UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2017 30, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission File Number: 0-11757
J.B. HUNT TRANSPORT SERVICES, INC.
(Exact name of registrant as specified in its charter)
Arkansas | 71-0335111 |
(State or other jurisdiction | (I.R.S. Employer |
of incorporation or | Identification No.) |
organization) |
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615 J.B. Hunt Corporate Drive, Lowell, ArkansasArkansas 72745
(Address of principal executive offices)
479-820-0000
(Registrant's telephone number, including area code)
www.jbhunt.com
(Registrant's web site)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | JBHT | NASDAQ |
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 period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Yes X☒ 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 of Regulation S-T (§232.405 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 X☒ No____ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.See the definitions of “large“large accelerated filer,” “accelerated“accelerated filer,” “smaller“smaller reporting company”company” and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ X 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 provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No☒ No X
The number of shares of the registrant’s’s $0.01 par value common stock outstanding on September 30, 2023 was 103,142,805.September30, 2017 was109,751,895.
J.B. HUNT TRANSPORT SERVICES, INC.
Form 10-Q
For The Quarterly Period Ended September 30, 2017 30, 2023
Table of Contents
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Part I.Financial Information | ||
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Item 1. | Financial Statements |
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| Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, | 3 |
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| Condensed Consolidated Balance Sheets as of September 30, | 4 |
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 | 5 | |
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| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, |
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| Notes to Condensed Consolidated Financial Statements as of September 30, |
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 13 |
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
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Part II.Other Information | ||
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Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Mine Safety Disclosures |
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Item 5. | Other Information |
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Item 6. | Exhibits |
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Exhibits | 24 | |
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Signatures |
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Part I. Financial Information |
ITEM 1. FINANCIAL STATEMENTS |
J.B. HUNT TRANSPORT SERVICES, INC. |
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Condensed Consolidated Statements of Earnings |
(in thousands, except per share amounts) |
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(unaudited) |
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Operating revenues, excluding fuel surcharge revenues | $ | 1,657,380 | $ | 1,538,701 | $ | 4,670,200 | $ | 4,448,709 | $ | 2,690,890 | $ | 3,162,106 | $ | 8,140,959 | $ | 9,364,082 | ||||||||||||||||
Fuel surcharge revenues | 185,954 | 151,958 | 529,208 | 385,688 | 472,863 | 676,151 | 1,385,006 | 1,800,295 | ||||||||||||||||||||||||
Total operating revenues | 1,843,334 | 1,690,659 | 5,199,408 | 4,834,397 | 3,163,753 | 3,838,257 | 9,525,965 | 11,164,377 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Rents and purchased transportation | 947,145 | 846,238 | 2,624,707 | 2,381,547 | 1,443,197 | 1,891,848 | 4,315,581 | 5,650,011 | ||||||||||||||||||||||||
Salaries, wages and employee benefits | 408,340 | 374,517 | 1,178,524 | 1,108,997 | 803,187 | 887,723 | 2,450,062 | 2,493,139 | ||||||||||||||||||||||||
Fuel and fuel taxes | 195,962 | 242,379 | 563,642 | 697,481 | ||||||||||||||||||||||||||||
Depreciation and amortization | 95,959 | 91,001 | 281,198 | 269,717 | 187,714 | 166,580 | 543,498 | 472,914 | ||||||||||||||||||||||||
Fuel and fuel taxes | 87,006 | 74,179 | 246,725 | 205,082 | ||||||||||||||||||||||||||||
Operating supplies and expenses | 67,578 | 62,191 | 190,085 | 173,222 | 130,905 | 138,346 | 388,213 | 371,668 | ||||||||||||||||||||||||
Insurance and claims | 26,463 | 21,862 | 76,930 | 58,384 | 62,675 | 60,189 | 196,896 | 193,577 | ||||||||||||||||||||||||
General and administrative expenses, net of asset dispositions | 29,389 | 21,025 | 74,597 | 61,570 | 69,413 | 62,815 | 191,291 | 160,026 | ||||||||||||||||||||||||
Operating taxes and licenses | 10,744 | 11,665 | 32,329 | 34,156 | 18,739 | 17,082 | 55,797 | 49,154 | ||||||||||||||||||||||||
Communication and utilities | 5,738 | 5,004 | 16,337 | 15,063 | 10,245 | 9,067 | 31,067 | 26,802 | ||||||||||||||||||||||||
Total operating expenses | 1,678,362 | 1,507,682 | 4,721,432 | 4,307,738 | 2,922,037 | 3,476,029 | 8,736,047 | 10,114,772 | ||||||||||||||||||||||||
Operating income | 164,972 | 182,977 | 477,976 | 526,659 | 241,716 | 362,228 | 789,918 | 1,049,605 | ||||||||||||||||||||||||
Net interest expense | 8,310 | 6,485 | 22,521 | 19,347 | 12,586 | 13,562 | 41,980 | 38,991 | ||||||||||||||||||||||||
Earnings before income taxes | 156,662 | 176,492 | 455,455 | 507,312 | 229,130 | 348,666 | 747,938 | 1,010,614 | ||||||||||||||||||||||||
Income taxes | 56,277 | 67,067 | 154,499 | 192,778 | 41,699 | 79,284 | 173,186 | 242,566 | ||||||||||||||||||||||||
Net earnings | $ | 100,385 | $ | 109,425 | $ | 300,956 | $ | 314,534 | $ | 187,431 | $ | 269,382 | $ | 574,752 | $ | 768,048 | ||||||||||||||||
Weighted average basic shares outstanding | 109,703 | 112,630 | 110,066 | 112,790 | 103,302 | 103,757 | 103,528 | 104,297 | ||||||||||||||||||||||||
Basic earnings per share | $ | 0.92 | $ | 0.97 | $ | 2.73 | $ | 2.79 | $ | 1.81 | $ | 2.60 | $ | 5.55 | $ | 7.36 | ||||||||||||||||
Weighted average diluted shares outstanding | 110,628 | 113,363 | 111,154 | 113,709 | 104,394 | 104,924 | 104,562 | 105,458 | ||||||||||||||||||||||||
Diluted earnings per share | $ | 0.91 | $ | 0.97 | $ | 2.71 | $ | 2.77 | $ | 1.80 | $ | 2.57 | $ | 5.50 | $ | 7.28 | ||||||||||||||||
Dividends declared per common share | $ | 0.23 | $ | 0.22 | $ | 0.69 | $ | 0.66 |
See Notes to Condensed Consolidated Financial Statements. |
J.B. HUNT TRANSPORT SERVICES, INC. |
Condensed Consolidated Balance Sheets |
(in thousands) |
(unaudited) |
September 30, 2017 | December 31, 2016 | September 30, 2023 | December 31, 2022 | |||||||||||||
(unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 7,707 | $ | 6,377 | $ | 75,198 | $ | 51,927 | ||||||||
Trade accounts receivable, net | 858,720 | 745,288 | 1,369,974 | 1,528,075 | ||||||||||||
Prepaid expenses and other | 140,164 | 194,016 | 525,002 | 631,776 | ||||||||||||
Total current assets | 1,006,591 | 945,681 | 1,970,174 | 2,211,778 | ||||||||||||
Property and equipment, at cost | 4,507,917 | 4,258,915 | 8,660,207 | 7,999,480 | ||||||||||||
Less accumulated depreciation | 1,632,108 | 1,440,124 | 2,942,438 | 3,019,663 | ||||||||||||
Net property and equipment | 2,875,809 | 2,818,791 | 5,717,769 | 4,979,817 | ||||||||||||
Goodwill | 55,737 | - | ||||||||||||||
Other intangible assets, net | 58,685 | - | ||||||||||||||
Goodwill and intangible assets, net | 276,046 | 236,390 | ||||||||||||||
Other assets | 57,101 | 64,516 | 408,981 | 358,597 | ||||||||||||
Total assets | $ | 4,053,923 | $ | 3,828,988 | $ | 8,372,970 | $ | 7,786,582 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 249,902 | $ | - | ||||||||||||
Trade accounts payable | $ | 493,585 | $ | 384,308 | 808,803 | 798,776 | ||||||||||
Claims accruals | 117,645 | 109,745 | 480,963 | 452,149 | ||||||||||||
Accrued payroll | 47,514 | 51,929 | 98,438 | 188,252 | ||||||||||||
Other accrued expenses | 23,011 | 27,152 | 140,970 | 129,054 | ||||||||||||
Total current liabilities | 681,755 | 573,134 | 1,779,076 | 1,568,231 | ||||||||||||
Long-term debt | 1,084,801 | 986,278 | 1,195,708 | 1,261,738 | ||||||||||||
Other long-term liabilities | 68,564 | 64,881 | 393,564 | 369,314 | ||||||||||||
Deferred income taxes | 746,833 | 790,634 | 986,520 | 920,531 | ||||||||||||
Stockholders' equity | 1,471,970 | 1,414,061 | 4,018,102 | 3,666,768 | ||||||||||||
Total liabilities and stockholders' equity | $ | 4,053,923 | $ | 3,828,988 | $ | 8,372,970 | $ | 7,786,582 |
See Notes to Condensed Consolidated Financial Statements. |
J.B. HUNT TRANSPORT SERVICES, INC. |
Condensed Consolidated Statements of |
(in |
(unaudited) |
Three Months Ended September 30, 2023 and 2022 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common | Paid-in | Retained | Treasury | Stockholders | ||||||||||||||||
Stock | Capital | Earnings | Stock | Equity | ||||||||||||||||
Balances at June 30, 2022 | $ | 1,671 | $ | 483,109 | $ | 6,036,095 | $ | (3,196,011 | ) | $ | 3,324,864 | |||||||||
Comprehensive income: | ||||||||||||||||||||
Net earnings | - | - | 269,382 | - | 269,382 | |||||||||||||||
Cash dividend declared and paid ($0.40 per share) | - | - | (41,554 | ) | - | (41,554 | ) | |||||||||||||
Purchase of treasury shares | - | - | - | (60,690 | ) | (60,690 | ) | |||||||||||||
Share-based compensation | - | 20,153 | - | - | 20,153 | |||||||||||||||
Restricted share issuances, net of stock repurchased for payroll taxes and other | - | (5,806 | ) | - | (1,240 | ) | (7,046 | ) | ||||||||||||
Balances at September 30, 2022 | $ | 1,671 | $ | 497,456 | $ | 6,263,923 | $ | (3,257,941 | ) | $ | 3,505,109 | |||||||||
Balances at June 30, 2023 | $ | 1,671 | $ | 532,503 | $ | 6,723,938 | $ | (3,346,189 | ) | $ | 3,911,923 | |||||||||
Comprehensive income: | ||||||||||||||||||||
Net earnings | - | - | 187,431 | - | 187,431 | |||||||||||||||
Cash dividend declared and paid ($0.42 per share) | - | - | (43,431 | ) | - | (43,431 | ) | |||||||||||||
Purchase of treasury shares | - | - | - | (51,101 | ) | (51,101 | ) | |||||||||||||
Share-based compensation | - | 20,673 | - | - | 20,673 | |||||||||||||||
Restricted share issuances, net of stock repurchased for payroll taxes and other | - | (5,543 | ) | - | (1,850 | ) | (7,393 | ) | ||||||||||||
Balances at September 30, 2023 | $ | 1,671 | $ | 547,633 | $ | 6,867,938 | $ | (3,399,140 | ) | $ | 4,018,102 |
Nine Months Ended September 30, 2023 and 2022 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common | Paid-in | Retained | Treasury | Stockholders | ||||||||||||||||
Stock | Capital | Earnings | Stock | Equity | ||||||||||||||||
Balances at December 31, 2021 | $ | 1,671 | $ | 448,217 | $ | 5,621,103 | $ | (2,953,175 | ) | $ | 3,117,816 | |||||||||
Comprehensive income: | ||||||||||||||||||||
Net earnings | - | - | 768,048 | - | 768,048 | |||||||||||||||
Cash dividend declared and paid ($1.20 per share) | - | - | (125,228 | ) | - | (125,228 | ) | |||||||||||||
Purchase of treasury shares | - | - | - | (300,030 | ) | (300,030 | ) | |||||||||||||
Share-based compensation | - | 59,737 | - | - | 59,737 | |||||||||||||||
Restricted share issuances, net of stock repurchased for payroll taxes and other | - | (10,498 | ) | - | (4,736 | ) | (15,234 | ) | ||||||||||||
Balances at September 30, 2022 | $ | 1,671 | $ | 497,456 | $ | 6,263,923 | $ | (3,257,941 | ) | $ | 3,505,109 | |||||||||
Balances at December 31, 2022 | $ | 1,671 | $ | 499,897 | $ | 6,423,730 | $ | (3,258,530 | ) | $ | 3,666,768 | |||||||||
Comprehensive income: | ||||||||||||||||||||
Net earnings | - | - | 574,752 | - | 574,752 | |||||||||||||||
Cash dividend declared and paid ($1.26 per share) | - | - | (130,544 | ) | - | (130,544 | ) | |||||||||||||
Purchase of treasury shares | - | - | - | (135,036 | ) | (135,036 | ) | |||||||||||||
Share-based compensation | - | 60,518 | - | - | 60,518 | |||||||||||||||
Restricted share issuances, net of stock repurchased for payroll taxes and other | - | (12,782 | ) | - | (5,574 | ) | (18,356 | ) | ||||||||||||
Balances at September 30, 2023 | $ | 1,671 | $ | 547,633 | $ | 6,867,938 | $ | (3,399,140 | ) | $ | 4,018,102 |
See Notes to Condensed Consolidated Financial Statements. |
J.B. HUNT TRANSPORT SERVICES, INC. |
