5. | Derivative Financial Instruments for terms of interest rate swaps entered into on the $250 million of 2.40% senior notes due March 2019 and the $350 million of 3.30% senior notes due August 2022. Our financing arrangements require us to maintain certain covenants and financial ratios. We were in compliance with all covenants and financial ratios at September 30, 2017.
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 million of 2.40% senior notes due March 2019 and $350 million of 3.30% senior notes due August 2022, to effectively convert this fixed-rate debt to variable-rate. The notional amounts of these interest rate swap agreements equal those of the corresponding fixed-rate debt. The applicable interest rates under these agreements are based on LIBOR plus an established margin, resulting in an interest rate of 2.17% for our $250 million of 2.40% senior notes and 2.67% for our $350 million of 3.30% senior notes at September 30, 2017. The swaps expire when the corresponding senior notes are due. The fair values of these swaps are recorded in other long-term liabilities in our Condensed Consolidated Balance Sheet at September 30, 2016. See Note 7, Fair Value Measurements, for disclosure of fair value. These derivatives meet the required criteria to be designated as fair value hedges, and as the specific terms and notional amounts of these derivative instruments match those of the fixed-rate debt being hedged, these derivative instruments are assumed to perfectly hedge the related debt against changes in fair value due to changes in the benchmark interest rate. Accordingly, any change in the fair value of these interest rate swaps recorded in earnings is offset by a corresponding change in the fair value of the related debt. On October 22,2015, our Board of Directors authorized the purchase of $500 million of our common stock. On April 20, 2017, our Board of Directors authorized an additional purchase of up to $500 million of our common stock. At September 30, 2017, $521 million of the combined authorization was remaining. We did not purchase any shares under our repurchase authorization during the three months ended September 30, 2017. On July 20, 2017, our Board of Directors declared a regular quarterly cash dividend of $0.23, which was paid August 18, 2017, to stockholders of record on August 7, 2017. On October 19, 2017, our Board of Directors declared a regular quarterly dividend of $0.23 per common share, which will be paid on November 17, 2017, to stockholders of record on November 3, 2017.
7.
| 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) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2). The following are assets and liabilities measured at fair value on a recurring basis at September 30, 2017 (in millions):
| | | Asset/(Liability) Balance | | | Input Level | | Trading investments | | $ | 15.9 | | | | 1 | | Interest rate swaps | | $ | (1.5 | ) | | | 2 | | Senior notes | | $ | (595.3 | ) | | | 2 | |
The fair value of trading investments has been measured using the market approach (Level 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), which include relevant interest rate curve inputs. Trading investments are classified in other assets and the interest rate swaps are classified in other long-term liabilities in our Condensed Consolidated Balance Sheet. The senior notes are classified in long-term debt in our Condensed Consolidated Balance Sheet.
Financial Instruments
The carrying amount and estimated fair value at September 30, 2017, using the income approach (Level 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 $489.5 million and $504.0 million, respectively.
The carrying amounts of all other instruments at September 30, 2017, approximate their fair value due to the short maturity of these instruments.
Our effective income tax rate was 35.9% for the three months ended September 30, 2017, compared to 38.0% for the three months ended September 30, 2016. Our effective income tax rate was 33.9% for the firstnine months of 2017, compared to 38.0% in 2016. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits. Income tax expense for the firstnine months of 2017 included a one-time after-tax benefit of $13.6 million for the claiming of federal research and development tax credits and domestic production tax deductions for the 2012 through 2016 tax years, recorded in the first quarter of 2017. In addition, an after-tax benefit of $4.5 million for stock compensation tax benefits and a one-time after-tax cost of $1.5 million for state income tax rate changes, were both recorded in the third quarter 2017.
At September 30, 2017, we had a total of $35.6 million in gross unrecognized tax benefits, which are a component of other long-term liabilities on our Condensed Consolidated Balance Sheets. Of this amount, $23.2 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate. The total amount of accrued interest and penalties for such unrecognized tax benefits was $5.8 million at September 30, 2017.
We are a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the first half of 2014, the District Court in the lead class-action granted judgment in our favor with regard to all claims. The plaintiffs appealed the case to the United States Court of Appeals for the Ninth Circuit. On July 31, 2017, the Ninth Circuit issued a Memorandum decision vacating the judgment in our favor and remanding the case to the District Court for further proceedings. We filed a Petition for Rehearing En Banc with the Ninth Circuit, which is currently pending. The overlapping claims in the other lawsuits remain stayed pending final resolution of the appellate process or a final decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits.
In January 2017, we exercised our right to utilize the arbitration process to review the division of revenue collected beginning May 1, 2016, as well as to clarify other issues, under our Joint Service Agreement with BNSF Railway Company (BNSF). BNSF has requested the same, and the arbitration process has commenced. BNSF provides a significant amount of rail transportation services to our JBI business segment. At this time, we are unable to reasonably predict the outcome of the arbitration, and, as such, no gain or loss contingency can be determined or recorded. Normal commercial business activity between the parties, including load tendering, load tracing, billing and payments, is expected to continue on a timely basis.
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 (SLD), and its affiliated entities, subject to customary closing conditions. The purchase price was $136.0 million with no assumption of debt. The closing of the transaction was effective on July 31, 2017. Total consideration paid in cash under the SLD agreement was $137.6 million and consisted of the agreed upon purchase price adjusted for an estimated working capital adjustment and cash acquired. In addition, we incurred approximately $3.0 million in transaction costs which are recorded in general and administrative expenses, net of asset dispositions in our Condensed Consolidated Statements of Earnings. The SLD acquisition was accounted for as a business combination. Assets acquired and liabilities assumed were recorded in our Condensed Consolidated Balance Sheet at their estimated fair values, as of the closing date, using cost, market data and valuation techniques that reflect management’s judgment and estimates. As a result of the acquisition, we recorded approximately $60 million of definite-lived intangible assets and approximately $56 million of goodwill. Goodwill consists of acquiring and retaining the SLD existing network and expected synergies from the combination of operations. The following table outlines the consideration transferred and preliminary purchase price allocation at their respective estimated fair values as of July 31, 2017 (in millions):
Consideration | | $ | 137.6 | | Accounts receivable | | | 9.4 | | Other current assets | | | 1.5 | | Property and equipment | | | 14.9 | | Intangibles | | | 60.2 | | Accounts payable | | | (3.9 | ) | Accrued Liabilities | | | (0.2 | ) | Goodwill | | $ | 55.7 | |
As of September 30, 2017, the purchase price allocation is considered preliminary, subject to revision, as valuation procedures and tax considerations are completed.
