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| JBHT > SEC Filings for JBHT > Form 10-Q on 28-Oct-2009 | All Recent SEC Filings |
28-Oct-2009
Quarterly Report
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, 2008 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. You should also refer to Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2008, 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 companies in North America. We operate four distinct, but complementary, business segments and provide a wide range of transportation services to a diverse group of customers throughout the continental United States, Canada and Mexico. We generate revenues primarily from the movement of freight from shippers to consignees and from serving as a logistics provider by offering or arranging for others to provide the transportation service. In addition, we offer services that generally are not provided by common truckload or intermodal carriers, including specialized equipment, on-site management and final-mile-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.
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 Consolidated Financial Statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenues, expenses and associated disclosures of contingent assets and 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 most current Form 10-K (Annual Report). The four 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 for the year ended December 31, 2008, 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.
Segments
We operated four segments during the third quarter 2009. The operation of each of these businesses is described in Note 13, Segment Information, of our Annual Report for the year ended December 31, 2008.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2009 to Three Months Ended
September 30, 2008
Summary of Operating Segment Results
For the Three Months Ended September 30
(in millions)
Operating Revenues Operating Income/(Loss)
2009 2008 % Change 2009 2008
JBI $ 456 $ 532 (14 )% $ 49.6 $ 74.0
DCS 197 244 (19 ) 18.9 26.8
JBT 119 171 (30 ) (0.4 ) 2.5
ICS 68 59 16 3.0 3.1
Other (includes corporate) 0 0 0 (0.1 ) (0.1 )
Subtotal 840 1,006 (16 )% 71.0 106.3
Inter-segment eliminations (6 ) (10 ) 28 -- --
Total $ 834 $ 996 (16 )% $ 71.0 $ 106.3
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Our total consolidated operating revenues decreased to $834 million for the third quarter 2009, a 16% decrease from the $996 million for the third quarter 2008. Lower fuel prices resulted in fuel surcharge revenues of $93.1 million during the current quarter, compared with $225.8 million in 2008. If fuel surcharge revenues were excluded from both periods, the decrease of 2009 revenue from 2008 was 4%. The total consolidated tractor fleet declined from 10,029 units in the third quarter 2008 to 9,905 units in the third quarter 2009. Total consolidated container and trailer count grew from 61,406 to 62,471, while the JBT segment fleet decreased from 16,382 trailers at September 30, 2008 to 12,485 at September 30, 2009. The overall growth in the consolidated trailing equipment fleet was primarily to support additional intermodal business.
JBI segment revenue decreased 14%, to $456 million during the third quarter 2009, compared with $532 million in 2008. This decrease in segment revenue was primarily the result of decreases in fuel prices, resulting in lower fuel surcharge revenue. JBI revenue decreased slightly over the comparable prior year quarter when the impact of fuel surcharges is excluded. While overall load volume grew 9% during the current quarter, over the comparable period of 2008, an extremely competitive bid season resulting in lower rates, along with a 1% decrease in length of haul from the third quarter 2008 contributed to the decline in revenues. Operating income of the JBI segment declined to $49.6 million in the third quarter 2009, from $74.0 million in 2008, primarily due to lower revenue levels.
DCS segment revenue decreased 19%, to $197 million in 2009, from $244 million in
2008. Excluding fuel surcharges, revenue declined 8%, compared to the third
quarter 2008, primarily due to fleet reductions in response to changes in our
customers' business demands. Average truck count at our base business accounts
(locations that commenced operations prior to the current calendar year)
declined by approximately 19% to 3,732 units in the current quarter compared to
the third quarter 2008. Operating income of our DCS segment decreased to $18.9
million in 2009, from $26.8 million in 2008. The decrease in operating income
was primarily due to reduced volume as well as approximately $2.7 million of
implementation expenses related to new business development.
JBT segment revenue totaled $119 million for the third quarter 2009, a decrease of 30% from the $171 million in the third quarter 2008. Excluding fuel surcharges, revenue declined 21%, compared to third quarter 2008. This decrease in revenue was primarily a result of a 10% reduction in loads hauled, compared to the same quarter a year ago, lower rates and reduced fleet size in the third quarter 2009. Rate per loaded mile, excluding fuel surcharges, decreased sharply compared to the prior year period. Average length-of-haul increased 4.9%, but spot rate per mile, excluding fuel surcharges, declined 18.7%. JBT operated at a loss of $0.4 million in the third quarter 2009, compared to operating income of $2.5 million in the third quarter 2008. Operating income declined primarily due to the decreased revenue.
