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JBHT > SEC Filings for JBHT > Form 10-Q on 30-Jul-2013All Recent SEC Filings

Show all filings for HUNT J B TRANSPORT SERVICES INC

Form 10-Q for HUNT J B TRANSPORT SERVICES INC


30-Jul-2013

Quarterly Report


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, 2012, 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, 2012, 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 10, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2012.

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, 2012, 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, 2013 to Three Months Ended June 30,
2012



                                    Summary of Operating Segment Results
                                     For the Three Months Ended June 30,
                                                (in millions)
                                Operating Revenues           Operating Income
                               2013            2012          2013         2012
JBI                          $     855       $     762     $   110.7     $  93.4
DCS                                303             267          29.7        33.2
ICS                                132             109           4.2         2.0
JBT                                101             126           2.9         8.8
Other (includes corporate)           -               -          (0.1 )      (0.2 )
Subtotal                         1,391           1,264         147.4       137.2
Inter-segment eliminations          (8 )            (9 )           -           -
Total                        $   1,383       $   1,255     $   147.4     $ 137.2

Total consolidated operating revenues increased to $1.38 billion for the second quarter 2013, a 10% increase from $1.26 billion in the second quarter 2012. JBI and ICS business segments contributed to this increase in operating revenue, primarily due to higher load volumes, while DCS contributed through the continued implementation of new large private fleet conversions. JBT business segment revenue declined, primarily from a reduction in fleet size and lower utilization. Fuel surcharge (FSC) revenues increased to $262.7 million during the current quarter, compared with $249.6 million in 2012. If FSC revenues were excluded from both periods, the increase of 2013 revenue from 2012 was 11%.

JBI segment revenue increased 12%, to $855 million during the second quarter 2013, compared with $762 million in 2012. This increase in segment revenue was primarily a result of a 12% increase in load volume with the effect of traffic mix, customer rate increases, and FSC revenue keeping revenue per load virtually flat compared to a year ago. Load volume in our eastern network increased 14%, and transcontinental loads grew by 11% over the second quarter 2012. Operating income of the JBI segment increased 19% to $110.7 million in the second quarter 2013, from $93.4 million in 2012, primarily due to steady demand, overall load growth, lower insurance and claims costs, and lower office personnel compensation costs, partially offset by $1.6 million of abandoned shared technology costs, a $1.5 million loss on the destruction of equipment resulting from two train derailments, and increases in outsourced drayage costs and rail purchase transportation costs.

DCS segment revenue increased 13%, to $303 million in 2013, from $267 million in 2012. Excluding FSC, revenue increased 16% compared to the second quarter 2012. This increase was primarily attributable to new long-term contracts currently being implemented. DCS ended the second quarter 2013 with a net additional 863 revenue producing trucks when compared to the same period 2012, primarily due to new customer accounts. Productivity, defined as revenue per truck per week, decreased by approximately 4% compared to the second quarter 2012 due to a higher percentage of subleased customer equipment and customer paid fuel within the new accounts. Operating income of our DCS segment decreased to $29.7 million in 2013, from $33.2 million in 2012. The decrease in operating income was driven primarily by increased equipment and maintenance costs, lower gains on equipment sales, increased insurance and claims costs, and $0.6 million of abandoned shared technology costs. In addition, DCS incurred approximately $2.5 million in implementation costs for the new long-term customers. These implementation costs include, but are not limited to, driver and management hiring costs and relocation, personnel travel costs, equipment repositioning costs, technology design and integration, and telecommunication and operational system infrastructure. We anticipate incurring additional implementation expenses of approximately $1.0 million related to these contracts.


ICS segment revenue grew 20%, to $132 million in the second quarter 2013, from $109 million in the second quarter 2012, due to a 29% increase in load volume. Both contractual and transactional business experienced increased load volumes. Contractual business represented approximately 60% of total load volume in the second quarter of 2013, which is comparable to the same period last year. Volumes grew faster than revenue primarily from increased less-than-truck-load business. Operating income of our ICS segment increased to $4.2 million, from $2.0 million in 2012, primarily due to increased revenue and improved gross profit margin. Our gross profit margin increased to 11.8% in the current quarter vs. 10.6% in the second quarter 2012, primarily due to lower purchased transportation rates resulting from a softer carrier environment. This growth in gross profit margin was partially offset by increased personnel costs related to the opening of two new branch locations and $0.1 million of abandoned shared technology costs during the second quarter of 2013.