Condensed Consolidated Statements of Cash Flows |
(in thousands) |
(unaudited) |
Nine Months Ended | ||||||||||||||||
September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net earnings | $ | 300,956 | $ | 314,534 | $ | 574,752 | $ | 768,048 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 281,198 | 269,717 | 543,498 | 472,914 | ||||||||||||
Noncash lease expense | 71,766 | 61,656 | ||||||||||||||
Share-based compensation | 30,953 | 30,173 | 60,518 | 59,737 | ||||||||||||
(Gain)/Loss on sale of revenue equipment and other | 5,716 | 2,357 | ||||||||||||||
Provision for deferred income taxes | (43,801 | ) | (9,152 | ) | ||||||||||||
(Gain)/loss on sale of revenue equipment and other | 17,244 | (20,970 | ) | |||||||||||||
Deferred income taxes | 65,989 | 90,463 | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts receivable | (113,432 | ) | (118,404 | ) | 224,387 | (212,325 | ) | |||||||||
Other assets | 58,230 | 50,319 | 165,622 | 102,506 | ||||||||||||
Trade accounts payable | 100,020 | 56,827 | (7,564 | ) | 55,640 | |||||||||||
Income taxes payable or receivable | 8,350 | 73,512 | (2,366 | ) | (7,616 | ) | ||||||||||
Claims accruals | 7,901 | 22 | (8,510 | ) | 34,322 | |||||||||||
Accrued payroll and other accrued expenses | (7,542 | ) | 14,058 | (175,724 | ) | (48,969 | ) | |||||||||
Net cash provided by operating activities | 628,549 | 683,963 | 1,529,612 | 1,355,406 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Additions to property and equipment | (328,218 | ) | (498,913 | ) | (1,558,587 | ) | (1,087,881 | ) | ||||||||
Net proceeds from sale of equipment | 13,380 | 140,159 | 238,682 | 69,853 | ||||||||||||
Business acquisition | (137,630 | ) | - | |||||||||||||
Changes in other assets | (3,641 | ) | (17 | ) | ||||||||||||
Business acquisitions | (85,000 | ) | (118,101 | ) | ||||||||||||
Net cash used in investing activities | (456,109 | ) | (358,771 | ) | (1,404,905 | ) | (1,136,129 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Payments on long-term debt | - | (350,000 | ) | |||||||||||||
Proceeds from revolving lines of credit and other | 2,108,891 | 1,087,164 | 2,093,600 | 1,035,200 | ||||||||||||
Payments on revolving lines of credit and other | (2,006,001 | ) | (1,152,465 | ) | (1,911,100 | ) | (735,200 | ) | ||||||||
Purchase of treasury stock | (179,813 | ) | (174,760 | ) | (135,036 | ) | (300,030 | ) | ||||||||
Stock option exercises and other | 1,100 | 1,342 | ||||||||||||||
Stock repurchased for payroll taxes | (19,167 | ) | (18,613 | ) | ||||||||||||
Tax benefit of stock options exercised | - | 6,532 | ||||||||||||||
Stock repurchased for payroll taxes and other | (18,356 | ) | (15,234 | ) | ||||||||||||
Dividends paid | (76,120 | ) | (74,477 | ) | (130,544 | ) | (125,228 | ) | ||||||||
Net cash used in financing activities | (171,110 | ) | (325,277 | ) | (101,436 | ) | (490,492 | ) | ||||||||
Net change in cash and cash equivalents | 1,330 | (85 | ) | 23,271 | (271,215 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 6,377 | 5,566 | 51,927 | 355,549 | ||||||||||||
Cash and cash equivalents at end of period | $ | 7,707 | $ | 5,481 | $ | 75,198 | $ | 84,334 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 24,641 | $ | 21,614 | $ | 56,189 | $ | 48,694 | ||||||||
Income taxes | $ | 187,313 | $ | 118,803 | $ | 115,145 | $ | 156,304 | ||||||||
Noncash investing activities | ||||||||||||||||
Accruals for equipment received | $ | 75,348 | $ | 70,903 |
See Notes to Condensed Consolidated Financial Statements. |
J.B. HUNT TRANSPORT SERVICES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. | General |
Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial StatementsStatements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. We believe such statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentationstatement of our financial position, results of operations and cash flows at the dates and for the periods indicated. Pursuant to the requirements of the Securities and Exchange Commission (SEC) applicable to quarterly reports on Form 10-Q,10-Q, the accompanying financial statements do not include all disclosures required by GAAP for annual financial statements. While we believe the disclosures presented are adequate to make the information not misleading, these unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K10-K for the year ended December 31, 2016. 2022. Operating results for the periods presented in this report are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2017, 2023, or any other interim period. Our business is somewhat seasonal with slightly higher freight volumes typically experienced during August through early November in our full-load freight transportation business.
Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired in a business combination. Goodwill and intangible assets with indefinite lives are not amortized. Goodwill is reviewed for potential impairment during the third quarter on an annual basis or, more frequently, if circumstances indicate a potential impairment is present. Intangible assets with definite lives are amortized on the straight-line method over the estimated useful lives of 5 to 8 years.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.2014-09, Revenue from Contracts with Customers, which supersedes virtually all existing revenue recognition guidance. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of ASU 2014-09,one year to interim and annual periods beginning after December 15, 2017. Early adoption is permitted after the original effective date of December 15, 2016.
To date, our implementation team has completed the process of contract review and documentation in accordance with the standard. We intend to adopt this new standard in the first quarter 2018, using the modified retrospective transition approach. We do not expect the standard to have a material impact on our financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a lease liability for most leases in the balance sheet as well as other qualitative and quantitative disclosures. ASU 2016-02 is to be applied using a modified retrospective method and is effective for interim and annual periods beginning after December 15, 2018, but early adoption is permitted. We are currently evaluating the potential effects of the adoption of this update on our financial statements.
Accounting Pronouncement Adopted in 2017
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which amended and simplified certain aspects of accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments were effective for interim and annual periods beginning after December 15, 2016. The application methods used in adoption varied with each component of the standard. We prospectively adopted ASU 2016-09 during the first quarter 2017, which, upon vesting of share-based awards, will result in the recognition of excess tax benefits or tax deficiencies from share-based compensation as a discrete item in our income tax expense. Historically, these amounts were recorded as additional paid-in capital. Effectively all of our outstanding share-based awards vest within the third quarter of the vesting year, and accordingly, we recognized an excess tax benefit of $4.5 million during the third quarter 2017. In addition, cash flows from excess tax benefits from share-based compensation, which historically have been reported as cash flows from financing activities are now reported, on a prospective basis, as cash flows from operating activities in our Condensed Consolidated Statement of Cash Flows. The remaining amendments within the standard had no impact on our Condensed Consolidated Financial Statements.
2. | Earnings Per Share |
We compute basic earnings per share by dividing net earnings available to common stockholders by the actual weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if holders of unvested restricted and performance share units or vested and unvested stock options exercised or converted their holdings into common stock. The dilutive effect of restricted and performance share units was 1.1 million and stock options was 0.91.0 million shares during the third quarter 2017,three and nine months ended September 30, 2023, compared to 0.71.2 million shares during third quarter 2016. During the three and nine months ended September 30, 2017 and 2016, the dilutive effect of restricted and performance share units and stock options was 1.1 million shares and 0.9 million shares, respectively.2022.
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The following table summarizes the components of our share-based compensation program expense (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Restricted share units: | Restricted share units: | Restricted share units: | ||||||||||||||||||||||||||||||
Pretax compensation expense | $ | 5,977 | $ | 5,390 | $ | 22,987 | $ | 22,298 | $ | 14,433 | $ | 14,655 | $ | 41,886 | $ | 42,550 | ||||||||||||||||
Tax benefit | 2,146 | 2,048 | 7,793 | 8,473 | 3,722 | 3,664 | 10,802 | 10,638 | ||||||||||||||||||||||||
Restricted share unit expense, net of tax | $ | 3,831 | $ | 3,342 | $ | 15,194 | $ | 13,825 | $ | 10,711 | $ | 10,991 | $ | 31,084 | $ | 31,912 | ||||||||||||||||
Performance share units: | Performance share units: | Performance share units: | ||||||||||||||||||||||||||||||
Pretax compensation expense | $ | 1,867 | $ | 1,868 | $ | 7,966 | $ | 7,875 | $ | 6,240 | $ | 5,498 | $ | 18,632 | $ | 17,187 | ||||||||||||||||
Tax benefit | 670 | 710 | 2,700 | 2,992 | 1,609 | 1,375 | 4,805 | 4,297 | ||||||||||||||||||||||||
Performance share unit expense, net of tax | $ | 1,197 | $ | 1,158 | $ | 5,266 | $ | 4,883 | $ | 4,631 | $ | 4,123 | $ | 13,827 | $ | 12,890 |
As of September 30, 2017, 2023, we had $55.0$69.1 million and $11.4$32.8 million of total unrecognized compensation expense related to restricted share units and performance share units, respectively, that is to be recognized over the remaining weighted average period of approximately 3.72.7 years for restricted share units and 2.3 years for performance share units. During the nine months ended September 30, 2017, 2023, we issued 379,161120,798 shares for vested restricted share units 155,867and 142,346 shares for vested performance share units. Of these totals, 364,538this total, 102,141 shares for vested restricted share units and 155,8673,465 shares for vested performance share units were issued during the third quarter 2017.2023.
4. | Financing Arrangements |
Outstanding borrowings, net of unamortized discount and unamortized debt issuance cost, under our current financing arrangements consist of the following (in millions):
September 30, 2017 | December 31, 2016 | September 30, 2023 | December 31, 2022 | |||||||||||||
Senior revolving line of credit | $ | 241.0 | $ | 139.0 | ||||||||||||
Senior credit facility | $ | 497.8 | $ | 314.7 | ||||||||||||
Senior notes | 843.8 | 847.3 | 947.8 | 947.0 | ||||||||||||
Less current portion of long-term debt | (249.9 | ) | - | |||||||||||||
Total long-term debt | $ | 1,084.8 | $ | 986.3 | $ | 1,195.7 | $ | 1,261.7 |
Senior Revolving LineCredit Facility of Credit
At September 30, 2017, 2023, we were authorized to borrow up to $500 million under$1.5 billion through a senior revolving line of credit and committed term loans, which is supported by a credit agreement with a group of banksbanks. The revolving line of credit authorizes us to borrow up to $1.0 billion under a five-year term expiring September 2027, and expires in September 2020. This senior credit facility allows us to request an increase in the revolving line of credit total commitment by up to $250$300 million and to request a one-year extensiontwo one-year extensions of the maturity date. The committed term loans authorized us to borrow up to an additional $500 million during the nine-month period beginning September 27, 2022, due September 2025, which we exercised in June 2023. The applicable interest raterates under this agreement isare based on either the PrimeSecured Overnight Financing Rate the Federal Funds(SOFR), or a Base Rate, or LIBOR, depending upon the specific type of borrowing, plus an applicable margin based on our credit rating and other fees. At September 30, 2017, 2023, we had $242.0no outstanding balance on the revolving line of credit and a $500.0 million outstanding balance of term loans, at an average interest rate of 2.25%6.43%, under this agreement.
