Truck services

HUNT JB TRANSPORT SERVICES INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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, 2021, 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. When we use words like "may," "plan," "contemplate,"
"anticipate," "believe," "intend," "continue," "expect," "project," "goals,"
"strategy," "future," "predict," "seek," "estimate," "likely," "could,"
"should," "would," and similar expressions, you should consider them as
identifying forward-looking statements, although we may use other phrasing.
Forward-looking statements are inherently uncertain, subject to risks, and
should be viewed with caution. These statements are based on our belief or
interpretation of information currently available. Stockholders and prospective
investors are cautioned that actual results and future events may differ
materially from these forward-looking statements as a result of many factors.
Some of the factors and events that are not within our control and that could
have a material impact on future operating results include the following:
general economic and business conditions; potential business or operational
disruptions resulting from the ongoing effects of the novel coronavirus
(COVID-19) pandemic, including any future spikes or outbreaks of the virus, as
well as government actions taken in response to the pandemic; competition and
competitive rate fluctuations; excess capacity in the intermodal or trucking
industries; a loss of one or more major customers; cost and availability of
diesel fuel; interference with or termination of our relationships with certain
railroads; rail service delays; disruptions to U.S. port-of-call activity;
ability to attract and retain qualified drivers, delivery personnel, independent
contractors, and third-party carriers; retention of key employees; insurance
costs and availability; litigation and claims expense; determination that
independent contractors are employees; new or different environmental or other
laws and regulations; volatile financial credit markets or interest rates;
terrorist attacks or actions; acts of war; adverse weather conditions;
disruption or failure of information systems; inability to keep pace
with technological advances affecting our information technology platforms;
operational disruption or adverse effects of business acquisitions; increased
costs for new revenue equipment; increased tariffs assessed on or disruptions in
the procurement of imported revenue equipment; decreases in the value of used
equipment; and the ability of revenue equipment manufacturers to perform in
accordance with agreements for guaranteed equipment trade-in values.
Additionally, our business is somewhat seasonal with slightly higher freight
volumes typically experienced during August through early November in our
full-load transportation business. You should also refer to Part I, Item 1A of
our Annual Report (Form 10-K) for the year ended December 31, 2021, 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. We assume no obligation to update any forward-looking statement to the
extent we become aware that it will not be achieved for any reason.



GENERAL



We are one of the largest surface transportation, delivery, and logistics
companies in North America. We operate five distinct, but complementary,
business segments and provide a wide range of safe and reliable transportation,
brokerage, and delivery services to a diverse group of customers and consumers
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,
freight handling, specialized equipment, and freight network design. In
addition, we provide or arrange for local and home delivery services, generally
referred to as final-mile delivery services, to customers through a network of
cross-dock and other delivery system locations throughout the continental United
States. Utilizing thousands of reliable third-party carriers, we also provide
comprehensive freight transportation brokerage and logistics services. In
addition to dry-van, full-load operations, we also arrange for these unrelated
outside carriers to 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. Our customers, who include many
Fortune 500 companies, have extremely diverse businesses. Many of them are
served by J.B. Hunt 360°®, an online platform that offers shippers and carriers
greater access, visibility, and transparency of the supply chain. We account for
our business on a calendar year basis, with our full year ending on December 31
and our quarterly reporting periods ending on March 31, June 30, and September
30. The operation of each of our five business segments is described in Note 14,
Segment Information, of our Annual Report (Form 10-K) for the year ended
December 31, 2021.



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Our operations have been impacted by the COVID-19 global pandemic. We began our
COVID-19 response activities in the first quarter of 2020, which required remote
working when possible, expanded health and safety policies, facility
modifications, increased security coverage, and purchase and distribution of
personal protective equipment and supplies. In addition, we provided incremental
paid time off for employees to help offset any financial loss caused by their
absence from work when receiving the COVID-19 vaccination. We also worked with
local healthcare organizations to provide vaccination assistance under
applicable area guidelines and procedures to employees and their family members.
On April 4, 2022, we eliminated the requirement of remote working when possible,
resulting in previously remote employees returning to our home office campus and
all other field locations throughout North America. We continue to review and
analyze both external and internal COVID-related data, including the effects of
new variants. We have been pleased with the continued performance of our
employees, particularly our drivers, who have provided consistent service to our
customers throughout the pandemic.



