UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
Amendment No. 1
(Mark One)
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Forthe quarterly period ended June 30,March 31, 20178
OR
__ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
|
615 J.B. Hunt Corporate Drive, Lowell, Arkansas 72745
(Address of principal executive offices)
479-820-0000
(Registrant's telephone number, including area code)
www.jbhunt.com
(Registrant's web site)
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,filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller“smaller reporting company” and “emerging growth 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 X
The number of shares of the registrant’s $0.01 par value commoncommon stock outstanding on June 30March 31, 201, 20178 was109,435,453.109,755,618.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A to the J. B. Hunt Transport Services, Inc., Quarterly Report on Form 10-Q, as originally filed with the Securities and Exchange Commission on April 27, 2018 (the “Original Filing”), is being filed solely to correct a typographical error in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Original Filing disclosed Eastern network load volume decreased 12%, when it should have stated load volume increased 12%. Specifically, page 13 of the Original Filing included the sentence: “Transcontinental loads grew 2% during the first quarter 2018, while the Eastern network load volume was down 12% compared to the first quarter 2017.” The sentence has been amended to state the following: “Transcontinental loads grew 2% during the first quarter 2018, while the Eastern network load volume grew 12% compared to the first quarter 2017.”
Except as described above, no other changes have been made to the Original Filing. We have restated the entire filing for convenience to the reader. This Form 10-Q/A does not does reflect subsequent events that may have occurred since the date of the Original Filing or amend, update or change the financial statements or any other items or disclosures in the Original Filing. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, we have included new certifications from our Chief Executive Officer and Chief Financial Officer dated the date of this Form 10-Q/A.
J.B. HUNT TRANSPORT SERVICES, INC.
Form 10-Q
For The QuarterlyQuarterly Period Ended June 30,March 31, 20178
Table of Contents
|
| Page |
Explanatory Note | i | |
Part I. Financial Information | ||
|
|
|
|
|
|
Item 1. | Financial Statements |
|
|
|
|
| Condensed Consolidated Statements of Earnings for the Three | 3 |
|
|
|
| Condensed Consolidated Balance Sheets as of | 4 |
|
|
|
| Condensed Consolidated Statements of Cash Flows for the | 5 |
|
|
|
| Notes to Condensed Consolidated Financial Statements as of | 6 |
|
|
|
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
|
|
|
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
|
|
|
|
Item 4. | Controls and Procedures |
|
|
|
|
|
|
|
|
|
|
Part II. Other Information | ||
|
|
|
|
|
|
Item 1. | Legal Proceedings |
|
|
|
|
Item 1A. | Risk Factors |
|
|
|
|
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
|
|
|
|
Item 3. | Defaults Upon Senior Securities |
|
Item 4. | Mine Safety Disclosures |
|
Item 5. | Other Information |
|
|
|
|
Item 6. | Exhibits |
|
|
|
|
Signatures |
| 21 |
|
|
|
Exhibits |
|
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
J.B. HUNT TRANSPORT SERVICES, INC.
Condensed Consolidated Statements of Earnings
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | |||||||||||||||||||
Operating revenues, excluding fuel surcharge revenues | $ | 1,551,051 | $ | 1,483,354 | $ | 3,012,820 | $ | 2,910,008 | $ | 1,712,934 | $ | 1,461,768 | ||||||||||||
Fuel surcharge revenues | 175,864 | 131,672 | 343,253 | 233,730 | 235,311 | 167,390 | ||||||||||||||||||
Total operating revenues | 1,726,915 | 1,615,026 | 3,356,073 | 3,143,738 | 1,948,245 | 1,629,158 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Rents and purchased transportation | 871,122 | 794,907 | 1,677,562 | 1,535,310 | 964,892 | 806,439 | ||||||||||||||||||
Salaries, wages and employee benefits | 389,873 | 371,969 | 770,184 | 734,480 | 450,265 | 380,311 | ||||||||||||||||||
Fuel and fuel taxes | 107,881 | 80,646 | ||||||||||||||||||||||
Depreciation and amortization | 93,050 | 90,364 | 185,238 | 178,716 | 105,583 | 92,189 | ||||||||||||||||||
Fuel and fuel taxes | 79,072 | 71,489 | 159,719 | 130,903 | ||||||||||||||||||||
Operating supplies and expenses | 64,486 | 56,495 | 122,507 | 111,031 | 70,681 | 58,022 | ||||||||||||||||||
General and administrative expenses, net of asset dispositions | 32,326 | 23,481 | ||||||||||||||||||||||
Insurance and claims | 27,461 | 19,094 | 50,466 | 36,522 | 28,499 | 23,005 | ||||||||||||||||||
General and administrative expenses, net of asset dispositions | 21,728 | 18,711 | 45,209 | 40,545 | ||||||||||||||||||||
Operating taxes and licenses | 10,905 | 11,365 | 21,585 | 22,491 | 11,588 | 10,680 | ||||||||||||||||||
Communication and utilities | 5,603 | 4,840 | 10,599 | 10,058 | 7,749 | 4,996 | ||||||||||||||||||
Total operating expenses | 1,563,300 | 1,439,234 | 3,043,069 | 2,800,056 | 1,779,464 | 1,479,769 | ||||||||||||||||||
Operating income | 163,615 | 175,792 | 313,004 | 343,682 | 168,781 | 149,389 | ||||||||||||||||||
Net interest expense | 7,393 | 6,420 | 14,211 | 12,862 | 9,152 | 6,817 | ||||||||||||||||||
Earnings before income taxes | 156,222 | 169,372 | 298,793 | 330,820 | 159,629 | 142,572 | ||||||||||||||||||
Income taxes | 58,353 | 64,361 | 98,222 | 125,711 | 41,487 | 39,870 | ||||||||||||||||||
Net earnings | $ | 97,869 | $ | 105,011 | $ | 200,571 | $ | 205,109 | $ | 118,142 | $ | 102,702 | ||||||||||||
Weighted average basic shares outstanding | 109,630 | 112,669 | 110,250 | 112,871 | 109,754 | 110,878 | ||||||||||||||||||
Basic earnings per share | $ | 0.89 | $ | 0.93 | $ | 1.82 | $ | 1.82 | $ | 1.08 | $ | 0.93 | ||||||||||||
Weighted average diluted shares outstanding | 110,822 | 113,761 | 111,420 | 113,882 | 110,863 | 112,026 | ||||||||||||||||||
Diluted earnings per share | $ | 0.88 | $ | 0.92 | $ | 1.80 | $ | 1.80 | $ | 1.07 | $ | 0.92 | ||||||||||||
Dividends declared per common share | $ | 0.23 | $ | 0.22 | $ | 0.46 | $ | 0.44 | $ | 0.24 | $ | 0.23 |
See Notes to Condensed Consolidated Financial Statements.
J.B. HUNT TRANSPORT SERVICES, INC.