11.
| Goodwill and Other Intangible Assets
|
As discussed in Note 10, Acquisitions, in third quarter 2017, we recorded goodwill of approximately $56 million and definite-lived intangible assets of approximately $60 million in connection with the SLD acquisition. All goodwill was assigned to our Dedicated Contract Services® business segment. There has been no change in the carrying amount or impairment losses recorded for goodwill as of September 30, 2017. Identifiable intangible assets consist of the following (in millions):
| | | September 30, 2017 | | | Weighted Average Amortization Period | | Definite-lived intangibles: | | | | | | | | | Non-competition agreements | | $ | 0.2 | | | | 5 | | Customer relationships | | | 60.0 | | | | 8 | | | Total definite-lived intangibles | | | 60.2 | | | | | | Less accumulated amortization | | | (1.5 | ) | | | | | Total identifiable intangible assets, net | | $ | 58.7 | | | | | |
At September 30, 2017, accumulated amortization consists of $1.5 million. Our definite-lived intangible assets have no assigned residual values.
Intangible asset amortization expense was $1.5 million for the three and nine months ended September 30, 2017. Estimated amortization expense for our definite-lived intangible assets is expected to be approximately $7.5 million annually. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment or accelerated amortization of intangible assets, and other events.
We reported four distinct business segments during the three and nine months ended September 30, 2017 and 2016. 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,Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2016. A summary of certain segment information is presented below (in millions):
| | | Assets (Excludes intercompany accounts) As of | | | | | September 30, 2017 | | | December 31, 2016 | | JBI | | $ | 2,077 | | | $ | 2,032 | | DCS | | | 1,138 | | | | 951 | | ICS | | | 182 | | | | 136 | | JBT | | | 262 | | | | 279 | | Other (includes corporate) | | | 395 | | | | 431 | | Total | | $ | 4,054 | | | $ | 3,829 | |
| | | Operating Revenues | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | JBI | | $ | 1,048 | | | $ | 970 | | | $ | 2,987 | | | $ | 2,798 | | DCS | | | 438 | | | | 394 | | | | 1,242 | | | | 1,135 | | ICS | | | 269 | | | | 233 | | | | 701 | | | | 620 | | JBT | | | 93 | | | | 97 | | | | 281 | | | | 291 | | Subtotal | | | 1,848 | | | | 1,694 | | | | 5,211 | | | | 4,844 | | Inter-segment eliminations | | | (5 | ) | | | (3 | ) | | | (12 | ) | | | (10 | ) | Total | | $ | 1,843 | | | $ | 1,691 | | | $ | 5,199 | | | $ | 4,834 | |
| | | Operating Income | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | JBI | | $ | 109.1 | | | $ | 116.9 | | | $ | 314.1 | | | $ | 325.6 | | DCS | | | 42.9 | | | | 52.5 | | | | 136.2 | | | | 147.7 | | ICS | | | 7.3 | | | | 8.5 | | | | 11.5 | | | | 30.2 | | JBT | | | 5.7 | | | | 5.1 | | | | 16.2 | | | | 23.1 | | Other (includes corporate) | | | - | | | | - | | | | - | | | | 0.1 | | Total | | $ | 165.0 | | | $ | 183.0 | | | $ | 478.0 | | | $ | 526.7 | |
| | | Depreciation and Amortization Expense | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | JBI | | $ | 40.4 | | | $ | 40.3 | | | $ | 121.2 | | | $ | 119.4 | | DCS | | | 40.4 | | | | 35.8 | | | | 114.1 | | | | 106.3 | | ICS | | | 0.3 | | | | 0.1 | | | | 0.9 | | | | 0.3 | | JBT | | | 10.2 | | | | 10.1 | | | | 30.7 | | | | 30.4 | | Other (includes corporate) | | | 4.7 | | | | 4.7 | | | | 14.3 | | | | 13.3 | | Total | | $ | 96.0 | | | $ | 91.0 | | | $ | 281.2 | | | $ | 269.7 | |
ITEM 2. MANAGEMENT’S 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, 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 conditions, interference with or termination of our relationships with certain railroads, cost and availability of fuel, accidents, adverse weather conditions, disruption or failure of information technology systems, competitive rate fluctuations, availability of drivers, adverse legal decisions and audits or tax assessments of various federal, state, or local taxing authorities. 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, 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, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2016.
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, income taxes, goodwill, and other intangible assets. 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, contains a summary of our critical accounting policies. Note 1, General, to the financial statements in this quarterly report contains any subsequent updates to this summary. There have been no material changes to the methodology we apply for critical accounting estimates as previously disclosed in our Annual Report on Form 10-K, with the exception of that disclosed in Note 1, General, to the financial statements in this quarterly report.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2017 to Three Months Ended September 30, 2016
| | | Summary of Operating Segment Results For the Three Months Ended September 30, | | | | | Operating Revenues | | | Operating Income | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | JBI | | $ | 1,048 | | | $ | 970 | | | $ | 109.1 | | | $ | 116.9 | | DCS | | | 438 | | | | 394 | | | | 42.9 | | | | 52.5 | | ICS | | | 269 | | | | 233 | | | | 7.3 | | | | 8.5 | | JBT | | | 93 | | | | 97 | | | | 5.7 | | | | 5.1 | | Other (includes corporate) | | | - | | | | - | | | | - | | | | - | | Subtotal | | | 1,848 | | | | 1,694 | | | | 165.0 | | | | 183.0 | | Inter-segment eliminations | | | (5 | ) | | | (3 | ) | | | - | | | | - | | Total | | $ | 1,843 | | | $ | 1,691 | | | $ | 165.0 | | | $ | 183.0 | |
Total consolidated operating revenues were $1.84 billion for the third quarter 2017, compared to $1.69 billion for the third quarter 2016. Current quarter total operating revenue, excluding fuel surcharges, increased 8% versus the comparable quarter in 2016. This increase was primarily due to load growth of 6% in JBI, improved asset productivity and a 14% increase in revenue producing trucks in DCS, and a 17% increase in revenue per load in ICS, partially offset by a 7% decrease in load count in JBT and overall operating disruptions caused by hurricanes Harvey, Irma and Maria.