Significant 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, 2021, 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, 2022 to Three Months Ended
September 30, 2021



                                                         Summary of Operating Segment Results
                                                       For the Three Months Ended September 30,
                                                                     (in millions)
                                               Operating Revenues                Operating Income/(Loss)
                                              2022             2021              2022               2021
JBI                                        $    1,837       $    1,413       $      217.0       $      165.1
DCS                                               894              665              103.1               78.1
ICS                                               591              666               13.5               14.7
JBT                                               274              204               19.0               14.7
FMS                                               249              206                9.6                1.3
Other (includes corporate)                          -                -               (0.0 )             (0.1 )
Subtotal                                        3,845            3,154              362.2              273.8
Inter-Segment eliminations                         (7 )             (9 )                -                  -
Total                                      $    3,838       $    3,145       $      362.2       $      273.8




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Total consolidated operating revenues increased to $3.84 billion for the third
quarter 2022, a 22% increase from $3.14 billion in the third quarter 2021. Total
consolidated operating revenue, excluding fuel surcharge revenue, increased 12%.
This increase in operating revenues resulted from higher JBI revenue per load,
excluding fuel surcharge revenue, higher average truck counts and improved fleet
productivity in DCS, higher volumes in JBT, and increased revenues in FMS
primarily driven by a recent business acquisition, partially offset by decreased
ICS volume.



JBI segment revenue increased 30% to $1.84 billion during the third quarter
2022, compared with $1.41 billion in 2021. Load volumes during the third quarter
2022 increased 4% over the same period 2021. Transcontinental loads increased 1%
during the third quarter 2022, and eastern network load volume was up 7%
compared to the third quarter 2021. Despite sustained growth in demand for
intermodal capacity, JBI continued to encounter network fluidity issues
attributable to rail velocity, customer behavior, and general uncertainties
within the overall supply chain during the third quarter 2022, which hindered
further load volume growth within the period. Revenue per load, which is
determined by the combination of customer rates, fuel surcharges and freight
mix, increased 26% during the third quarter 2022. Revenue per load excluding
fuel surcharge revenue increased 17% compared to the third quarter 2021. JBI
segment operating income increased 31%, to $217.0 million in the third quarter
2022, from $165.1 million in 2021. The increase is primarily due to increased
revenue, partially offset by higher rail and third-party dray purchased
transportation expense, higher costs to attract and retain drivers, increased
non-driver salary and wages, higher equipment-related expenses, and higher costs
due to rail network inefficiencies and customer detention of equipment. The
current quarter ended with approximately 113,000 units of trailing capacity and
6,870 power units assigned to the dray fleet.



DCS segment revenue increased 34% to $894 million in the third quarter 2022 from
$665 million in 2021. Productivity, defined as revenue per truck per week,
increased 14% when compared to the third quarter 2021. Productivity excluding
fuel surcharges increased 6%, primarily due to contractual index-based rate
increases and higher productivity of equipment on start-up accounts during the
current period. A net additional 1,836 revenue-producing trucks were in the
fleet by the end of the third quarter 2022 compared to the prior year period.
DCS segment operating income increased 32% to $103.1 million in the third
quarter 2022, from $78.1 million in 2021. The increase is primarily due to
increased revenue, partially offset by increased driver and non-driver wages,
benefits and recruiting costs, higher equipment-related expenses, and higher
costs related to the implementation of new long-term customer contracts when
compared to the third quarter 2021.



ICS segment revenue decreased 11% to $591 million in the third quarter 2022,
from $666 million in 2021. Overall volumes decreased 8%, while truckload volumes
decreased 1%, compared to the third quarter 2021. Revenue per load decreased 4%,
primarily due to decreases in spot rates that were partially offset by higher
contractual rates and freight mix changes compared to the third quarter 2021.
Contractual business represented approximately 57% of total load volume and 53%
of total revenue in the third quarter 2022, compared to 54% and 41%,
respectively, in 2021. Approximately $391 million of third quarter 2022 ICS
revenue was executed through the Marketplace for J.B. Hunt 360 compared to $397
million in the third quarter 2021. ICS segment operating income decreased to
$13.5 million in the third quarter of 2022 compared to $14.7 million in 2021.
Gross profit margin increased to 14.3% in the third quarter 2022, compared to
12.0% in 2021. The increase in gross profit margin was more than offset by
higher personnel costs, increased technology spending, higher bad debt expense,
and increased insurance and claims expense compared to third quarter 2021. ICS's
carrier base increased 25% compared to third quarter 2021.



