J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Statements of Earnings

(in thousands, except per share amounts)

(unaudited)

See Notes to Condensed Consolidated Financial Statements.

J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Balance Sheets

(in thousands)

See Notes to Condensed Consolidated Financial Statements.

J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except per share amounts)

(unaudited)

See Notes to Condensed Consolidated Financial Statements.

J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

See Notes to Condensed Consolidated Financial Statements.

J.B. HUNT TRANSPORT SERVICES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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, 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-K for the year ended December 31, 2019. 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, 2020, 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.

Use of Estimates 

The novel coronavirus (COVID-19) pandemic has created and may continue to create significant uncertainty in macro-economic conditions, which may cause global economic recession, business slowdowns or shutdowns, depressed demand for our transportation and logistics businesses, and adversely impact our results of operations. During the threesix months ended MarchJune 30, 2020, 31,2020,we faced increasing uncertainties around our estimates on our annual effective tax rate, accounts receivable credit losses and intangibles.goodwill and intangibles assets.  We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Our estimates may change, as new events occur and additional information is obtained, which are recognized or disclosed in our consolidated financial statements as soon as they become known.known and may have a material impact on our financial statements.

Accounting PronouncementPronouncement Adopted in 20202020

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses, which replaced the existing incurred loss methodology used for establishing a provision against financial assets, including accounts receivable, with a forward-looking expected loss methodology for accounts receivable, loans and other financial instruments. We adopted the new standard on January 1, 2020, using the cumulative-effect method. The adoption of the new guidance did not have a material impact on our financial statements.

Accounts Receivable and Allowance                                                                                             

Our trade accounts receivable includes accounts receivable reduced by an allowance for uncollectible accounts. Receivables are recorded at amounts billed to customers when loads are delivered or services are performed. The allowance for uncollectible accounts is calculated over the life of the underlying receivable and is based on historical experience; any known trends or uncertainties related to customer billing and account collectability; current economic conditions; and reasonable and supportable economic forecasts, each applied to segregated risk pools based on the business segment that generated the receivable. The adequacy of our allowance is reviewed quarterly. Balances are charged against the allowance when it is determined the receivable will not be recovered. The allowance for uncollectible accounts for our trade accounts receivable was $14.5$18.0 million at March 31,June 30, 2020 and $13.3 million at December 31, 2019. There wereDuring the nothree material write-offs charged or increases to and six months ended June 30, 2020, the allowance for uncollectible accounts increased by $4.7 million and $6.2 million, respectively, and was reduced $1.1 million and $1.5 million, respectively, by write-offs during the first quarter 2020.

same periods.

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 converted their holdings into common stock. The dilutive effect of restricted and performance share units was 1.1 million and 1.0 million shares during the firstthree quarterand 2020,six months ended June 30, 2020, compared to 0.91.0 million shares during the firstthree quarterand six months ended June 30, 2019.

The following table summarizes the components of our share-based compensation program expense (in thousands):

As of March 31,June 30, 2020, we had $95.3$84.3 million and $24.2$20.7 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 3.2 years for restricted share units and 2.52.4 years for performance share units. During the firstsix quartermonths ended June 30, 2020,we issued 34,78191,352 shares for vested restricted share units and 44,870 shares for vested performance share units. Of these totals, 56,571 shares for vested restricted share units were issued during the second quarter 2020.

Outstanding borrowings, net of unamortized discount, unamortized debt issuance cost, and fair value swap, under our current financing arrangements consist of the following (in millions):

Senior Revolving Line of Credit

At March 31,June 30, 2020, we were authorized to borrow up to $750 million under a senior revolving line of credit, which is supported by a credit agreement with a group of banks and expires in September 2023. This senior credit facility allows us to request an increase in the total commitment by up to $250 million and to request a one-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 March 31,June 30, 2020, we had 0 outstanding borrowings under this agreement.

Senior Notes

Our senior notes consist of three separate issuances. The first is $250 million of 3.85% senior notes due March 2024, which was issued in March 2014. Interest payments under this note are due semiannually in March and September of each year, beginning September 2014. The second is $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. The third is $700 million of 3.875% senior notes due March 2026, issued in March 2019. Interest payments under this note are due semiannually in March and September of each year, beginning September 2019. 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 shelf registration statements filed in February 2014 and January 2019. 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 an interest rate swap entered into on 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 March 31,June 30, 2020.