Condensed Consolidated Balance Sheets
(in thousands)
June 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 7,274 | $ | 6,377 | $ | 7,082 | $ | 14,612 | ||||||||
Trade accounts receivable, net | 749,042 | 745,288 | 900,903 | 920,767 | ||||||||||||
Prepaid expenses and other | 152,035 | 194,016 | 328,079 | 403,349 | ||||||||||||
Total current assets | 908,351 | 945,681 | 1,236,064 | 1,338,728 | ||||||||||||
Property and equipment, at cost | 4,384,981 | 4,258,915 | 4,764,722 | 4,670,464 | ||||||||||||
Less accumulated depreciation | 1,564,951 | 1,440,124 | 1,720,446 | 1,687,133 | ||||||||||||
Net property and equipment | 2,820,030 | 2,818,791 | 3,044,276 | 2,983,331 | ||||||||||||
Other assets | 50,001 | 64,516 | 141,317 | 143,290 | ||||||||||||
Total assets | $ | 3,778,382 | $ | 3,828,988 | $ | 4,421,657 | $ | 4,465,349 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 247,609 | $ | - | ||||||||||||
Trade accounts payable | $ | 419,306 | $ | 384,308 | 503,829 | 598,594 | ||||||||||
Claims accruals | 114,073 | 109,745 | 256,896 | 251,980 | ||||||||||||
Accrued payroll | 46,288 | 51,929 | 58,599 | 42,382 | ||||||||||||
Other accrued expenses | 28,425 | 27,152 | 25,583 | 28,888 | ||||||||||||
Total current liabilities | 608,092 | 573,134 | 1,092,516 | 921,844 | ||||||||||||
Long-term debt | 943,174 | 986,278 | 752,423 | 1,085,649 | ||||||||||||
Other long-term liabilities | 66,118 | 64,881 | 88,373 | 76,661 | ||||||||||||
Deferred income taxes | 753,277 | 790,634 | 545,282 | 541,870 | ||||||||||||
Stockholders' equity | 1,407,721 | 1,414,061 | 1,943,063 | 1,839,325 | ||||||||||||
Total liabilities and stockholders' equity | $ | 3,778,382 | $ | 3,828,988 | $ | 4,421,657 | $ | 4,465,349 |
See Notes to Condensed Consolidated Financial Statements.
J.B. HUNT TRANSPORT SERVICES, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2017 | 2016 | Three Months Ended March 31, | ||||||||||||||
2018 | 2017 | |||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net earnings | $ | 200,571 | $ | 205,109 | $ | 118,142 | $ | 102,702 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 185,238 | 178,716 | 105,583 | 92,189 | ||||||||||||
Share-based compensation | 23,110 | 22,915 | 12,036 | 11,170 | ||||||||||||
Loss on sale of revenue equipment and other | 3,393 | 1,030 | 2,815 | 1,709 | ||||||||||||
Benefit from deferred income taxes | (37,357 | ) | 2,354 | |||||||||||||
Deferred income taxes | 3,412 | 1,928 | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts receivable | (3,754 | ) | (75,703 | ) | 19,864 | 37,855 | ||||||||||
Other assets | 47,274 | 33,501 | (49,189 | ) | 35,063 | |||||||||||
Trade accounts payable | 13,269 | 11,267 | (10,650 | ) | (26,901 | ) | ||||||||||
Income taxes payable or receivable | 11,370 | 72,041 | 35,434 | 35,064 | ||||||||||||
Claims accruals | 4,329 | 11,408 | 12,543 | (2,910 | ) | |||||||||||
Accrued payroll and other accrued expenses | (3,996 | ) | 11,500 | 11,628 | (2,236 | ) | ||||||||||
Net cash provided by operating activities | 443,447 | 474,138 | 261,618 | 285,633 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Additions to property and equipment | (176,660 | ) | (351,507 | ) | (206,108 | ) | (98,775 | ) | ||||||||
Net proceeds from sale of equipment | 11,568 | 93,549 | 27,063 | 7,768 | ||||||||||||
Changes in other assets | (3,464 | ) | (7 | ) | ||||||||||||
Change in other assets | (299 | ) | (3,467 | ) | ||||||||||||
Net cash used in investing activities | (168,556 | ) | (257,965 | ) | (179,344 | ) | (94,474 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from revolving lines of credit and other | 1,247,227 | 676,687 | 687,036 | 666,864 | ||||||||||||
Payments on revolving lines of credit and other | (1,291,200 | ) | (738,198 | ) | (750,400 | ) | (696,500 | ) | ||||||||
Purchase of treasury stock | (179,813 | ) | (100,000 | ) | - | (129,761 | ) | |||||||||
Stock option exercises and other | 1,100 | 1,342 | ||||||||||||||
Stock repurchased for payroll taxes | (431 | ) | (975 | ) | (99 | ) | (276 | ) | ||||||||
Tax benefit of stock options exercised | - | 280 | ||||||||||||||
Dividends paid | (50,877 | ) | (49,598 | ) | (26,341 | ) | (25,602 | ) | ||||||||
Net cash used in financing activities | (273,994 | ) | (210,462 | ) | (89,804 | ) | (185,275 | ) | ||||||||
Net change in cash and cash equivalents | 897 | 5,711 | (7,530 | ) | 5,884 | |||||||||||
Cash and cash equivalents at beginning of period | 6,377 | 5,566 | 14,612 | 6,377 | ||||||||||||
Cash and cash equivalents at end of period | $ | 7,274 | $ | 11,277 | $ | 7,082 | $ | 12,261 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Interest | $ | 14,477 | $ | 12,855 | $ | 11,769 | $ | 9,561 | ||||||||
Income taxes | $ | 122,718 | $ | 49,039 | $ | 1,834 | $ | 2,082 | ||||||||
Noncash investing activities | ||||||||||||||||
Accruals for equipment received | $ | 42,554 | $ | 25,879 |
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 Statements 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 presentation 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 Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K10-K for the year ended December 31, 2016. 2017. 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, 2018, 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.
Recent Accounting Pronouncements
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 on 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. See Note 10, Commitments and Contingencies, in our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 for discussion of our remaining obligations under operating lease arrangements.
Accounting Pronouncement Adopted in 2018
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,2014-09, 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 We adopted 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.
We have selected an implementation team and are2014-09 in 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. Based on our work to date, we do approach, which did not expect the standard to have a material impact on how we recognize revenue or to our financial statements. statements or disclosures. See below for additional information related to our recognition of revenue generated from customer contracts.
In February 2016,Revenue Recognition
We recognize revenue from customer contracts based on relative transit time in each reporting period and as other performance obligations are provided, with related expenses recognized as incurred. Accordingly, a portion of the FASB issued ASU 2016-02, Leases, which requires lesseestotal revenue that will be billed to recognizethe customer once a right-of-use assetload is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery performance obligation that has been completed at the end of the reporting period.
We record revenues on the gross basis at amounts charged to our customers because we control and are primarily responsible for the fulfillment of promised services. Accordingly, we serve as a lease liability for most leasesprincipal in the balance sheettransaction. We invoice our customers and we maintain discretion over pricing. Additionally, we are responsible for selection of third-party transportation providers to the extent used to satisfy customer freight requirements.
Revenue
Our revenue is earned through the service offerings of our four reportable business segments. See Note 10, Business Segments, for revenue reported by segment. All revenue transactions between reporting segments are eliminated in consolidation.
Intermodal (JBI) - JBI segment includes freight that is transported by rail over at least some portion of the movement and also includes certain repositioning truck freight moved by JBI equipment or third-party carriers, when such highway movement is intended to direct JBI equipment back toward intermodal operations. JBI performs these services primarily through contractual rate quotes with customers that are held static for a period of time, usually one year.
Dedicated Contract Services® (DCS) - DCS segment business includes company-owned and customer-owned, DCS-operated revenue equipment and employee drivers assigned to a specific customer, traffic lane, or service. DCS operations usually include formal, written longer-term customer contracts that govern services performed and applicable rates.
Integrated Capacity Solutions (ICS) - ICS provides non-asset and asset-light transportation solutions to customers through relationships with third-party carriers and integration with JBHT-owned equipment. ICS services include flatbed, refrigerated, and LTL, as well as other qualitativea variety of dry-van and quantitative disclosures. ASU 2016-02 is to be applied usingintermodal solutions. ICS performs these services through customer contractual rate quotes as well as spot quotes that are one-time rate quotes issued for 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 effectssingle transaction or group of the adoption of this update on our financial statements.transactions.