SeniorSenior Notes
Our senior notes consist of threetwo separate issuances. The first and second issuances are $250 is $250 million of 2.40%3.85% senior notes due March 2019 and $250 million of 3.85% senior notes due March 2024, respectively, both of which were issued in March 2014. Interest payments under boththese notes are due semiannually in March and September of each year, beginning September 2014. The thirdsecond is $350$700 million of 3.30%3.875% senior notes due August 2022, March 2026, issued in August 2015. March 2019. Interest payments under this notethese notes are due semiannually in February March and August September of each year beginning February 2016. All threeSeptember 2019. Both senior notes were issued by J.B. Hunt Transport Services, Inc., a parent-level holding company with no significant tangible assets or operations. The notes are guaranteed on a full and unconditional basis by aour wholly-owned operating subsidiary. All other subsidiaries of the parent are minor. We registered these offerings and the sale of the notes under the Securities Act of 1933, pursuant to a shelf registration statementstatements filed in February 2014. All2014 and January 2019. Both notes are unsecured obligations and rank equally with our existing and future senior unsecured debt. We may redeem for cash some or all of the notes based on a redemption price set forth in the note indenture. See Note 5, Derivative Financial Instruments, for terms of interest rate swaps entered into on the $250 million of 2.40% senior notes due March 2019 and the $350 million of 3.30% senior notes due August 2022.
Our financing arrangements require us to maintain certain covenants and financial ratios. We were in compliance with all covenants and financial ratios at September 30, 2017.
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We periodically utilize derivative instruments for hedging and non-trading purposes to manage exposure to changes in interest rates and to maintain an appropriate mix of fixed and variable-rate debt. At inception of a derivative contract, we document relationships between derivative instruments and hedged items, as well as our risk-management objective and strategy for undertaking various derivative transactions, and assess hedge effectiveness. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively.
We entered into receive fixed-rate and pay variable-rate interest rate swap agreements simultaneously with the issuance of our $250 million of 2.40% senior notes due March 2019 and $350 million of 3.30% senior notes due August 2022, to effectively convert this fixed-rate debt to variable-rate. The notional amounts of these interest rate swap agreements equal those of the corresponding fixed-rate debt. The applicable interest rates under these agreements are based on LIBOR plus an established margin, resulting in an interest rate of 2.17% for our $250 million of 2.40% senior notes and 2.67% for our $350 million of 3.30% senior notes at September 30, 2017. The swaps expire when the corresponding senior notes are due. The fair values of these swaps are recorded in other long-term liabilities in our Condensed Consolidated Balance Sheet at September 30, 2016. See Note 7, Fair Value Measurements, for disclosure of fair value. These derivatives meet the required criteria to be designated as fair value hedges, and as the specific terms and notional amounts of these derivative instruments match those of the fixed-rate debt being hedged, these derivative instruments are assumed to perfectly hedge the related debt against changes in fair value due to changes in the benchmark interest rate. Accordingly, any change in the fair value of these interest rate swaps recorded in earnings is offset by a corresponding change in the fair value of the related debt.2023.
| Capital Stock |
On October 22,2015,July 20, 2022, our Board of Directors authorized the purchase of $500 million of our common stock. On April 20, 2017, our Board of Directors authorized an additional purchase of up to $500$500 million of our common stock. At September 30, 2017, $5212023, $416 million of the combined authorization wasthese authorizations were remaining. We did not purchase anypurchased approximately 765,000 shares, or $135.0 million, of our common stock under our repurchase authorization during the threenine months ended September 30, 2017. 2023, of which 267,000 shares, or $51.1 million, were purchased in third quarter 2023. On July 20, 2017, our Board of Directors declared a regular quarterly cash dividend of $0.23, which was paid August 18, 2017, to stockholders of record on August 7, 2017. On October 19, 2017, 2023, our Board of Directors declared a regular quarterly dividend of $0.23$0.42 per common share, which was paid on August 18, 2023, to stockholders of record on August 4, 2023. On October 19, 2023, our Board of Directors declared a regular quarterly dividend of $0.42 per common share, which will be paid on November 17, 2017, 24, 2023, to stockholders of record on November 3, 2017.10, 2023.
| Fair Value Measurements |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our assetsassets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1)1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2)2).
Assets Measured at Fair Value on a Recurring Basis
The following are assets and liabilitiesare measured at fair value on a recurring basis at September 30, 2017 (in(in millions):
Asset/(Liability) Balance | Input Level | |||||||
Trading investments | $ | 15.9 | 1 | |||||
Interest rate swaps | $ | (1.5 | ) | 2 | ||||
Senior notes | $ | (595.3 | ) | 2 |
Asset Balance | ||||||||||||
September 30, 2023 | December 31, 2022 | Input Level | ||||||||||
Trading investments | $ | 29.1 | $ | 25.1 | 1 |
The fair value of trading investments has been measured using the market approach (Level 1)1) and reflectreflects quoted market prices. The fair values of interest rate swaps and corresponding senior notes have been measured using the income approach (Level 2), which include relevant interest rate curve inputs. Trading investments are classified in other assets and the interest rate swaps are classified in other long-term liabilities in our Condensed Consolidated Balance Sheet. The senior notes are classified in long-term debt in our Condensed Consolidated Balance Sheet.Sheets.
Financial Instruments
The carrying amount of our senior credit facility and senior notes was $1.45 billion and $1.26 billion at September 30, 2023 and December 31, 2022, respectively. The estimated fair value at September 30, 2017, of these liabilities using the income approach (Level 2)2), based on their net present value, discounted at our current borrowing rate, of our senior revolving line of creditwas $1.42 billion and remaining senior notes not measured$1.24 billion at fair value on a recurring basis, were $489.5 millionSeptember 30, 2023 and $504.0 million,December 31, 2022, respectively.
The carrying amounts of allall other instruments at September 30, 2017, 2023, approximate their fair value due to the short maturity of these instruments.
| Income Taxes |
Our effective income tax rate was 35.9%18.2% for the three months ended September 30, 2017, 2023, compared to 38.0%22.7% for the three months ended September 30, 2016. 2022. Our effective income tax rate was 33.9%23.2% for the firstnine months of 2017,2023, compared to 38.0%24.0% in 2016.2022. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits. Income tax expense for the firstnine months of 2017 included a one-time after-tax benefit of $13.6 million for the claiming of federal research and development tax credits and domestic production tax deductions for the 2012 through 2016 tax years, recorded in the first quarter of 2017. In addition, an after-tax benefit of $4.5 million for stock compensation tax benefits and a one-time after-tax cost of $1.5 million for state income tax rate changes, were both recorded in the third quarter 2017.
At September 30, 2017, 2023, we had a total of $35.6$81.3 million in gross unrecognized tax benefits, which are a component of other long-term liabilities on our Condensed Consolidated Balance Sheets. Of this amount, $23.2$65.5 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate. The total amount of accrued interest and penalties for such unrecognized tax benefits was $5.8$9.3 million at September 30, 2017.2023.
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As the result of state use tax audits, we have been assessed amounts owed from which we are vigorously appealing. We arehave recorded a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the first half of 2014, the District Court in the lead class-action granted judgment in our favor with regard to all claims. The plaintiffs appealed the case to the United States Court of Appealsliability for the Ninth Circuit. On July 31, 2017, the Ninth Circuit issued a Memorandum decision vacating the judgment in our favorestimated probable exposure under these audits and remanding the case to the District Court for further proceedings. We filed a Petition for Rehearing En Banc with the Ninth Circuit, which is currently pending. The overlapping claims in the other lawsuits remain stayed pending finalawait resolution of the appellate process or a final decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits.matter.
In January 2017, we exercised our rightWe purchase insurance coverage for a portion of expenses related to utilize the arbitration processvehicular collisions and accidents. These policies include a level of self-insurance (deductible) coverage applicable to review the division of revenue collected beginning May 1, 2016, each claim as well as certain coverage-layer-specific, aggregated reimbursement limits of covered excess claims. Our claims from time to clarify other issues, under our Joint Service Agreement with BNSF Railway Company (BNSF). BNSF has requestedtime exceed some of these existing coverage layer aggregate reimbursement limits, and accordingly, we have recorded a liability for the same, and the arbitration process has commenced. BNSF provides a significant amount of rail transportation services to our JBI business segment. At this time, we are unable to reasonably predict the outcome of the arbitration, and, as such, no gain or loss contingency can be determined or recorded. Normal commercial business activity between the parties, including load tendering, load tracing, billing and payments, is expected to continue on a timely basis.estimated probable exposure for these occurrences.
We are involved in certain other claims and pending litigation arising from the normal conduct of business. Based on present knowledge of the facts and, in certain cases, opinions of outside counsel, we believe the resolution of these claims and pending litigation will not have a material adverse effect on our financial condition, results of operations or liquidity.
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On July 20, 2017, September 14, 2023, we entered into an asset purchase agreement to acquire Specialsubstantially all of the brokerage assets and assume certain specified liabilities of BNSF Logistics, Dedicated, LLC (SLD)(BNSFL), and its affiliated entities,an affiliate of Burlington Northern Santa Fe, LLC, subject to customary closing conditions. The purchase price was $136.0 million with no assumption of debt. The closing of the transaction was effective on July 31, 2017. TotalSeptember 30, 2023, with a purchase price and total consideration paid in cash under the SLD agreement was $137.6 million and consisted of the agreed upon purchase price adjusted for an estimated working capital adjustment and cash acquired. In addition, we$85.0 million. Transaction costs incurred approximately $3.0 million in transaction costs which are recorded in general and administrative expenses, net of asset dispositions in our Condensed Consolidated Statements of Earnings.were not material. The SLDBNSFL acquisition was accounted for as a business combination.combination and will operate within our Integrated Capacity Solutions business segment. Assets acquired and liabilities assumed were recorded in our Condensed Consolidated Balance Sheet at their estimated fair values, as of the closing date, using cost, market data and valuation techniques that reflect management’s judgment and estimates. As a result of the acquisition, we recorded approximately $60$41.9 million of definite-lived intangible assets and approximately $56$12.4 million of goodwill. Goodwill consists of acquiring and retaining the SLDBNSFL existing brokerage network and expected synergies from the combination of operations. The following table outlines the consideration transferred and preliminary purchase price allocation at their respective estimated fair values as of July 31, 2017 (inSeptember 30, 2023 (in millions):
Consideration | $ | 85.0 | ||
Accounts receivable | 66.3 | |||
Other current assets | 1.8 | |||
Property and equipment | 14.5 | |||
Other assets | 0.1 | |||
Right-of-use assets | 9.1 | |||
Intangibles | 41.9 | |||
Accounts payable and accrued liabilities | (52.0 | ) | ||
Lease liabilities | (9.1 | ) | ||
Goodwill | $ | 12.4 |
Consideration | $ | 137.6 | ||
Accounts receivable | 9.4 | |||
Other current assets | 1.5 | |||
Property and equipment | 14.9 | |||
Intangibles | 60.2 | |||
Accounts payable | (3.9 | ) | ||
Accrued Liabilities | (0.2 | ) | ||
Goodwill | $ | 55.7 |
As of September 30, 2017, the purchase price allocation is considered preliminary, subject to revision, as valuation procedures and tax considerations are completed.
