not permanently reinvest our foreign earnings, all amounts are accrued andaccounted for, though not material.We acquired a federal net operating loss carryforward of $4.1 million through our acquisition of CaseStack. IRS loss limitation rules allowed us to utilize$0.1 million in 2018. The remaining net operating loss of $4.0 million has no expiration date. Our state tax net operating losses of $2.9 million includes$1.0 million from the acquisition of CaseStack. Those state net operating losses expire between December 31, 2019 and December 31, 2038. Managementbelieves it is more likely than not that the loss carryforward deferred tax assets will be realized, except for forty-nine thousand dollars of state losses. Avaluation allowance of forty-nine thousand dollars has been established.Our federal incentive tax credit carryforward of forty-five thousand dollars expires between December 31, 2025 and December 31, 2027. Our state incentivetax credit carryforwards of $5.0 million expire between December 31, 2019 and December 31, 2023. Management believes it is more likely than not that theincentive carryforward deferred tax assets will be realized, except for $3.1 million of state tax credits. A valuation allowance of $3.1 million has beenestablished.47 As of December 31,2018 and December 31, 2017, the amount of unrecognized tax benefits was $3.9 million and $3.8 million, respectively. Of theseamounts, our income tax provision would decrease $3.3 million and $2.8 million, respectively, if recognized. A reconciliation of the beginning and endingamount of unrecognized tax benefits is as follows (in thousands): 2018 2017 Gross unrecognized tax benefits - beginning of the year$3,827 $1,832 Gross (decreases) increases related to prior year tax positions (397) 1,830 Gross increases related to current year tax positions 959 290 Lapse of applicable statute of limitations (495) (125)Gross unrecognized tax benefits - end of year$3,894 $3,827 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 2018 provision for income taxes, werecognized approximately $0.1 million dollars of interest income on tax refunds and approximately one thousand dollars of income tax penalty expense. In 2018, we were selected for examinations by Wisconsin for our 2014 through 2016 tax years, by Tennessee for our 2014 through 2016 tax years, and byMassachusetts for our 2016 and 2017 tax years. The Massachusetts and Wisconsin examinations are still ongoing. The Tennessee audit and audits byCalifornia for our 2012 and 2013 tax years and by Minnesota for our 2013 through 2015 tax years closed with no additional tax due. NOTE 9. Fair Value MeasurementThe carrying value of cash and cash equivalents, accounts receivable, accounts payable and debt materially approximated fair value as of December 31, 2018and 2017 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, 2018 and 2017, our cashand temporary investments were with high quality financial institutions in DDAs, savings accounts and an interest bearing checking account.Restricted investments included $19.2 million and $20.1 million as of December 31, 2018 and 2017, respectively, of mutual funds which are reported at fairvalue. These investments relate to the nonqualified deferred compensation plan that is described in Note 14.The fair value of the contingent consideration related to the 2017 acquisition of Estenson was reduced to zero during the third quarter of 2018. The fair valuewas based on significant inputs that are not observable in the market, which are referred to as Level 3 inputs. Key assumptions include the likelihood of theacquired business achieving target levels of EBITDA using a probability-weighted expected return method. The following table sets forth a reconciliation ofchanges in the fair value of the contingent consideration:Balance at December 31, 2017$4,703 Change in fair value in the second quarter 2018 (1) (3,571)Change in fair value in the third quarter 2018 (1) (1,132)Balance at December 31, 2018$- (1)We recorded adjustments to the contingent consideration liability in the second and third quarters of 2018, resulting in an increase in income fromoperations. The income was recorded under “General and Administrative” in the Consolidated Statement of Income. The adjustment was the result ofa change in the fair value of the contingent liability, which reflected two year EBITDA targets established prior to the close of the acquisition.Our assets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated by markettransactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs,other than quoted prices in active markets, that are observable either directly or indirectly (Level 2), or unobservable inputs (Level 3). Cash and cashequivalents, accounts receivable and accounts payable are defined as “Level 1,” while long-term debt is defined as “Level 2”, and the Estenson contingentconsideration is defined as “Level 3” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification. 