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 a receive fixed-rate and pay variable-rate interest rate swap agreement simultaneously with the issuance of our $350 million of 3.30% senior notes due August 2022, to effectively convert this fixed-rate debt to variable-rate. The notional amount of this interest rate swap agreement equals that of the corresponding fixed-rate debt. The applicable interest rate under this agreement is based on LIBOR plus an established margin, resulting in an interest rate of 3.05%1.75% for our $350 million of 3.30% senior notes at March 31,June 30, 2020. The swap expires when the corresponding senior notes are due. The fair value of this swap is recorded in other assets in our Condensed Consolidated Balance Sheet at March 31,June 30, 2020. See Note 7, Fair Value Measurements, for disclosure of fair value. This derivative meets the required criteria to be designated as a fair value hedge, and as the specific terms and notional amount of this derivative instrument match those of the fixed-rate debt being hedged, this derivative instrument is 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 this interest rate swap recorded in earnings is offset by a corresponding change in the fair value of the related debt.

On April 20, 2017, our Board of Directors authorized the purchase of up to $500 million of our common stock. On January 22, 2020, our Board of Directors authorized an additional purchase of up to $500 million of our common stock. At March 31,June 30, 2020, $520 million of thethis combined authorization was remaining. We purchased approximately 800,000 shares, or $75 million, of our common stock under our repurchase authorization during the threesix months ended March 31, 2020. On January 22,June 30, 2020, we announced an increasenone of which occurred in our quarterly cash dividend from $0.26 to $0.27, which was paid February 21, 2020, secondto stockholders of record on quarter February 7, 2020.On April 23, 2020, our Board of Directors declared a regular quarterly dividend of $0.27 per common share, which will bewas paid on May 22, 2020, to stockholders of record on May 8, 2020.On July 22, 2020, our Board of Directors declared a regular quarterly dividend of $0.27 per common share, which will be paid on August 21, 2020, to stockholders of record on August 7, 2020.

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):

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 swapsswap and corresponding senior notes have been measured using the income approach (Level 2), which include relevant interest rate curve inputs. Trading investments and interest rate swapsswap are classified in other assets in our Condensed Consolidated Balance Sheets. The senior notes are classified in long-term debt in our Condensed Consolidated Balance Sheets.

Financial Instruments

The carrying amount and estimated fair value at March 31,June 30, 2020, 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 $942.7$943.1 million and $970.7 million,$1.08 billion, respectively.

The carrying amounts of all other instruments at March 31,June 30, 2020, approximate their fair value due to the short maturity of these instruments.

Our effective income tax rate was 26.5%25.0% for the three months ended March 31,June 30, 2020, compared to 22.7%25.1% for the three months ended March 31,June 30, 2019. Our effective income tax rate was 25.7% for the firstsix months of 2020, compared to 24.0% in 2019.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. Our effective income tax rate for the first quartersix months of 2019 included the effect of a favorable settlement of a state income tax audit.

At March 31,June 30, 2020, we had a total of $52.9$54.3 million in gross unrecognized tax benefits, which are a component of other long-term liabilities inon our Condensed Consolidated Balance Sheets. Of this amount, $43.6$44.7 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 $4.2$5.0 million at March 31,June 30, 2020.

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 requested the same. In October 2019 the arbitrators issued a Final Award. On January 17, 2020, we filed under seal in the United States District Court for the Western District of Arkansas (the Arkansas Federal Court) a motion to confirm and enforce the Final Award, seeking the Court’s specific enforcement of certain confidential contractual rights the arbitrators decided in our favor. BNSF has moved to confirm the Final Award in the United States District Court for the District of Columbia. On July 21, 2020, the Arkansas Federal Court granted our motion in part entering a Judgment confirming the arbitration awards. In a sealed opinion, the Court denied our request for additional enforcement relief but did not foreclose our right to pursue post-confirmation enforcement in court or in arbitration if warranted.  During the first quarter 2020 we recorded an $8.2 million charge resulting from an adjusted calculation of the revenue divisions owed to BNSF under the Final Award.

In June 2019, we recorded pretax charges of $20 million for the settlement of a casualty claim within our DCS segment.

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.