| Goodwill |
As discussed in Note 10,9, Acquisitions, in third quarter 2017,2023, we recorded additional goodwill of approximately $56$12.4 million and definite-livedadditional finite-lived intangible assets of approximately $60$41.9 million in connection with the SLDBNSFL acquisition. AllTotal goodwill was $132.8 million and $120.4 million at September 30, 2023, and December 31, 2022, respectively. At September 30, 2023, $111.6 million, $12.4 million and $8.8 million of our goodwill was assigned to our Dedicated ContractFinal Mile Services®, Integrated Capacity Solutions and Intermodal business segment. There has been no change in the carrying amount orsegments, respectively. No impairment losses have been recorded for goodwill as of September 30, 2017. 2023. Prior to the BNSFL acquisition, our intangible assets consisted of those arising from previous business acquisitions within our Final Mile Services and Intermodal business segments. Identifiable intangible assets consist of the following (in millions):
September 30, 2017 | Weighted Average Amortization Period | Weighted Average | ||||||||||||||||||
Definite-lived intangibles: | ||||||||||||||||||||
September 30, | December 31, | Amortization | ||||||||||||||||||
2023 | 2022 | Period | ||||||||||||||||||
Finite-lived intangibles: | ||||||||||||||||||||
Customer relationships | $ | 210.4 | $ | 169.0 | 10.7 | |||||||||||||||
Non-competition agreements | $ | 0.2 | 5 | 10.1 | 9.6 | 6.1 | ||||||||||||||
Customer relationships | 60.0 | 8 | ||||||||||||||||||
Total definite-lived intangibles | 60.2 | |||||||||||||||||||
Trade names | 6.4 | 6.4 | 2.1 | |||||||||||||||||
Total finite-lived intangibles | 226.9 | 185.0 | ||||||||||||||||||
Less accumulated amortization | (1.5 | ) | (83.7 | ) | (69.1 | ) | ||||||||||||||
Total identifiable intangible assets, net | $ | 58.7 | ||||||||||||||||||
Total identifiable intangible assets, net | $ | 143.2 | $ | 115.9 |
At September 30, 2017, accumulated amortization consists of $1.5 million. Our definite-livedfinite-lived intangible assets have no assigned residual values.
Intangible asset amortization expense was $1.5$4.9 million forduring the three and third quarter 2023, compared to $4.8 million during third quarter 2022. During the nine months ended September 30, 2017. 2023 and 2022, intangible asset amortization expense was $14.6 million and $13.4 million, respectively. Estimated amortization expense for our definite-livedfinite-lived intangible assets is expected to be approximately $7.5$20.5 million annually.for 2023, $22.6 million for 2024, $22.3 million for 2025, $21.5 million for 2026, and $17.6 million for 2027. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment or accelerated amortization of intangible assets, and other events.
| Business Segments |
We reported fourfive distinct business segments during the three and nine months ended September 30, 2017 2023 and 2016.2022. These segments included Intermodal (JBI), Dedicated Contract Services® (DCS)(DCS®), Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload (JBT). The operation of each of these businesses is described in Note 11,13, Segment Information,, of our Annual Report (Form 10-K)10-K) for the year ended December 31, 2016. 2022.
On January 1, 2023, we transferred the majority of the company owned trucking operations in our JBT business segment to our DCS business segment and transferred our less-than-truckload brokerage operations from our ICS business segment to our FMS business segment. Accordingly, the prior period segment information reported below has been reclassified to conform to the current period presentation. These reclassifications have no impact on our historical consolidated balance sheets, statements of earnings or cash flows.
A summary of certain segment information is presented below (in millions):
Assets (Excludes intercompany accounts) As of | ||||||||
September 30, 2023 | December 31, 2022 | |||||||
JBI | $ | 3,441 | $ | 3,270 | ||||
DCS | 2,359 | 1,952 | ||||||
ICS | 370 | 311 | ||||||
FMS | 627 | 620 | ||||||
JBT | 452 | 474 | ||||||
Other (includes corporate) | 1,124 | 1,160 | ||||||
Total | $ | 8,373 | $ | 7,787 |
Operating Revenues | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
JBI | $ | 1,555 | $ | 1,837 | $ | 4,584 | $ | 5,273 | ||||||||
DCS | 892 | 931 | 2,659 | 2,611 | ||||||||||||
ICS | 298 | 575 | 1,026 | 1,840 | ||||||||||||
FMS | 226 | 265 | 675 | 775 | ||||||||||||
JBT | 196 | 237 | 594 | 694 | ||||||||||||
Subtotal | 3,167 | 3,845 | 9,538 | 11,193 | ||||||||||||
Inter-segment eliminations | (3 | ) | (7 | ) | (12 | ) | (29 | ) | ||||||||
Total | $ | 3,164 | $ | 3,838 | $ | 9,526 | $ | 11,164 |
Assets (Excludes intercompany accounts) As of | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
JBI | $ | 2,077 | $ | 2,032 | ||||
DCS | 1,138 | 951 | ||||||
ICS | 182 | 136 | ||||||
JBT | 262 | 279 | ||||||
Other (includes corporate) | 395 | 431 | ||||||
Total | $ | 4,054 | $ | 3,829 |
Operating Income/(Loss) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
JBI | $ | 128.0 | $ | 217.0 | $ | 439.5 | $ | 620.5 | ||||||||
DCS | 102.4 | 107.2 | 318.6 | 281.0 | ||||||||||||
ICS | (9.4 | ) | 13.4 | (19.2 | ) | 60.8 | ||||||||||
FMS | 13.0 | 9.8 | 34.4 | 23.6 | ||||||||||||
JBT | 7.7 | 14.9 | 16.5 | 63.9 | ||||||||||||
Other (includes corporate) | - | (0.1 | ) | 0.1 | (0.2 | ) | ||||||||||
Total | $ | 241.7 | $ | 362.2 | $ | 789.9 | $ | 1,049.6 |
Depreciation and Amortization Expense | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
JBI | $ | 64.7 | $ | 58.0 | $ | 188.8 | $ | 165.9 | ||||||||
DCS | 84.8 | 71.5 | 240.5 | 205.6 | ||||||||||||
FMS | 11.9 | 11.4 | 35.8 | 32.1 | ||||||||||||
JBT | 10.9 | 9.1 | 32.8 | 24.7 | ||||||||||||
Other (includes corporate) | 15.4 | 16.6 | 45.6 | 44.6 | ||||||||||||
Total | $ | 187.7 | $ | 166.6 | $ | 543.5 | $ | 472.9 |
Operating Revenues | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
JBI | $ | 1,048 | $ | 970 | $ | 2,987 | $ | 2,798 | ||||||||
DCS | 438 | 394 | 1,242 | 1,135 | ||||||||||||
ICS | 269 | 233 | 701 | 620 | ||||||||||||
JBT | 93 | 97 | 281 | 291 | ||||||||||||
Subtotal | 1,848 | 1,694 | 5,211 | 4,844 | ||||||||||||
Inter-segment eliminations | (5 | ) | (3 | ) | (12 | ) | (10 | ) | ||||||||
Total | $ | 1,843 | $ | 1,691 | $ | 5,199 | $ | 4,834 |
Operating Income | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
JBI | $ | 109.1 | $ | 116.9 | $ | 314.1 | $ | 325.6 | ||||||||
DCS | 42.9 | 52.5 | 136.2 | 147.7 | ||||||||||||
ICS | 7.3 | 8.5 | 11.5 | 30.2 | ||||||||||||
JBT | 5.7 | 5.1 | 16.2 | 23.1 | ||||||||||||
Other (includes corporate) | - | - | - | 0.1 | ||||||||||||
Total | $ | 165.0 | $ | 183.0 | $ | 478.0 | $ | 526.7 |
Depreciation and Amortization Expense | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
JBI | $ | 40.4 | $ | 40.3 | $ | 121.2 | $ | 119.4 | ||||||||
DCS | 40.4 | 35.8 | 114.1 | 106.3 | ||||||||||||
ICS | 0.3 | 0.1 | 0.9 | 0.3 | ||||||||||||
JBT | 10.2 | 10.1 | 30.7 | 30.4 | ||||||||||||
Other (includes corporate) | 4.7 | 4.7 | 14.3 | 13.3 | ||||||||||||
Total | $ | 96.0 | $ | 91.0 | $ | 281.2 | $ | 269.7 |
ITEM 2. MANAGEMENT’S’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should refer to the attached interim Condensed Consolidated Financial Statements and related notes and also to our Annual Report (Form 10-K) for the year ended December 31, 2016,2022, as you read the following discussion. We may make statements in this report that reflect our current expectation regarding future results of operations, performance, and achievements. These are “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995 and are based on our belief or interpretation of information currently available. YouWhen we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “goals,” “strategy,” “future,” “predict,” “seek,” “estimate,” “likely,” “could,” “should,” “would,” and similar expressions, you should realize thereconsider them as identifying forward-looking statements, although we may use other phrasing. Forward-looking statements are manyinherently uncertain, subject to risks, and uncertaintiesshould be viewed with caution. These statements are based on our belief or interpretation of information currently available. Stockholders and prospective investors are cautioned that could cause actual results toand future events may differ materially from those described.these forward-looking statements as a result of many factors. Some of the factors and events that are not within our control and that could have a significantmaterial impact on future operating results areinclude the following: general economic conditions,and business conditions; potential business or operational disruptions resulting from the effects of a national or international health pandemic; competition and competitive rate fluctuations; excess capacity in the intermodal or trucking industries; a loss of one or more major customers; cost and availability of diesel fuel; interference with or termination of our relationships with certain railroads, costrailroads; rail service delays; disruptions to U.S. port-of-call activity; ability to attract and availabilityretain qualified drivers, delivery personnel, independent contractors, and third-party carriers; retention of fuel, accidents,key employees; insurance costs and availability; litigation and claims expense; determination that independent contractors are employees; new or different environmental or other laws and regulations; volatile financial credit markets or interest rates; terrorist attacks or actions; acts of war; adverse weather conditions,conditions; disruption or failure of information systems; inability to keep pace with technological advances affecting our information technology systems, competitive rate fluctuations,platforms; operational disruption or adverse effects of business acquisitions; increased costs for and availability of drivers, adverse legal decisionsnew revenue equipment; increased tariffs assessed on or disruptions in the procurement of imported revenue equipment; decreases in the value of used equipment; and audits or tax assessmentsthe ability of various federal, state, or local taxing authorities.revenue equipment manufacturers to perform in accordance with agreements for guaranteed equipment trade-in values. Additionally, our business is somewhat seasonal with slightly higher freight volumes typically experienced during August through early November in our full-load transportation business. You should also refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2016,2022, for additional information on risk factors and other events that are not within our control. Our future financial and operating results may fluctuate as a result of these and other risk factors as described from time to time in our filings with the SEC. We assume no obligation to update any forward-looking statement to the extent we become aware that it will not be achieved for any reason.
GENERAL
We are one of the largest surface transportation, delivery, and logistics companies in North America. We operate fourfive distinct, but complementary, business segments and provide a wide range of reliable transportation, brokerage, and delivery services to a diverse group of customers and consumers throughout the continental United States, Canada, and Mexico. Our service offerings include transportation of full-truckload containerized freight, which we directly transport utilizing our company-controlled revenue equipment and company drivers, independent contractors, or independent contractors.third-party carriers. We have arrangements with most of the major North American rail carriers to transport freight in containers or trailers, while we perform the majority of the pickup and delivery services. We also provide customized freight movement, revenue equipment, labor, systems, and delivery services that are tailored to meet individual customers’ requirements and typically involve long-term contracts. These arrangements are generally referred to as dedicated services and may include multiple pickups and drops, local and home deliveries, freight handling, specialized equipment, and freight network design. OurIn addition, we provide or arrange for local and home delivery services, typically are providedgenerally referred to as last-mile delivery services, to customers through a network of cross-dock service centersand other delivery system locations throughout the continental United States. Utilizing a network of thousands of reliable third-party carriers, we also provide comprehensive freight transportation brokerage and logistics services. In addition to dry-van, full-load operations, we also arrange for these unrelated outside carriers alsoto provide flatbed, refrigerated, less-than-truckload (LTL), and other specialized equipment, drivers, and services. Also, we utilize a combination of company-owned and contracted power units to provide traditional over-the-road full truckload delivery services. Our customers, who include many Fortune 500 companies, have extremely diverse businesses. Many of them are served by J.B. Hunt 360°®, an online platform that offers shippers and carriers greater access, visibility and transparency of the supply chain. We account for our business on a calendar year basis, with our full year ending on December 31 and our quarterly reporting periods ending on March 31, June 30, and September 30. The operation of each of our fourfive business segments is described in Note 11, Business Segments, in our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and in Note 13, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2016.2022.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that impact the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenues, expenses, and associated disclosures of contingent liabilities are affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position, or results of operations resulting from revisions to these estimates are recognized in the accounting period in which the facts that give rise to the revision become known.