48 NOTE 10. Property and EquipmentProperty and equipment consist of the following (in thousands): December 31, 2018 2017 Land$24,708 $24,708 Building and improvements 36,644 36,459 Leasehold improvements 7,252 6,232 Computer equipment and software 118,723 103,827 Furniture and equipment 14,421 14,180 Transportation equipment 787,187 620,951 Construction in process 1,499 1,460 990,434 807,817 Less: Accumulated depreciation and amortization (308,575) (246,603)Property and Equipment, net$681,859 $561,214The increase in transportation equipment to $787.2 million in 2018 from $621.0 million in 2017 was due primarily to the purchase of containers, tractors andtrailers.The increase in computer software and hardware to $118.7 million in 2018 from $103.8 million in 2017 was related to our transportation managementsystems.Included in the transportation equipment is a capital lease obligation entered into for $26.4 million in 2011. The balances as of December 31, 2018 and2017, net of accumulated amortization, were $7.7 million and $10.0 million, respectively.Depreciation and amortization expense related to property and equipment was $77.3 million, $57.8 million and $43.0 million for 2018, 2017 and 2016,respectively, which includes amortization expense associated with the capital lease of $2.2 million for both 2018 and 2017 and $2.3 million for 2016. Thecapital lease amortization expense and transportation equipment depreciation is included in transportation costs. NOTE 11. 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 Amended andRestated Credit Agreement dated December 12, 2013 (“2013 Credit Agreement”). The Company used the Credit Agreement to finance, in part, the EstensonAcquisition.Borrowings under the Credit Agreement generally bear interest at a variable rate equal to (i) LIBOR plus a specified margin based upon the Borrowers' totalnet leverage ratio (as defined in the Credit Agreement) (the "Total Net Leverage Ratio"), or (ii) the base rate (which is the highest of (a) the administrativeagent's prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% plus one-month LIBOR) plus a specified margin based upon the Total NetLeverage Ratio. The specified margin for Eurodollar loans varies from 100.0 to 200.0 basis points per annum. The specified margin for base rate loans variesfrom 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 uponthe Total Net Leverage Ratio) on the aggregate unused commitments and (2) a letter of credit fee ranging from 100.0 to 200.0 basis points per annum (basedupon the Total Net Leverage Ratio) on the undrawn amount of letters of credit.We have standby letters of credit that expire in 2019. As of December 31, 2018, our letters of credit were $27.0 million.As of December 31, 2018, we had no borrowings under our bank revolving line of credit and our unused and available borrowings were $323.0 million. Ourunused and available borrowings were $284.9 million as of December 31, 2017. We were in compliance with our debt covenants as of December 31, 2018.We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers and containers. The Notes are secured by the underlyingequipment financed in the agreements. 49 Our outstanding debt is as follows (in thousands): December 31, December 31, 2018 2017 (in thousands except principal and interest payments) Revolving line of credit$- $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; interest is paid monthly at a fixed annual rate between2.85% and 3.41% 11,658 13,586 Secured Equipment Notes due on various dates in 2023 with monthly principal and interest payments between$669 and $341,341 commencing on various dates in 2016, 2017 and 2018; interest is paid monthly at a fixedannual rate between 2.23% and 4.08% 192,858 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% 24,092 30,301 Secured Equipment Notes due on various dates in 2021 with monthly principal and interest payments between$1,940 and $352,655 commencing on various dates from 2014 to 2017; interest is paid monthly at a fixed annualrate between 2.04% and 2.96% 55,855 76,885 Secured Equipment Notes due on various dates in 2020 with monthly principal and interest payments between$3,614 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% 32,904 50,737 Secured Equipment Notes due on various dates in 2019 with monthly principal and interest payments between$3,243 and $322,780 commencing on various dates from 2013 to 2015; interest is paid monthly at a fixed annualrate between 1.87% and 2.62% 13,417 36,178 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 2013 and 2014; interest is paid monthly at a fixed annualrate between 2.05% and 2.7% - 2,406 330,784 292,074 Less current portion (101,713) (77,266)Total long-term debt$229,071 $214,808Aggregate principal payments, in thousands, due subsequent to December 31, 2018, are as follows:2019$101,713 2020 83,589 2021 65,521 2022 49,327 2023 29,507 2024 and thereafter 1,127 $330,784 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 $0.4 million, $0.5 million and $0.6 million in 2018, 2017 and 2016, respectively, related to thiscapital lease. 50 NOTE 12. Leases, User Charges and CommitmentsMinimum annual capital and operating lease payments, as of December 31, 2018, under non-cancelable leases, principally for chassis, other equipment andreal estate, as well as other commitments are payable as follows (in thousands):Future Payments Due: Operating Leases and Capital Other Lease Commitments Total 2019$3,091 $14,942 $18,033 2020 3,099 11,879 14,978 2021 1,795 9,308 11,103 2022 - 8,350 8,350 2023 - 6,770 6,770 2024 and thereafter - 9,831 9,831 $7,985 $61,080 $69,065 Less: Imputed interest (401) Net capital lease liability$7,584 Total rental expense included in general and administrative expense, which relates primarily to real estate, was approximately $10.6 million in 2018, $9.5million in 2017 and $8.1 million in 2016. 