JBT segment revenue totaled $274 million for the third quarter 2022, an increase
of 34% from $204 million in third quarter 2021. Revenue excluding fuel surcharge
increased 24% primarily due to a 10% increase in revenue per load excluding fuel
surcharge revenue and a 13% increase in load volume compared to third quarter
2021. Load volume growth was primarily related to the expansion of J.B. Hunt
360box® which leverages the J.B. Hunt 360 platform to provide customers access
to drop-trailer capacity across our transportation network. At the end of the
third quarter 2022, the JBT fleet consisted of 13,751 trailers and 2,684
tractors, compared to 9,906 trailers and 1,965 tractors in 2021. Trailer turns
in the third quarter of 2022 decreased 18% compared to third quarter 2021 due to
the onboarding of new trailers and freight mix. JBT segment operating income
increased to $19.0 million in the third quarter 2022, compared with $14.7
million during third quarter 2021. Benefits from the higher load volume and
increased revenue per load were partially offset by higher purchased
transportation expense, higher equipment-related expenses, increased personnel
costs, higher insurance and claims expense, and increased technology spending.



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FMS segment revenue increased 21% to $249 million in the third quarter 2022 from
$206 million in 2021, primarily due to the acquisition of Zenith completed in
the first quarter 2022 and the addition of multiple new customer contracts
implemented over the past year. The increase in revenue was partially offset by
the effects of internal efforts to improve revenue quality across certain
accounts. The Zenith acquisition contributed $28 million to FMS revenue during
the third quarter 2022. FMS segment operating income increased to $9.6 million
in the third quarter of 2022 compared to $1.3 million in 2021. Benefits from
higher revenue were partially offset by increased driver and non-driver wages,
benefits and recruiting costs, higher equipment-related expenses, increased
insurance and claims expense, higher technology costs, and implementation costs
related to new long-term contractual business.



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,
                                                                                     Percentage
                                                                                     Change of
                                                                                       Dollar
                                                     Dollar Amounts as a              Amounts
                                                     Percentage of Total              Between
                                                     Operating Revenues               Quarters
                                                                                      2022 vs.
                                                   2022               2021              2021
Total operating revenues                              100.0 %            100.0 %            22.1 %
Operating expenses:
Rents and purchased transportation                     49.3               53.0              13.5
Salaries, wages and employee benefits                  23.1               22.6              24.7
Fuel and fuel taxes                                     6.3                4.4              74.2
Depreciation and amortization                           4.3                4.4              19.9
Operating supplies and expenses                         3.6                3.1              40.4
Insurance and claims                                    1.6                1.3              45.9
General and administrative expenses, net of
asset dispositions                                      1.8                1.7              25.0
Operating taxes and licenses                            0.4                0.5              10.5
Communication and utilities                             0.2                0.3               7.3
Total operating expenses                               90.6               91.3              21.1
Operating income                                        9.4                8.7              32.3
Net interest expense                                    0.3                0.4              13.2
Earnings before income taxes                            9.1                8.3              33.2
Income taxes                                            2.1                1.9              27.8
Net earnings                                            7.0 %              6.4 %            34.8 %




Total operating expenses increased 21.1%, while operating revenues increased
22.1% during the third quarter 2022, from the comparable period 2021. Operating
income increased to $362.2 million during the third quarter 2022 from $273.8
million in 2021.



Rents and purchased transportation costs increased 13.5% in third quarter 2022.
This increase was primarily the result of an increase in rail carrier purchased
transportation costs within the JBI segment and an increase in the use of
third-party truck carriers by JBT during third quarter of 2022 compared to 2021.
These increases were partially offset by decreased volumes and third-party truck
carrier rates within ICS.



Salaries, wages and employee benefits costs increased 24.7% during the third
quarter 2022, compared with 2021. This increase was primarily related to
increases in driver pay and office personnel compensation and an increase in the
number of employees.