Accounting PronoTruckload (JBT)uncement Adopted in 2017 - JBT business includes full-load, dry-van freight that is typically transported utilizing company-owned or company-controlled revenue equipment. This freight is typically transported over roads and highways and does not move by rail. JBT utilizes both contractual rate quotes and spot rate quotes with customers.
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. 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 and stock options was 1.21.1 million shares during the secondfirst quarter 2017, compared to 1.1 million shares during second2018 and the first quarter 2016. During the six months ended June 30, 2017 and 2016, the dilutive effect of restricted and performance share units and stock options was 1.2 million shares and 1.0 million shares, respectively.2017.
|
|
The following table summarizes the components of our share-based compensation program expense (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | |||||||||||||||||||
Restricted share units: | Restricted share units: | |||||||||||||||||||||||
Pretax compensation expense | $ | 8,873 | $ | 8,939 | $ | 17,010 | $ | 16,907 | $ | 8,591 | $ | 8,136 | ||||||||||||
Tax benefit | 3,314 | 3,397 | 5,596 | 6,425 | 2,234 | 2,278 | ||||||||||||||||||
Restricted share unit expense, net of tax | $ | 5,559 | $ | 5,542 | $ | 11,414 | $ | 10,482 | $ | 6,357 | $ | 5,858 | ||||||||||||
Performance share units: | Performance share units: | |||||||||||||||||||||||
Pretax compensation expense | $ | 3,067 | $ | 3,004 | $ | 6,100 | $ | 6,008 | $ | 3,445 | $ | 3,034 | ||||||||||||
Tax benefit | 1,146 | 1,142 | 2,007 | 2,283 | 896 | 849 | ||||||||||||||||||
Performance share unit expense, net of tax | $ | 1,921 | $ | 1,862 | $ | 4,093 | $ | 3,725 | $ | 2,549 | $ | 2,185 |
As of June 30, 2017, March 31, 2018, we had $59.0$77.2 million and $13.3$24.8 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 3.83.6 years for restricted share units and 2.42.6 years for performance share units. During the six months ended June 30, 2017,first quarter 2018, we issued 14,6233,432 shares for vested restricted share units. Of this total, 5,514 shares for vested restricted share units were issued during the second quarter 2017.
4. | Financing Arrangements |
Outstanding borrowings, net of unamortized discount, andunamortized debt issuance cost, underourand fair value swap, under our current financing arrangements consist of the following (in millions):
June 30, 2017 | December 31, 2016 | |||||||
Senior revolving line of credit | $ | 94.4 | $ | 139.0 | ||||
Senior notes | 848.8 | 847.3 | ||||||
Total long-term debt | $ | 943.2 | $ | 986.3 |
March 31, 2018 | December 31, 2017 | |||||||
Senior revolving line of credit | $ | 167.2 | $ | 241.4 | ||||
Senior notes | 832.8 | 844.2 | ||||||
Less current portion of long-term debt | (247.6 | ) | - | |||||
Total long-term debt | $ | 752.4 | $ | 1,085.6 |
Senior Revolving Line of Credit
At June 30, 2017, March 31, 2018, we were authorized to borrow up to $500$500 million under a senior revolving line of credit, which is supported by a credit agreement with a group of banks and expires in September 2020. This senior credit facility allows us to request an increase in the total commitment by up to $250$250 million and to request a one-yearone-year extension of the maturity date. The applicable interest rate under this agreement is based on either the Prime Rate, the Federal Funds Rate or LIBOR, depending upon the specific type of borrowing, plus an applicable margin based on our credit rating and other fees. At June 30, 2017, March 31, 2018, we had $95$167.9 million outstanding at an average interest rate of 2.33%2.84% under this agreement.
Senior Notes
Our senior notes consist of three separate issuances. The first and second issuances are $250$250 million of 2.40% senior notes due March 2019 and $250$250 million of 3.85% senior notes due March 2024, respectively, both of which were issued in March 2014. Interest payments under both notes are due semiannually in March and September of each year, beginning September 2014. The third is $350$350 million of 3.30% senior notes due August 2022, issued in August 2015. Interest payments under this note are due semiannually in February and August of each year, beginning February 2016. All three senior notes were issued by J.B. Hunt Transport Services, Inc., a parent-level holding company with no significant assets or operations. The notes are guaranteed on a full and unconditional basis by a wholly-owned 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 statement filed in February 2014. All 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$250 million of 2.40% senior notes due March 2019 and the $350$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 June 30, 2017.March 31, 2018. For all debt facilities maturing in 2019, it is our intent to pay the entire outstanding balances in full, on or before the maturity dates, using our existing senior revolving line of credit or other sources of long-term financing.
5. | Derivative Financial Instruments |
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$250 million of 2.40% senior notes due March 2019 and $350$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 isare based on LIBOR plus an established margin, resulting in an interest rate of 2.09%2.97% for our $250$250 million of 2.40% senior notes and 2.54%3.20% for our $350$350 million of 3.30% senior notes at June 30, 2017. March 31, 2018. The swaps expire when the corresponding senior notes are due. The fair values of these swaps are recorded in other assetslong-term liabilities and other accrued expenses in our Condensed Consolidated Balance Sheet at June 30, 2017. March 31, 2018. 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.
| Capital Stock |
On October 22, 2015, our Board of Directors authorized the purchase of $500$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 June 30, 2017, $521March 31, 2018, $521 million of the combined authorization was remaining. We purchased approximately 1,892,000did not purchase any shares or $180 million, of our common stock under our repurchase authorizationsauthorization during the sixthree months ended June 30, 2017. March 31, 2018. On January 24, 2018, we announced an increase in our quarterly cash dividend from $0.23 to $0.24, which was paid February 23, 2018, to stockholders of record on February 9, 2018. On April 20, 2017, 19, 2018, our Board of Directors declared a regular quarterly dividend of $0.23 per common share, which was paid on May 19, 2017, to stockholders of record on May 5, 2017. On July 20, 2017, our Board of Directors declared a regular quarterly dividend of $0.23$0.24 per common share, which will be paid on AugustMay 18, 2017, 2018, to stockholders of record on August 7, 2017.May 4, 2018.
| Fair Value Measurements |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our assets 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). The following are assets and liabilities measured at fair value on a recurring basis at June 30, 2017 (in millions):
Asset/(Liability) Balance | Input Level | |||||||
Trading investments | $ | 15.6 | 1 | |||||
Interest rate swap | $ | 3.7 | 2 | |||||
Senior notes | $ | (600.3 | ) | 2 |
Asset/(Liability) Balance | ||||||||||||
March 31, 2018 | December 31, 2017 | Input Level | ||||||||||
Trading investments | $ | 16.4 | $ | 16.4 | 1 | |||||||
Interest rate swaps | $ | (13.1 | ) | $ | (1.4 | ) | 2 | |||||
Senior notes, net of unamortized discount and debt issuance costs | $ | (584.2 | ) | $ | (595.6 | ) | 2 |
The fair value of trading investments has been measured using the market approach (Level 1)1) and reflect quoted market prices. The fair values of interest rate swaps and corresponding senior notes have been measured using the income approach (Level 2)2), which include relevant interest rate curve inputs. Trading investments andare classified in other assets in our Consolidated Balance Sheets. Depending on their period end fair value, interest rate swaps are classified in other assets, other long-term liabilities, or other accrued expenses in our Condensed Consolidated Balance Sheets and theSheets. The senior notes are classified in long-term debt and current portion of long-term debt in our Condensed Consolidated Balance Sheets.