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 $10.7 million, $6.0 million, and$3.6 million for 2018, 2017 and 2016, 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 and NorfolkSouthern railroads which are included in transportation costs. Such charges were $80.4 million, $77.6 million and $73.7 million for 2018, 2017 and 2016,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.In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for allleases. We adopted the standard as of January 1, 2019, as required.We anticipate the adoption of this standard will result in the recognition of approximately $29 million to $37 million of ROU assets and liabilities on ourconsolidated balance sheet. The lease liabilities to be recognized will be measured based upon the present value of minimum future payments and the ROUassets to be recognized will be equal to lease liabilities, adjusted for prepaid and accrued rent balances which are recorded in the Consolidated BalanceSheets as of December 31, 2018.Hub currently does not have any variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate).Additionally, some leases have options to extend or terminate, which Management will determine if exercised or not. If any of the options are exercised, thiswill be reflected in the ROU asset and lease liability accordingly. As of January 1, 2019, the ROU asset and lease liabilities do not reflect any options toextend or terminate any of the leases as management is not reasonably certain it will exercise any of these options. Also, current leases do not contain anyrestrictions or covenants imposed by the leases or residual value guarantees.Occasionally, Hub will sublease office space or parking spaces. The subleases do not relieve Hub of any of its primary obligations under the originalagreement. Currently, Hub has subleases with an expected annual income totaling $0.5 million.Subsequent to January 1, 2019, Hub signed property lease contracts which have not commenced yet but that creates significant rights and obligations forHub. Based on the present value of the lease payments, the estimated ROU assets and lease liabilities related to this contract will total approximately $6.7million. 51 NOTE 13. 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 Incentive Plan,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, 2018, 1,499,137 shares were available for future grant under the 2017 Incentive Plan.We have awarded time-based restricted stock to our employees and the Company’s non-employee Directors. This restricted stock vests over a three to five -year period for all recipients other than the Company’s non-employee Directors. The non-employee Directors restricted stock vests over a one to three-yearperiod. In 2018, in addition to the time-based restricted stock we granted performance-based restricted stock to our Executive Officers. The performance-based restricted stock cliff vests after the third anniversary year if certain EBITDA targets are achieved. We have not granted any stock options since 2003and have no stock options outstanding.Share-based compensation expense for 2018, 2017 and 2016 was $13.5 million, $8.6 million and $7.3 million or $10.1 million, $5.8 million and $4.4million, net of taxes, respectively. Included in the 2018 share-based compensation expense is $1.8 million of performance-based share expenses or $1.3million, net of taxes.The following table summarizes the non-vested restricted stock activity for the year ended December 31, 2018: Time-Based Performance-Based Restricted Stock Restricted Stock Weighted Weighted Time-Based Average Performance-Based Average Restricted Stock Grant Date Restricted Stock Grant Date Shares Fair Value Shares Fair Value Non-vested January 1, 2018 875,326 $38.88 - $- Granted 500,943 $47.34 89,143 $49.20 Vested (272,877) $38.42 - $- Forfeited (139,923) $41.91 (16,143) $49.20 Non-vested at December 31, 2018 963,469 $42.98 73,000 $49.20 The following table summarizes the restricted stock granted during the respective years: Time-based restricted stock grants2018 2017 2016 Employees 463,818 396,708 394,243 Outside directors 37,125 31,625 26,125 Total 500,943 428,333 420,368 Weighted average grant date fair value$47.34 $43.31 $33.46 Vesting period1-5 years 1-5 years 3-5 years 52 In addition to the time-based restricted stock, we granted 89,143 shares of performance-based restricted stock to employees in 2018. The weighted averagegrant date fair value of these shares was $49.20 with a cliff vest after three years.