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Fuel costs increased 74.2% in the third quarter 2022, compared with 2021, due
primarily to an increase in the price of fuel and increased road miles.
Depreciation and amortization expense increased 19.9% in third quarter 2022,
primarily due to equipment purchases related to new DCS long-term customer
contracts, the addition of trailing equipment within our JBI and JBT segments,
and increased intangible asset amortization expense resulting from the Zenith
acquisition within FMS.



Operating supplies and expenses increased 40.4% in the third quarter 2022,
driven primarily by higher equipment maintenance costs, due to holding equipment
longer, increased tire expense, higher travel and entertainment expenses, and
increased tolls expense. Insurance and claims expense increased 45.9% in 2022
compared with 2021, primarily due to increased cost per claim, and higher
insurance policy premium expense. General and administrative expenses increased
25.0% for the current quarter from the comparable period in 2021, primarily due
to higher building rental expense, higher bad debt expense, and increased
professional service expense, partially offset by lower advertising costs. Net
gain from sale or disposal of assets was $0.3 million in the third quarter 2022,
compared to $0.1 million in 2021.



Net interest expense increased 13.2% in the third quarter 2022 due primarily to
an increase in effective interest rates on our debt and higher debt issuance
costs compared to third quarter 2021. Income tax expense increased 27.8% in
2022, compared with 2021, primarily due to higher taxable earnings, partially
offset by a lower effective income tax rate. Our effective income tax rate
reduced to 22.7% for the third quarter 2022, compared with 23.7% for the third
quarter 2021, due primarily to legislation enacted in the third quarter 2022,
decreasing state tax rates. Our annual tax rate for 2022 is expected to be
between 23.5% and 24.0%. In determining our quarterly provision for income
taxes, we use an estimated annual effective tax rate, adjusted for discrete
items. This rate is based on our expected annual income, statutory tax rates,
best estimate of nontaxable and nondeductible items of income and expense, and
the ultimate outcome of tax audits.



Comparison of Nine Months Ended September 30, 2022 to Nine Months Ended
September 30, 2021



                                        Summary of Operating Segment Results
                                       For the Nine Months Ended September 30,
                                                    (in millions)
                                 Operating Revenues           Operating Income/(loss)
                                2022             2021            2022             2021
JBI                          $     5,273       $  3,879     $        620.5       $ 407.2
DCS                                2,498          1,866              269.4         231.5
ICS                                1,890          1,799               62.1          25.1
JBT                                  807            537               75.5          39.0
FMS                                  725            620               22.3          20.5
Other (includes corporate)             -              -               (0.2 )        (0.3 )
Subtotal                          11,193          8,701            1,049.6         723.0
Inter-segment eliminations           (29 )          (30 )                -             -
Total                        $    11,164       $  8,671     $      1,049.6       $ 723.0




Total consolidated operating revenues increased to $11.16 billion for the first
nine months of 2022, a 29% increase from $8.67 billion for the comparable period
2021. Fuel surcharge revenue increased to $1.80 billion during the first nine
months of 2022, compared with $862.4 million in 2021. Total consolidated
operating revenue, excluding fuel surcharge revenue, increased 20% for the first
nine months of 2022 compared to the prior year period.



JBI segment revenue increased 36% to $5.27 billion during the first nine months
of 2022, compared with $3.88 billion in 2021. Load volume during the first nine
months of 2022 increased 6% and revenue per load increased 28%, which is
determined by the combination of changes in freight mix, customer rate changes,
and fuel surcharge revenue, compared to a year ago. Revenue per load, excluding
fuel surcharge revenue, increased 19% compared to the first nine months of 2021.
JBI segment operating income increased 52% to $620.5 million in the first nine
months of 2022, from $407.2 million in 2021. The increase is primarily due to
increased revenue and higher net gains from the sale of equipment during the
current period, partially offset by higher rail and third-party dray purchased
transportation expense, higher costs to attract and retain drivers, increased
non-driver salary and wages, higher equipment-related expenses, and higher costs
due to rail and port network inefficiencies and customer detention of equipment.
In addition, JBI incurred a net expense of $7.7 million in the second quarter of
2022, consisting of the segment's portion of an increase in casualty claim
expenses, partially offset by a workers' compensation insurance benefit
(Insurance-Related Charge).