JBI segment revenue increased 8% to $1.05 billion during the third quarter 2017, compared with $970 million in 2016. This increase in segment revenue was primarily a result of a 6% increase in load volume and a 2% increase in revenue per load, which is the combination of changes in freight mix, customer rates, and fuel surcharge revenue, compared to a year ago. Revenue per load excluding fuel surcharges was flat compared to third quarter 2016. Load volume in our eastern network increased 2%, and transcontinental loads grew 8% over the third quarter 2016. Operating income of our JBI segment decreased 7% to $109.1 million in 2017, from $116.9 million in 2016. Benefits from volume growth were offset by higher driver wage and retention expenses, increased insurance and claims costs, increased rail purchased transportation rates, increases in costs from inefficiencies due to rail congestion, rail rationalization, equipment ownership costs, and operating disruptions caused by hurricanes.
DCS segment revenue increased 11% to $438 million in 2017, from $394 million in 2016. This increase in segment revenue was due to better integration of assets between customer accounts and customer rate increases, partially offset by lower productivity at new customer accounts implemented during the current quarter. Productivity, defined as revenue per truck per week, increased 2% in the third quarter 2017, when compared to the same period in 2016. Productivity excluding fuel surcharge was flat from a year ago. A net additional 1,024 revenue producing trucks were in the fleet by the end of the current quarter compared to prior year, primarily from private fleet conversions in the current and prior periods. Customer retention rates remain above 98%. Operating income of our DCS segment decreased 18% to $42.9 million in 2017, from $52.5 million in 2016. The decrease is primarily due to the timing between increased driver wages and their subsequent recovery through customer contracts, increased driver recruiting costs, increased insurance and claims costs, increased salaries and benefits costs, higher equipment ownership costs and operating disruptions caused by hurricanes. In addition, DCS incurred approximately $4.5 million in acquisition costs and intangible asset amortization associated with the purchase of SLD, which closed during the third quarter 2017.
ICS segment revenue increased 16% to $269 million in the third quarter 2017, from $233 million in the third quarter 2016. Revenue per load increased 17%, primarily from increased spot market activity which created a more favorable balance between contractual and spot revenue. Overall volumes decreased 1%. Contractual business represented approximately 65% of total load volume and 48% of total revenue in the current period compared to 75% and 64%, respectively, in third quarter 2016. Operating income of our ICS segment decreased 14% to $7.3 million from $8.5 million in 2016. Gross profit margin was flat at 12.8% in the current quarter compared to the third quarter 2016, primarily due to improvements in spot market gross margins being fully offset by continued compression of gross margins within contractual business. In addition, benefits from increased revenue were more than offset by higher technology development costs and a larger number of branches open less than two years during the current quarter compared to 2016. ICS’s carrier base increased 10% and employee count increased 17% compared to third quarter 2016.
JBT segment revenue decreased 5% to $93 million for the third quarter 2017, from $97 million in the third quarter 2016. Revenue excluding fuel surcharges decreased 6%, primarily due to a 7% decrease in load count, partially offset by a 1% increase in revenue per load. Revenue per load increased primarily due to a 4% increase in rates per loaded mile, partially offset by a 3% decrease in length of haul compared to third quarter 2016. Core customer rates were flat compared to the same period in 2016. At the end of the current quarter, JBT operated 2,040 tractors compared to 2,183 in 2016. JBT segment operating income increased 12% to $5.7 million in 2017, compared with $5.1 million in 2016. The increase in operating income was driven primarily by higher rates per loaded mile and lower safety and insurance costs, partially offset by increased driver wages, higher independent contractor costs per mile, lower tractor utilization, and increased tractor maintenance costs compared to third quarter 2016.
Consolidated Operating Expenses
The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.
| | | Three Months Ended September 30, | | | | | Dollar Amounts as a Percentage of Total Operating Revenues | | | Percentage Change | | | | | 2017 | | | 2016 | | | 2017 vs. 2016 | | Total operating revenues | | | 100.0 | % | | | 100.0 | % | | | 9.0 | % | Operating expenses: | | | | | | | | | | | | | Rents and purchased transportation | | | 51.4 | | | | 50.1 | | | | 11.9 | | Salaries, wages and employee benefits | | | 22.2 | | | | 22.2 | | | | 9.0 | | Depreciation and amortization | | | 5.2 | | | | 5.4 | | | | 5.4 | | Fuel and fuel taxes | | | 4.7 | | | | 4.4 | | | | 17.3 | | Operating supplies and expenses | | | 3.7 | | | | 3.7 | | | | 8.7 | | Insurance and claims | | | 1.4 | | | | 1.3 | | | | 21.0 | | General and administrative expenses, net of asset dispositions | | | 1.6 | | | | 1.1 | | | | 39.8 | | Operating taxes and licenses | | | 0.6 | | | | 0.7 | | | | (7.9 | ) | Communication and utilities | | | 0.3 | | | | 0.3 | | | | 14.7 | | Total operating expenses | | | 91.1 | | | | 89.2 | | | | 11.3 | | Operating income | | | 8.9 | | | | 10.8 | | | | (9.8 | ) | Net interest expense | | | 0.4 | | | | 0.4 | | | | 28.1 | | Earnings before income taxes | | | 8.5 | | | | 10.4 | | | | (11.2 | ) | Income taxes | | | 3.1 | | | | 3.9 | | | | (16.1 | ) | Net earnings | | | 5.4 | % | | | 6.5 | % | | | (8.3 | )% |
Total operating expenses increased 11.3%, while operating revenues increased 9.0% during the third quarter 2017, from the comparable period 2016. Operating income decreased to $165.0 million during the third quarter 2017 from $183.0 million in 2016.