JBT segment revenue totaled $101 million for the second quarter 2013, a decrease of 20% from $126 million in the second quarter 2012. Excluding FSC, segment revenue decreased 19%, primarily due to a 16% reduction in fleet size, lower equipment utilization, and shorter length of haul, slightly offset by increased pricing. Our JBT segment operating income was $2.9 million, compared to $8.8 million in the second quarter 2012. This 67% decrease in operating income was primarily due to lower revenue, increased driver and independent contractor cost per mile, higher empty miles, and $0.1 million of abandoned shared technology costs, partially offset by favorable changes in freight mix and lower insurance and claims costs during the second quarter of 2013.

Consolidated Operating Expenses

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

                                                            Three Months Ended June 30,
                                                     Dollar Amounts as a          Percentage Change
                                                     Percentage of Total          of Dollar Amounts
                                                     Operating Revenues            Between Quarters
                                                    2013             2012           2013 vs. 2012
Total operating revenues                           100.0 %          100.0 %                10.2 %
Operating expenses:
Rents and purchased transportation                  50.2             49.2                  12.5
Salaries, wages and employee benefits               20.4             20.4                  10.3
Fuel and fuel taxes                                  8.0              9.0                  (2.5 )
Depreciation and amortization                        4.5              4.5                  10.8
Operating supplies and expenses                      3.6              3.6                   9.0
Insurance and claims                                 0.9              1.0                  (3.8 )
General and administrative expenses, net of
asset dispositions                                   0.8              0.5                  95.5
Operating taxes and licenses                         0.6              0.6                   9.8
Communication and utilities                          0.3              0.3                  10.4
Total operating expenses                            89.3             89.1                  10.5
Operating income                                    10.7             10.9                   7.4
Net interest expense                                 0.5              0.5                 (10.1 )
Earnings before income taxes                        10.2             10.4                   8.4
Income taxes                                         3.9              4.0                   7.3
Net earnings                                         6.3 %            6.4 %                 9.0 %

Total operating expenses increased 10.5%, while operating revenues increased 10.2%, during the second quarter 2013, from the comparable period 2012. Operating income increased to $147.4 million during the second quarter 2013, from $137.2 million in 2012.


Rents and purchased transportation costs increased 12.5% in 2013. This increase was primarily the result of the increase in load volume, which increased services provided by third-party rail and truck carriers within our JBI and ICS segments.

Salaries, wages and employee benefit costs increased 10.3% during the second quarter 2013, compared with 2012. This increase was primarily related to increases in driver and other labor pay due to increased business demand, a tighter supply of qualified drivers and new long-term customer contracts, partially offset by a reduction in driver pay within our JBT segment due to fleet reduction.

Fuel costs decreased 2.5% in 2013, compared with 2012, due to decreases in the cost of fuel and fewer road miles during the current period, resulting from the fleet reduction within JBT, offset by increases in the JBI and DCS segments. Depreciation and amortization expense increased 10.8% in 2013 primarily due to additions to our JBI segment tractor, container and chassis fleets to support additional business demand, as well as additional equipment purchased related to new DCS long-term customer contracts. These increases were partially offset by the reduction in the JBT tractor fleet. Operating supplies and expenses increased 9.0%, driven primarily by increased general maintenance costs resulting from growth in equipment fleets, increased toll activity, and relocation expenses related to the continued implementation of new DCS long-term contracts.

Insurance and claims expense decreased 3.8% in 2013 compared with 2012, primarily due to decreased accident severity. General and administrative expenses increased 95.5% for the current quarter from the comparable period in 2012, primarily due to a decrease in net gains from asset sales and disposals, resulting primarily from $2.4 million of abandoned technology costs, shared by all business units, and a $1.5 million loss on the destruction of equipment resulting from two train derailments within our JBI segment. Net gains from sale or disposal of assets were $0.1 million in 2013, compared with $4.1 million in 2012.