Financial Instruments
The carrying amount and estimated fair value at June 30, 2017, March 31, 2018, 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 credit and remaining senior notes not measured at fair value on a recurring basis, were $342.9$415.8 million and $358.7$421.0 million, respectively.
The carrying amounts of all other instruments at June 30, 2017, March 31, 2018, approximate their fair value due to the short maturity of these instruments.
| Income Taxes |
Our effective income tax rate was 37.4%26.0% for the three months ended June 30, 2017, March 31, 2018, compared to 38.0%28.0% for the three months ended June 30, 2016. Our effective income tax rate was 32.9% for the first six months of 2017, compared to 38.0% in 2016. March 31, 2017. 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
The Tax Cuts and Jobs Act (the Act) was enacted in December 2017. Beginning in 2018, the Act reduced the U.S. federal corporate tax expenserate from 35% to 21%. We are applying the guidance in the Securities and Exchange Commission Staff Accounting Bulletin (SAB) No.118 when accounting for the first six monthsenactment-date effects of the Act. At March 31, 2018, we have not yet completed our accounting for all of the tax effects of the Act. However, we have made a reasonable estimate of the effects on our existing deferred tax assets and liabilities. We will continue to make and refine our calculations as additional analysis is completed. Our estimates may also be affected as we gain a more thorough understanding of the tax law. Our effective income tax rate for the first quarter 2017 included the effect of a one-timeone-time after-tax benefit of $13.6$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.years.
At June 30, 2017, March 31, 2018, we had a total of $35.2$46.1 million in gross unrecognized tax benefits, which are a component of other long-term liabilities onin our Condensed Consolidated Balance Sheets. Of this amount, $22.9$36.4 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 $5.2$4.1 million at June 30, 2017.March 31, 2018.
| 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 have appealed the case to the Ninth CircuitUnited States Court of Appeals where it is currently pending.for the Ninth Circuit. In July 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. The Ninth Circuit denied our Petition for Rehearing En Banc in November 2017, and the case has been reassigned to the United States District Court for the Central District of California for further proceedings according to the schedule entered by the Court. In February 2018, we filed a Petition for a Writ of Certiorari in the Supreme Court of the United States seeking review of the Ninth Circuit’s decision. The overlapping claims in the remaining actions have beenother 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.lawsuits, however, in 2017, we recorded a $10 million reserve representing an amount we deem acceptable for the settlement of these claims.
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, has continued and is expected to continue on a timely basis.
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.
|
|
On July 20, 2017, we entered into an agreement to acquire Special Logistics Dedicated, LLC, and its affiliated entities, subject to customary closing conditions. The purchase price is $136 million with no assumption of debt. Upon closing of this acquisition we will acquire net working capital, revenue equipment and customer contracts, and we will assume facility leases. We anticipate using our existing revolving credit facility to finance this transaction and to provide liquidity for future operations.
|
|
We reported four distinct business segments during the three and six months ended June 30, 2017 March 31, 2018 and 2016.2017. These segments included Intermodal (JBI), Dedicated Contract Services® (DCS), Integrated Capacity Solutions (ICS), 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. 2017. A summary of certain segment information is presented below (in millions):
Assets (Excludes intercompany accounts) As of | ||||||||
June 30, 2017 | December 31, 2016 | |||||||
JBI | $ | 2,026 | $ | 2,032 | ||||
DCS | 942 | 951 | ||||||
ICS | 130 | 136 | ||||||
JBT | 270 | 279 | ||||||
Other (includes corporate) | 410 | 431 | ||||||
Total | $ | 3,778 | $ | 3,829 |
Operating Revenues | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
JBI | $ | 1,001 | $ | 933 | $ | 1,939 | $ | 1,829 | ||||||||
DCS | 412 | 383 | 804 | 741 | ||||||||||||
ICS | 222 | 204 | 432 | 387 | ||||||||||||
JBT | 95 | 98 | 188 | 194 | ||||||||||||
Subtotal | 1,730 | 1,618 | 3,363 | 3,151 | ||||||||||||
Inter-segment eliminations | (3 | ) | (3 | ) | (7 | ) | (7 | ) | ||||||||
Total | $ | 1,727 | $ | 1,615 | $ | 3,356 | $ | 3,144 |
Operating Income | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
JBI | $ | 109.7 | $ | 105.6 | $ | 205.0 | $ | 208.8 | ||||||||
DCS | 48.6 | 50.5 | 93.3 | 95.2 | ||||||||||||
ICS | (0.2 | ) | 10.9 | 4.2 | 21.7 | |||||||||||
JBT | 5.5 | 8.8 | 10.5 | 18.0 | ||||||||||||
Other (includes corporate) | - | - | - | - | ||||||||||||
Total | $ | 163.6 | $ | 175.8 | $ | 313.0 | $ | 343.7 |
Depreciation and Amortization Expense | ||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | Assets (Excludes intercompany accounts) As of | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||||||||
JBI | $ | 40.4 | $ | 40.0 | $ | 80.8 | $ | 79.0 | $ | 2,094 | $ | 2,108 | ||||||||||||
DCS | 37.2 | 35.8 | 73.6 | 70.6 | 1,254 | 1,182 | ||||||||||||||||||
ICS | 0.3 | 0.1 | 0.6 | 0.2 | 197 | 204 | ||||||||||||||||||
JBT | 10.3 | 10.1 | 20.5 | 20.2 | 275 | 283 | ||||||||||||||||||
Other (includes corporate) | 4.9 | 4.4 | 9.7 | 8.7 | 602 | 688 | ||||||||||||||||||
Total | $ | 93.1 | $ | 90.4 | $ | 185.2 | $ | 178.7 | $ | 4,422 | $ | 4,465 |
Operating Revenues For The Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
JBI | $ | 1,070 | $ | 937 | ||||
DCS | 494 | 392 | ||||||
ICS | 296 | 209 | ||||||
JBT | 93 | 94 | ||||||
Subtotal | 1,953 | 1,632 | ||||||
Inter-segment eliminations | (5 | ) | (3 | ) | ||||
Total | $ | 1,948 | $ | 1,629 |
Operating Income For The Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
JBI | $ | 114.2 | $ | 95.3 | ||||
DCS | 40.6 | 44.8 | ||||||
ICS | 8.9 | 4.4 | ||||||
JBT | 5.1 | 4.9 | ||||||
Total | $ | 168.8 | $ | 149.4 |
Depreciation and Amortization Expense For The Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
JBI | $ | 42.7 | $ | 40.5 | ||||
DCS | 46.9 | 36.5 | ||||||
ICS | 0.4 | 0.2 | ||||||
JBT | 10.2 | 10.2 | ||||||
Other (includes corporate) | 5.4 | 4.8 | ||||||
Total | $ | 105.6 | $ | 92.2 |
��
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OFOPERATIONS
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, 2016,2017, 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. You should realize there are many risks and uncertainties that could cause actual results to differ materially from those described. Some of the factors and events that are not within our control and could have a significant impact on future operating results are general economic and business conditions, competition and competitive rate fluctuations, cost and availability of diesel fuel, ability to attract and retain qualified drivers and delivery personnel, a loss of one or more major customers, interference with or termination of our relationships with certain railroads, costrail service delays, insurance costs and availability, claims expense, retention of fuel, accidents,key employees, terrorist attacks or actions, acts of war, adverse weather conditions, disruption or failure of information technology systems, competitive rate fluctuations, availabilitynew or different environmental or other laws and regulations, operational disruption or adverse effects of drivers, adverse legal decisionsbusiness acquisitions, increased costs for new revenue equipment or 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 Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2016,2017, 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.