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DCS segment revenue increased 34%, to $2.50 billion during the first nine months
of 2022, from $1.87 billion in 2021. Productivity, defined as revenue per truck
per week, increased by approximately 12% from a year ago. Productivity excluding
fuel surcharge revenue for the first nine months of 2022 increased 4% from a
year ago. The increase in productivity was primarily due to contractual
index-based rate increases, partially offset by lower productivity of equipment
on start-up accounts and COVID-related labor disruptions during the first half
of the current period. Operating income of our DCS segment increased to $269.4
million in the first nine months of 2022, from $231.5 million in 2021. Higher
revenues and higher net gains from the sale of equipment during the current
period were partially offset by increased driver and non-driver wages, benefits
and recruiting costs, higher equipment-related expenses, higher costs related to
the implementation of new long-term customer contracts and increased bad debt
expense when compared to the first nine months of 2021. In addition, DCS
incurred a net expense of $1.6 million in 2022, consisting of the segment's
portion of the Insurance-Related Charge in the second quarter.



ICS revenue increased 5% to $1.90 billion during the first nine months of 2022,
from $1.80 billion in 2021. Overall volumes were flat, while revenue per load
increased 5% primarily due to higher contractual customer rates in our truckload
business as well as changes in customer freight mix compared to 2021.
Approximately $1.21 billion of ICS revenue for the first nine months of 2022 was
executed through the Marketplace for J.B. Hunt 360 compared to $1.15 billion in
2021. Gross profit margin increased to 14.5% in the current period compared to
11.6% in 2021. ICS segment had operating income of $62.1 million in the first
nine months of 2022 compared to $25.1 million in 2021, primarily due to
increased revenue and higher gross profit margins, partially offset by higher
personnel costs, increased insurance and claims expense, increased technology
spending, and higher bad debt expense during the first nine months of 2022. In
addition, ICS incurred a net expense of $6.7 million in 2022, consisting of the
segment's portion of the Insurance-Related Charge in the second quarter.



JBT segment revenue increased 50% to $807 million for the first nine months of
2022, from $537 million in 2021. Revenue excluding fuel surcharge revenue
increased 42%, primarily due to a 24% increase in revenue per load excluding
fuel surcharge revenue and a 15% increase in load volume compared to 2021.
Operating income of our JBT segment increased to $75.5 million in the first nine
months of 2022, from $39.0 million in 2021. The increase in operating income was
driven primarily by increased load counts and revenue per load during the
current period which were partially offset by higher purchased transportation
expense, higher equipment-related expenses, increased personnel costs, higher
insurance and claims expense, and increased technology spending. In addition,
JBT incurred a net expense of $2.0 million in 2022, consisting of the segment's
portion of the Insurance-Related Charge in the second quarter.



FMS revenue increased 17% to $725 million during the first nine months of 2022,
from $620 million in 2021, primarily due to the addition of multiple new
customer contracts implemented over the past year and the Zenith acquisition
during the first half of the current period. The increase in revenue was
partially offset by the effects of internal efforts to improve revenue quality
across certain accounts as well as supply-chain related constraints for goods in
the primary markets served by FMS. FMS segment had operating income of $22.3
million in the first nine months of 2022 compared to $20.5 million in 2021,
which included a $3.2 million benefit from the net settlement of claims. The
increase in operating income was primarily due to increased revenues, partially
offset by higher personnel salary, wages and benefits expense, higher
equipment-related expenses, increased insurance and claims expense, increased
driver recruiting costs, increased technology costs, and implementation costs
related to new long-term contractual business. In addition, FMS incurred a net
expense of $0.4 million in 2022, consisting of the segment's portion of the
Insurance-Related Charge in the second quarter.