Net interest expense decreased 10.1% in 2013, due to both reduced average debt levels and lower interest rates. Our effective income tax rate decreased to 37.88% for the current quarter, from 38.25% for the comparable period in 2012, due primarily to the realization of a deferred tax benefit on the sale of property during the second quarter of 2013.

Comparison of Six Months Ended June 30, 2013 to Six Months Ended June 30, 2012



                                    Summary of Operating Segment Results
                                      For the Six Months Ended June 30,
                                                (in millions)
                                Operating Revenues           Operating Income
                               2013            2012          2013         2012
JBI                          $   1,651       $   1,456     $   207.5     $ 172.8
DCS                                582             523          51.7        61.4
ICS                                254             207           9.3         6.0
JBT                                203             254           4.0        13.7
Other (includes corporate)           -               -          (0.1 )      (0.1 )
Subtotal                         2,690           2,440         272.4       253.8
Inter-segment eliminations         (16 )           (19 )           -           -
Total                        $   2,674       $   2,421     $   272.4     $ 253.8

Total consolidated operating revenues increased to $2.67 billion for the first six months 2013, an 11% increase from the $2.42 billion for the comparable period 2012. FSC revenues were $515.3 million during the first six months 2013, compared with $476.9 million in 2012. If FSC revenues were excluded from both periods, the increase of 2013 revenue from 2012 was also 11%.

JBI segment revenue increased 13%, to $1.65 billion during the first six months 2013, compared with $1.46 billion in 2012. This increase in revenue was primarily a result of increased load volume in both our eastern and transcontinental networks. The combination of traffic mix, customer rate increases, and FSC revenue resulted in a slight increase in revenue per load compared to a year ago. Excluding FSC, revenues increased 14% over the comparable prior year period. Operating income of the JBI segment increased to $207.5 million in the first six months 2013, from $172.8 million in 2012, primarily due to increased load volume, increased revenue per load, improved execution on dray movements and lower office personnel compensation costs over the prior year, partially offset by increased purchased transportation cost and driver wages, $1.6 million of abandoned shared technology costs, and a $1.5 million loss on the destruction of equipment resulting from two train derailments.


DCS segment revenue increased 11%, to $582 million in 2013, from $523 million in 2012. Excluding FSC, revenue increased 13%, compared to the first six months 2012. This increase was primarily attributable to new long-term contracts currently being implemented. Operating income of our DCS segment decreased to $51.7 million in 2013, from $61.4 million in 2012. The decrease in operating income was driven primarily by increased equipment and maintenance costs, lower gains on equipment sales, increased insurance and claims costs, increased bad debt expense, and $0.6 million of abandoned shared technology costs. In addition, DCS incurred approximately $4.2 million in implementation costs for the new long-term customers during the first six months of 2013.

ICS segment revenue grew 23%, to $254 million in 2013, from $207 million in 2012, primarily due to a 38% increase in load volume. Both transactional and contractual business experienced increased load volumes. Volumes grew faster than revenue, primarily due to a change in freight mix driven by customer demand. Operating income of our ICS segment increased to $9.3 million, from $6.0 million in 2012, primarily due to increased revenues and improved overhead cost controls. ICS gross profit margin for the first six months of 2013 was 12.4%, unchanged when compared to the same period of 2012.

JBT segment revenue totaled $203 million for the first six months 2013, a decrease of 20% from $254 million in the same period in 2012. Excluding FSC, segment revenue also decreased 20%, primarily due to a 16% reduction in fleet size, lower equipment utilization and shorter length of haul, slightly offset by increased pricing. Our JBT segment operating income decreased to $4.0 million during the first six months 2013, from $13.7 million in 2012. This decrease in operating income was primarily due to lower revenue, increased driver and independent contractor cost per mile, higher maintenance and equipment cost per unit, and fewer gains on equipment sales.