Rents and purchased transportation costs increased 11.9% in 2017. This increase was primarily the result of increased third-party rail and truck purchased transportation rates within JBI and ICS segments and the increase in JBI load volume, which increased services provided by third-party rail carriers.
Salaries, wages and employee benefits costs increased 9.0% during the third quarter 2017, compared with 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 5.4% 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 17.3% in 2017, compared with 2016, due to an increase in the price of fuel, partially offset by decreased road miles.
Operating supplies and expenses increased 8.7%, driven primarily by increases in travel activity and tire expense. Insurance and claims expense increased 21.0% in 2017 compared with 2016, primarily due to higher incident volume and accident severity. General and administrative expenses increased 39.8% for the current quarter from the comparable period in 2016, primarily due to higher professional fees expenses, increased building rental expenses, higher computer software subscription costs, and increased net losses from asset sales and disposals. Net loss from sale or disposal of assets was $2.3 million in 2017, compared to a net gain of $1.3 million in 2016.
Net interest expense increased 28.1% in 2017 due to an increase in average debt levels and higher effective interest rates on our debt compared to third quarter 2017. Income tax expense decreased 16.1% in 2017, compared with 2016, primarily due to an after-tax benefit of $4.5 million for stock compensation tax benefits, partially offset by a one-time after-tax cost of $1.5 million for state income tax rate changes, both of which were recorded in third quarter 2017. Our effective income tax rate was 35.9% for the three months ended September 30, 2017, compared with 38.0% for the three months ended September 30, 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.
Comparison of NineMonths Ended September 30, 2017 to Nine Months Ended September 30, 2017
| | | Summary of Operating Segment Results For the Nine Months Ended September 30, | | | | | Operating Revenues | | | Operating Income | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | JBI | | $ | 2,987 | | | $ | 2,798 | | | $ | 314.1 | | | $ | 325.6 | | DCS | | | 1,242 | | | | 1,135 | | | | 136.2 | | | | 147.7 | | ICS | | | 701 | | | | 620 | | | | 11.5 | | | | 30.2 | | JBT | | | 281 | | | | 291 | | | | 16.2 | | | | 23.1 | | Other (includes corporate) | | | - | | | | - | | | | - | | | | 0.1 | | Subtotal | | | 5,211 | | | | 4,844 | | | | 478.0 | | | | 526.7 | | Inter-segment eliminations | | | (12 | ) | | | (10 | ) | | | - | | | | - | | Total | | $ | 5,199 | | | $ | 4,834 | | | $ | 478.0 | | | $ | 526.7 | |
Total consolidated operating revenues were $5.20 billion for the first nine months 2017, an 8% increase from $4.83 billion for the comparable period 2016. Fuel surcharge revenues were $529.2 million during the first nine months 2017, compared with $385.7 million in 2016. If fuel surcharge revenues were excluded from both periods, the increase of 2017 revenue from 2016 was 5%.
JBI segment revenue increased 7%, to $2.99 billion during the first nine months of 2016, compared with $2.80 billion in 2016. This increase in revenue was primarily a result of a 4% increase in load volume and a 2% increase in revenue per load, which is the combination of changes in freight mix, customer rates, and fuel surcharge revenue, compared to a year ago. Operating income of the JBI segment decreased to $314.1 million in the first nine months of 2017, from $325.6 million in 2016. Benefits from volume growth were more than offset by lower revenue per load excluding fuel surcharges, increases in rail purchased transportation costs, rail inefficiencies, higher driver wages and recruiting costs, higher equipment ownership costs, increased insurance and claims costs, increased technology development and modernization costs, and operating disruptions caused by hurricanes.
DCS segment revenue increased 9%, to $1.24 billion during the first nine months of 2017, from $1.14 billion in 2016. Productivity, defined as revenue per truck per week, increased 3% from a year ago Productivity excluding fuel surcharge for the first nine months of 2017 increased 1% from a year ago. The increase in revenue was primarily a result of better integration of assets between customer accounts and customer rate increases, partially offset by lower productivity under new customer contracts and a more impactful winter weather season during the first quarter of 2017 compared to 2016. Operating income of our DCS segment decreased to $136.2 million in 2017, from $147.7 million in 2016. Increased revenue and improved asset integration was offset by higher driver wages, increased insurance and claims cost, increased start up expenditures for new customer contracts, operating disruptions caused by hurricanes, and the addition of acquisition costs and intangible asset amortization associated with the purchase of SLD when compared to the first nine months of 2016.
ICS revenue increased 13% to $701 million during the first nine months of 2017, from $620 million in 2016. Overall volumes increased 16%. Revenue per load decreased 3% primarily due to freight mix changes driven by customer demand. ICS segment operating income decreased 62% to $11.5 million, from $30.2 million in 2016, primarily due to lower gross profit margins, increased claims cost, increased number of branches less than two years old, and higher technology development costs. Gross profit margin decreased to 12.9% in the current period versus 14.9% last year primarily due to higher purchased transportation costs that outpaced customer rate increases implemented on contractual business, compared to a year ago.