ICS segment revenue grew 16%, to $68 million in the third quarter 2009, from $59 million in the third quarter 2008, which was attributable to a 76% increase in loads from new and existing customers. Our third-party carrier base grew 38% during the current quarter to over 21,000 carriers by quarter-end. Operating income of our ICS segment decreased slightly to $3.0 million, from $3.1 million in 2008. This decrease in operating income was partly due to increases in salaries and wages as a result of employee growth. Our ICS staff count grew 50% during the third quarter 2009, compared with 2008.
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 Change
Percentage of Total of Dollar Amounts
Operating Revenues Between Quarters
2009 2008 2009 vs. 2008
Total operating revenues 100.0 % 100.0 % (16.3 )%
Operating expenses:
Rents and purchased transportation 43.8 40.2 (8.9 )
Salaries, wages and employee benefits 24.4 21.8 (6.3 )
Fuel and fuel taxes 8.7 14.4 (49.3 )
Depreciation and amortization 5.6 5.1 (7.0 )
Operating supplies and expenses 4.8 4.2 (3.6 )
Insurance and claims 1.5 1.4 (11.1 )
General and administrative expenses, net of
asset dispositions 1.3 1.0 0.2
Operating taxes and licenses 0.8 0.8 (12.5 )
Communication and utilities 0.6 0.4 2.1
Total operating expenses 91.5 89.3 (14.3 )
Operating income 8.5 10.7 (33.2 )
Interest income 0.0 0.0 (44.4 )
Interest expense 0.7 1.0 (33.7 )
Equity in loss of affiliated company 0.0 0.0 192.7
Earnings before income taxes 7.8 9.7 (32.8 )
Income taxes 3.0 3.6 (31.3 )
Net earnings 4.8 % 6.1 % (33.7 )%
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Total operating expenses decreased 14.3% and operating revenues declined 16.3%, during the third quarter 2009, from the comparable period 2008. Changes in fuel costs and fuel surcharge revenues can have an impact on the comparison of revenues and costs between reporting periods. Operating income decreased to $71.0 million during the third quarter 2009, from $106.3 million in the third quarter 2008.
Rents and purchased transportation costs decreased 8.9% in 2009. This decrease was primarily the result of the lower cost of fuel, since fuel costs of third-party rail and truck carriers are included in purchased transportation expense. This decrease was partially offset by an increase in load volume in our JBI and ICS segments.
Salaries, wages and employee benefit costs decreased 6.3% in 2009 compared with 2008. This decrease was primarily related to reductions in the number of company drivers in our DCS and JBT segments, caused by the reduction in business demand and freight movement.
Fuel costs decreased 49.3% in 2009, compared with 2008. Our fuel cost per gallon during the current quarter decreased 41% due to the steep decline in fuel prices, compared with the third quarter 2008. We have fuel surcharge programs in place with the majority of our customers. These programs typically involve a specified computation based on the change in national, regional or local fuel prices. While these programs may incorporate fuel cost changes as frequently as weekly, most also reflect a specified miles per gallon factor and require a certain minimum change in fuel costs (e.g., $0.05 per gallon) to trigger a change in fuel surcharge revenue. As a result, some of these programs have a timing lag between when fuel costs change and when this change is reflected in revenues. For such programs, this lag negatively impacts operating income in times of rapidly increasing fuel costs and positively impacts operating income when fuel costs decrease rapidly.
It is not meaningful to compare the amount of fuel surcharge revenue or the change in fuel surcharge revenue between reporting periods to fuel and fuel taxes expense, or the change of fuel expense between periods, as a significant portion of fuel cost is included in our payments to railroads, dray carriers and other third parties. These payments are classified as purchased transportation expense.
Depreciation and amortization expense decreased 7.0%, which was primarily the result of the reduction of our tractor fleet. Operating supplies and expenses decreased 3.6%, primarily due to lower maintenance costs and a decrease in toll costs, compared with the third quarter 2008. Insurance and claims expense decreased 11.1% for 2009 compared with 2008, primarily due to a lower number of accidents and lower claims costs.