GENERAL
We are one of the largest surface transportation, delivery, and logistics companies in North America. We operate four distinct, but complementary, business segments and provide a wide range of transportation and delivery services to a diverse group of customers 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 or independent contractors. 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. Our local and home delivery services typically are provided through a network of cross-dock service centers throughout the continental United States. Utilizing a network of thousands of reliable third-party carriers, we also provide comprehensive transportation and logistics services. In addition to dry-van, full-load operations, these unrelated outside carriers also 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. 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 four business segments is described in Note 11,13, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2016.2017.
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. 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, 2016,2017, contains a summary of our critical accounting policies. 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.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30,March 31, 20178 to ThreeThree Months Ended June 30, 201March 31, 62017
Summary of Operating Segment Results For the Three Months Ended June 30, (in millions) | Summary of Operating Segment Results For the Three Months Ended March 31, (in millions) | |||||||||||||||||||||||||||||||
Operating Revenues | Operating Income | Operating Revenues | Operating Income | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
JBI | $ | 1,001 | $ | 933 | $ | 109.7 | $ | 105.6 | $ | 1,070 | $ | 937 | $ | 114.2 | $ | 95.3 | ||||||||||||||||
DCS | 412 | 383 | 48.6 | 50.5 | 494 | 392 | 40.6 | 44.8 | ||||||||||||||||||||||||
ICS | 222 | 204 | (0.2 | ) | 10.9 | 296 | 209 | 8.9 | 4.4 | |||||||||||||||||||||||
JBT | 95 | 98 | 5.5 | 8.8 | 93 | 94 | 5.1 | 4.9 | ||||||||||||||||||||||||
Other (includes corporate) | - | - | - | - | ||||||||||||||||||||||||||||
Subtotal | 1,730 | 1,618 | 163.6 | 175.8 | 1,953 | 1,632 | 168.8 | 149.4 | ||||||||||||||||||||||||
Inter-segment eliminations | (3 | ) | (3 | ) | - | - | (5 | ) | (3 | ) | - | - | ||||||||||||||||||||
Total | $ | 1,727 | $ | 1,615 | $ | 163.6 | $ | 175.8 | $ | 1,948 | $ | 1,629 | $ | 168.8 | $ | 149.4 |
Total consolidated operating revenues were $1.73 billion for second quarter 2017, compared with $1.62increased to $1.95 billion for the secondfirst quarter 2016. Current2018, a 20% increase from $1.63 billion in the first quarter total operating revenue,2017, and a 17% increase excluding fuel surcharge revenue, increased 5% versus the comparable quarterrevenues. This increase in 2016. This increaseoperating revenues was primarily due to a 6% increase in load growth of 5%volumes and an 8% increase in revenue per load in JBI, a 5%26% increase in revenues in DCS related to new customer contracts and rate increases from more mature customer contracts, and a 6% increase in load volume and a 34% increase in revenue producingper load in ICS over the same period in 2017. JBT revenue decreased 1% primarily from fewer seated trucks in DCS, and load growth of 20% in ICS.compared to a year ago.
JBI segment revenue increased 7%,14% to $1.0$1.07 billion during the secondfirst quarter 2017,2018, compared with $933$937 million in 2016. This2017. Load volumes during the first quarter 2018 grew 6% over the same period 2017. Transcontinental loads grew 2% during the first quarter 2018, while the Eastern network load volume grew 12% compared to the first quarter 2017. The 14% increase in segment revenue was primarily a result of a 5% increase in loaddue to the 6% volume and a 2%growth, combined with an 8% increase in revenue per load, which is determined by the combination of changes incustomer rates, fuel surcharges and freight mix, customer rate changes, and fuel surcharge revenue, compared to a year ago.mix. Revenue per load excluding fuel surcharges, decreased 1% from the second quarter 2016. Transcontinental load volumesurcharge revenue increased 10% while Eastern network volumes decreased 2%4% year over the second quarter 2016. Operating income of theyear. JBI segment operating income increased 4%20%, to $109.7$114.2 million in the secondfirst quarter 2017,2018, from $105.6$95.3 million in 2016.2017. Benefits from volume growth, customer rate increases, and dray fleet productivityfreight mix were partially offset by increasedan increase in rail purchased transportation costs, higher driver wagecosts; reduced network utilization and retention costs, higher driver recruiting expenses, increased technology developmentlower dray efficiency created from rail congestion, customer equipment pool utilization and modernization costs anda tight third party dray market; higher equipment ownership costs.costs; increased driver wages and recruiting costs; increased costs for onboarding and integration of container tracking technologies and insurance and claims costs compared to the first quarter 2017. The current period ended with approximately 85,60089,500 units of trailing capacity and 5,3005,450 power units availableassigned to the dray fleet.
DCS segment revenue increased 8%,26% to $412$494 million in the secondfirst quarter 2017,2018 from $383$392 million in 2016.2017. Productivity, defined as revenue per truck per week, increased by approximately 2% versus 2016, while productivity5% when compared to 2017. Productivity excluding fuel surcharges was flat from a year ago. The increase in revenue wasincreased 2%, primarily a result of better integration of assets between customer accounts anddue to customer rate increases partially offset by lower productivity under new customer contracts implementeda more impactful winter weather season during the current quarter.first quarter of 2018 compared to 2017. In addition, the growth in DCS revenue includes an increase of $35 million in Final Mile Services (FMS) revenue, approximately $25 million of which was derived from the 2017 acquisition of Special Logistics Dedicated, resulting in a 75% increase in total FMS revenue when compared to first quarter 2017. A net additional 4861,329 revenue producing trucks were in the fleet by the end of the currentfirst quarter 2018 compared to priora year ago, primarily from private fleet conversions and growth in FMS in the current and prior periods. Customer retention rates remain above 98%. Operating income of our DCS segment operating income decreased 4%9% to $48.6$40.6 million in 2017,the first quarter 2018, from $50.5$44.8 million in 2016. The decrease is primarily due to increased2017. Increased revenue was more than offset by winter weather inefficiencies, higher insurance and claims costs, driven byincreased driver wages and recruiting costs, higher incident volume,non-driver salaries wages and benefits, higher start-up expenses for new customer contractsfacilities rent and costs from the expanded FMS network, increased maintenance costs on equipment scheduled to be traded in 2018 and approximately $1.9 million in additional non-cash amortization expense compared to the prior year.first quarter 2017.
ICS segment revenue increased 9%41% to $222$296 million in the secondfirst quarter of 2017,2018, from $204$209 million in 2016.2017. Overall volumes increased 20%. Contractual business represented approximately 73% of total load volume and 58% of total6% while revenue in the current period compared to 72% and 65%, respectively, in second quarter 2016. Revenue per load decreased 9%increased 34% primarily due to freight mix changes driven by customer demand. ICS segment operating income decreased 102% to an operating loss of $0.2 million, from operating income of $10.9 million in 2016, primarily due to lower gross profit margins, increased claims cost, higher technology development costs, and increased number of branches less than two years old. These younger start-up branches typically produce less revenue and lower gross margins thana more mature branches, resulting in a higher proportion of personnel costs to net revenue. ICS had 16 of these start-up branches during the second quarter 2017,vibrant spot pricing market when compared to ten in the secondfirst quarter 2016. Gross profit margin decreased to 11.6% in the current quarter versus 15.0% last year primarily due to higher purchased transportation costs that outpaced customer rate increases implemented on2017. Spot volumes increased 43% and contractual business compared to second quarter 2016. ICS’s carrier base increased 9% and employee count increased 21% compared to second quarter 2016.