In March 2020, we changed the way we internally evaluate the operating performance of our business units and adopted a new segment reporting structure. As part of this new structure, we separated our Dedicated Contract Services® segment into two reportable segments: Dedicated Contract Services and Final Mile Services®. Accordingly, we reported 5five distinct business segments during the three and sixmonths ended March 31,June 30, 2020 and 2019. These segments included Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions™ (ICS), Final Mile Services (FMS) and Truckload (JBT) which are based primarily on the services each segment provides. The 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. 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 agreements or contracts that govern services performed and applicable rates. ICS provides non-asset and asset-light transportation solutions to customers through relationships with third-party carriers and integration with company-owned equipment. ICS services include flatbed, refrigerated, and LTL, as well as a variety of dry-van and intermodal solutions. FMS provides final-mile delivery services to customers through a nationwide network of cross-dock and other delivery system network locations. FMS provides both asset and non-asset big and bulky delivery and installation services, as well as fulfilment and retail-pooling distributions services. JBT business includes full-load, dry-van freight that is transported utilizing company-owned revenue equipment or third-party carriers utilizing company-owned trailing equipment. This freight is typically transported over roads and highways and does not move by rail. All transactions between reporting segments are eliminated in consolidation. Our customers are geographically dispersed across the United States. A summary of certain segment information is presented below (in millions):

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should refer to the attached interim Condensed Consolidated Financial Statements and related notes and also to our Annual Report (Form 10-K) for the year ended December 31, 2019, 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; excess capacity in the intermodal or trucking industries; a loss of one or more major customers; cost and availability of diesel fuel; interference with or termination of our relationships with certain railroads; rail service delays; disruptions to U.S. port-of-call activity; ability to attract and retain qualified drivers, delivery personnel, independent contractors, and third-party carriers; retention of key employees; insurance costs and availability; litigation and claims expense; determination that independent contractors are employees; new or different environmental or other laws and regulations; volatile financial credit markets or interest rates; terrorist attacks or actions; acts of war; adverse weather conditions; national or international health pandemics; disruption or failure of information systems; operational disruption or adverse effects of business acquisitions; increased costs for new revenue equipment; increased tariffs assessed on or disruptions in the procurement of imported revenue equipment; 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 Part I, Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2019 and Part II, Item 1A of this Quarterly Report on Form 10-Q 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 five 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 five business segments is described in Note 10, Business Segments, in our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Our operations continue to be impacted by the novel coronavirus (COVID-19) global pandemic. Due to the nature of our business, less than 25% of our employees have been able to work remotely; however, we remain committed to the safety of our workforce, suppliers, and customers while continuing to meet our customers’ needs. In March 2020, we began our COVID-19 response activities which have been expanded and will continue as necessary until the risks related to COVID-19 dissipate. Our COVID-19 safety response activities at our home office campus and all other field locations throughout North America include requiring remote working when possible, expanded health and safety policies, faciality modifications, increased security coverage, and purchase and distribution of personal protective equipment supplies. We are reviewing and analyzing both external and internal COVID-related data on a daily basis in anticipation of the return to work phase of our COVID-19 response. Thus far throughout the pandemic, we have been pleased with the continued performance of our employees, particularly our drivers, who are providing consistent availability and customer service.

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, 2019, 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, 2020 to ThreeThree Months Ended March 31, June 30, 201919

Total consolidated operating revenues increasedrevenue decreased 5% to $2.28$2.15 billion for the firstsecond quarter 2020, a 9% increase from $2.09compared with $2.26 billion in the firstfor second quarter 2019, and a 10% increase2019. Total consolidated operating revenue excluding fuel surcharge revenues.revenue, decreased less than one percent. This increasedecrease in operating revenuesrevenue, excluding fuel surcharge revenue, was primarily driven by a 7% increase in load volume in JBI, a 10% increase in revenues in DCS related to new customer contracts and higher fleet utilization, a 2% increase in load volume and a favorable change in customer freight mix in ICS and a 3% increase in JBT revenue, primarily due to a 15% increase2% and 11% decrease in load volume. In addition, our newly reportedvolumes in JBI and ICS, respectively, and a 5% reduction in stops in FMS, segment increased revenue 39% over the first quarter 2019, primarily due to two business acquisitions completed in 2019. These overall increases were partially offset by a 1% decrease17% increase in JBI revenue per load and lower rates and changes in customer mixvolume in JBT.