Information regarding our Critical Accounting Policies and Estimates can be found in our Annual Report (Form 10-K). The critical accounting policies that we believe require us to make more significant judgments and estimates when we prepare our financial statements include those relating to self-insurance accruals, revenue equipment, revenue recognition and income taxes, goodwill, and other intangible assets.taxes. We have discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors. In addition, Note 2, Summary of Significant Accounting Policies, to the financial statements in our Annual Report (Form 10-K) for the year ended December 31, 2016,2022, contains a summary of our critical accounting policies. Note 1, General, to the financial statements in this quarterly report contains any subsequent updates to this summary. There have been no material changes to the methodology we apply for critical accounting estimates as previously disclosed in our Annual Report on Form 10-K, with the exception of that disclosed in Note 1, General, to the financial statements in this quarterly report.10-K.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2017 to Three Months Ended September 30, 20162023 to Three Months Ended September 30, 2022
Summary of Operating Segment Results For the Three Months Ended September 30, ( in millions) | Summary of Operating Segment Results For the Three Months Ended September 30, (in millions) | |||||||||||||||||||||||||||||||
Operating Revenues | Operating Income | Operating Revenues | Operating Income/(Loss) | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
JBI | $ | 1,048 | $ | 970 | $ | 109.1 | $ | 116.9 | $ | 1,555 | $ | 1,837 | $ | 128.0 | $ | 217.0 | ||||||||||||||||
DCS | 438 | 394 | 42.9 | 52.5 | 892 | 931 | 102.4 | 107.2 | ||||||||||||||||||||||||
ICS | 269 | 233 | 7.3 | 8.5 | 298 | 575 | (9.4 | ) | 13.4 | |||||||||||||||||||||||
FMS | 226 | 265 | 13.0 | 9.8 | ||||||||||||||||||||||||||||
JBT | 93 | 97 | 5.7 | 5.1 | 196 | 237 | 7.7 | 14.9 | ||||||||||||||||||||||||
Other (includes corporate) | - | - | - | - | - | - | - | (0.1 | ) | |||||||||||||||||||||||
Subtotal | 1,848 | 1,694 | 165.0 | 183.0 | 3,167 | 3,845 | 241.7 | 362.2 | ||||||||||||||||||||||||
Inter-segment eliminations | (5 | ) | (3 | ) | - | - | ||||||||||||||||||||||||||
Inter-Segment eliminations | (3 | ) | (7 | ) | - | - | ||||||||||||||||||||||||||
Total | $ | 1,843 | $ | 1,691 | $ | 165.0 | $ | 183.0 | $ | 3,164 | $ | 3,838 | $ | 241.7 | $ | 362.2 |
Total consolidated operating revenues were $1.84decreased to $3.16 billion for the third quarter 2017, compared to $1.692023, an 18% decrease from $3.84 billion forin the third quarter 2016. Current2022. This decrease was primarily the result of decreased revenue per load in JBI and JBT, lower volumes in ICS, a decline in stop count in FMS, and a reduction in DCS average revenue producing trucks when compared to the third quarter total2022. These items were partially offset by increased volumes in JBI and JBT in the current quarter. Total consolidated operating revenue, excluding fuel surcharge revenue, decreased 15%.
JBI segment revenue decreased 15% to $1.56 billion during the third quarter 2023, compared with $1.84 billion in 2022. Load volumes during the third quarter 2023 increased 1% over the same period 2022. Transcontinental loads increased 4%, while eastern network load volume was down 3% when compared to the third quarter 2022. Revenue per load, which is determined by the combination of customer rates, fuel surcharges and freight mix, decreased 16% during the third quarter 2023. Revenue per load, excluding fuel surcharge revenue, decreased 14% compared to the third quarter 2022. JBI segment operating income decreased 41%, to $128.0 million in the third quarter 2023, from $217.0 million in 2022. The decrease is primarily due to the decrease in revenue and higher driver and non-driver wages and increased 8% versusequipment-related and maintenance costs as a percentage of gross revenue. The current quarter ended with approximately 117,400 units of trailing capacity and 6,400 power units assigned to the comparabledray fleet.
DCS segment revenue decreased 4% to $892 million in the third quarter 2023 from $931 million in 2016.2022. Productivity, defined as revenue per truck per week, decreased 2% when compared to the third quarter 2022. Productivity excluding fuel surcharge revenue increased 2%, primarily due to contractual index-based rate increases. On a net basis, revenue-producing trucks in the fleet at the end of the third quarter 2023 decreased 370 compared to the prior year period. DCS segment operating income decreased 4% to $102.4 million in the third quarter 2023, from $107.2 million in 2022. The decrease is primarily due to increased equipment-related and maintenance costs, higher insurance and claims expense and an increase in loss on sale of equipment, partially offset by the maturing of new long-term customer contracts when compared to the third quarter 2022.
ICS segment revenue decreased 48% to $298 million in the third quarter 2023, from $575 million in 2022. Overall volumes decreased 38% compared to the third quarter 2022, while revenue per load decreased 17%, primarily due to lower contractual and spot rates as well as changes in customer freight mix. Contractual business represented approximately 68% of total load volume and 67% of total revenue in the third quarter 2023, compared to 49% and 52%, respectively, in 2022. Approximately $169 million of third quarter 2023 ICS revenue was executed through the Marketplace for J.B. Hunt 360 compared to $391 million in the third quarter 2022. ICS segment had an operating loss of $9.4 million in the third quarter 2023, compared to operating income of $13.4 million in 2022. The decrease is primarily due to lower revenue and a 53% decrease in gross profit, partially offset by lower personnel salary and wages expense and decreased technology cost. Gross profit margin decreased to 12.8% in the third quarter 2023, compared to 14.2% in 2022. ICS’s carrier base decreased 17% compared to third quarter 2022, primarily due to changes in carrier qualification requirements.
FMS segment revenue decreased 15% to $226 million in the third quarter 2023 from $265 million in 2022, primarily due to decreased customer demand and the effects of internal efforts to improve revenue quality across certain accounts, partially offset by the addition of multiple new customer contracts implemented over the past year and improved revenue quality at underperforming accounts. FMS segment operating income increased to $13.0 million in the third quarter of 2023 compared to $9.8 million in 2022. This increase was primarily due to load growth of 6% in JBI, improved asset productivity and a 14% increaseimprovements in revenue producing trucksquality and overall cost management, partially offset by higher equipment-related and maintenance expenses, increased technology costs, and inflationary increases in DCS, andfacility rental expenses compared to the third quarter 2022.
JBT segment revenue totaled $196 million for the third quarter 2023, a decrease of 17% increasefrom $237 million in third quarter 2022. Revenue excluding fuel surcharge decreased 18% primarily due to a 22% decrease in revenue per load in ICS,excluding fuel surcharge revenue, partially offset by a 7% decrease in load count in JBT and overall operating disruptions caused by hurricanes Harvey, Irma and Maria.
JBI segment revenue increased 8% to $1.05 billion during the third quarter 2017, compared with $970 million in 2016. This increase in segment revenue was primarily a result of a 6% increase in load volume compared to third quarter 2022. Load volume growth was primarily related to the expansion of J.B. Hunt 360box®, which leverages the J.B. Hunt 360 platform to provide customers access to drop-trailer capacity across our transportation network. JBT average effective trailer count increased to 12,869 in the third quarter 2023, compared to 10,938 in 2022. At the end of the third quarter 2023, the JBT power fleet consisted of 1,989 tractors, predominantly independent contractors, compared to 2,140 tractors at September 30, 2022. Trailer turns in the third quarter of 2023 decreased 9% compared to third quarter 2022 due to freight mix and the decrease in freight demand. JBT segment operating income decreased to $7.7 million in 2023, compared with $14.9 million during third quarter 2022. The decrease is primarily due to the decrease in revenue and higher network, technology, insurance, and equipment-related costs as a 2%percentage of gross revenue.
Consolidated Operating Expenses
The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.
Three Months Ended September 30, | ||||||||||||
Dollar Amounts as a Percentage of Total Operating Revenues | Percentage Change of Dollar Amounts Between Quarters | |||||||||||
2023 | 2022 | 2023 vs. 2022 | ||||||||||
Total operating revenues | 100.0 | % | 100.0 | % | (17.6 | )% | ||||||
Operating expenses: | ||||||||||||
Rents and purchased transportation | 45.6 | 49.3 | (23.7 | ) | ||||||||
Salaries, wages and employee benefits | 25.4 | 23.1 | (9.5 | ) | ||||||||
Fuel and fuel taxes | 6.2 | 6.3 | (19.2 | ) | ||||||||
Depreciation and amortization | 5.9 | 4.3 | 12.7 | |||||||||
Operating supplies and expenses | 4.1 | 3.6 | (5.4 | ) | ||||||||
Insurance and claims | 2.0 | 1.6 | 4.1 | |||||||||
General and administrative expenses, net of asset dispositions | 2.3 | 1.8 | 10.5 | |||||||||
Operating taxes and licenses | 0.6 | 0.4 | 9.7 | |||||||||
Communication and utilities | 0.3 | 0.2 | 13.0 | |||||||||
Total operating expenses | 92.4 | 90.6 | (15.9 | ) | ||||||||
Operating income | 7.6 | 9.4 | (33.3 | ) | ||||||||
Net interest expense | 0.4 | 0.3 | (7.2 | ) | ||||||||
Earnings before income taxes | 7.2 | 9.1 | (34.3 | ) | ||||||||
Income taxes | 1.3 | 2.1 | (47.4 | ) | ||||||||
Net earnings | 5.9 | % | 7.0 | % | (30.4 | )% |
Total operating expenses decreased 15.9%, while operating revenues decreased 17.6% during the third quarter 2023, from the comparable period 2022. Operating income decreased to $241.7 million during the third quarter 2023 from $362.2 million in 2022.
Rents and purchased transportation costs decreased 23.7% in the third quarter 2023. This decrease was primarily the result of a decrease in rail and truck carrier purchased transportation rates within JBI, ICS and JBT segments and decreased ICS load volume, which decreased services provided by third-party truck carriers during the third quarter 2023 compared to 2022.
Salaries, wages and employee benefits costs decreased 9.5% during the third quarter 2023, compared with 2022. This decrease was primarily driven by a decrease in employee headcounts and lower incentive compensation.
Fuel costs decreased 19.2% in the third quarter 2023, compared with 2022, due primarily to a decrease in the price of fuel and decreased road miles. Depreciation and amortization expense increased 12.7% in third quarter 2023, primarily due to equipment purchases related to new DCS long-term customer contracts, the addition of trailing equipment within our JBI and JBT segments, and increased truck and tractor trades.
Operating supplies and expenses decreased 5.4%, driven primarily by lower equipment maintenance costs and lower travel and entertainment expenses. Insurance and claims expenses increased 4.1% in 2023 compared with 2022, primarily due to increased cost per claim and higher insurance policy premium expense. General and administrative expenses increased 10.5% for the current quarter from the comparable period in 2022, primarily due to a decrease in net gains from sale or disposal of assets and an increase in building and yard rentals, partially offset by lower advertising costs and professional service expenses. Net loss from sale or disposal of assets was $7.7 million in 2023, compared to a net gain from sale or disposal of assets of $0.3 million in 2022.