General and administrative expenses increased slightly for the current quarter from the comparable period in 2008, primarily as a result of an increase in facilities expense and an increase in the loss on the sale of assets. This increase was partially offset by decreases in bad debt expense and other driver expenses. Net losses from the sale of revenue equipment were $1.0 million in 2009, compared with $0.1 million in 2008. Operating taxes and licenses decreased by 12.5% primarily due to the decrease in truck miles and registered equipment.
Net interest expense decreased 33.5% in 2009, due to a reduction in debt levels and lower interest rates. We continue to use operating cash flows to pay down debt and have reduced total debt to $626 million at September 30, 2009 from $692 million at September 30, 2008.
The "equity in (income)/loss of affiliated company" item on our Condensed Consolidated Statement of Earnings reflects our share of the operating results of Transplace, Inc. (TPI).
Our effective income tax rate was 38.4% for the third quarter 2009 and for the nine months ended September 2009, as compared to 37.5% for the third quarter 2008 and 38.4% for the nine months ended September 30, 2008. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, which 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, 2009 to Nine Months Ended
September 30, 2008
Summary of Operating Segment Results
For the Nine Months Ended September 30
(in millions)
Operating Revenues Operating Income/(Loss)
2009 2008 % Change 2009 2008
JBI $ 1,272 $ 1,464 (13 )% $ 129.7 $ 192.0
DCS 550 716 (23 ) 44.3 67.3
JBT 329 547 (40 ) (10.3 ) 5.8
ICS 192 149 29 11.4 7.3
Other (includes corporate) 0 0 0 (0.1 ) 0.0
Subtotal 2,343 2,876 (19 )% 175.0 272.4
Inter-segment eliminations (17 ) (24 ) 28 -- --
Total $ 2,326 $ 2,852 (18 )% $ 175.0 $ 272.4
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Our total consolidated operating revenues decreased to $2,326 million for the nine months ended September 30, 2009, an 18% decrease from the $2,852 million for the comparable period 2008. Significantly lower fuel prices resulted in fuel surcharge revenues of $219.0 million during the nine months ended September 30, 2009, compared with $594.0 million in 2008. If fuel surcharge revenues were excluded from both periods, the decrease of 2009 revenue from 2008 was 6.7%. The decreased level of revenue, excluding fuel surcharge, was primarily attributable to lower load volume in our DCS and JBT segments, partially offset by higher volumes in our JBI and ICS segments. The significant decline in JBT revenues was primarily a result of our ongoing long-term strategy to reduce the size of the segment's tractor fleet and weaker demand brought about by the current economic recession. As previously mentioned, our total consolidated company-owned tractor fleet declined from 10,029 units in 2008 to 9,905 units in 2009. Containers and trailers grew from 61,406 to 62,471 during the comparable periods.
JBI segment revenue decreased 13% to $1,272 million in 2009, compared with $1,464 million in 2008. This decrease in revenue was primarily a result of the reduction in fuel costs and fuel surcharge revenue partly offset by a 7% growth in overall load volume. Operating income of the JBI segment declined to $129.7 million in 2009, from $192.0 million in 2008, primarily due to decreased revenue and declining length of haul, as well as a pretax charge to write down the fair value of certain assets held for sale recorded in the second quarter 2009.
DCS segment revenue decreased 23%, to $550 million in 2009, from $716 million in 2008. This decline in DCS segment revenue was partly due to decreased fuel surcharges related to lower costs of fuel and fewer loads. Excluding fuel surcharges, revenue declined 13%, compared to the first nine months 2008, primarily due to the decline in the average truck count. The lower truck count reflects fleet reductions in response to changes in our customers' business demands and our action to reduce units that operate in more generic dedicated business. Operating income of our DCS segment decreased to $44.3 million in 2009, from $67.3 million in 2008. The decline in operating income was due to decreased demand, as well as increased implementation expenses related to new business and a pretax charge to write down the fair value of certain assets held for sale recorded in the second quarter 2009.
JBT segment revenue totaled $329 million in 2009, a decrease of 40% from the $547 million in 2008. This decrease in revenue was primarily a result of a 25% decrease in loads hauled, compared to the same period a year ago, as demand was less in 2009. Rate per loaded mile, excluding fuel surcharges, decreased by 9%, compared to the prior year period. Our JBT segment operated at a loss of $10.3 million in 2009, compared to operating income of $5.8 million in 2008. The decrease in operating income was the result of decreased revenue and decreased demand.
