JB HUNT TRANSPORT SERVICES 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 endedDecember 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 toU.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 endedDecember 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 theSEC . 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 inNorth 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 continentalUnited States ,Canada , andMexico . 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 continentalUnited 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 byJ.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 onDecember 31 and our quarterly reporting periods ending onMarch 31 ,June 30 , andSeptember 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 endedDecember 31, 2021 . 13
-------------------------------------------------------------------------------- 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. OnApril 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 throughoutNorth 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.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity withU.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 endedDecember 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 EndedSeptember 30, 2022 to Three Months EndedSeptember 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 14
-------------------------------------------------------------------------------- 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 forJ.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 ofJ.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. 15
-------------------------------------------------------------------------------- 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.
16-------------------------------------------------------------------------------- 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$0.1 million in 2021. Net interest expense increased 13.2% in the third quarter 2022 due primarily to an increase in effective interest rates on our debt and higher debt issuance costs compared to third quarter 2021. Income tax expense increased 27.8% in 2022, compared with 2021, primarily due to higher taxable earnings, partially offset by a lower effective income tax rate. Our effective income tax rate reduced to 22.7% for the third quarter 2022, compared with 23.7% for the third quarter 2021, due primarily to legislation enacted in the third quarter 2022, decreasing state tax rates. Our annual tax rate for 2022 is expected to be between 23.5% and 24.0%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits. Comparison of Nine Months EndedSeptember 30, 2022 to Nine Months EndedSeptember 30, 2021 Summary of Operating Segment Results For the Nine Months Ended September 30, (in millions) Operating Revenues Operating Income/(loss) 2022 2021 2022 2021 JBI$ 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). 17
-------------------------------------------------------------------------------- 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 forJ.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. 18 --------------------------------------------------------------------------------
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 84.0% in 2022, compared with 2021, due primarily to an increase in the price of fuel and an increase in road miles. Depreciation and amortization expense increased 13.7% in 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 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. 19 --------------------------------------------------------------------------------
Liquidity 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. OnSeptember 27, 2022 , we replaced our$750 million senior credit facility datedSeptember 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 expiringSeptember 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 beginningSeptember 27, 2022 , and if funded, will mature inSeptember 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. AtSeptember 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 arrangements require us to maintain certain covenants and
financial ratios. At
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 ourJ.B. Hunt 360box program. AtSeptember 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 . 20 --------------------------------------------------------------------------------
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, other than our net purchase
commitments of
Risk Factors You should refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year endedDecember 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 third-party suppliers and service providers.
? Extreme or unusual weather conditions can disrupt our operations, impact
freight volumes, and increase our costs, all of which could have a material
adverse effect on our business results.
? Our operations are subject to various environmental laws and regulations,
including legislative and regulatory responses to climate change. Compliance
with environmental requirements could result in significant expenditures 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 impact our periodic financial results.
? Insurance and claims expenses could significantly reduce our earnings.
? We operate in a regulated industry, and increased direct and indirect costs of
compliance with, or liability for violation of, existing or future regulations
could have a material adverse effect on our business.
? Difficulty in attracting and retaining drivers, delivery personnel andthird-party carriers could affect our profitability and ability to grow.
? We operate in a competitive and highly fragmented industry. Numerous factors
could impair our ability to maintain our current profitability and to compete
with other carriers and private fleets.
Risks Related to Our Business
? We derive a significant portion of our revenue from a few major customers, the
loss of one or more of which could have a material adverse effect on our
business.
? A 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.
21--------------------------------------------------------------------------------
? We rely significantly on our information technology systems, a disruption,
failure, or security breach of which could have a material adverse effect on
our business.
? Acquisitions or business combinations may disrupt or have a material adverse
effect on our operations or earnings.
© Edgar Online, source