Consolidated Operating Expenses



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



                                                              Six Months Ended June 30,
                                                     Dollar Amounts as a           Percentage Change
                                                     Percentage of Total           of Dollar Amounts
                                                      Operating Revenues            Between Periods
                                                     2013             2012           2013 vs. 2012
Total operating revenues                             100.0 %         100.0 %                10.5 %
Operating expenses:
Rents and purchased transportation                    50.0            48.4                  14.1
Salaries, wages and employee benefits                 20.4            20.9                   7.9
Fuel and fuel taxes                                    8.5             9.7                  (2.9 )
Depreciation and amortization                          4.6             4.6                   9.5
Operating supplies and expenses                        3.5             3.5                  10.8
Insurance and claims                                   0.9             1.0                   5.2
General and administrative expenses, net of
asset dispositions                                     0.9             0.4                 126.2
Operating taxes and licenses                           0.6             0.6                   7.5
Communication and utilities                            0.4             0.4                   8.7
Total operating expenses                              89.8            89.5                  10.8
Operating income                                      10.2            10.5                   7.3
Net interest expense                                   0.5             0.6                 (10.3 )
Earnings before income taxes                           9.7             9.9                   8.4
Income taxes                                           3.7             3.8                   7.8
Net earnings                                           6.0 %           6.1 %                 8.7 %


Total operating expenses increased 10.8%, while operating revenues increased 10.5%, during the first six months 2013, from the comparable period of 2012. Operating income increased to $272.4 million during the first six months 2013, from $253.8 million in 2012.

Rents and purchased transportation costs increased 14.1% in 2013. This increase was primarily the result of the increase in load volume which increased services provided by third-party rail and truck carriers within our JBI and ICS segments.

Salaries, wages and employee benefit costs increased 7.9% in 2013 from 2012. This increase was primarily related to increases in driver and other labor pay due to increased business demand, a tighter supply of qualified drivers and new long-term customer contracts, partially offset by a reduction in driver pay within our JBT segment due to fleet reduction.

Fuel costs decreased 2.9% in 2013, compared with 2012, due to decreases in the cost of fuel and fewer road miles during the current period, resulting from the fleet reduction within JBT, offset by increases in the JBI and DCS segments. Depreciation and amortization expense increased 9.5% in 2013 primarily due to additions to our JBI segment tractor, container, and chassis fleets to support additional business demand, as well as additional equipment purchased related to new DCS long-term customer contracts. These increases were partially offset by the reduction in the JBT tractor fleet. Operating supplies and expenses increased 10.8% driven primarily by increased general maintenance costs resulting from growth in equipment fleets, increased toll activity, and relocation expenses related to the continued implementation of new DCS long-term contracts.

Insurance and claims expense increased 5.2% in 2013 compared with 2012, primarily due to additional costs related to two large claims that occurred in prior periods, which were shared by all business units. General and administrative expenses increased 126.2% from the comparable period in 2012, due to a decrease in net gains from asset sales and disposals, which included $2.4 million of abandoned technology costs, shared by all business units, and a $1.5 million loss on the destruction of equipment resulting from two train derailments within our JBI segment in 2013. Net gains from sale or disposal of assets were $1.4 million in 2013, compared with $9.8 million in 2012.

Net interest expense decreased 10.3% in 2013, due to both reduced average debt levels and lower interest rates. Our effective income tax rate decreased to 38.05% for the current period, from 38.25% for the comparable period in 2012, due primarily to the realization of a deferred tax benefit on the sale of property during the second quarter of 2013.

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities totaled $294 million during the first six months of 2013, compared with $261 million for the same period 2012. Operating cash flows increased primarily due to increased trade accounts payables and accrued expenses at period end due to timing of payments and increased earnings, offset by the timing of trade and income tax receivables collections. These timing differences are the primary reason for the change in our working capital ratios. Net cash used in investing activities totaled $212 million in 2013, compared with $171 million in 2012. The increase resulted from an increase in equipment purchases in 2013, combined with fewer asset sales. Net cash used in financing activities decreased to $82 million in 2013, compared to $89 million in 2012. This decrease resulted primarily from our repurchase of stock in 2013, offset by lower net reductions in outstanding debt and the timing of the payment of our 2013 first quarter dividend, which was pulled forward and paid in December 2012.


Debt and Liquidity Data



                                                          December 31,
                                     June 30, 2013            2012         June 30, 2012
Working capital ratio                     0.93              1.10             1.03
Current portion of long-term debt
(millions)                               200.0             100.0           $100.0
. . .
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