ICS segment revenue grew 29%, to $192 million in 2009, from $149 million in 2008, which was primarily attributable to increases in load volume from both new and existing customers. Operating income of our ICS segment increased to $11.4 million in 2009, from $7.3 million in 2008, due to volume growth, as our third-party carrier base grew 38% to over 21,000 carriers by quarter end. Our ICS employee count increased 32% in 2009, compared with 2008, which was primarily in the sales and operations functions.
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 Change
Percentage of Total of Dollar Amounts
Operating Revenues Between Periods
2009 2008 2009 vs. 2008
Total operating revenues 100.0 % 100.0 % (18.4 )%
Operating expenses:
Rents and purchased transportation 43.0 39.0 (9.7 )
Salaries, wages and employee benefits 25.3 22.9 (9.7 )
Fuel and fuel taxes 8.4 15.2 (55.3 )
Depreciation and amortization 6.1 5.3 (6.8 )
Operating supplies and expenses 4.9 4.2 (4.2 )
Insurance and claims 1.6 1.6 (17.2 )
General and administrative expenses, net of
asset dispositions 1.7 1.0 34.4
Operating taxes and licenses 0.9 0.8 (13.5 )
Communication and utilities 0.6 0.5 (4.8 )
Total operating expenses 92.5 90.5 (16.6 )
Operating income 7.5 9.5 (35.7 )
Interest income 0.0 0.0 (43.2 )
Interest expense 0.9 1.1 (34.0 )
Equity in loss of affiliated company 0.0 0.0 70.9
Earnings before income taxes 6.6 8.4 (35.7 )
Income taxes 2.5 3.2 (35.7 )
Net earnings 4.1 % 5.2 % (35.7 )%
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Total operating expenses decreased 16.6% and operating revenues decreased 18.4%, during the nine months ended September 30, 2009, from the comparable period of 2008. Changes in fuel costs and fuel surcharge revenues can have an impact on the comparison of revenues and costs between reporting periods. Operating income declined to $175.0 million during the first nine months 2009, from $272.4 million in 2008.
Rents and purchased transportation costs decreased 9.7% in 2009. This decrease was a direct result of decreases in the cost of fuel, since fuel costs of third-party rail and truck carriers are included in purchased transportation expense. This decrease was partially offset by an increase of outsourced freight through our ICS segment.
Salaries, wages and employee benefit costs decreased 9.7% in 2009 from 2008. This decrease was primarily related to reductions in the number of drivers in our DCS and JBT segments, due to the reduction in business demand and freight movement.
Fuel costs decreased 55.3% in 2009, compared with 2008. Our fuel cost per gallon during the first nine months 2009 decreased nearly 45% due to the decline in fuel prices. As previously discussed, changes in fuel prices impact our fuel costs and results of operations.
Depreciation and amortization expense decreased 6.8% in 2009, which was primarily the result of the reduction in our tractor fleet. Operating supplies and expenses decreased 4.2%, primarily due to lower maintenance costs and lower travel expenses, compared with 2008. Insurance and claims expense decreased 17.2% for 2009 compared with 2008, primarily due to a lower number of accidents and lower claims costs. Operating taxes and licenses decreased by 13.5% due to the decrease in miles and freight demand, as well as a reduction in tractor units.
General and administrative expenses increased 34.4% in 2009 from the comparable period in 2008, primarily as a result of an impairment charge to write down the fair value of certain assets held for sale, implementation charges for new business, and increases in professional fees and facility expenses. Net losses from sale of revenue equipment were $0.9 million in 2009, compared with net gains of $0.6 million in 2008.
Net interest expense decreased 33.8% in 2009, primarily due to reduced debt levels and lower interest rates. Total debt decreased to $626 million at September 30, 2009, from $692 million at September 30, 2008.
The "equity in (income)/loss of affiliated company" item on our Condensed Consolidated Statement of Earnings reflects our share of the operating results of TPI.
Liquidity and Capital Resources
Cash Flow
Net cash provided by operating activities totaled $248 million during the nine months ended September 30, 2009, compared with $350 million for the same period 2008. Operating cash flows decreased primarily due to lower earnings and changes in the volume and timing of payments to vendors. In addition, the volume and timing of collections of accounts receivable resulted in lower operating cash . . .
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