UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

OR

 

__	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-11757

 

J.B. HUNT TRANSPORT SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Arkansas	71-0335111
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

615 J.B. Hunt Corporate Drive, Lowell, Arkansas  72745

(Address of principal executive offices)

 

479-820-0000

(Registrant's telephone number, including area code)

 

www.jbhunt.com

(Registrant's web site)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. 

Yes   X            No       

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   X            No____

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   X

Accelerated filer _____

Non-accelerated filer _____

Smaller reporting company _____

      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

            Yes             No  X             

 

The number of shares of the registrant’s $0.01 par value common stock outstanding on September 30, 2015 was 114,601,888.

  

 

  

J.B. HUNT TRANSPORT SERVICES, INC.

 

Form 10-Q

For The Quarterly Period Ended September 30, 2015

Table of Contents

  

		Page
Part I.    Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2015 and 2014	3
	Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	5
	Notes to Condensed Consolidated Financial Statements as of September 30, 2015	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	20
Part II.    Other Information
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		23
Exhibits

 

 

  

Part I. Financial Information

ITEM 1. FINANCIAL STATEMENTS

J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Statements of Earnings

(in thousands, except per share amounts)

(unaudited)

 

 

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 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)

  

 

 

 

  

 

  

 

 

 

  

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, 2014, 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, cost and availability of fuel, accidents, adverse weather conditions, 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, 2014, 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, 2014.

  

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 revisions 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, 2014, 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 September 30, 2015 to Three Months Ended September 30, 2014

 

		Summary of Operating Segment Results For the Three Months Ended September 30, (in millions)
		Operating Revenues								Operating Income
		2015				2014				2015				2014
JBI		$	949			$	964			$	126.1			$	125.0
DCS			370				361				45.1				34.3
ICS			173				185				11.5				8.4
JBT			98				96				11.2				4.3
Other (includes corporate)			-				-				(0.1	)			0.1
Subtotal			1,590				1,606				193.8				172.1
Inter-segment eliminations			(4	)			(5	)			-				-
Total		$	1,586			$	1,601			$	193.8			$	172.1

 

Total consolidated operating revenues were $1.59 billion for the third quarter 2015, compared to $1.60 billion for the third quarter 2014. Despite all four business segments achieving customer rate increases and load growth, and JBI, DCS, and JBT each increasing fleet counts, the decrease in fuel surcharge (FSC) revenue and weaker than expected customer demand resulted in third quarter 2015 consolidated operating revenues to decrease 1% when compared to the same period in 2014. If FSC revenues were excluded from both periods, the increase of 2015 revenues from 2014 was 8%.

 

JBI segment revenue decreased 2% to $949 million during the third quarter 2015, compared with $964 million in 2014. This decrease in segment revenue was primarily a result of a 3% increase in load volume, offset by a 4% decrease in revenue per load, which is the combination of changes in freight mix, customer rate increases, and lower FSC revenue, compared to a year ago. Load volume in our eastern network increased 1%, and transcontinental loads grew 4% over the third quarter 2014. Operating income of our JBI segment increased 1% to $126.1 million in 2015, from $125.0 million in 2014. Benefits from rate increases, reduced reliance on third party dray carriers and lower dray fleet maintenance costs were partially offset by increases in rail purchased transportation rates, higher equipment depreciation expense, lower box utilization and higher driver procurement and retention expenses.

 

DCS segment revenue increased 3% to $370 million in 2015, from $361 million in 2014. Productivity, defined as revenue per truck per week, decreased 4% in the third quarter 2015, when compared to the same period in 2014, primarily from lower FSC revenue. Productivity excluding FSC revenue increased 2% from a year ago primarily from customer rate increases and increased customer demand. A net additional 413 revenue producing trucks, approximately 56% representing private fleet conversions versus traditional dedicated capacity services, were in the fleet by the end of the quarter compared to 2014 from new contract implementations in the current and prior periods. Customer retention rates remain above 96% as value driven services continue to support necessary rate increases. Operating income of our DCS segment increased 32% to $45.1 million in 2015, from $34.3 million in 2014. Revenues from new accounts, higher productivity excluding FSC revenue, less reliance on third party carrier capacity and lower equipment maintenance costs were partially offset by increased equipment depreciation expense and higher driver wages and recruiting costs.