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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
                                                   2022               2021           2022 vs. 2021
Total operating revenues                              100.0 %            100.0 %                28.8 %
Operating expenses:
Rents and purchased transportation                     50.6               52.6                  24.0
Salaries, wages and employee benefits                  22.3               23.0                  24.8
Fuel and fuel taxes                                     6.2                4.4                  84.0
Depreciation and amortization                           4.2                4.8                  13.7
Operating supplies and expenses                         3.3                3.1                  37.0
Insurance and claims                                    1.7                1.3                  68.6
General and administrative expenses, net of
asset dispositions                                      1.7                1.7                  12.2
Operating taxes and licenses                            0.4                0.5                  13.0
Communication and utilities                             0.2                0.3                   2.0
Total operating expenses                               90.6               91.7                  27.3
Operating income                                        9.4                8.3                  45.2
Net interest expense                                    0.3                0.4                   8.1
Earnings before income taxes                            9.1                7.9                  47.1
Income taxes                                            2.2                1.9                  44.1
Net earnings                                            6.9 %              6.0 %                48.1 %




Total operating expenses increased 27.3%, while operating revenues increased
28.8%, during the first nine months of 2022, from the comparable period of 2021.
Operating income increased to $1.05 billion during the first nine months of
2022, from $723.0 million in 2021.



Rents and purchased transportation costs increased 24.0% in 2022. This increase
was primarily the result of an increase in rail carrier purchased transportation
costs within the JBI segment and an increase in the use of third-party truck
carriers by JBT during the current period.



Salaries, wages and employee benefits costs increased 24.8% in 2022 from 2021.
This increase was primarily related to increases in driver pay and office
personnel compensation and an increase in the number of employees as well as an
increase in incentive compensation and group medical expense.



Fuel costs increased by 84.0% in 2022 compared to 2021, mainly due to an increase in fuel prices and an increase in road mileage. Depreciation and amortization increased by 13.7% in 2022, primarily due to equipment purchases related to DCS’s new long-term customer contracts, the addition of tracking equipment in our JBI and JBT segments and the increase in the amortization of intangible assets resulting from the acquisition of Zenith within FMS.



Operating supplies and expenses increased 37.0% driven primarily by higher
equipment maintenance costs, due to holding equipment longer, increased tire
expense, increased tolls expense, and higher travel and entertainment expenses.
Insurance and claims expense increased 68.6% in 2022 compared with 2021,
primarily due to increased cost per claim, higher insurance policy premium
expense, and the inclusion of a $30.0 million expense in the second quarter 2022
for additional reserves of claims subject to insurance coverage layer specific
aggregated limits. General and administrative expenses increased 12.2% from the
comparable period in 2021, primarily due to higher building rentals, increased
professional services expense, higher software subscription expense, higher bad
debt expense, and increased advertising expense, partially offset by higher net
gains from sale or disposals of assets. Net gain from sale or disposal of assets
was $21.0 million in 2022, compared to a net loss from sale or disposals of
assets of $2.3 million in 2021.



Net interest expense increased 8.1% in 2022, due primarily to higher effective
interest rates on our debt. Income tax expense increased 44.1% during the first
nine months of 2022, compared with 2021, primarily due to increased taxable
earnings in the first nine months of 2022. Our effective income tax rate was
24.0% for the first nine months of 2022, compared to 24.5% in 2021. Our annual
tax rate for 2022 is expected to be between 23.5% and 24.0%. In determining our
quarterly provision for income taxes, we use an estimated annual effective tax
rate, adjusted for discrete items. This rate is based on our expected annual
income, statutory tax rates, best estimate of nontaxable and nondeductible items
of income and expense, and the ultimate outcome of tax audits.



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Cash and capital resources


Cash Flow



Net cash provided by operating activities totaled $1.36 billion during the first
nine months of 2022, compared with $969.8 million for the same period 2021.
Operating cash flows increased primarily due to increased earnings. Net cash
used in investing activities totaled $1.14 billion in 2022, compared with $511.1
million in 2021. The increase resulted from an increase in equipment purchases,
net of proceeds from the sale of equipment and the purchases of Zenith and
Alterri which closed during the first and third quarters of 2022, respectively.
Net cash used in financing activities was $490.5 million in 2022, compared with
$242.4 million in 2021. This increase resulted primarily from an increase in
treasury stock purchased and higher dividends paid during the first nine months
of 2022.