JBT segment revenue decreased 4% to $281 million for the first nine months 2017, from $291 million in 2016, primarily from a 2% decrease in load count and a 2% decrease in revenue per load. The decrease in revenue per load when compared to 2016 was primarily due to a 5% decrease in length of haul. Revenue excluding fuel surcharges decreased 6%, compared to 2016. Our JBT segment operating income decreased to $16.2 million during the first nine months 2017, from $23.1 million in 2016. The decrease in operating income was driven primarily by lower revenue, increased driver wages and recruiting costs, higher independent contractor cost per mile, lower tractor utilization and increased tractor maintenance costs compared to 2016.
Consolidated Operating Expenses
The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.
| | | Nine Months Ended September 30, | | | | | Dollar Amounts as a Percentage of Total Operating Revenues | | | Percentage Change | | | | | 2017 | | | 2016 | | | 2017 vs. 2016 | | Total operating revenues | | | 100.0 | % | | | 100.0 | % | | | 7.6 | % | Operating expenses: | | | | | | | | | | | | | Rents and purchased transportation | | | 50.5 | | | | 49.3 | | | | 10.2 | | Salaries, wages and employee benefits | | | 22.7 | | | | 22.9 | | | | 6.3 | | Depreciation and amortization | | | 5.4 | | | | 5.6 | | | | 4.3 | | Fuel and fuel taxes | | | 4.7 | | | | 4.2 | | | | 20.3 | | Operating supplies and expenses | | | 3.7 | | | | 3.6 | | | | 9.7 | | Insurance and claims | | | 1.5 | | | | 1.2 | | | | 31.8 | | General and administrative expenses, net of asset dispositions | | | 1.4 | | | | 1.3 | | | | 21.2 | | Operating taxes and licenses | | | 0.6 | | | | 0.7 | | | | (5.3 | ) | Communication and utilities | | | 0.3 | | | | 0.3 | | | | 8.5 | | Total operating expenses | | | 90.8 | | | | 89.1 | | | | 9.6 | | Operating income | | | 9.2 | | | | 10.9 | | | | (9.2 | ) | Net interest expense | | | 0.4 | | | | 0.4 | | | | 16.4 | | Earnings before income taxes | | | 8.8 | | | | 10.5 | | | | (10.2 | ) | Income taxes | | | 3.0 | | | | 4.0 | | | | (19.9 | ) | Net earnings | | | 5.8 | % | | | 6.5 | % | | | (4.3 | )% |
Total operating expenses increased 9.6%, while operating revenues increased 7.6%, during the first nine months 2017, from the comparable period of 2016. Operating income decreased to $478.0 million during the first nine months 2017, from $526.7 million in 2016.
Rents and purchased transportation costs increased 10.2% in 2017. This increase was primarily the result of increased rail and truck purchased transportation rates and the increase in load volume, which increased services provided by third-party rail and truck carriers within JBI and ICS segments.
Salaries, wages and employee benefits costs increased 6.3% in 2017 from 2016. This increase was primarily related to increases in driver pay and office personnel compensation due to a tighter supply of qualified drivers and an increase in the number of employees.
Depreciation and amortization expense increased 4.3% in 2017 primarily due to additions to our JBI segment tractor, container and chassis fleets to support additional business demand and equipment purchased related to new DCS long-term customer contracts. Fuel costs increased 20.3% in 2017, compared with 2016, due to increases in the price of fuel.
Operating supplies and expenses increased 9.7% driven primarily by increases in travel activity and tire expense. Insurance and claims expense increased 31.8% in 2017 compared with 2016, primarily due to higher accident severity. General and administrative expenses increased 21.2% from the comparable period in 2016, primarily due to higher professional fees expenses, increased building rental expenses, higher computer software subscription costs, and increased net losses from asset sales and disposals. Net loss from sale or disposal of assets was $5.7 million in 2017, compared to a net loss of $2.4 million in 2016.
Net interest expense increased 16.4% in 2017, due to an increase in average debt levels and higher effective interest rates on our debt during the current period. Income tax expense decreased 19.9% in 2017, compared with 2016, primarily due to a one-time after-tax benefit of $13.6 million for the claiming of federal research and development tax credits and domestic production tax deductions for the 2012 through 2016 tax years, recorded in the first quarter of 2017. In addition, an after-tax benefit of $4.5 million for stock compensation tax benefits and a one-time after-tax cost of $1.5 million for state income tax rate changes, were both recorded in the third quarter 2017. Our effective income tax rate was 33.9% for the first nine months of 2017, compared to 38.0% in 2016. Our annual tax rate for 2017 is expected to be 35.0% and the normalized annual tax rate, excluding one-time benefits or costs, is expected to be 37.0%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.
Liquidity and Capital Resources
Cash Flow
Net cash provided by operating activities totaled $628.5 million during the first nine months of 2017, compared with $684.0 million for the same period 2016. Operating cash flows decreased due primarily to the reduction in earnings, an increase in cash paid for income taxes, net of refunds, and the timing of general working capital activities. Net cash used in investing activities totaled $456.1 million in 2017, compared with $358.8 million in 2016. The increase resulted from the purchase of SLD, which closed during the third quarter 2017, partially offset by a decrease in equipment purchases, net of proceeds from the sale of equipment, in 2017. Net cash used in financing activities was $171.1 million in 2017, compared with $325.3 million in 2016. This decrease resulted primarily from current period activities being offset by higher proceeds from long-term debt issuances, net of long-term debt repayments, in 2017. These net proceeds from long-term debt were used primarily for the purchase of SLD.
Debt and Liquidity Data
| | | September 30, 2017 | | | December 31, 2016 | | | September 30, 2016 | | Working capital ratio | | | 1.48 | | | | 1.65 | | | | 1.40 | | Total debt (millions) | | $ | 1,084.8 | | | $ | 986.3 | | | $ | 943.7 | | Total debt to equity | | | 0.74 | | | | 0.70 | | | | 0.68 | | Total debt as a percentage of total capital | | | 42 | % | | | 41 | % | | | 41 | % |
Liquidity
Our need for capital has typically resulted from the acquisition of containers, 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.