JBT segment revenueload counts decreased 4% to $95 million in the second quarter of 2017, from $98 million in 2016. Revenue excluding fuel surcharges decreased 6%, compared to a year ago, while load volume remained flat. Revenue per loaded mile excluding fuel surcharges increased approximately 1% primarily from changes in customer driven freight mix and decreased length of haul. Core customer rates increased 0.4%7% compared to the same period in 2016.2017. Contractual business represented approximately 67% of total load volume and 44% of total revenue in the first quarter 2018, compared to 76% and 63%, respectively, in 2017. ICS segment operating income increased 99% to $8.9 million in the first quarter 2018, from $4.4 million in 2017, primarily from a higher revenue per load, a higher gross profit margin, and an increased number of branches more than two years old, partially offset by continued personnel growth costs and increased technology spending as marketplace for JBHunt360 continues its rollout. Approximately $96 million of first quarter 2018 ICS revenue was executed through the marketplace for JBHunt360. Gross profit margin increased to 14.4% in the first quarter 2018, compared to 14.3% in 2017, primarily due to increased spot market activity. Total branch count grew to 44 locations compared to 42 at the end of the comparable quarter last year. ICS’s carrier base increased 15% and employee count increased 14% compared to first the quarter 2017.
JBT segment revenue totaled $93 million for the first quarter 2018, a decrease of 1% from $94 million in first quarter 2017. Revenue excluding fuel surcharge decreased 3% primarily from a 15% decrease in load count, partially offset by an increase in revenue per load. Revenue per load excluding fuel surcharge increased 14%, primarily from a 10% increase in rates per loaded mile and a 3% increase in length of haul when compared to first quarter 2017. At the end of the currentfirst quarter 2018, JBT operated 2,0721,926 tractors compared to 2,1862,144 in 2016.2017. JBT segment operating income decreased 37%increased 4% to $5.5$5.1 million in 2017,2018, compared with $8.8$4.9 million in 2016. Theduring first quarter 2017. Benefits from the higher revenue per load were partially offset by a 10% decrease in operating income was driven primarily by increased driver wage and retention costs,tractor count, an average of 162 unseated trucks during first quarter 2018, higher driver recruiting expenses, higherand independent contractor costcosts per mile and increased tractor maintenancehigher recruiting costs per driver and independent contractor compared to secondfirst quarter 2016.2017.
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 June 30, | Three Months Ended March 31, | |||||||||||||||||||||||
Dollar Amounts as a Percentage of Total Operating Revenues | Percentage Change of Dollar Amounts Between Quarters | Dollar Amounts as a Percentage of Total Operating Revenues | Percentage Change of Dollar Amounts Between Quarters | |||||||||||||||||||||
2017 | 2016 | 2017 vs. 2016 | 2018 | 2017 | 2018 vs. 2017 | |||||||||||||||||||
Total operating revenues | 100.0 | % | 100.0 | % | 6.9 | % | 100.0 | % | 100.0 | % | 19.6 | % | ||||||||||||
Operating expenses: | Operating expenses: | |||||||||||||||||||||||
Rents and purchased transportation | 50.4 | 49.2 | 9.6 | 49.5 | 49.5 | 19.6 | ||||||||||||||||||
Salaries, wages and employee benefits | 22.6 | 23.0 | 4.8 | 23.1 | 23.3 | 18.4 | ||||||||||||||||||
Fuel and fuel taxes | 5.5 | 5.0 | 33.8 | |||||||||||||||||||||
Depreciation and amortization | 5.4 | 5.6 | 3.0 | 5.4 | 5.7 | 14.5 | ||||||||||||||||||
Fuel and fuel taxes | 4.6 | 4.4 | 10.6 | |||||||||||||||||||||
Operating supplies and expenses | 3.7 | 3.5 | 14.1 | 3.6 | 3.6 | 21.8 | ||||||||||||||||||
General and administrative expenses, net of asset dispositions | 1.7 | 1.3 | 37.7 | |||||||||||||||||||||
Insurance and claims | 1.6 | 1.2 | 43.8 | 1.5 | 1.4 | 23.9 | ||||||||||||||||||
General and administrative expenses, net of asset dispositions | 1.3 | 1.2 | 16.1 | |||||||||||||||||||||
Operating taxes and licenses | 0.6 | 0.7 | (4.0 | ) | 0.6 | 0.7 | 8.5 | |||||||||||||||||
Communication and utilities | 0.3 | 0.3 | 15.8 | 0.4 | 0.3 | 55.1 | ||||||||||||||||||
Total operating expenses | 90.5 | 89.1 | 8.6 | 91.3 | 90.8 | 20.3 | ||||||||||||||||||
Operating income | 9.5 | 10.9 | (6.9 | ) | 8.7 | 9.2 | 13.0 | |||||||||||||||||
Net interest expense | 0.4 | 0.4 | 15.2 | 0.5 | 0.4 | 34.3 | ||||||||||||||||||
Earnings before income taxes | 9.1 | 10.5 | (7.8 | ) | 8.2 | 8.8 | 12.0 | |||||||||||||||||
Income taxes | 3.4 | 4.0 | (9.3 | ) | 2.1 | 2.5 | 4.1 | |||||||||||||||||
Net earnings | 5.7 | % | 6.5 | % | (6.8 | )% | 6.1 | % | 6.3 | % | 15.0 | % |
Total operating expenses increased 8.6%20.3%, while operating revenues increased 6.9%19.6%, during the secondfirst quarter 2017,2018, from the comparable period 2016.2017. Operating income decreasedincreased to $163.6$168.8 million during the secondfirst quarter 2017,2018, from $175.8$149.4 million in 2016.2017.
Rents and purchased transportation costs increased 9.6%19.6% in 2017.2018. This increase was primarily the result of increased rail and truck purchased transportation rates and the increase in load volumevolumes, which increased services provided by third-party rail and truck carriers within JBI and ICS segments.segments and increased truck and rail purchased transportation rates.
Salaries, wages and employee benefitsbenefit costs increased 4.8% during the second quarter 2017,18.4% in 2018 compared with 2016.2017. 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.
Fuel costs increased 33.8% in 2018, compared with 2017, due to increases in the price of fuel and increased road miles. Depreciation and amortization expense increased 3.0%14.5% in 2017,2018, 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 10.6% in 2017, compared with 2016, due to increases in the price of fuel and increased road miles.
Operating supplies and expenses increased 14.1%, driven21.8% in 2018, compared with 2017, primarily bydue to higher equipment maintenance costs, increased tire expense, higher nondriver travel costs, increased toll costs, and higher equipmentbuilding maintenance expenses. Insurance and claims expense increased 43.8% in 2017 compared with 2016, primarily due to higher incident volume and accident severity. General and administrative expenses increased 16.1%37.7% for the current quarter from the comparable period in 2016,2017, primarily due to increased net losses from asset sales and disposals, increased building and computer rentals, and higher professional fees.fees, partially offset by a reduction in charitable contributions. Net loss from sale or disposal of assets was $1.7$2.8 million in 2017,2018, compared to a net loss of $1.0$1.7 million in 2016.2017, primarily due to higher volume. Insurance and claims expense increased 23.9% in 2018, compared with 2017, due to higher incident volume.
Net interest expense increased 15.2%34.3% in 20172018, due primarily due to higher effective interest rates on our debt.