JBI segment revenue increased 6%decreased 7% to $1.15$1.07 billion during the firstsecond quarter 2020, compared with $1.09$1.15 billion in 2019. Load volumes during the first quarter 2020 increased 7% over the same period 2019. Transcontinental loads increased 11% during the first quarter 2020, and Eastern network load volumeThis decrease in segment revenue was up 1% compared to the first quarter 2019. The overall increaseprimarily a result of a 2% decrease in load volume was partially offset byand a 1%6% decrease in revenue per load, which is determined by the combination of changes in freight mix, customer rates,rate changes, and fuel surcharges and freight mix.surcharge revenue, compared to a year ago. Revenue per load, excluding fuel surcharge revenue was flat year-over-year. JBI reported improved year-over-year tractorcompared to the second quarter 2019. Transcontinental load volume increased 3% and container utilization throughEastern network volumes decreased 7% over the end of February 2020, as overall volume increases drove efficiencies in both the rail and dray network.second quarter 2019. Load volume disruptions related to the recent outbreak of the novel coronavirus (COVID-19)COVID-19 began to emerge in March 2020 and escalated through the endbeginning of the firstsecond quarter 2020. These2020, followed by a steady increase in load volumes during the remainder of the quarter. Despite the rebound in JBI load volumes during the last half of the second quarter 2020, load volume disruptions and resulting network imbalance could return and continue throughout the remainder of 2020, as a result of the overall economic effects caused by the ongoing COVID-19 pandemic. Operating income of the JBI segment operating income decreased 1%,14% to $102.2$107.0 million in the firstsecond quarter 2020, from $103.3$124.4 million in 2019. The increase in revenue was more than offset by an increase indecrease is primarily due to lower load volumes, higher rail purchased transportation costs, which included an $8.2 million accrual resulting from an adjusted calculation of the revenue divisions owed to BNSF Railway Company (BNSF) for 2019 related to the final award of our completed arbitration with BNSF issued in 2019;cost per load, and higher empty repositioning and network balancing expenditures as network fluidity wascontinued to be challenged by the effects of COVID-19 during the quarter; higher personnelcurrent quarter. These items were partially offset by lower driver turnover related costs primarily related to $4.0 million for a one-time COVID-19 related bonus paid to employee drivers and other key field personnel;decreased insurance and higher costs for dray repositioning compared to the first quarter 2019.claims costs. The current period ended with 96,480approximately 96,500 units of trailing capacity and 5,4925,340 power units assignedavailable to the dray fleet.

DCS segment revenue increased 10%decreased 1% to $542$533 million in the firstsecond quarter 2020, from $492$537 million in 2019. Productivity, defined as revenue per truck per week, increased 2%decreased by approximately 3% when compared to 2019. Productivity2019, while productivity excluding fuel surcharges increased 3%, primarily due to customer rate increases, better integration of assets between customer accounts, and increased customer supply chain fluidity largely attributed tosurcharge revenue was flat from a mild winter when compared to the first quarter 2019.year ago. A net additional 430130 revenue producing trucks were in the fleet by the end of the firstcurrent quarter 2020 compared to a year ago, primarily from private fleet conversions during the current and prior periods. Asyear. However, as a result of the ongoing effects of the COVID-19 pandemic, the rate of newly awarded customer private fleet conversions however, has slowed since late Marchcontinued to slow during the second quarter 2020 and could remain slower during the remainder of 2020.2020 and into the first part of 2021. Operating income of our DCS segment operating income increased 46%9% to $72.9$83.1 million in the firstsecond quarter 2020, from $50.1$76.3 million in 2019. The increase in operating income wasis primarily due primarily to increased fleet productivitylower driver related turnover costs, decreased travel and the absence of any significant implementation or weather-relatedentertainment expenses, and lower safety related costs, in first quarter 2020, compared to the first quarter 2019. Operating income was partially offset by DCS’s $6.5 million portion of the one-time COVID-19 bonus paid in first quarter 2020.higher bad debt expenses for uncollectible customer receivables.