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 September 30, 2017 (in millions):
| | | Total | | | One Year Or Less | | | One to Three Years | | | Three to Five Years | | | After Five Years | | Operating leases | | $ | 68.8 | | | $ | 23.8 | | | $ | 30.0 | | | $ | 12.5 | | | $ | 2.5 | | Debt obligations | | | 1,091.8 | | | | - | | | | 491.8 | | | | 350.0 | | | | 250.0 | | Interest payments on debt (1) | | | 133.0 | | | | 29.8 | | | | 51.6 | | | | 37.2 | | | | 14.4 | | Commitments to acquire revenue equipment and facilities | | | 804.7 | | | | 387.4 | | | | 417.3 | | | | - | | | | - | | Total | | $ | 2,098.3 | | | $ | 441.0 | | | $ | 990.7 | | | $ | 399.7 | | | $ | 266.9 | |
(1)
| Interest payments on debt are based on LIBOR plus an established margin, resulting in an interest rate of 2.97% for our $250 million of 2.40% senior notes and 3.20% for our $350 million of 3.30% senior notes at March 31, 2018. The swaps expire when the corresponding senior notes are due. The fair values of these swaps are recorded in other long-term liabilities and other accrued expenses in our Condensed Consolidated Balance Sheet at 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 balance and applicablebeing 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 at September 30, 2017.swaps recorded in earnings is offset by a corresponding change in the fair value of the related debt.
On October 22, 2015, our Board of Directors authorized the purchase of $500 million of our common stock. On April 20, 2017, our Board of Directors authorized an additional purchase of up to $500 million of our common stock. At March 31, 2018, $521 million of the combined authorization was remaining. We did not purchase any shares under our repurchase authorization during the three months ended 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 19, 2018, our Board of Directors declared a regular quarterly dividend of $0.24 per common share, which will be paid on May 18, 2018, to stockholders of record on May 4, 2018. 7. | 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) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2). The following are assets and liabilities measured at fair value on a recurring basis (in millions): | | | 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) 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), which include relevant interest rate curve inputs. Trading investments are 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 Consolidated Balance Sheets. The senior notes are classified in long-term debt and current portion of long-term debt in our Consolidated Balance Sheets. Financial Instruments The carrying amount and estimated fair value at March 31, 2018, using the income approach (Level 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 $415.8 million and $421.0 million, respectively. The carrying amounts of all other instruments at March 31, 2018, approximate their fair value due to the short maturity of these instruments. Our effective income tax rate was 26.0% for the three months ended March 31, 2018, compared to 28.0% for the three months ended 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. 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 rate 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 enactment-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-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. At March 31, 2018, we had a total of $46.1 million in gross unrecognized tax benefits, which are a component of other long-term liabilities in our Condensed Consolidated Balance Sheets. Of this amount, $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 $4.1 million at March 31, 2018. We are a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the first half of 2014, the District Court in the lead class-action granted judgment in our favor with regard to all claims. The plaintiffs appealed the case to the United States Court of Appeals for the Ninth Circuit. 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 other lawsuits remain stayed pending final resolution of the appellate process or a final decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits, 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. We reported four distinct business segments during the three months ended March 31, 2018 and 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 13,Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2017. A summary of certain segment information is presented below (in millions): | | | Assets (Excludes intercompany accounts) As of | | | | | March 31, 2018 | | | December 31, 2017 | | JBI | | $ | 2,094 | | | $ | 2,108 | | DCS | | | 1,254 | | | | 1,182 | | ICS | | | 197 | | | | 204 | | JBT | | | 275 | | | | 283 | | Other (includes corporate) | | | 602 | | | | 688 | | Total | | $ | 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, 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, rail service delays, insurance costs and availability, claims expense, retention of key employees, terrorist attacks or actions, acts of war, adverse weather conditions, disruption or failure of information systems, new or different environmental or other laws and regulations, operational disruption or adverse effects of business acquisitions, increased costs for new revenue equipment or decreases in the value of used equipment, and the ability of 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, 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 13, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 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, 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 March 31, 2018 to Three Months Ended March 31, 2017 | | | Summary of Operating Segment Results For the Three Months Ended March 31, (in millions) | | | | | Operating Revenues | | | Operating Income | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | JBI | | $ | 1,070 | | | $ | 937 | | | $ | 114.2 | | | $ | 95.3 | | DCS | | | 494 | | | | 392 | | | | 40.6 | | | | 44.8 | | ICS | | | 296 | | | | 209 | | | | 8.9 | | | | 4.4 | | JBT | | | 93 | | | | 94 | | | | 5.1 | | | | 4.9 | | Subtotal | | | 1,953 | | | | 1,632 | | | | 168.8 | | | | 149.4 | | Inter-segment eliminations | | | (5 | ) | | | (3 | ) | | | - | | | | - | | Total | | $ | 1,948 | | | $ | 1,629 | | | $ | 168.8 | | | $ | 149.4 | |
Total consolidated operating revenues increased to $1.95 billion for the first quarter 2018, a 20% increase from $1.63 billion in the first quarter 2017, and a 17% increase excluding fuel surcharge revenues. This increase in operating revenues was primarily due to a 6% increase in load volumes and an 8% increase in revenue per load in JBI, a 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 per load in ICS over the same period in 2017. JBT revenue decreased 1% primarily from fewer seated trucks compared to a year ago. JBI segment revenue increased 14% to $1.07 billion during the first quarter 2018, compared with $937 million in 2017. 