Income tax expense increased 4.1% in first quarter 2018, compared with 2017, primarily due to increased taxable earnings, partially offset by a lower effective income tax rate in first quarter 2018 due to the impact of the Tax Cuts and Jobs Act of 2017. Our effective income tax rate was 37.4%26.0% for the three months ended June 30,first quarter 2018, compared to 28.0% in 2017. First quarter 2017 compared with 38.0%included a one-time after-tax benefit of $13.6 million for the three months ended June 30, 2016.claiming of federal research and development tax credits and domestic production tax deductions for the 2012 through 2016 tax years. Our annual tax rate for 20172018 is expected to be 35.0% and the normalized annual tax rate, excluding one-time benefits or costs, is expected to be 37.0%26.0%. 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 Six Months Ended June 30, 2017 to Six Months Ended June 30, 2016
Summary of Operating Segment Results For the Six Months Ended June 30, (in millions) | ||||||||||||||||
Operating Revenues | Operating Income | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
JBI | $ | 1,939 | $ | 1,829 | $ | 205.0 | $ | 208.8 | ||||||||
DCS | 804 | 741 | 93.3 | 95.2 | ||||||||||||
ICS | 432 | 387 | 4.2 | 21.7 | ||||||||||||
JBT | 188 | 194 | 10.5 | 18.0 | ||||||||||||
Other (includes corporate) | - | - | - | - | ||||||||||||
Subtotal | 3,363 | 3,151 | 313.0 | 343.7 | ||||||||||||
Inter-segment eliminations | (7 | ) | (7 | ) | - | - | ||||||||||
Total | $ | 3,356 | $ | 3,144 | $ | 313.0 | $ | 343.7 |
Total consolidated operating revenues increased to $3.36 billion for the first six months of 2017, a 7% increase from the $3.14 billion for the comparable period 2016. Fuel surcharge revenues were $343.3 million during the first six months in 2017, compared with $233.7 million in 2016. If fuel surcharges were excluded from both periods, the increase in revenue from 2016 to 2017 was 4%.
JBI segment revenue increased 6%, to $1.94 billion during the first six months of 2017, compared with $1.83 billion in 2016. This increase in revenue was primarily a result of a 3% increase in load volume and a 3% increase in revenue per load, which is the combination of changes in freight mix, customer rate changes, and fuel surcharge revenue, compared to a year ago. Competitive truckload pricing originating from the 2016 bid season within the shorter length of haul Eastern network continued to carry over into 2017, pressuring intermodal rates and conversion. Revenue per load, excluding fuel surcharge revenue, decreased 1% from the first six months of 2016. JBI operating income segment decreased to $205.0 million in the first six months of 2017, from $208.8 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, higher driver wages and recruiting costs, higher equipment ownership costs, increased insurance and claims costs and, increased technology development and modernization costs.
DCS segment revenue increased 9%, to $804 million during the first six months of 2017, from $741 million in 2016. Productivity, defined as revenue per truck per week, increased by approximately 4% from a year ago. Productivity excluding fuel surcharges for the first six months of 2017 increased 2% 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 $93.3 million in 2017, from $95.2 million in 2016. Increased revenue and improved asset integration was offset by higher driver wages, increased insurance and claims cost, and increased start up expenditures for new customer contracts compared to the first six months of 2016.
ICS revenue increased 12% to $432 million during the first six months of 2017, from $387 million in 2016. Overall volumes increased 28%. Revenue per load decreased 13% primarily due to freight mix changes driven by customer demand. ICS segment operating income decreased 80% to $4.2 million, from $21.7 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 16.1% last year primarily due to higher purchased transportation costs that outpaced customer rate increases implemented on contractual business and lower customer spot rates, compared to a year ago.
JBT segment revenue decreased 3% to $188 million for the first six months of 2017, from $194 million in 2016. Revenue excluding fuel surcharges decreased 6%, primarily from a 7% decrease in revenue per load partially offset by a 1% increase in load count. The decrease in revenue per load when compared to 2016 was primarily due to a 6% decrease in length of haul. Our JBT segment operating income decreased 42% to $10.5 million during the first six months 2017, from $18.0 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, higher insurance and claims cost, and increased tractor maintenance costs compared to second quarter 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.
Six Months Ended June 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 | % | 6.8 | % | ||||||
Operating expenses: | ||||||||||||
Rents and purchased transportation | 50.0 | 48.8 | 9.3 | |||||||||
Salaries, wages and employee benefits | 22.9 | 23.4 | 4.9 | |||||||||
Depreciation and amortization | 5.5 | 5.7 | 3.6 | |||||||||
Fuel and fuel taxes | 4.8 | 4.2 | 22.0 | |||||||||
Operating supplies and expenses | 3.7 | 3.5 | 10.3 | |||||||||
Insurance and claims | 1.5 | 1.2 | 38.2 | |||||||||
General and administrative expenses, net of asset dispositions | 1.4 | 1.3 | 11.5 | |||||||||
Operating taxes and licenses | 0.6 | 0.7 | (4.0 | ) | ||||||||
Communication and utilities | 0.3 | 0.3 | 5.4 | |||||||||
Total operating expenses | 90.7 | 89.1 | 8.7 | |||||||||
Operating income | 9.3 | 10.9 | (8.9 | ) | ||||||||
Net interest expense | 0.4 | 0.4 | 10.5 | |||||||||
Earnings before income taxes | 8.9 | 10.5 | (9.7 | ) | ||||||||
Income taxes | 2.9 | 4.0 | (21.9 | ) | ||||||||
Net earnings | 6.0 | % | 6.5 | % | (2.2 | )% |
Total operating expenses increased 8.7%, while operating revenues increased 6.8%, during the first six months 2017, from the comparable period of 2016. Operating income decreased to $313.0 million during the first six months 2017, from $343.7 million in 2016.
Rents and purchased transportation costs increased 9.3% 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 4.9% 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 3.6% 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 22.0% in 2017, compared with 2016, due to increases in the price of fuel and increased road miles.
Operating supplies and expenses increased 10.3% driven primarily by increased tire expense, higher nondriver travel costs and higher equipment maintenance expenses. Insurance and claims expense increased 38.2% in 2017 compared with 2016, primarily due to higher incident volume and accident severity. General and administrative expenses increased 11.5% from the comparable period in 2016, primarily due to increased net losses from asset sales and disposals, increased building and computer rentals, and higher professional fees, partially offset by a reduction in charitable contributions. Net loss from sale or disposal of assets was $3.4 million in 2017, compared to a net loss of $1.0 million in 2016.
Net interest expense increased 10.5% in 2017, primarily due to higher effective interest rates on our debt. Income tax expense decreased 21.9% 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. Our effective income tax rate was 32.9% for the first six 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 and Capital Resources
Cash Flow
Net cash provided by operating activities totaled $443.4$262 million during the first sixthree months of 2017,2018, compared with $474.1$286 million for the same period 2016.2017. Operating cash flows decreased due to the timing of general working capital activities.activities, partially offset by increased earnings. Net cash used in investing activities totaled $168.6$179 million in 2017,2018, compared with $258.0$94 million in 2016.2017. The decreaseincrease resulted from a decreasean increase in equipment purchases in 2017,2018 partially offset by a decreasean increase in proceeds from the sale of equipment during the same period. Net cash used in financing activities was $274.0$90 million in 2017,2018, compared with $210.5$185 million in 2016.2017. This change resulted primarily from an increasea decrease in treasury stock purchased.purchased in 2018.