 

 

  

ICS segment revenue decreased 7% to $173 million in the third quarter 2015, from $185 million in the third quarter 2014. Volumes increased 9%, while revenue per load decreased 14%, primarily from lower fuel prices, freight mix changes driven by customer demand, and less transactional volumes versus third quarter 2014. Contractual volumes increased 13% to approximately 66% of total load volume and 61% of total revenue compared to 64% and 58%, respectively, in third quarter 2014. Operating income of our ICS segment increased 36% to $11.5 million from $8.4 million in 2014, primarily due to an increase in gross profit margin. Gross profit margin increased to 15.9% in the current quarter compared to 13.3% in the third quarter 2014. The increase in operating income was partially offset by increased personnel costs as the total branch count grew to 33 compared to 28 at the end of the comparable period last year. ICS’s carrier base increased 17% and employee count increased 13% compared to third quarter 2014.

 

JBT segment revenue increased 2% to $98 million for the third quarter 2015, from $96 million in the third quarter 2014. The increase in revenue is primarily the result of increased truck count and core rate increases, partially offset by lower FSC revenue and lower utilization per tractor. At the end of the third quarter 2015, JBT operated 2,100 tractors compared to 1,843 a year ago. Operating income of our JBT segment increased 159% to $11.2 million, compared to $4.3 million in the third quarter 2014. Favorable changes in core rates, increased truck count, lower equipment maintenance costs, lower safety and insurance costs, and improved fuel economy were partially offset by increased driver and independent contractor costs per mile, increased driver procurement and retention expenses, increased equipment depreciation expense, and lower asset utilization compared to third quarter 2014.

 

Consolidated Operating Expenses

 

The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.

 

		Three Months Ended September 30,
		Dollar Amounts as a Percentage of Total Operating Revenues								Percentage Change of Dollar Amounts Between Quarters
		2015				2014				2015 vs. 2014
Total operating revenues			100.0	%			100.0	%			(0.9	%)
Operating expenses:
Rents and purchased transportation			48.5				50.1				(4.0	)
Salaries, wages and employee benefits			22.2				20.4				7.5
Fuel and fuel taxes			4.8				7.2				(33.5	)
Depreciation and amortization			5.4				4.7				14.3
Operating supplies and expenses			3.6				3.6				0.6
Insurance and claims			1.3				1.4				(8.3	)
General and administrative expenses, net of asset dispositions			1.0				0.9				(1.3	)
Operating taxes and licenses			0.7				0.7				8.0
Communication and utilities			0.3				0.3				(2.7	)
Total operating expenses			87.8				89.3				(2.5	)
Operating income			12.2				10.7				12.6
Net interest expense			0.5				0.4				17.9
Earnings before income taxes			11.7				10.3				12.4
Income taxes			4.4				3.9				12.4
Net earnings			7.3	%			6.4	%			12.4	%

 

Total operating expenses decreased 2.5%, while operating revenues decreased 0.9% during the third quarter 2015, from the comparable period 2014. Operating income increased to $193.8 million during the third quarter 2015 from $172.1 million in 2014.

 

 

 

Rents and purchased transportation costs decreased 4.0% in 2015. This decrease was primarily the result of the lower fuel component in the cost of services provided by third-party rail and truck carriers within JBI, DCS, and ICS segments.

 

Salaries, wages and employee benefit costs increased 7.5% during the third quarter 2015, compared with 2014. This increase was primarily related to increases in driver pay and office personnel compensation due to an increase in the number of employees and a tighter supply of qualified drivers.

 

Fuel costs decreased 33.5% in 2015, compared with 2014, due to decreases in the price of fuel, partially offset by increased road miles. Depreciation and amortization expense increased 14.3% in 2015, primarily due to additions to our JBI segment tractor, container and chassis fleets to support additional business demand, equipment purchased related to new DCS long-term customer contracts, and new replacement equipment in JBT. Operating supplies and expenses increased 0.6%, driven primarily by increased toll activity, partially offset by decreased equipment maintenance and repairs.

 

Insurance and claims expense decreased 8.3% in 2015 compared with 2014, primarily due to lower incident volume and accident severity. General and administrative expenses decreased 1.3% for the current quarter from the comparable period in 2014, primarily due to an increase in net gains from asset sales and disposals. Net gains from sale or disposal of assets were $1.4 million in 2015, compared with $0.3 million in 2014.