Liquidity



Our need for capital has typically resulted from the acquisition of containers
and chassis, trucks, tractors, and trailers required to support our growth and
the replacement of older equipment as well as periodic business acquisitions. We
are frequently able to accelerate or postpone a portion of equipment
replacements or other capital expenditures depending on market and overall
economic conditions. However, we do anticipate that the current challenges
related to timely delivery of ordered equipment will continue due to supply
chain challenges impacting production. In recent years, we have 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. On September 27, 2022, we replaced our
$750 million senior credit facility dated September 25, 2018, with a new credit
facility authorizing us to borrow up to $1.5 billion through a revolving line of
credit and committed term loans, which is supported by a credit agreement with a
group of banks. The revolving line of credit authorizes us to borrow up to $1.0
billion under a five-year term expiring September 2027, and allows us to request
an increase in the revolving line of credit total commitment by up to $300
million and to request two one-year extensions of the maturity date. The
committed term loans authorize us to borrow up to an additional $500 million
during the nine-month period beginning September 27, 2022, and if funded, will
mature in September 2025. The applicable interest rates under this agreement are
based on either the Secured Overnight Financing Rate (SOFR), or a Base Rate,
depending upon the specific type of borrowing, plus an applicable margin and
other fees. At September 30, 2022, we had a cash balance of $84.3 million, a
$300 million outstanding balance on the revolving line of credit and no
outstanding balance of term loans under our senior credit facility.



We continue to evaluate the possible effects of current economic conditions and
reasonable and supportable economic forecasts on operational cash flows,
including the risks of declines in the overall freight market and our customers'
liquidity and ability to pay. We regularly monitor working capital and maintain
frequent communication with our customers, suppliers and service providers. A
large portion of our cost structure is variable. Purchased transportation
expense represents more than half of our total costs but is heavily tied to load
volumes. Our second largest cost item is salaries and wages, the largest portion
of which is driver pay, which includes a large variable component.



Our financing agreements require us to comply with certain financial covenants and ratios. To September 30, 2022we complied with all covenants and financial ratios.



Our net capital expenditures were approximately $1.02 billion during the first
nine months of 2022, compared with $511.1 million for the same period 2021. 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 2022
were primarily for tractors, intermodal containers and chassis, and other
trailing equipment. We are currently committed to spend approximately $2.2
billion during the years 2022 to 2024, of which approximately $738 million is
planned for the full year 2022. These expenditures will primarily be driven by
purchasing additional intermodal containers, additional DCS tractors, and
trailers used in our J.B. Hunt 360box program. At September 30, 2022, our
aggregate future minimum lease payments under operating lease obligations
related primarily to the rental of maintenance and support facilities,
cross-dock and delivery system facilities, office space, parking yards, and
equipment was $301.4 million.



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Off-balance sheet arrangements

We had no off-balance sheet arrangements other than our net purchase commitments of $2.2 billionof the September 30, 2022.


Risk Factors



You should refer to Part I, Item 1A of our Annual Report (Form 10-K) for the
year ended December 31, 2021, 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.



Risks Related to Our Industry



  ? Our business is significantly impacted by economic conditions, customer
    business cycles, and seasonal factors.




  ? Our business is significantly impacted by the effects of national or
    international health pandemics on general economic conditions and the

operations of our customers and our third-party vendors and service providers.

? Extreme or unusual weather conditions can disrupt our operations, impact

freight volumes and increase our costs, which could have a significant impact

    adverse effect on our business results.



? Our activities are subject to various environmental laws and regulations,

including legislative and regulatory responses to climate change. Compliance

environmental requirements could lead to significant expenses and

    the violation of these regulations could result in substantial fines or
    penalties.




  ? We depend on third parties in the operation of our business.



? Rapid changes in fuel costs could affect our periodic financial results.



  ? Insurance and claims expenses could significantly reduce our earnings.



? We operate in a regulated industry, and the increase in direct and indirect costs of

compliance 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 operate in a competitive and highly fragmented industry. Many factors

could impair our ability to maintain our current profitability and to be competitive

    with other carriers and private fleets.




Risks Related to Our Business



? We derive a significant portion of our revenue from a few major customers, the

the loss of one or more of them could have a material adverse effect on our

    business.



? The determination that independent contractors are employees could expose us to

    various liabilities and additional costs.




  ? We may be subject to litigation claims that could result in significant
    expenditures.




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? We rely heavily on our information technology systems, disruption,

a failure or breach of security that could have a material adverse effect on

    our business.



? Acquisitions or business combinations may disrupt or adversely affect

effect on our operations or profits.

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