Debt and Liquidity Data
June 30, 2017 | December 31, 2016 | June 30, 2016 | March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||||||||||||
Working capital ratio | 1.49 | 1.65 | 1.50 | 1.13 | 1.45 | 1.43 | ||||||||||||||||||
Current portion of long-term debt (millions) | $ | 247.6 | - | - | ||||||||||||||||||||
Total debt (millions) | $ | 943.2 | $ | 986.3 | $ | 957.6 | $ | 1,000.0 | $ | 1,085.6 | $ | 950.6 | ||||||||||||
Total debt to equity | 0.67 | 0.70 | 0.69 | 0.51 | 0.59 | 0.69 | ||||||||||||||||||
Total debt as a percentage of total capital | 40 | % | 41 | % | 41 | % | 34 | % | 37 | % | 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. We are frequently able to accelerate or postpone a portion of equipment replacements depending on market conditions. 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 all debt facilities maturing in 2019, it is our intent to pay the entire outstanding balances in full, on or before the maturity dates, using our existing senior 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 of June 30, 2017March 31, 2018 (in millions):
Total | One Year Or Less | One to Three Years | Three to Five Years | After Five Years |
Total |
One Year Or Less |
One to Three Years |
Three to Five Years |
After Five Years | |||||||||||||||||||||||||||||||
Operating leases | $ | 41.8 | $ | 17.0 | $ | 17.9 | $ | 6.9 | $ | - | $ | 107.8 | $ | 29.4 | $ | 46.9 | $ | 24.3 | $ | 7.2 | ||||||||||||||||||||
Debt obligations | 945.3 | - | 250.0 | 95.3 | 600.0 | 1,017.9 | 250.0 | 167.9 | 350.0 | 250.0 | ||||||||||||||||||||||||||||||
Interest payments on debt(1) | 127.3 | 26.0 | 45.4 | 37.6 | 18.3 | |||||||||||||||||||||||||||||||||||
Interest payments on debt (1) | 126.5 | 33.0 | 48.8 | 35.1 | 9.6 | |||||||||||||||||||||||||||||||||||
Commitments to acquire revenue equipment and facilities | 881.8 | 174.2 | 707.6 | - | - | 743.4 | 362.8 | 380.6 | - | - | ||||||||||||||||||||||||||||||
Total | $ | 1,996.2 | $ | 217.2 | $ | 1,020.9 | $ | 139.8 | $ | 618.3 | $ | 1,995.6 | $ | 675.2 | $ | 644.2 | $ | 409.4 | $ | 266.8 |
(1) | Interest payments on debt are based on the debt balance and applicable rate at |
Our net capital expenditures were approximately $165$179 million during the first sixthree months of 2017,2018, compared with $258$91 million for the same period 2016.2017. 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 20172018 were primarily for tractors, additional intermodal containers and chassis, and other trailing equipment. We are currently committed to spend approximately $882$743 million during the remainder of 20172018 and 2018.2019. We expect to spend in the range of $450$440 million to $475$460 million for net capital expenditures during calendar year 2017.the remainder of 2018. The table above excludes $40.4$50.2 million of potential liabilities for uncertain tax positions, including interest and penalties, which are recorded on our Condensed Consolidated Balance Sheets. However, we are unable to reasonably estimate the ultimate timing of any settlements.
On July 20, 2017, we entered into an agreement to acquire Special Logistics Dedicated, LLC, and its affiliated entities, see Note 10, Subsequent Event, in our Condensed Consolidated Financial Statements. We anticipate using our existing revolving credit facility to finance this transaction and to provide liquidity for future operations. The transaction is not expected to have a material impact on interest expense.
Off-Balance Sheet Arrangements
Our only off-balance sheet arrangements as of June 30, 2017March 31, 2018, were operating leases related to facility lease obligations.
Risk Factors
You should refer to Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2016,2017, 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.
● | Our business is subject to general economic and business factors, any of which could have a material adverse effect on our results of operations. Economic trends and tightening of credit in financial markets could adversely affect our ability, and the ability of our suppliers, to obtain financing for operations and capital expenditures. |
● | We depend on third parties in the operation of our business. |
● | Rapid changes in fuel costs could impact our periodic financial results. |
● | Insurance and claims expenses could significantly reduce our earnings. |
● | 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 on our business. |
● | We operate in a regulated industry, and increased direct and indirect costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business. |
● | Difficulty in attracting and retaining drivers, delivery personnel and third-party carriers could affect our profitability and ability to grow. |
● | We may be subject to litigation claims that could result in significant expenditures. |
● | 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. |
● | We operate in a competitive and highly fragmented industry. Numerous factors could impair our ability to maintain our current profitability and to compete with other carriers and private fleets. |
● | 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 business results. |
● | Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties. |
In addition to the above, the following risk factor should also be carefully considered when evaluating our business.
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:
● | ||
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Our business could be materially impacted 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.
ITEM 3. Quantitative And Qualitative Disclosures AbouT Market Risk
Our outstanding debt at June 30, 2017March 31, 2018 includes our senior revolving line of credit and senior notes issuances. Our senior notes have fixed interest rates ranging from 2.40% to 3.85%. Our senior revolving line of credit has variable interest rates, which are based on the Prime Rate, the Federal Funds Rate, or LIBOR, depending upon the specific type of borrowing, plus any applicable margins. We currently have interest rate swap agreements which effectively convert 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. 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. At our current level of borrowing, a one percentage point increase in our applicable rate would reduce annual pretax earnings by $7.0$7.7 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 six months ended June 30, 2017.March 31, 2018. 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 June 30, 2017,March 31, 2018, 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 June 30, 2017,March 31, 2018, 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 June 30, 2017.March 31, 2018.
There were no changes in our internal control over financial reporting during the secondfirst quarter of 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
ITEMITEM 1. LEGAL PROCEEDINGSLEGAL 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 have appealed the case to the Ninth CircuitUnited States Court of Appeals where it is currently pending.for the Ninth Circuit. In July 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. The Ninth Circuit denied our Petition for Rehearing En Banc in November 2017, and the case has been reassigned to the United States District Court for the Central District of California for further proceedings according to the schedule entered by the Court. In February 2018, we filed a Petition for a Writ of Certiorari in the Supreme Court of the United States seeking review of the Ninth Circuit’s decision. The overlapping claims in the remaining actions have beenother 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.lawsuits, however, in 2017, we recorded a $10 million reserve representing an amount we deem acceptable for the settlement of these claims.
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.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, has continued and is expected to continue on a timely basis.
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.
|
|
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.
|
|
Purchases of Equity Securities2017.
The following table summarizes purchases of our common stock during the three months ended June 30, 2017:
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) | ||||||||||||
April 1 through April 30, 2017 | - | $ | - | - | $ | 571 | ||||||||||
May 1 through May 31, 2017 | 563,700 | 88.79 | 563,700 | 521 | ||||||||||||
June 1 through June 30, 2017 | - | - | - | 521 | ||||||||||||
Total | 563,700 | $ | 88.79 | 563,700 | $ | 521 |
(1) On October 22, 2015 our Board of Directors authorized the purchase of up to $500 million of our common stock. On April 20, 2017 our Board of Directors authorized an additional purchase of up to $500 million of our common stock.
|
|
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
|
|
Not applicable.
|
|
Not applicable.
|
ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS |
Index to Exhibits
Exhibit | ||
Number | Exhibits | |
3.1 | ||
3.2 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Lowell, Arkansas, on the 28th4th day of July, 2017.May, 2018.
J.B. HUNT TRANSPORT SERVICES, INC. | |||
(Registrant) | |||
BY: | /s/ John N. Roberts, III | ||
John N. Roberts, III | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) |
| |||
BY: | /s/ David G. Mee | ||
David G. Mee | |||
Executive Vice President, Finance and | |||
Administration and Chief Financial Officer | |||
(Principal Financial Officer) |
| |||
BY: | /s/ John K. Kuhlow | ||
John K. Kuhlow | |||
Senior Vice President Finance, Controller, | |||
Chief Accounting Officer | |||
(Principal Accounting Officer) |
2321