 

Net interest expense increased 17.9% in 2015, due primarily to an increase in average debt levels in connection with the refinancing of maturing debt. Our effective income tax rate was 38.10% for the three months ended September 30, 2015 and September 30, 2014. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.

 

Comparison of Nine Months Ended September 30, 2015 to Nine Months Ended September 30, 2014

 

		Summary of Operating Segment Results For the Nine Months Ended September 30, (in millions)
		Operating Revenues								Operating Income
		2015				2014				2015				2014
JBI		$	2,698			$	2,730			$	349.0			$	331.6
DCS			1,082				1,031				121.5				80.2
ICS			510				521				23.0				20.8
JBT			286				289				29.4				16.1
Other (includes corporate)			-				-				(0.1	)			(0.1	)
Subtotal			4,576				4,571				522.8				448.6
Inter-segment eliminations			(9	)			(15	)			-				-
Total		$	4,567			$	4,556			$	522.8			$	448.6

 

Total consolidated operating revenues were $4.57 billion for the first nine months 2015, and remained flat when compared to $4.56 billion for the comparable period 2014. FSC revenues were $522.6 million during the first nine months 2015, compared with $818.0 million in 2014. If FSC revenues were excluded from both periods, the increase of 2015 revenue from 2014 was 8%.

 

JBI segment revenue decreased 1% to $2.70 billion during the first nine months 2015, compared with $2.73 billion in 2014. This decrease in revenue was the result of a decrease in revenue per load, which is the combination of changes in customer rate, freight mix and fuel surcharges. This decrease was partially offset by increases in load volume in both our eastern and transcontinental networks. Operating income of the JBI segment increased to $349.0 million in the first nine months 2015, from $331.6 million in 2014. Benefits from customer rate increases, reduced reliance on outsourced dray carriers, lower insurance and cargo claim costs and lower maintenance costs were partially offset by increases in rail purchased transportation rates, higher equipment depreciation expense, higher driver procurement and retention expenses, and $6.4 million in corporate wide streamlining and technology redevelopment costs recorded in the second quarter 2015.

 

 

 

DCS segment revenue increased 5% to $1.08 billion in 2015, from $1.03 billion in 2014. Productivity, defined as revenue per truck per week, decreased 1% when compared to the first nine months 2014, primarily from lower FSC revenue. Productivity excluding FSC revenue increased 4% from a year ago primarily from customer rate increases and additional activity at customer accounts. Operating income of our DCS segment increased to $121.5 million in 2015, from $80.2 million in 2014. Higher revenue, improved asset utilization, less reliance on third party carriers and lower maintenance costs were partially offset by increased equipment depreciation expense, higher driver procurement and retention expenses, and $2.6 million in corporate wide streamlining and technology redevelopment costs and higher driver wage and recruiting costs.

 

ICS segment revenue decreased 2% to $510 million in 2015, from $521 million in 2014, as a result of increases in volume being offset by decreases in revenue per load as a result of lower fuel prices and less transactional customer demand. Operating income of our ICS segment increased to $23.0 million from $20.8 million in 2014, primarily due to improved gross profit margin. Gross profit margin increased to 15.0% for the first nine months 2015 versus 12.7% in the prior year. Improvements in gross profit margin were offset by increased personnel costs and $4.4 million in corporate wide streamlining and technology redevelopment costs.

 

JBT segment revenue decreased 1% to $286 million for the first nine months 2015, from $289 million in 2014, primarily due to lower FSC revenue, partially offset by increased truck count and core rate increases. JBT segment operating income increased 82.4% to $29.4 million during the first nine months 2015, from $16.1 million in 2014. Benefits from core rate increases and improvements in equipment maintenance costs, insurance and claims costs and fuel economy, were partially offset by higher driver wage and hiring costs, lower gains on equipment sales, increased equipment depreciation expense, increased driver and independent contractor costs per mile, and $700,000 in corporate wide streamlining and technology redevelopment costs.

 

Consolidated Operating Expenses

 

The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.