ICS segment revenue increased 12%decreased 9% to $335$304 million in the firstsecond quarter of 2020, from $301$334 million in 2019. Overall volumes increased 2% whiledecreased 11%. Contractual business represented approximately 71% of total load volume and 63% of total revenue in the current period compared to 68% and 55%, respectively, in second quarter 2019. Revenue per load increased 9%,2% primarily due to customer freight mix changes compared to first quarter 2019. Contractual business represented approximately 74% of total load volume and 64% of total revenue in the first quarter 2020, compared to 68% and 51%, respectively, in 2019.mix. Approximately $235$229 million of firstsecond quarter 2020 ICS revenue was executed through the Marketplacemarketplace for J.B. Hunt 360°^® compared to $186$222 million in the firstsecond quarter 2019. ICS segment had an operating loss of $18.9 million in the first quarter of 2020 compared to operating income of $7.0 million in 2019. Gross profit margin decreased to 9.6%11.8% in the firstcurrent quarter 2020, compared to 16.5% in 2019,versus 13.4% last year, primarily due to a more competitive pricing environment, in the contractual businessweaker spot market activity and tightening supply dynamics at various points throughout the current period. Current period operating results were further affected by increased technology spending as the Marketplace for J.B. Hunt 360° continues to expand in functionality and capacity, continued personnel growth costs, and higher digital marketing and advertising costs, compared to first quarter 2019. ICS’s carrier base increased 13% and employee count increased 2% compared to firstsecond quarter 2019. ICS could continue to experience reduced overall load volumes and declining gross profit margins throughout the remainder of 2020 as a result of the economic effects caused by the ongoing COVID-19 pandemic. ICS segment incurred an operating loss of $13.1 million in second quarter 2020, compared to operating loss of $0.6 million in 2019, primarily due to lower gross profit margins, increased technology spending as the marketplace for J.B. Hunt 360° continues to expand in functionality and capacity and higher personnel costs. ICS’s carrier base increased 12% compared to second quarter 2019.

      FMS segment revenue increased 39%decreased 2% to $154$140 million in the firstsecond quarter 2020 from $110$143 million in 2019, primarily due to two business acquisitions completed in 2019. Stop count for the firstsecond quarter 2020 increased 67%, while productivity,decreased 5% when compared to 2019, primarily due to the temporary suspension of operations at various customer sites as a result of the effects of the COVID-19 pandemic. Productivity, defined as revenue per stop, decreased 17%increased 2% compared to 2019. The reduction in productivity was2019, primarily due to a changeshift in the mix of service methodsservices provided during the current quarter as customers were affected by COVID-19 within our FMS network. While the majority of the operating suspensions at various customer sites have since been reversed, a large portion of FMS customers are highly susceptible to the impacts of the COVID-19 pandemic and as a more asset-light model resulting fromresult, the 2019 business acquisitions.operations of FMS may be impacted as those customers’ operations are affected. FMS segment had an operating loss of $3.3$5.2 million in the firstsecond quarter of 2020 compared to operating incomeloss of $0.2$15.8 million in 2019. The current periodsecond quarter 2020 operating loss was primarily due to increased costs to expand the FMS network, increased costslost revenue resulting from the temporary suspension of operations at several customer sites in response toand higher COVID-19 higher bad debt expense, $1.3related operating supplies expense. FMS segment operating loss for the second quarter 2019 included a $20 million of one-time COVID-19 employee bonus expense, and $1.2 million in additional noncash amortization expense attributable to the 2019 business acquisitions compared to first quarter 2019. A large portion of FMS customers have been significantly impacted by the ongoing response to the COVID-19 pandemic and as a result, the operations of FMS will continue to be impacted as those customers’ operations are affected.insurance claim settlement charge.

JBT segment revenue totaled $105 million for the first quarter 2020, an increase of 3% from $102increased 9% to $108 million in firstthe second quarter of 2020, from $100 million in 2019. Revenue excluding fuel surcharge alsorevenue increased 3%13%, due primarily due to a 15%17% increase in load volume, partially offset by a 10%4% decrease in revenue per load excluding fuel surcharge revenue compared to first quarter 2019.a year ago. Revenue per loaded mile in first quarter 2020excluding fuel surcharge revenue decreased 6%7%, whileprimarily from a 5% decrease in comparable contractual customer rates decreased 1%when compared to firstsecond quarter 2019. At the end of the current quarter, JBT operated 1,897 tractors and 7,985 trailers compared to 1,879 and 6,829 in 2019. JBT segment operating income decreased 61% to $3.5 million in second quarter 2020, compared with $8.9 million in 2019. Benefits from the higher load volume were more than offset by higher purchased transportation expense, higher insurance and claims costs, and higher technology modernization expenses. As a result of the ongoing effects of the COVID-19 pandemic, JBT could experience reduced load volumes, andlower customer rates, or higher purchased transportation costs throughout the remainder of 2020. At the end of the first quarter 2020, JBT operated 1,887 tractors and 7,391 trailers compared to 2,043 tractors and 6,785 trailers in 2019. JBT segment operating income decreased 75% to $1.8 million in 2020, compared with $7.2 million during first quarter 2019. Benefits from the higher load volume were more than offset by higher purchased transportation expense, lower customer rates, increased trailing-related costs, higher technology modernization expenses, and $0.5 million of one-time COVID-19 employee bonus expense compared to first quarter 2019.