Net interest expense decreased 7.2% in the third quarter 2023 primarily due to the interest component of a discrete income tax benefit recognized in the current quarter, partially offset by an increase in our average debt balance and effective interest rates on our debt compared to third quarter 2022. Income tax expense decreased 47.4% in the third quarter 2023, compared with 2022, primarily due to lower taxable earnings and the recording of a discrete benefit in the current quarter. Our effective income tax rate was 18.2% for the third quarter of 2023, compared to 22.7% in 2022. Our annual tax rate for 2023 is expected to be between 22.0% and 23.0%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.
Comparison of Nine Months Ended September 30, 2023 to Nine Months Ended September 30, 2022
Summary of Operating Segment Results For the Nine Months Ended September 30, (in millions) | ||||||||||||||||
Operating Revenues | Operating Income/(loss) | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
JBI | $ | 4,584 | $ | 5,273 | $ | 439.5 | $ | 620.5 | ||||||||
DCS | 2,659 | 2,611 | 318.6 | 281.0 | ||||||||||||
ICS | 1,026 | 1,840 | (19.2 | ) | 60.8 | |||||||||||
FMS | 675 | 775 | 34.4 | 23.6 | ||||||||||||
JBT | 594 | 694 | 16.5 | 63.9 | ||||||||||||
Other (includes corporate) | - | - | 0.1 | (0.2 | ) | |||||||||||
Subtotal | 9,538 | 11,193 | 789.9 | 1,049.6 | ||||||||||||
Inter-segment eliminations | (12 | ) | (29 | ) | - | - | ||||||||||
Total | $ | 9,526 | $ | 11,164 | $ | 789.9 | $ | 1,049.6 |
Total consolidated operating revenues decreased to $9.53 billion for the first nine months of 2023, a 15% decrease from $11.16 billion for the comparable period 2022. Fuel surcharge revenue decreased to $1.39 billion during the first nine months of 2023, compared with $1.80 billion in 2022. Total consolidated operating revenue, excluding fuel surcharge revenue, decreased 13% for the first nine months of 2023 compared to the prior year period.
JBI segment revenue decreased 13% to $4.58 billion during the first nine months of 2023, compared with $5.27 billion in 2022. Load volume during the first nine months of 2023 decreased 4% and revenue per load decreased 10%, which is determined by the combination of changes in freight mix, customer rates,rate changes, and fuel surcharge revenue, compared to a year ago. Revenue per load, excluding fuel surcharges was flatsurcharge revenue, decreased 7% compared to third quarter 2016. Load volume in our eastern network increased 2%, and transcontinental loads grew 8% over the third quarter 2016. Operating incomefirst nine months of our2022. JBI segment operating income decreased 7%29% to $109.1$439.5 million in 2017,the first nine months of 2023, from $116.9$620.5 million in 2016. Benefits2022. The decrease is primarily due to decreased revenue and lower net gains from volume growth werethe sale of equipment, together with higher driver and non-driver wages and increased network and equipment-related costs as a percentage of gross revenue during the first nine months of 2023, partially offset by higher driver wagelower rail and retention expenses, increased insurance and claims costs, increased railthird-party dray purchased transportation rates, increases in costs from inefficiencies due to rail congestion, rail rationalization, equipment ownership costs, and operating disruptions caused by hurricanes.expense.
DCS segment revenue increased 11%2%, to $438 million in 2017, from $394 million in 2016. This increase in segment revenue was due to better integration of assets between customer accounts and customer rate increases, partially offset by lower productivity at new customer accounts implemented$2.66 billion during the current quarter.first nine months of 2023, from $2.61 billion in 2022. Productivity, defined as revenue per truck per week increased 2% in the third quarter 2017, whendecreased 1% compared to the same period in 2016.first nine months of 2023. Productivity excluding fuel surcharge was flatrevenue for the first nine months of 2023 increased 3% from a year ago. A net additional 1,024 revenue producing trucks wereThe increase in the fleet by the endproductivity was primarily due to contractual index-based rate increases and improved utilization of equipment during the current quarter compared to prior year, primarily from private fleet conversions in the current and prior periods. Customer retention rates remain above 98%.period. Operating income of our DCS segment decreased 18%increased to $42.9$318.6 million in 2017,the first nine months of 2023, from $52.5$281.0 million in 2016.2022. The decreaseincrease is primarily due to increased revenue and the timing between increasedmaturing of new long-term customer contracts, partially offset by higher driver and non-driver wages and their subsequent recovery through customer contracts,benefits, increased driver recruitingequipment-related and maintenance costs, increasedhigher insurance and claims costs, increased salariesexpense and benefits costs, higheran increase in loss on sale of equipment, ownership costs and operating disruptions caused by hurricanes. In addition, DCS incurred approximately $4.5 million in acquisition costs and intangible asset amortization associated withwhen compared to the purchasefirst nine months of SLD, which closed during the third quarter 2017.2022.
ICS segment revenue increased 16%decreased 44% to $269 million$1.03 billion during the first nine months of 2023, from $1.84 billion in the third quarter 2017, from $233 million in the third quarter 2016. Revenue2022. Overall volumes decreased 30%, while revenue per load increased 17%,decreased 21% primarily from increased spot market activity which created a more favorable balance betweendue to lower contractual and spot revenue. Overall volumesrates as well as changes in customer freight mix compared to 2022. Approximately $644 million of ICS revenue for the first nine months of 2023 was executed through the Marketplace for J.B. Hunt 360 compared to $1.21 billion in 2022. Gross profit margin decreased 1%. Contractual business represented approximately 65% of total load volume and 48% of total revenueto 13.1% in the current period compared to 75% and 64%, respectively,14.3% in third quarter 2016. Operating2022. The ICS segment had an operating loss of $19.2 million in the first nine months of 2023 compared to operating income of our ICS segment decreased 14% to $7.3 million from $8.5$60.8 million in 2016. Gross2022, primarily due to decreased revenue and lower gross profit margin was flat at 12.8%margins, partially offset by lower personnel costs, decreased technology cost, and lower insurance and claims expenses during the first nine months of 2023.
FMS revenue decreased 13% to $675 million during the first nine months of 2023, from $775 million in 2022, primarily due to decreased customer demand and the effects of internal efforts to improve revenue quality across certain accounts, partially offset by the full period operations of Zenith Freight Lines, LLC acquired in 2022 and the addition of multiple new customer contracts implemented over the past year. FMS segment had operating income of $34.4 million in the current quarterfirst nine months of 2023 compared to the third quarter 2016,$23.6 million in 2022. This increase was primarily due to improvements in spot market gross margins being fully offset by continued compression of gross margins within contractual business. In addition, benefits from increased revenue were more thanquality and overall cost management, partially offset by higher equipment-related and maintenance expenses, increased technology development costs, and a larger number of branches open less than two years during the current quarterinflationary increases in facility rental expenses compared to 2016. ICS’s carrier base increased 10% and employee count increased 17% compared to third quarter 2016.the first nine months of 2023.
JBT segment revenue decreased 5%14% to $93$594 million for the third quarter 2017,first nine months of 2023, from $97$694 million in the third quarter 2016.2022. Revenue excluding fuel surchargessurcharge revenue decreased 6%16%, primarily due to a 7%21% decrease in revenue per load count,excluding fuel surcharge revenue, partially offset by a 1%7% increase in revenue per load. Revenue per load increased primarily due to a 4% increase in rates per loaded mile, partially offset by a 3% decrease in length of haul compared to third quarter 2016. Core customer rates were flatvolume compared to the same period in 2016. At the endfirst nine months of the current quarter, JBT operated 2,040 tractors compared to 2,183 in 2016.2022. Operating income of our JBT segment operating income increased 12%decreased to $5.7$16.5 million in 2017, compared with $5.1the first nine months of 2023, from $63.9 million in 2016.2022. The increasedecrease in operating income was driven primarily by the decrease in revenue and higher rates per loaded milenetwork, technology, and lower safety and insuranceequipment-related costs partially offset by increased driver wages, higher independent contractor costs per mile, lower tractor utilization, and increased tractor maintenance costs compared to third quarter 2016.as a percentage of gross revenue.
Consolidated Operating Expenses
The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.
Three Months Ended September 30, | ||||||||||||
Dollar Amounts as a Percentage of Total Operating Revenues | Percentage Change of Dollar Amounts Between Quarters | |||||||||||
2017 | 2016 | 2017 vs. 2016 | ||||||||||
Total operating revenues | 100.0 | % | 100.0 | % | 9.0 | % | ||||||
Operating expenses: | ||||||||||||
Rents and purchased transportation | 51.4 | 50.1 | 11.9 | |||||||||
Salaries, wages and employee benefits | 22.2 | 22.2 | 9.0 | |||||||||
Depreciation and amortization | 5.2 | 5.4 | 5.4 | |||||||||
Fuel and fuel taxes | 4.7 | 4.4 | 17.3 | |||||||||
Operating supplies and expenses | 3.7 | 3.7 | 8.7 | |||||||||
Insurance and claims | 1.4 | 1.3 | 21.0 | |||||||||
General and administrative expenses, net of asset dispositions | 1.6 | 1.1 | 39.8 | |||||||||
Operating taxes and licenses | 0.6 | 0.7 | (7.9 | ) | ||||||||
Communication and utilities | 0.3 | 0.3 | 14.7 | |||||||||
Total operating expenses | 91.1 | 89.2 | 11.3 | |||||||||
Operating income | 8.9 | 10.8 | (9.8 | ) | ||||||||
Net interest expense | 0.4 | 0.4 | 28.1 | |||||||||
Earnings before income taxes | 8.5 | 10.4 | (11.2 | ) | ||||||||
Income taxes | 3.1 | 3.9 | (16.1 | ) | ||||||||
Net earnings | 5.4 | % | 6.5 | % | (8.3 | )% |
Nine Months Ended September 30, | ||||||||||||
Dollar Amounts as a Percentage of Total Operating Revenues | Percentage Change of Dollar Amounts Between Periods | |||||||||||
2023 | 2022 | 2023 vs. 2022 | ||||||||||
Total operating revenues | 100.0 | % | 100.0 | % | (14.7 | )% | ||||||
Operating expenses: | ||||||||||||
Rents and purchased transportation | 45.3 | 50.6 | (23.6 | ) | ||||||||
Salaries, wages and employee benefits | 25.7 | 22.3 | (1.7 | ) | ||||||||
Fuel and fuel taxes | 5.9 | 6.2 | (19.2 | ) | ||||||||
Depreciation and amortization | 5.7 | 4.2 | 14.9 | |||||||||
Operating supplies and expenses | 4.1 | 3.3 | 4.5 | |||||||||
Insurance and claims | 2.1 | 1.7 | 1.7 | |||||||||
General and administrative expenses, net of asset dispositions | 2.0 | 1.7 | 19.5 | |||||||||
Operating taxes and licenses | 0.6 | 0.4 | 13.5 | |||||||||
Communication and utilities | 0.3 | 0.2 | 15.9 | |||||||||
Total operating expenses | 91.7 | 90.6 | (13.6 | ) | ||||||||
Operating income | 8.3 | 9.4 | (24.7 | ) | ||||||||
Net interest expense | 0.4 | 0.3 | 7.7 | |||||||||
Earnings before income taxes | 7.9 | 9.1 | (26.0 | ) | ||||||||
Income taxes | 1.9 | 2.2 | (28.6 | ) | ||||||||
Net earnings | 6.0 | % | 6.9 | % | (25.2 | )% |
Total operating expenses increased 11.3%decreased 13.6%, while operating revenues increased 9.0%decreased 14.7%, during the third quarter 2017,first nine months of 2023, from the comparable period 2016.of 2022. Operating income decreased to $165.0$789.9 million during the third quarter 2017first nine months of 2023, from $183.0 million$1.05 billion in 2016.2022.
Rents and purchased transportation costs increased 11.9%decreased 23.6% in 2017.2023. This increasedecrease was primarily the result of increased third-partya decrease in rail and truck carrier purchased transportation rates within JBI, ICS and ICSJBT segments and the increase indecreased JBI and ICS load volume, which increaseddecreased services provided by third-party rail carriers.and truck carriers during the current period.