 

		Nine Months Ended September 30,
		Dollar Amounts as a Percentage of Total Operating Revenues								Percentage Change of Dollar Amounts Between Periods
		2015				2014				2015 vs. 2014
Total operating revenues			100.0	%			100.0	%			0.2	%
Operating expenses:
Rents and purchased transportation			48.1				50.1				(3.9	)
Salaries, wages and employee benefits			22.6				20.9				8.3
Fuel and fuel taxes			5.3				7.7				(30.9	)
Depreciation and amortization			5.5				4.7				16.3
Operating supplies and expenses			3.6				3.6				(0.9	)
Insurance and claims			1.2				1.3				(3.3	)
General and administrative expenses, net of asset dispositions			1.3				0.9				54.6
Operating taxes and licenses			0.7				0.7				10.5
Communication and utilities			0.3				0.3				1.3
Total operating expenses			88.6				90.2				(1.5	)
Operating income			11.4				9.8				16.5
Net interest expense			0.4				0.4				(0.7	)
Earnings before income taxes			11.0				9.4				17.4
Income taxes			4.2				3.6				17.4
Net earnings			6.8	%			5.8	%			17.4	%

 

 

 

Total operating expenses decreased 1.5%, while operating revenues increased 0.2%, during the first nine months 2015, from the comparable period of 2014. Operating income increased to $522.8 million during the first nine months 2015 from $448.6 million in 2014.

 

Rents and purchased transportation costs decreased 3.9% in 2015. This decrease was primarily the result of the lower fuel component in the cost of services provided by third-party rail and truck carriers within JBI, DCS, and ICS segments.

 

Salaries, wages and employee benefit costs increased 8.3% in 2015 from 2014. This increase was primarily related to increases in driver pay and office personnel compensation due to an increase in the number of employees and a tighter supply of qualified drivers.

 

Fuel costs decreased 30.9% in 2015, compared with 2014, due to decreases in the price of fuel, partially offset by increased road miles. Depreciation and amortization expense increased 16.3% in 2015, primarily due to additions to our JBI segment tractor, container and chassis fleets to support additional business demand, equipment purchased related to new DCS long-term customer contracts, and new replacement equipment in JBT. Operating supplies and expenses decreased 0.9%, driven primarily by decreased equipment maintenance and repairs, partially offset by increased toll activity.

 

Insurance and claims expense decreased 3.3% in 2015 compared with 2014, primarily due to lower incident severity. General and administrative expenses increased 54.6% from the comparable period in 2014 due primarily to costs related to corporate wide streamlining and technology redevelopment efforts. Net gains from sale or disposal of assets were $1.3 million in 2015, compared with $5.4 million in 2014.

 

Net interest expense remained relatively flat in 2015, due primarily to increased average debt levels being offset by lower effective interest rates. Our effective income tax rate was 38.10% for the nine months ended September 30, 2015 and September 30, 2014. 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 $697 million during the first nine months of 2015, compared with $486 million for the same period 2014. Operating cash flows increased due to increased earnings and the collection of trade and income taxes receivable, partially offset by the timing of the payments of trade payables and accrued expenses. Net cash used in investing activities totaled $451 million in 2015, compared with $479 million in 2014. The decrease resulted from a reduction in equipment purchases, combined with an increase in proceeds from the sale of equipment in 2015, compared to the same period 2014. Net cash used in financing activities increased to $247 million in 2015, compared to $7 million in 2014. This change resulted primarily from an increase in treasury stock purchases and higher long-term debt repayments, net of proceeds from long-term debt issuances, in 2015.

 

Debt and Liquidity Data

 

		September 30, 2015				December 31, 2014				September 30, 2014
Working capital ratio			1.41				1.14				0.93
Current portion of long-term debt (millions)			-				250.0				250.0
Total debt (millions)			993.4				934.0				837.1
Total debt to equity			0.80				0.78				0.72
Total debt as a percentage of total capital			44	%			44	%			42	%

  

 

   

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, 2015 (in millions):

 

		Total				One Year Or Less				One to Three Years				Three to Five Years				After Five Years
Operating leases		$	27.0			$	12.3			$	12.7			$	1.7			$	0.3
Debt obligations			985.0				-				-				250.0				735.0
Interest payments on debt (1)			141.6				20.1				40.2				35.7				45.6
Commitments to acquire revenue equipment and facilities			116.0				108.1				7.9				-				-
Total		$	1,269.6			$	140.5			$	60.8			$	287.4			$	780.9

 

(1)      Interest payments on debt are based on the debt balance and applicable rate at September 30, 2015.     