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.

Total operating expenses increased 10.6%decreased 4.8%, while operating revenues increased 9.1%decreased 5.1%, during the firstsecond quarter 2020, from the comparable period 2019. Operating income decreased to $154.7$175.2 million during the firstsecond quarter 2020, from $167.8$193.1 million in 2019.

Rents and purchased transportation costs increased 13.6%decreased 4.8% in 2020. This increasedecrease was primarily the result of the increasedecrease in load volume, which increaseddecreased services provided by third-party rail and truck carriers within JBI and ICS segments, andpartially offset by increased rail and truck carrier purchased transportation rates. In addition, JBI rail purchased transportation costs includedrates and an $8.2 million accrual resulting from an adjusted calculationincrease in the use of third-party truck carriers by JBT during the revenue divisions owed to BNSF for 2019 related to the final awardsecond quarter of our completed arbitration with BNSF issued in 2019.2020.

Salaries, wages and employee benefitbenefits costs increased 11.2% in3.6% during the second quarter 2020, compared with 2019. This increase was primarily related to increases in driver pay and office personnel compensation due to the previous effects of a tighter supply of qualified drivers carrying forward into the current period and an increase in the number of non-driver employees.

Depreciation and amortization expense increased 5.1% in 2020, primarily due to equipment purchases related to new DCS long-term customer contracts and the addition of specialized trailing equipment and scheduled turnover of tractors within our JBI segment. Fuel costs decreased 36.1% in 2020, compared with 2019, due primarily to a decrease in the price of fuel.

Operating supplies and expenses decreased 6.1%, driven primarily by reduced travel and entertainment expenses and lower equipment maintenance costs, partially offset by increased tolls and higher operating supplies and building maintenance costs in response to COVID-19. General and administrative expenses decreased 4.2% for the current quarter from the comparable period in 2019, primarily due to decreased professional fees, lower advertising costs, lower driver hiring expenses and, decreased net loss from the sale or disposal of assets, partially offset by increased technology spend on the J.B. Hunt 360° platform and legacy system upgrades and higher bad debt expenses. Net loss from sale or disposal of assets was $1.0 million in 2020, compared to a net loss of $2.8 million in 2019. Insurance and claims expense decreased 40.6% in 2020 compared with 2019, primarily due to the absence of a $20 million FMS claim settlement charge in 2019.

Net interest expense decreased 13.2% in 2020 primarily due to a decrease in average debt levels and lower effective interest rates on our debt compared to second quarter 2019. Income tax expense decreased 9.0% in second quarter 2020, compared with 2019, primarily due to decreased taxable earnings in second quarter 2020. Our effective income tax rate was 25.0% for the second quarter 2020, compared to 25.1% in 2019. Our annual tax rate for 2020 is expected to be 24.4%. 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, 2020 to Six Months Ended June 30, 2019

Total consolidated operating revenues increased to $4.43 billion for the first six months of 2020, a 2% increase from $4.35 billion for the comparable period 2019. Fuel surcharge revenue decreased to $394.6 million during the first six months of 2020, compared with $499.7 million in 2019. If fuel surcharge revenue was excluded from both periods, the increase in revenue from 2019 to 2020 was 5%.

JBI segment revenue decreased 1% to $2.22 billion during the first six months of 2020, compared with $2.24 billion in 2019. Load volume during the first six months of 2020 increased 3%, which was offset by an 3% decrease 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. Revenue per load, excluding fuel surcharge revenue, was flat compared to the first six months of 2019. JBI segment operating income decreased 8% to $209.2 million in the first six months of 2020, from $227.7 million in 2019. This decrease was primarily due to higher rail purchased transportation cost, COVID-19 related network inefficiencies and higher personnel costs, which included a one-time COVID-19 related bonus paid to employee drivers and other key field personnel, partially offset by decreased insurance and claims costs.