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, 2018, 2017 and 2016 was $13.3 million, $10.4 million and $7.5 million,respectively.As of December 31, 2018, there was $31.5 million of unrecognized compensation cost related to non-vested share-based compensation that is expected to berecognized over a weighted average period of 2.81 years. Additionally, as of December 31, 2018, there was $2.4 million of unrecognized compensation costrelated to the non-vested performance-based restricted stock compensation that is expected to be recognized over a weighted average period of 2.00 years.During January 2019, we granted 388,843 shares of restricted stock, which includes 76,500 performance-based shares and 312,343 time-based shares, tocertain employees and 32,262 shares of restricted stock to outside directors with a weighted average grant date fair value of $37.20. The stock vests over athree to five year period for employees and one year for outside directors, except for the performance-based shares that cliff vest after three years. NOTE 14. Employee Benefit PlansWe have a profit-sharing plan as of December 31, 2018, 2017 and 2016, 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 $2.6 million related to this plan in 2018, $2.8 million in 2017 and$2.2 million in 2016.In January 2005, we established the Hub Group, Inc. Nonqualified Deferred Compensation Plan (the “Plan”) to provide added incentive for the retention ofcertain 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, 2018 and 2017. 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 2018, 2017 and 2016. The liabilities related to these plans as ofDecember 31, 2018 and 2017 were $18.9 million and $20.4 million, respectively. NOTE 15. Legal MattersRoblesOn January 25, 2013, a complaint was filed in the U.S. District Court for the Eastern District of California (Sacramento Division) by Salvador Robles againstour subsidiary Hub Group Trucking, Inc (“HGT”). The action is brought on behalf of a class comprised of present and former California-based truck driversfor HGT who were classified as independent contractors, from January 2009 to August 2014. It alleges HGT has misclassified such drivers as independentcontractors and that such drivers were employees. It asserts various violations of the California Labor Code and claims that HGT has engaged in unfaircompetition practices. The complaint seeks, among other things, declaratory and injunctive relief, monetary damages and attorney’s fees. In May 2013, thecomplaint was amended to add similar claims based on Mr. Robles’ status as an employed company driver. These additional claims are only on behalf 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 all times. Nevertheless,because lawsuits are expensive, time-consuming and could interrupt our business operations, HGT decided to make settlement offers to individual driverswith respect to the claims alleged in this lawsuit, without admitting liability. As of September 30, 2018, 96% of the California drivers have accepted thesettlement offers. In late 2014, HGT decided to convert its model from independent contractors to employee drivers in California (the “Conversion”). Inearly 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. In May2015, the plaintiffs in the Robles case filed a Second Amended Complaint (“SAC”) which names 334 current and former Hub Group Trucking drivers as“interested putative class members.” In addition to reasserting their existing claims, the53 SAC includes claims post-Conversion, added two new plaintiffs and seeks a judicial declaration that the settlement agreements are unenforceable. In June2015, Hub Group Trucking filed a motion to dismiss the SAC and on July 19, 2016, Hub Group Trucking’s motion to dismiss was granted in part, and deniedin part, by the District Court. The motion to dismiss was granted for the claims of all purported class members who have signed settlement agreements and onplaintiffs’ claims based on quantum merit and it was denied with respect to federal preemption and choice of law. On August 11, 2016, Plaintiffs filed amotion to clarify whether the Court’s dismissal of the claims of all purported class members who signed settlement agreements was with or without prejudiceand, if the dismissal was with prejudice, Plaintiffs moved the Court to revise and reconsider the order. On July 2, 2018, the Court denied the Plaintiffs’Motion for Clarification or Reconsideration and stated that the dismissal of the claims of all purported class members who signed settlement agreements waswith prejudice. 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 Hub Group Trucking and five Company employees. The lawsuit makes claims similar to those being made in Robles and seeks monetarypenalties under the Private Attorneys General Act. Of the 63 named Plaintiffs, at least 58 previously accepted the settlement offers referenced above.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 the agreementbetween HGT and its former California owner operators requires that this action be brought in Memphis, Tennessee, or stay the action pending the outcomeof Robles. Defendants also asked the court to dismiss the individual defendants because PAGA’s language does not allow for individual liability. During ahearing on October 5, 2016, the judge issued an oral tentative ruling stating that the choice of forum provision was unenforceable. On February 17, 2017,with the stipulation of the parties, the Court entered an order dismissing, without prejudice, all of the individual Defendants and accepting the parties’agreement that jurisdiction and venue are proper in the San Bernardino Superior Court and that Defendants will not seek to remove the case to federal districtcourt. On April 12, 2017, the Court denied Defendant’s motion to dismiss based on insufficiency of the PAGA letter notice. On October 19, 2017, Plaintiffsfiled an amended complaint, dismissing the previously named individuals as Defendants. On December 4, 2017, Defendants filed an Answer to Plaintiffs’First Amended Complaint and a Memorandum of Points and Authorities in Support of their Motion for Judgment on the Pleadings arguing that judgementshould be entered for Defendants because Plaintiffs’ claims are preempted by the Federal Truth-In-Leasing regulations. On January 31, 2018, a hearing washeld on the motion to dismiss, and on February 1, 2018, the motion was denied. On March 27, 2018, Defendants filed a petition for a writ of mandate withthe Court of Appeals. On June 12, 2018, the Court of Appeals denied the petition. On June 21, 2018, Defendants filed a petition for review with theCalifornia Supreme Court. On August 8, 2018, the Supreme Court of California denied the petition for review. NOTE 16. 