Salaries, wages and employee benefits costs increased 9.0% during the third quarter 2017, compared with 2016.decreased 1.7% in 2023 from 2022. This increasedecrease was primarily related to increasesa decrease in employee headcounts and lower incentive compensation, partially offset by increased base driver pay and office personnel compensation in 2023. In addition, an $11.6 million workers’ compensation insurance return of premium benefit was present in the prior year period.
Fuel costs decreased 19.2% in 2023, compared with 2022, due primarily to a tighter supply of qualified drivers and an increasedecrease in the numberprice of employees.
fuel. Depreciation and amortization expense increased 5.4%14.9% in 2017,2023 primarily due to additions to our JBI segment tractor, container and chassis fleets to support additional business demand and equipment purchasedpurchases related to new DCS long-term customer contracts. Fuel costscontracts, the addition of trailing equipment within our JBI and JBT segments, and increased 17.3% in 2017, compared with 2016, due to an increase in the price of fuel, partially offset by decreased road miles.truck and tractor trades.
Operating supplies and expenses increased 8.7%, driven4.5% primarily by increases in travel activitydue to higher equipment maintenance costs, increased tire expense, increased towing costs, and tirehigher tolls expense. Insurance and claims expense increased 21.0%1.7% in 20172023 compared with 2016,2022, primarily due to increased cost per claim and higher incidentinsurance policy premium expense, partially offset by lower claim volume in the current period and accident severity.the inclusion of a $30 million expense in 2022 for additional reserves of claims subject to insurance coverage layer specific aggregated limits. General and administrative expenses increased 39.8% for the current quarter19.5% from the comparable period in 2016,2022, primarily due to higher professional fees expenses, increaseda decrease in net gains from sale or disposal of assets and an increase in building rental expenses, higher computer software subscriptionand yard rentals, partially offset by lower advertising costs and increased net losses from asset sales and disposals.professional service expenses. Net loss from sale or disposal of assets was $2.3$17.2 million in 2017,2023, compared to a net gain from sale or disposal of $1.3assets of $21.0 million in 2016.2022.
Net interest expense increased 28.1%7.7% in 20172023, due primarily to an increase in our average debt levelsbalance and higher effective interest rates on our debt compared to third quarter 2017.debt. Income tax expense decreased 16.1% in 2017,28.6% during the first nine months of 2023, compared with 2016,2022, primarily due to an after-tax benefitdecreased taxable earnings in the first nine months of $4.5 million for stock compensation tax benefits, partially offset by a one-time after-tax cost of $1.5 million for state income tax rate changes, both of which were recorded in third quarter 2017.2023. Our effective income tax rate was 35.9%23.2% for the threefirst nine months ended September 30, 2017,of 2023, compared with 38.0% for the three months ended September 30, 2016.to 24.0% in 2022. Our annual tax rate for 20172023 is expected to be 35.0%between 22.0% and the normalized annual tax rate, excluding one-time benefits or costs, is expected to be 37.0%23.0%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.
Comparison of NineMonths Ended September 30, 2017 to Nine Months Ended September 30, 2017
Summary of Operating Segment Results For the Nine Months Ended September 30, ( in millions) | ||||||||||||||||
Operating Revenues | Operating Income | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
JBI | $ | 2,987 | $ | 2,798 | $ | 314.1 | $ | 325.6 | ||||||||
DCS | 1,242 | 1,135 | 136.2 | 147.7 | ||||||||||||
ICS | 701 | 620 | 11.5 | 30.2 | ||||||||||||
JBT | 281 | 291 | 16.2 | 23.1 | ||||||||||||
Other (includes corporate) | - | - | - | 0.1 | ||||||||||||
Subtotal | 5,211 | 4,844 | 478.0 | 526.7 | ||||||||||||
Inter-segment eliminations | (12 | ) | (10 | ) | - | - | ||||||||||
Total | $ | 5,199 | $ | 4,834 | $ | 478.0 | $ | 526.7 |
Total consolidated operating revenues were $5.20 billion for the first nine months 2017, an 8% increase from $4.83 billion for the comparable period 2016. Fuel surcharge revenues were $529.2 million during the first nine months 2017, compared with $385.7 million in 2016. If fuel surcharge revenues were excluded from both periods, the increase of 2017 revenue from 2016 was 5%.
JBI segment revenue increased 7%, to $2.99 billion during the first nine months of 2016, compared with $2.80 billion in 2016. This increase in revenue was primarily a result of a 4% increase in load volumeLiquidity and a 2% increase in revenue per load, which is the combination of changes in freight mix, customer rates, and fuel surcharge revenue, compared to a year ago. Operating income of the JBI segment decreased to $314.1 million in the first nine months of 2017, from $325.6 million in 2016. Benefits from volume growth were more than offset by lower revenue per load excluding fuel surcharges, increases in rail purchased transportation costs, rail inefficiencies, higher driver wages and recruiting costs, higher equipment ownership costs, increased insurance and claims costs, increased technology development and modernization costs, and operating disruptions caused by hurricanes.
DCS segment revenue increased 9%, to $1.24 billion during the first nine months of 2017, from $1.14 billion in 2016. Productivity, defined as revenue per truck per week, increased 3% from a year ago Productivity excluding fuel surcharge for the first nine months of 2017 increased 1% from a year ago. The increase in revenue was primarily a result of better integration of assets between customer accounts and customer rate increases, partially offset by lower productivity under new customer contracts and a more impactful winter weather season during the first quarter of 2017 compared to 2016. Operating income of our DCS segment decreased to $136.2 million in 2017, from $147.7 million in 2016. Increased revenue and improved asset integration was offset by higher driver wages, increased insurance and claims cost, increased start up expenditures for new customer contracts, operating disruptions caused by hurricanes, and the addition of acquisition costs and intangible asset amortization associated with the purchase of SLD when compared to the first nine months of 2016.
ICS revenue increased 13% to $701 million during the first nine months of 2017, from $620 million in 2016. Overall volumes increased 16%. Revenue per load decreased 3% primarily due to freight mix changes driven by customer demand. ICS segment operating income decreased 62% to $11.5 million, from $30.2 million in 2016, primarily due to lower gross profit margins, increased claims cost, increased number of branches less than two years old, and higher technology development costs. Gross profit margin decreased to 12.9% in the current period versus 14.9% last year primarily due to higher purchased transportation costs that outpaced customer rate increases implemented on contractual business, compared to a year ago.
JBT segment revenue decreased 4% to $281 million for the first nine months 2017, from $291 million in 2016, primarily from a 2% decrease in load count and a 2% decrease in revenue per load. The decrease in revenue per load when compared to 2016 was primarily due to a 5% decrease in length of haul. Revenue excluding fuel surcharges decreased 6%, compared to 2016. Our JBT segment operating income decreased to $16.2 million during the first nine months 2017, from $23.1 million in 2016. The decrease in operating income was driven primarily by lower revenue, increased driver wages and recruiting costs, higher independent contractor cost per mile, lower tractor utilization and increased tractor maintenance costs compared to 2016.
Consolidated Operating Expenses
The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.
Nine Months Ended September 30, | ||||||||||||
Dollar Amounts as a Percentage of Total Operating Revenues | Percentage Change of Dollar Amounts Between Periods | |||||||||||
2017 | 2016 | 2017 vs. 2016 | ||||||||||
Total operating revenues | 100.0 | % | 100.0 | % | 7.6 | % | ||||||
Operating expenses: | ||||||||||||
Rents and purchased transportation | 50.5 | 49.3 | 10.2 | |||||||||
Salaries, wages and employee benefits | 22.7 | 22.9 | 6.3 | |||||||||
Depreciation and amortization | 5.4 | 5.6 | 4.3 | |||||||||
Fuel and fuel taxes | 4.7 | 4.2 | 20.3 | |||||||||
Operating supplies and expenses | 3.7 | 3.6 | 9.7 | |||||||||
Insurance and claims | 1.5 | 1.2 | 31.8 | |||||||||
General and administrative expenses, net of asset dispositions | 1.4 | 1.3 | 21.2 | |||||||||
Operating taxes and licenses | 0.6 | 0.7 | (5.3 | ) | ||||||||
Communication and utilities | 0.3 | 0.3 | 8.5 | |||||||||
Total operating expenses | 90.8 | 89.1 | 9.6 | |||||||||
Operating income | 9.2 | 10.9 | (9.2 | ) | ||||||||
Net interest expense | 0.4 | 0.4 | 16.4 | |||||||||
Earnings before income taxes | 8.8 | 10.5 | (10.2 | ) | ||||||||
Income taxes | 3.0 | 4.0 | (19.9 | ) | ||||||||
Net earnings | 5.8 | % | 6.5 | % | (4.3 | )% |
Total operating expenses increased 9.6%, while operating revenues increased 7.6%, during the first nine months 2017, from the comparable period of 2016. Operating income decreased to $478.0 million during the first nine months 2017, from $526.7 million in 2016.
Rents and purchased transportation costs increased 10.2% in 2017. This increase was primarily the result of increased rail and truck purchased transportation rates and the increase in load volume, which increased services provided by third-party rail and truck carriers within JBI and ICS segments.
Salaries, wages and employee benefits costs increased 6.3% in 2017 from 2016. This increase was primarily related to increases in driver pay and office personnel compensation due to a tighter supply of qualified drivers and an increase in the number of employees.
Depreciation and amortization expense increased 4.3% in 2017 primarily due to additions to our JBI segment tractor, container and chassis fleets to support additional business demand and equipment purchased related to new DCS long-term customer contracts. Fuel costs increased 20.3% in 2017, compared with 2016, due to increases in the price of fuel.
Operating supplies and expenses increased 9.7% driven primarily by increases in travel activity and tire expense. Insurance and claims expense increased 31.8% in 2017 compared with 2016, primarily due to higher accident severity. General and administrative expenses increased 21.2% from the comparable period in 2016, primarily due to higher professional fees expenses, increased building rental expenses, higher computer software subscription costs, and increased net losses from asset sales and disposals. Net loss from sale or disposal of assets was $5.7 million in 2017, compared to a net loss of $2.4 million in 2016.
Net interest expense increased 16.4% in 2017, due to an increase in average debt levels and higher effective interest rates on our debt during the current period. Income tax expense decreased 19.9% in 2017, compared with 2016, primarily due to a one-time after-tax benefit of $13.6 million for the claiming of federal research and development tax credits and domestic production tax deductions for the 2012 through 2016 tax years, recorded in the first quarter of 2017. In addition, an after-tax benefit of $4.5 million for stock compensation tax benefits and a one-time after-tax cost of $1.5 million for state income tax rate changes, were both recorded in the third quarter 2017. Our effective income tax rate was 33.9% for the first nine months of 2017, compared to 38.0% in 2016. Our annual tax rate for 2017 is expected to be 35.0% and the normalized annual tax rate, excluding one-time benefits or costs, is expected to be 37.0%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.
Liquidity andCapital Resources
Cash Flow
Net cash provided by operating activities totaled $628.5 million$1.53 billion during the first nine months of 2017,2023, compared with $684.0 million$1.36 billion for the same period 2016.2022. Operating cash flows decreasedincreased primarily due primarily to the reduction in earnings, an increase in cash paid for income taxes, net of refunds, and the timing of general working capital activities.activities, partially offset by decreased earnings. Net cash used in investing activities totaled $456.1 million$1.40 billion in 2017,2023, compared with $358.8 million$1.14 billion in 2016.2022. The increase resulted from the purchase of SLD, which closed during the third quarter 2017, partially offset by a decreasean increase in equipment purchases, net of proceeds from the sale of equipment, partially offset by a reduction in 2017.business acquisition expenditures in the current period. Net cash used in financing activities was $171.1$101.4 million in 2017,2023, compared with $325.3$490.5 million in 2016.2022. This decrease resulted primarily from current period activities beinga decrease in treasury stock purchased, partially offset by higher proceeds from long-term debt issuances, net of long-term debt repayments, in 2017. Thesethe net proceeds from long-term debt were used primarily forour senior credit facility in 2023, which was the purchaseresult of SLD.electing to draw funds available to us under the term portion of our credit facility.