DCS segment revenue increased 5%, to $1.08 billion during the first six months of 2020 from $1.03 billion in 2019. Productivity, defined as revenue per truck per week, decreased by approximately 1% from a year ago. Productivity excluding fuel surcharge revenue for the first six months of 2020 increased 2% from a year ago. The increase in productivity was primarily a result of better integration of assets between customer accounts, customer rate increases, and increased customer supply chain fluidity largely attributed to a mild winter during the first half of the current period. Operating income of our DCS segment increased to $156.0 million in the first six months of 2020, from $126.3 million in 2019. The increase is primarily due to increased fleet productivity and the absence of any significant implementation or weather-related costs, compared to the first six months of 2019. Operating income was partially offset by higher personnel costs, which included the one-time COVID-19 related bonus, higher equipment ownership costs, and higher insurance and claims costs.

ICS revenue increased 1% to $640 million during the first six months of 2020, from $635 million in 2019. Overall volumes decreased 4%, while revenue per load increased 5% primarily due to customer mix changes when compared to 2019. Gross profit margin decreased to 10.7% in the current period compared to 14.9% in 2019, primarily due to a more competitive pricing environment and tightening supply dynamics at various points throughout the current period, compared to the first six months of 2019. ICS segment had an operating loss of $32.0 million in the first six months of 2020 compared to operating income of $6.4 million in 2019, primarily due to lower gross profit margins, increased technology spending as the marketplace for J.B. Hunt 360° continues to expand in functionality and capacity, and higher personnel costs. Approximately $464 million of ICS revenue for the first six months of 2020 was executed through the marketplace for J.B. Hunt 360° compared to $409 million in 2019.

       FMS revenue increased 16% to $293 million during the first six months of 2020, from $253 million in 2019, primarily due to two business acquisitions completed in 2019, partially offset by the temporary suspension of operations at various customer sites as a result of the effects of the COVID-19 pandemic. Stop count for the first six months of 2020 increased 20%, while productivity, defined as revenue per stop, decreased 3% compared to 2019. The reduction in productivity was primarily due to a change in the mix of service methods to a more asset-light model resulting from the 2019 business acquisitions and a shift in the mix of services provided during the current period as customers were affected by COVID-19 within our FMS network. FMS segment had an operating loss of $8.5 million in the first six months of 2020 compared to an operating loss of $15.6 million in 2019. The current period operating loss was primarily due to increased costs to expand the FMS network, lost revenue resulting from the temporary suspension of operations at several customer sites in response to COVID-19, higher bad debt expense, higher personnel costs, which included the one-time COVID-19 related bonus, higher COVID-19 related operating supplies expense and $1.1 million in additional noncash amortization expense attributable to the 2019 business acquisitions. FMS segment operating loss for the first six months of 2019 included a $20 million insurance claim settlement charge.

JBT segment revenue increased 6% to $213 million for the first six months of 2020, from $201 million in 2019. Revenue excluding fuel surcharge revenue increased 8%, primarily due to a 16% increase in load volume, partially offset by a 9% decrease in revenue per load compared to 2019. Operating income of our JBT segment decreased to $5.3 million in the first six months of 2020, from $16.1 million in 2019. The decrease in operating income was driven primarily by higher purchased transportation expense, higher insurance and claims costs, and higher technology modernization expenses.

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.

Total operating expenses increased 2.7%, while operating revenues increased 1.7%, during the first six months of 2020, from the comparable period of 2019. Operating income decreased to $329.9 million during the first six months of 2020, from $360.9 million in 2019.

Rents and purchased transportation costs increased 4.0% in 2020. This increase was primarily the result of increased load volume and third-party rail purchased transportation rates in JBI, increased truck purchased transportation rates in ICS, and an increase in the use of third-party truck carriers by FMS and JBT during 2020, partially offset by a decrease in ICS load volume.

Salaries, wages and employee benefits costs increased 7.3% in 2020 from 2019. This increase was primarily related to increases in driver pay and office personnel compensation due to the previous effects of a tighter supply of qualified drivers carrying forward into the current period and an overall increase in the average number of employees. In addition, first quarter 2020 included a $12.3 million one-time COVID-19 related bonus paid to employee drivers and other key field personnel and $3.4 million of additional stock compensation expense related to the acceleration of equity award vesting for executive employee retirements.