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 revenue was primarily due to the 6% volume growth, combined with an 8% increase in revenue per load, which is determined by the combination of customer rates, fuel surcharges and freight mix. Revenue per load excluding fuel surcharge revenue increased 4% year over year. JBI segment operating income increased 20%, to $114.2 million in the first quarter 2018, from $95.3 million in 2017. Benefits from volume growth, customer rate increases, and freight mix were partially offset by an increase in rail purchased transportation costs; reduced network utilization and lower dray efficiency created from rail congestion, customer equipment pool utilization and a tight third party dray market; higher equipment ownership 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 89,500 units of trailing capacity and 5,450 power units assigned to the dray fleet. DCS segment revenue increased 26% to $494 million in the first quarter 2018 from $392 million in 2017. Productivity, defined as revenue per truck per week, increased 5% when compared to 2017. Productivity excluding fuel surcharges increased 2%, primarily due to customer rate increases partially offset by a more impactful winter weather season during the 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 1,329 revenue producing trucks were in the fleet by the end of the first quarter 2018 compared to a year ago, primarily from private fleet conversions and growth in FMS in the current and prior periods. DCS segment operating income decreased 9% to $40.6 million in the first quarter 2018, from $44.8 million in 2017. Increased revenue was more than offset by winter weather inefficiencies, higher insurance and claims costs, increased driver wages and recruiting costs, higher non-driver salaries wages and benefits, higher facilities 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 first quarter 2017. ICS segment revenue increased 41% to $296 million in the first quarter 2018, from $209 million in 2017. Overall volumes increased 6% while revenue per load increased 34% primarily due to a more vibrant spot pricing market when compared to first quarter 2017. Spot volumes increased 43% and contractual business load counts decreased 7% compared to the same period in 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 first quarter 2018, JBT operated 1,926 tractors compared to 2,144 in 2017. JBT segment operating income increased 4% to $5.1 million in 2018, compared with $4.9 million during first quarter 2017. Benefits from the higher revenue per load were partially offset by a 10% decrease in tractor count, an average of 162 unseated trucks during first quarter 2018, higher driver and independent contractor costs per mile and higher recruiting costs per driver and independent contractor compared to first quarter 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 March 31, | | | | | Dollar Amounts as a Percentage of Total Operating Revenues | | | Percentage Change of Dollar Amounts Between Quarters | | | | | 2018 | | | 2017 | | | 2018 vs. 2017 | | Total operating revenues | | | 100.0 | % | | | 100.0 | % | | | 19.6 | % | Operating expenses: | | | | | | | | | | | | | Rents and purchased transportation | | | 49.5 | | | | 49.5 | | | | 19.6 | | Salaries, wages and employee benefits | | | 23.1 | | | | 23.3 | | | | 18.4 | | Fuel and fuel taxes | | | 5.5 | | | | 5.0 | | | | 33.8 | | Depreciation and amortization | | | 5.4 | | | | 5.7 | | | | 14.5 | | Operating supplies and expenses | | | 3.6 | | | | 3.6 | | | | 21.8 | | General and administrative expenses, net of asset dispositions | | | 1.7 | | | | 1.3 | | | | 37.7 | | Insurance and claims | | | 1.5 | | | | 1.4 | | | | 23.9 | | Operating taxes and licenses | | | 0.6 | | | | 0.7 | | | | 8.5 | | Communication and utilities | | | 0.4 | | | | 0.3 | | | | 55.1 | | Total operating expenses | | | 91.3 | | | | 90.8 | | | | 20.3 | | Operating income | | | 8.7 | | | | 9.2 | | | | 13.0 | | Net interest expense | | | 0.5 | | | | 0.4 | | | | 34.3 | | Earnings before income taxes | | | 8.2 | | | | 8.8 | | | | 12.0 | | Income taxes | | | 2.1 | | | | 2.5 | | | | 4.1 | | Net earnings | | | 6.1 | % | | | 6.3 | % | | | 15.0 | % |
Total operating expenses increased 20.3%, while operating revenues increased 19.6%, during the first quarter 2018, from the comparable period 2017. Operating income increased to $168.8 million during the first quarter 2018, from $149.4 million in 2017. Rents and purchased transportation costs increased 19.6% in 2018. This increase was primarily the result of increased load volumes, which increased services provided by third-party rail and truck carriers within JBI and ICS segments and increased truck and rail purchased transportation rates. Salaries, wages and employee benefit costs increased 18.4% in 2018 compared with 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 14.5% in 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. Operating supplies and expenses increased 21.8% in 2018, compared with 2017, primarily due to higher equipment maintenance costs, increased tire expense, higher travel costs, increased toll costs, and higher building maintenance expenses. General and administrative expenses increased 37.7% for the current quarter from the comparable period in 2017, 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 $2.8 million in 2018, compared to a net loss of $1.7 million in 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 34.3% in 2018, due primarily 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 26.0% for the first quarter 2018, compared to 28.0% in 2017. First quarter 2017 included a one-time after-tax benefit of $13.6 million for the claiming of federal research and development tax credits and domestic production tax deductions for the 2012 through 2016 tax years. Our annual tax rate for 2018 is expected to be 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. Liquidity and Capital Resources Cash Flow Net cash provided by operating activities totaled $262 million during the first three months of 2018, compared with $286 million for the same period 2017. Operating cash flows decreased due to the timing of general working capital activities, partially offset by increased earnings. Net cash used in investing activities totaled $179 million in 2018, compared with $94 million in 2017. The increase resulted from an increase in equipment purchases in 2018 partially offset by an increase in proceeds from the sale of equipment during the same period. Net cash used in financing activities was $90 million in 2018, compared with $185 million in 2017. This change resulted primarily from a decrease in treasury stock purchased in 2018. Debt and Liquidity Data | | | March 31, 2018 | | | December 31, 2017 | | | March 31, 2017 | | Working capital ratio | | | 1.13 | | | | 1.45 | | | | 1.43 | | Current portion of long-term debt (millions) | | $ | 247.6 | | | | - | | | | - | | Total debt (millions) | | $ | 1,000.0 | | | $ | 1,085.6 | | | $ | 950.6 | | Total debt to equity | | | 0.51 | | | | 0.59 | | | | 0.69 | | Total debt as a percentage of total capital | | | 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 March 31, 2018 (in millions): | | | Total | | | One Year Or Less | | | One to Three Years | | | Three to Five Years | | | After Five Years | | Operating leases | | $ | 107.8 | | | $ | 29.4 | | | $ | 46.9 | | | $ | 24.3 | | | $ | 7.2 | | Debt obligations | | | 1,017.9 | | | | 250.0 | | | | 167.9 | | | | 350.0 | | | | 250.0 | | Interest payments on debt (1) | | | 126.5 | | | | 33.0 | | | | 48.8 | | | | 35.1 | | | | 9.6 | | Commitments to acquire revenue equipment and facilities | | | 743.4 | | | | 362.8 | | | | 380.6 | | | | - | | | | - | | Total | | $ | 1,995.6 | | | $ | 675.2 | | | $ | 644.2 | | | $ | 409.4 | | | $ | 266.8 | |
Our net capital expenditures were approximately $315 million during the first nine months of 2017, compared with $359 million for the same period 2016. 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 2017 were primarily for tractors, additional intermodal containers and chassis, and other trailing equipment. We are currently committed to spend approximately $109.4 million during the remainder of 2017. We expect to spend in the range of $475 million to $500 million for net capital expenditures during calendar year 2017. On July