 

Our net capital expenditures were approximately $431 million during the first nine months of 2015, compared with $479 million for the same period 2014. 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 2015 were primarily for tractors, additional intermodal containers and chassis, and other trailing equipment. We are currently committed to spend approximately $116 million during the remainder of 2015 and 2016. We expect to spend in the range of $570 million to $590 million for net capital expenditures during calendar year 2015. The table above excludes $36.7 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, 2015, 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, 2014, 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 rely significantly on our information technology systems, a disruption, failure or security breach of which could have a material adverse effect on our business results.

 

●

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.

 

 

 

ITEM 3. Quantitative And Qualitative Disclosures AbouT Market Risk

 

We had $993 million of debt outstanding at September 30, 2015, including our senior revolving line of credit and senior notes issuances. Our senior notes have fixed interest rates ranging from 2.40% to 3.85%. These fixed-rate facilities reduce the impact of changes to market interest rates on future interest expense. 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. The applicable interest rates under these agreements are based on LIBOR plus an established margin. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. Our earnings would be affected by changes in these short-term variable interest rates. At our current level of borrowing, a one percentage point increase in our applicable rate would reduce annual pretax earnings by $7.4 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, 2015. 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, 2015, 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, 2015, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

 

 

    

ITEM 4. CONTROLS AND PROCEDURES

 

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 internal controls and disclosure controls. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective as of September 30, 2015, in alerting them on a timely basis to material information required to be disclosed by us in our periodic reports to the SEC.

 

There were no changes in our internal control over financial reporting during the third quarter of 2015 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 Court in the lead class-action granted Judgment in our favor with regard to all claims. The plaintiffs have appealed the case to the Ninth Circuit Court of Appeals where it is currently pending. The overlapping claims in the remaining action have been stayed pending a 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.

 

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.

 

ITEM 1A.      RISK FACTORS

 

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, 2014.

 

 

 

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Purchases of Equity Securities

 

The following table summarizes purchases of our common stock during the three months ended September 30, 2015:

 

Period		Number of Common Shares Purchased				Average Price Paid Per Common Share Purchased				Total Number of Shares Purchased as Part of a Publicly Announced Plan (1)				Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Plan (2) (in millions)
July 1 through July 31, 2015			870,584			$	82.01				870,584			$	107
August 1 through August 31, 2015			1,374,132				77.48				1,374,132				1
September 1 through September 30, 2015			-				-				-				1
Total			2,244,716			$	79.24				2,244,716			$	1

 

(1)

On October 27, 2011 our Board of Directors authorized the purchase of up to $500 million of our common stock.

(2)

On October 22, 2015, our Board of Directors authorized the purchase of up to $500 million of our common stock.

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.     OTHER INFORMATION

 

Not applicable.

 

ITEM 6.     EXHIBITS

 

Index to Exhibits

 

 

 

      

 

Exhibit  Number	Exhibits
3.1	Amended and Restated Articles of Incorporation of J.B. Hunt Transport Services, Inc. dated May 19, 1988 (incorporated by reference from Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2005, filed April 29, 2005)

 

3.2	Amended and Restated Bylaws of J.B. Hunt Transport Services, Inc. dated April 23, 2015 (incorporated by reference from Exhibit 3.1 of the Company’s current report on Form 8-K, filed April 27, 2015)

 

10.1	Credit Agreement and related documents (incorporated by reference from Exhibit 10.1 of the Company’s current report on Form 8-K, filed October 2, 2015)

 

31.1	Rule 13a-14(a)/15d-14(a) Certification

 

31.2	Rule 13a-14(a)/15d-14(a) Certification

 

32.1	Section 1350 Certification

 

32.2	Section 1350 Certification

 

101.INS

XBRL Instance Document

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

  

 

  

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Lowell, Arkansas, on the 23rd day of October, 2015.

  

 

	J.B. HUNT TRANSPORT SERVICES, INC.
		(Registrant)
	By:	/s/ John N. Roberts, III
		John N. Roberts, III
		President and Chief Executive Officer
		(Principal Executive Officer)

          

 

	By:	/s/ David G. Mee
		David G. Mee
		Executive Vice President, Finance and Administration and Chief Financial Officer
		(Principal Financial Officer)

          

 

	By:	/s/ John K. Kuhlow
		John K. Kuhlow
		Senior Vice President Finance, Controller, Chief Accounting Officer
		(Principal Accounting Officer)

 

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