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 2018 and 2017. We purchased 87,381 shares for $4.3 million and 77,988 shares for $3.4 million during the years ended December 31, 2018 and 2017, respectively, related toemployee withholding upon vesting of restricted stock. 54 NOTE 17. Selected Quarterly Financial Data (Unaudited)The following table sets forth the selected quarterly financial data for each of the quarters in 2018 (in thousands, except per share amounts): Quarter Ended March 31, June 30, September 30, December 31, 2018 2018 2018 2018 Year Ended December 31, 2018: Revenue$837,342 $894,734 $933,224 $1,018,293 Gross margin 91,039 100,991 114,984 138,587 Operating income 16,535 25,406 34,734 48,244 Income from continuing operations before provision for incometaxes 14,393 23,051 32,914 46,367 Income from continuing operations 11,069 17,154 25,764 33,674 Income from discontinued operations, net of income taxes 5,099 4,897 88,846 15,237 Net income 16,168 22,051 114,610 48,911 Earnings per share from continuing operations Basic$0.33 $0.51 $0.77 $1.01 Diluted$0.33 $0.51 $0.77 $1.01 Earnings per share from discontinued operations Basic$0.15 $0.15 $2.66 $0.45 Diluted$0.15 $0.15 $2.64 $0.45 Earnings per share from net income Basic$0.48 $0.66 $3.43 $1.46 Diluted$0.48 $0.66 $3.41 $1.46 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$680,443 $708,572 $824,809 $909,239 Gross margin 71,791 72,906 86,327 106,606 Operating income 11,313 10,465 15,824 35,067 Income from continuing operations before provision for incometaxes 10,511 9,605 13,877 32,938 Income from continuing operations 6,543 5,724 11,665 96,082 Income from discontinued operations, net of income taxes 3,791 3,818 3,669 3,861 Net income 10,334 9,542 15,334 99,943 Earnings per share from continuing operations Basic$0.20 $0.17 $0.35 $2.89 Diluted$0.20 $0.17 $0.35 $2.87 Earnings per share from discontinued operations Basic$0.11 $0.12 $0.11 $0.12 Diluted$0.11 $0.12 $0.11 $0.12 Earnings per share from net income Basic$0.31 $0.29 $0.46 $3.01 Diluted$0.31 $0.29 $0.46 $2.99 On August 31, 2018, Hub entered into the Purchase Agreement with Mode, pursuant to which the Company sold all of the issued and outstandingmembership interest of Mode to Purchaser. In 2018, we adjusted our consolidated financial statements to reflect Mode as55 a discontinued operation for that year and all prior periods presented. The selected financial data for 2018 and prior years reflect Mode as a discontinuedoperation. Refer to the Note 4 Discontinued Operations for additional information regarding the sale of Mode. 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, 2018, an evaluation was carried out under the supervision and with the participation of our management, including our Chief ExecutiveOfficer 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 theSecurities Exchange Act of 1934. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosurecontrols and procedures were effective.No significant changes were made in our internal control over financial reporting during the fourth quarter of 2018 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 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.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 Exchange Act.Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted anevaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018. Based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria),management believes our internal control over financial reporting was effective as of December 31, 2018.On December 3, 2018, we completed the acquisition of CaseStack. We are currently integrating processes, employees, technologies and operations. Aspermitted by the rules and regulations of the SEC, we excluded CaseStack from our assessment of our internal control over financial reporting as of December31, 2018. Management will continue to evaluate our internal controls over financial reporting as we complete our integration. As of December 31, 2018,CaseStack represented 14% of total assets and 25% of net assets. For the year ended December 31, 2018, CaseStack represented 1% of revenues and 1% of netincome.Management believes, however, that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives ofthe 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 in thisreport, has issued an attestation report on the Company’s internal control over financial reporting. 56 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, 2018, 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, 2018,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 CaseStack, Inc., which is included in the 2018consolidated financial statements of the Company and constituted 14% and 25% of total assets and net assets, respectively, as of December 31, 2018 and 1%and 1% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did notinclude an evaluation of the internal control over financial reporting of CaseStack, Inc. 