(1) | Interest payments on debt are based on the debt balance and applicable rate at March 31, 2018. |
Our net capital expenditures were approximately $179 million during the first three months of 2018, compared with $91 million for the same period 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 2018 were primarily for tractors, additional intermodal containers and chassis, and other trailing equipment. We are currently committed to spend approximately $743 million during 2018 and 2019. We expect to spend in the range of $440 million to $460 million for net capital expenditures during the remainder of 2018. The table above excludes $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. Off-Balance Sheet Arrangements Our only off-balance sheet arrangements as of March 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, 2017, we completed our acquisition of SLD, and its affiliated entities; see Note 10, Acquisition, in our Condensed Consolidated Financial Statements. We used our existing revolving credit facility to finance this transaction and to provide any necessary liquidity for current and future operations. This acquisition did not have a material impact on our interest expense. The table above excludes $41.4 million of potential liabilities for uncertain tax positions, including 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. Off-Balance Sheet Arrangements
Our only off-balance sheet arrangements as of September 30, 2017, were operating leases related primarily 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, 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. |
| ● | Acquisitions or business combinations may disrupt or have a material adverse effect on our operations or earnings. We could have difficulty integrating acquired companies’ assets, personnel and operations with our own. Regardless of whether we are successful in making an acquisition or completing a business combination, the negotiations could disrupt our ongoing business, distract our management and employees and increase our operating costs. Acquisitions and business combinations are accompanied by a number of inherent risks, including, without limitation, the following:
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| the difficulty of integrating acquired companies and operations;
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| the potential disruption of our ongoing businesses and distraction of our management or the management of acquired companies;
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| difficulties in maintaining controls, procedures and policies;
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| the potential impairment of relationships with employees and partners as a result of any integration of new management personnel;
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| the potential inability to manage an increased number of locations and employees;
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| the failure to realize expected efficiencies, synergies and cost savings; or
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| the effect of any government regulations which relate to the businesses acquired.
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Our business could be materially impacted if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with an acquisition or business combination, many of which cannot be presently identified. These risks could disrupt our ongoing business, distract our management and employees, increase our costs and adversely affect our results of operations.
ITEM 3. Quantitative And Qualitative Disclosures AbouT Market Risk Our outstanding debt at September 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 $8.4$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 nine months ended September 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 September 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 September 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 September 30, 2017.March 31, 2018. There were no changes in our internal control over financial reporting during the thirdfirst quarter of 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Part II. Other Information ITEM 1. LEGAL PROCEEDINGS We are a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the first half of 2014, the District Court in the lead class-action granted judgment in our favor with regard to all claims. The plaintiffs appealed the case to the United States Court of Appeals for the Ninth Circuit. OnIn July 31, 2017, the Ninth Circuit issued a Memorandum decision vacating the judgment in our favor and remanding the case to the District Court for further proceedings. We filed aThe Ninth Circuit denied our Petition for Rehearing En Banc within 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, which is currently pending.Circuit’s decision. The overlapping claims in the other lawsuits remain stayed pending final resolution of the appellate process or a final decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits.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 ofof the facts and, in certain cases, opinions of outside counsel, we believe the resolution of these claims and pending litigation will not have a material adverse effect on our financial condition, results of operations or liquidity. ITEM 1A. RISK FACTORSTEM 1A. | RISK FACTORS
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Information regarding risk factors appears in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report on Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.2017. ITEM 2. TEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not applicable.
ITEM 3.
| DEFAULTS UPON SENIOR SECURITIES
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Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4.MINE SAFETY DISCLOSURES | MINE SAFETY DISCLOSURES
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Not applicable. ITEMITEM 5. OTHER INFORMATION | OTHER INFORMATION
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Not applicable. ITEMITEM 6. EXHIBITS | EXHIBITS
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Index to Exhibits 101.INS
| XBRL Instance Document |
101.SCH
| | | 101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL
| | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF
| | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB
| | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE
| | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES Pursuant to the requirements of the SecuritiesSecurities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Lowell, Arkansas, on the 27th4th day of October, 2017.May, 2018. | J.B. HUNT TRANSPORT SERVICES, INC. | | | | (Registrant) | | | | | | | | | | | | | | | | BY:
| | | | BY: | /s/ John N. Roberts, III | | | | John N. Roberts, III | | | | President and Chief Executive Officer | | | | | (Principal Executive Officer) | |
| | | | | BY:
| | | | BY: | /s/ David G. Mee | | | | David G. Mee | | | | Executive Vice President, Finance and | | | | | Administration and Chief Financial Officer | | | | | (Principal Financial Officer) | |
| | | | | BY:
| | | | BY: | /s/ John K. Kuhlow | | | | John K. Kuhlow | | | | Senior Vice President-Finance,President Finance, Controller, | | | | | Chief Accounting Officer | | | | | (Principal Accounting Officer) | |
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