Depreciation and amortization expense increased 8.5%6.8% in 2020 primarily due to equipment purchases related to new DCS long-term customer contracts.contracts and the addition of specialized trailing equipment and scheduled turnover of tractors within our JBI segment. Fuel costs decreased 9.8%23.3% in 2020, compared with 2019, due primarily to a decrease in the price of fuel, partially offset by an increase in road miles.fuel.

Operating supplies and expenses increased 9.5% in 2020, compared with 2019,1.4% driven primarily due to higherby increased toll costs increased tire expenses, and higher operating supplies and building maintenance costs in response to COVID-19, partially offset by reduced travel and entertainment expenses. General and administrative expenses fordecreased 2.0% from the current quarter were virtually flat compared withcomparable period in 2019, primarily due to increased buildingdecreased professional fees, lower advertising costs, lower driver hiring expenses and, computer rentals beingdecreased net loss from the sale or disposal of assets, partially offset by a reduction in professional fees during first quarter 2020.increased technology spend on the J.B. Hunt 360° platform and legacy system upgrades, higher bad debt expenses, and increased charitable contributions. Net loss from sale or disposal of assets was $1.5$2.4 million in 2020, compared to a net loss of $2.3$5.0 million in 2019. Insurance and claims expense increased 11.6%decreased 21.9% in 2020 compared with 2019, primarily due to higher incident volume, partially offset bythe absence of a decrease$20 million FMS claim settlement charge in accident severity.2019.

Net interest expense decreased 7.7%10.6% in 2020, due primarily to lower effective interest rates on our debt. Income tax expense increased 7.7% indecreased 1.7% during the first quartersix months of 2020, compared with 2019, primarily due to decreased taxable earnings in the first six months of 2020, partially offset by a higher effective income tax rate. The increase in our effective income tax rate was due to the impact of stock compensation accelerations for executive employee retirements in 2020 and the fact that the effective rate for 2019 was reduced by the favorable settlement of a state income tax audit. The increase in effective income tax rate was partially offset by decreased taxable earnings. Our effective income tax rate was 26.5%25.7% for the first quartersix months of 2020, compared to 22.7%24.0% in 2019. Our annual tax rate for 2020 is expected to be 24.5%24.4%. 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 $249$640.0 million during the first threesix months of 2020, compared with $251$606.7 million for the same period 2019. Operating cash flows decreasedincreased due to decreased earnings in first quarter 2020, partially offset by the timing of general working capital activities.activities, partially offset by decreased earnings. Net cash used in investing activities totaled $129$264.5 million in 2020, compared with $311$573.9 million in 2019. The decrease resulted from a decrease in equipment purchases, net of proceeds from the sale of equipment, during the current period and from the fact that the Cory 1^st Choice Home Delivery acquisition closed during first quarter 2019. Net cash used in financing activities was $107$135.8 million in 2020, compared with net cash provided by financing activities of $105$33.5 million in 2019. This change resulted primarily from first quarter 2020 including $75 million of treasury stock purchases, while first quarter 2019 includednet financing expenditures being reduced by the issuance of our $700 million of 3.875% senior notes due March 2026, partially offset by the full retirement of our $250 million of 2.40% senior notes that matured in March 2019.

Debt and Liquidity Data

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 as well as periodic business acquisitions. We are frequently able to accelerate or postpone a portion of equipment replacements or other capital expenditures depending on market and overall economic conditionsconditions. During the second quarter 2020, we postponed a portion of our equipment purchases in order to increase our available cash in light of the economic disruption and uncertainty resulting from COVID-19. We will continue to utilize this abilitymonitor economic conditions and contemplate adjustments to planned capital expenditures as needed throughout the ongoing COVID-19 pandemic. In the near-term, we are reprioritizing a portion of our 2020 capital spend to items we consider essential and critical. Expenditures are being evaluatingevaluated based on those that must happen, those that can be deferred to a later period, and those that are capable of being canceled. We have, during the past fewrecent 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. Should COVID-19 related economic conditions warrant, we believe we have sufficient credit resources available to meet our near-term operating and capital needs. At March 31,June 30, 2020, we had a cash balance of $48$275 million and we had no outstanding balance on our revolving line of credit, which authorizes us to borrow up to $750 million as well as request an increase in the total commitment by up to $250 million.

Our financing arrangements require us to maintain certain covenants and financial ratios. At March 31,June 30, 2020, we were well above compliance with all covenants and financial ratios, and we fully intend and expect to emerge from the current COVID-19 related economic environment with our investment-grade rating intact.