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, 2018 and 2017, 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, 2018, and the related notes and financial statement schedulelisted in the Index at Item 15(b), and our report dated March 1, 2019 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, IllinoisMarch 1, 2019 57 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 information aboutour executive officers, may be found under the caption "Election of Directors" in our proxy statement for the 2019 annual meeting of stockholders to be heldMay 23, 2019 (the "Proxy Statement"). Information about our Audit Committee may be found under the captions "Meetings and Committees of the Board"and "Audit Committee Report” in the Proxy Statement. Information about the procedures by which security holders may recommend nominees to the Boardmay 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 to thecompensation 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 — $ — 1,499,137 Equity compensation plans not approved by security holders — — — Total — $— 1,499,137 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 inour Proxy Statement set forth certain information with respect to certain business relationships and transactions between us and our directors and officers andthe 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 fees wehave paid to our principal accountant for services and is incorporated herein by reference. 58 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, 2018 and December 31, 2017 Consolidated Statements of Income and Comprehensive Income - Years ended December 31, 2018, December 31, 2017 and December 31, 2016 Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2018, December 31, 2017 and December 31, 2016 Consolidated Statements of Cash Flows - Years ended December 31, 2018, December 31, 2017 and December 31, 2016 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. 59 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 2018$5,996,000 $54,000 $680,000 $(2,000) $6,728,000 2017$3,463,000 $457,000 $2,079,000 $(3,000) $5,996,000 2016$2,906,000 $46,000 $(13,000) $524,000 $3,463,000 Deferred tax valuation allowance Balance at Charged to Balance at Year EndedBeginning of Costs & End of December 31:Year Expenses Year 2018$1,681,000 $1,447,000 $3,128,000 2017$456,000 $1,225,000 $1,681,000 2016$108,000 $348,000 $456,000(1)Expected customer account adjustments charged to revenue and write-offs, net of recoveries.(2)Represents bad debt recoveries. On August 31, 2018, Hub Group entered into the Purchase Agreement with Mode, pursuant to which the Company sold all of the issued and outstandingmembership interest of Mode to Purchaser. In 2018, we adjusted our consolidated financial statements to reflect Mode as a discontinued operation for thatyear and all prior periods presented. The allowances shown above for 2018 and prior years reflect Mode as a discontinued operation. Refer to the Note 4Discontinued Operations for additional information regarding the sale of Mode. 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) 10.10 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) 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) Number Exhibit 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, 2018, filed on March 1, 2019,formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2018 and 2017, (ii) Consolidated Statements of Income andComprehensive Income for the years ended December 31, 2018, 2017, and 2016, (iii) Consolidated Statements of Cash Flows for the yearsended December 31, 2018, 2017, and 2016, (iv) Consolidated Statements of Stockholders’ Equity for the years ended 2018, 2017, and 2016,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: March 1, 2019 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 March 1, 2019 /s/ Donald G. Maltby Donald G. Maltby President and Chief Operating Officer March 1, 2019 /s/ Terri A. Pizzuto Terri A. Pizzuto Executive Vice President, Chief Financial Officer and Treasurer (PrincipalFinancial and Accounting Officer) March 1, 2019 /s/ Charles R. Reaves Charles R. Reaves Director March 1, 2019 /s/ Martin P. Slark Martin P. Slark Director March 1, 2019 /s/ Jonathan P. Ward Jonathan P. Ward Director March 1, 2019 /s/ James Kenny James Kenny Director March 1, 2019 /s/ Peter McNitt Peter McNitt Director March 1, 2019 /s/ Mary Boosalis Mary Boosalis Director March 1, 2019 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 March 1, 2019, 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, 2018. /s/ Ernst & Young LLPChicago, IllinoisMarch 1, 2019 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: March 1, 2019 /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: March 1, 2019 /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, 2018 of Hub Group, Inc. pursuant toSection 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 securities law.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 (15 U.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: March 1, 2019 /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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