Debt and Liquidity Data
September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||||||
Working capital ratio | 1.48 | 1.65 | 1.40 | |||||||||
Total debt (millions) | $ | 1,084.8 | $ | 986.3 | $ | 943.7 | ||||||
Total debt to equity | 0.74 | 0.70 | 0.68 | |||||||||
Total debt as a percentage of total capital | 42 | % | 41 | % | 41 | % |
Liquidity
Our need for capital has typically resulted from the acquisition of containers and chassis, trucks, tractors, and trailers required to support our growth and the replacement of older equipment.equipment as well as periodic business acquisitions and real estate transactions. We are frequently able to accelerate or postpone a portion of equipment replacements or other capital expenditures depending on market and overall economic conditions. WeIn recent years, we have during the past few years, obtained capital through cash generated from operations, revolving lines of credit and long-term debt issuances. We have also periodically utilized operating leases to acquire revenue equipment. For our senior notes maturing in 2024, it is our intent to pay the entire outstanding balances in full, on or before the maturity dates, using our existing cash balance, revolving line of credit or other sources of long-term financing.
We believe our liquid assets, cash generated from operations, and revolving line of credit will provide sufficient funds for our operating and capital requirements for the foreseeable future. The following table summarizes our expected obligations and commitments as ofAt September 30, 2017 (in millions):2023, we were authorized to borrow up to $1.5 billion through a revolving line of credit and committed term loans, which is supported by a credit agreement with a group of banks. The revolving line of credit authorizes us to borrow up to $1.0 billion under a five-year term expiring September 2027, and allows us to request an increase in the revolving line of credit total commitment by up to $300 million and to request two one-year extensions of the maturity date. The committed term loans authorized us to borrow up to an additional $500 million during the nine-month period beginning September 27, 2022, due September 2025, which we exercised in June 2023. The applicable interest rates under this agreement are based on either the Secured Overnight Financing Rate (SOFR), or a Base Rate, depending upon the specific type of borrowing, plus an applicable margin and other fees. At September 30, 2023, we had a cash balance of $75.2 million. Under our senior credit facility, we had no outstanding balance on our revolving line of credit and a $500.0 million outstanding balance of term loans at an average interest rate of 6.43%.
Total | One Year Or Less | One to Three Years |
Three to Five Years | After Five Years | ||||||||||||||||
Operating leases | $ | 68.8 | $ | 23.8 | $ | 30.0 | $ | 12.5 | $ | 2.5 | ||||||||||
Debt obligations | 1,091.8 | - | 491.8 | 350.0 | 250.0 | |||||||||||||||
Interest payments on debt (1) | 133.0 | 29.8 | 51.6 | 37.2 | 14.4 | |||||||||||||||
Commitments to acquire revenue equipment and facilities | 804.7 | 387.4 | 417.3 | - | - | |||||||||||||||
Total | $ | 2,098.3 | $ | 441.0 | $ | 990.7 | $ | 399.7 | $ | 266.9 |
We continue to evaluate the possible effects of current economic conditions and reasonable and supportable economic forecasts on operational cash flows, including the risks of declines in the overall freight market and our customers' liquidity and ability to pay. We regularly monitor working capital and maintain frequent communication with our customers, suppliers and service providers. A large portion of our cost structure is variable. Purchased transportation expense represents more than half of our total costs but is heavily tied to load volumes. Our second largest cost item is salaries and wages, the largest portion of which is driver pay, which includes a large variable component.
Our financing arrangements require us to maintain certain covenants and financial ratios. At September 30, 2023, we were compliant with all covenants and financial ratios. |
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Our net capital expenditures were approximately $315 million$1.32 billion during the first nine months of 2017,2023, compared with $359 million$1.02 billion for the same period 2016.2022. Our net capital expenditures include net additions to revenue equipment and non-revenue producing assets that are necessary to contribute to and support the future growth of our various business segments. Capital expenditures in 2017the third quarter 2023 were primarily for tractors, additional intermodal containers and chassis, and other trailing equipment. We are currently committed to spend approximately $109.4 million$1.2 billion during the remainder of 2017.years 2023 and 2024, as well as an additional $380 million thereafter. We expect to spend in the range of $475 million$1.5 billion to $500 million$1.7 billion for net capital expenditures during the calendar year 2017. On July 31, 2017, we completed our2023. These expenditures will relate primarily to the acquisition of SLD,tractors, containers, chassis, and its affiliated entities; see Note 10, Acquisition, inother trailing equipment. At September 30, 2023, our Condensed Consolidated Financial Statements. We used our existing revolving credit facilityaggregate future minimum lease payments under operating lease obligations which relate primarily to finance this transactionthe rental of maintenance and to provide any necessary liquidity for currentsupport facilities, cross-dock and future operations. This acquisition did not have a material impact on our interest expense. The table above excludes $41.4 million of potential liabilities for uncertain tax positions, including interestdelivery system facilities, office space, parking yards, and penalties, which are recorded on our Condensed Consolidated Balance Sheets. However, we are unable to reasonably estimate the ultimate timing of any settlements.equipment totaled $388.2 million.
Off-Balance Sheet Arrangements
Our onlyWe had no off-balance sheet arrangements, other than our net purchase commitments of $1.6 billion, as of September 30, 2017, were operating leases related primarily to facility lease obligations.2023.
Risk Factors
You should refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2016,2022, under the caption “Risk Factors” for specific details on the following factors and events that are not within our control and could affect our financial results.
Risks Related to Our Industry
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● | Our business is significantly impacted by the effects of national or international health pandemics on general economic conditions and |
● | Extreme or unusual weather conditions can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our |
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● | Our operations are subject to various environmental laws and regulations, including legislative and regulatory responses to climate change. Compliance with environmental requirements could result in significant expenditures and the violation of |
Acquisitions or business combinations may disrupt or have a material adverse effect on our operations or earnings.
We could have difficulty integrating acquired companies’ assets, personnel and operations with our own. Regardless of whether we are successful in making an acquisition or completing a business combination, the negotiations could disrupt our ongoing business, distract our management and employees and increase our operating costs. Acquisitions and business combinations are accompanied by a number of inherent risks, including, without limitation, the following:
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Risks Related to Our Business
● | We derive a significant portion of our revenue from a few major customers, the loss of one or more of which could have a material adverse effect |
● | A determination that independent contractors are employees could expose us to various liabilities and additional costs. |
● | We may be subject to litigation claims that could result in significant expenditures. |
Our business could be materially impacted if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with an acquisition or business combination, many of which cannot be presently identified. These risks could disrupt our ongoing business, distract our management and employees, increase our costs and adversely affect our results of operations.
● | We rely significantly on our information technology systems, a disruption, failure, or security breach of which could have a material adverse effect on our business. |
● | Acquisitions or business combinations may disrupt or have a material adverse effect on our operations or earnings. |
ITEM 3. Quantitative And Qualitative Disclosures AbouT Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our outstanding debt at September 30, 2017 includes our senior revolving line2023 consists of creditboth fixed and senior notes issuances.variable interest rate facilities. Our senior notes have fixed interest rates ranging from 2.40%3.85% to 3.85%3.875%. These fixed rate facilities reduce the impact of changes to market interest rates on future interest expense. Our senior revolving line of credit facility has variable interest rates, which are based on the Primeeither SOFR or a Base Rate, the Federal Funds Rate, or LIBOR, depending upon the specific type of borrowing, plus anyan applicable margins. We currently havemargin and other fees. At September 30, 2023, the average interest rate swap agreements which effectively convertunder our $250 million of 2.40% and $350 million of 3.30% fixed rate senior notes due March 2019 and August 2022, respectfully, to variable rates, to allow us to maintain a desired mix of variable and fixed rate debt. The applicable interest rates under these agreements are based on LIBOR plus an established margin.credit facility was 6.43%. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. Our earnings would be affected by changes in these short-term variable interest rates.rates on variable-rate debt outstanding. At our current level of borrowing, a one percentage point increase in our applicable rate would reduce annual pretax earnings by $8.4$5.0 million.
Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations, or cash flows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the three or nine months ended September 30, 2017.2023. Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencies would have on our future costs or on future cash flows we would receive from our foreign investment. As of September 30, 2017,2023, we had no foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, and other market factors. Historically, we have been able to recover a majority of fuel price increases from our customers in the form of fuel surcharges. We cannot predict the extent to which high fuel price levels may occur in the future or the extent to which fuel surcharges could be collected to offset such increases. As of September 30, 2017,2023, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
ITEM 4. CONTROLS AND PROCEDURES
We maintain controls and procedures designed to ensure that the information we are required to disclose in the reports we file with the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC rules, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2017.2023.
There were no changes in our internal control over financial reporting during the third quarter of 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
ITEMITEM 1. LEGAL PROCEEDINGS
We are a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the first half of 2014, the District Court in the lead class-action granted judgment in our favor with regard to all claims. The plaintiffs appealed the case to the United States Court of Appeals for the Ninth Circuit. On July 31, 2017, the Ninth Circuit issued a Memorandum decision vacating the judgment in our favor and remanding the case to the District Court for further proceedings. We filed a Petition for Rehearing En Banc with the Ninth Circuit, which is currently pending. The overlapping claims in the other lawsuits remain stayed pending final resolution of the appellate process or a final decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits.
In January 2017, we exercised our right to utilize the arbitration process to review the division of revenue collected beginning May 1, 2016, as well as to clarify other issues, under our Joint Service Agreement with BNSF Railway Company (BNSF). BNSF has requested the same, and the arbitration process has commenced. BNSF provides a significant amount of rail transportation services to our JBI business segment. At this time, we are unable to reasonably predict the outcome of the arbitration, and, as such, no gain or loss contingency can be determined or recorded. Normal commercial business activity between the parties, including load tendering, load tracing, billing and payments, is expected to continue on a timely basis.LEGAL PROCEEDINGS
We are involved in certain other claims and pending litigation arising from the normal conduct of business. Based on present knowledge ofof the facts and, in certain cases, opinions of outside counsel, we believe the resolution of these claims and pending litigation will not have a material adverse effect on our financial condition, results of operations or liquidity.
ITEM 1A. RISK FACTORS |
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Information regarding risk factors appears in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report on Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
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Not applicable. ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities
The following table summarizes purchases of our common stock during the three months ended September 30, 2023:
Period | Number of Common Shares Purchased | Average Price Paid Per Common Share Purchased | Total Number of Shares Purchased as Part of a Publicly Announced Plan (1) | Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Plan (in millions) (1) | ||||||||||||
July 1 through July 31, 2023 | - | $ | - | - | $ | 467 | ||||||||||
August 1 through August 31, 2023 | 131,741 | 193.82 | 131,741 | 442 | ||||||||||||
September 1 through September 30, 2023 | 135,525 | 188.65 | 135,525 | 416 | ||||||||||||
Total | 267,266 | $ | 191.20 | 267,266 | $ | 416 |
(1) On July 20, 2022, our Board of Directors authorized the purchase of up to $500 million of our common stock. This stock repurchase program has no expiration date.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES |
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Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES |
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Not applicable.
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Not applicable.ITEM 5.OTHER INFORMATION
During the three months ended September 30, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6.EXHIBITS |
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Index to Exhibits
Exhibit Number | Exhibits | |
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3.3 |
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31.1 | Rule 13a-14(a)/15d-14(a) Certification | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification | |
32.1 | Section 1350 Certification | |
32.2 | Section 1350 Certification | |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the SecuritiesSecurities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Lowell, Arkansas, on the 27th day of October 2017.2023.
J.B. HUNT TRANSPORT SERVICES, INC. | |||
(Registrant) | |||
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BY: | /s/ John N. Roberts, III | ||
John N. Roberts, III | |||
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(Principal Executive Officer) |
BY: | /s/ | ||
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Chief Financial Officer, | |||
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(Principal Financial and Accounting Officer) |
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