Edgar Filing: HUNT J B TRANSPORT SERVICES INC

jbht20160331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2016

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

Commission File Number: 0-11757

J.B. HUNT TRANSPORT SERVICES, INC.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

479-820-0000

(Registrant's telephone number, including area code)

www.jbhunt.com

(Registrant's web site)

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

Yes X No

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

Yes X No

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

Large accelerated filer X

Accelerated filer

Non-accelerated filer

Smaller reporting company

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

Yes No X

The number of shares of the registrant’s $0.01 par value common stock outstanding on March 31, 2016 was 112,654,332.

J.B. HUNT TRANSPORT SERVICES, INC.

Form 10-Q

For The Quarterly Period Ended March 31, 2016

Table of Contents

		Page

Part I. Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2016 and 2015	3

	Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015	5

	Notes to Condensed Consolidated Financial Statements as of March 31, 2016	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	17



Part II. Other Information

Item 1.	Legal Proceedings	18

Item 1A.	Risk Factors	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Mine Safety Disclosures	19

Item 5.	Other Information	19

Item 6.	Exhibits	19

Signatures		21

Exhibits		22

Part I. Financial Information

ITEM 1. FINANCIAL STATEMENTS

J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Statements of Earnings

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2016		2015

Operating revenues, excluding fuel surcharge revenues	$	1,426,654	$	1,263,910
Fuel surcharge revenues		102,058		176,270
Total operating revenues		1,528,712		1,440,180

Operating expenses:
Rents and purchased transportation		740,402		693,685
Salaries, wages and employee benefits		362,511		330,510
Depreciation and amortization		88,352		81,378
Fuel and fuel taxes		59,414		81,813
Operating supplies and expenses		54,537		50,481
General and administrative expenses, net of asset dispositions		21,833		13,933
Insurance and claims		17,428		17,428
Operating taxes and licenses		11,126		10,088
Communication and utilities		5,219		5,644
Total operating expenses		1,360,822		1,284,960
Operating income		167,890		155,220
Net interest expense		6,442		6,703
Earnings before income taxes		161,448		148,517
Income taxes		61,350		56,585
Net earnings	$	100,098	$	91,932

Weighted average basic shares outstanding		113,072		116,558

Basic earnings per share	$	0.89	$	0.79

Weighted average diluted shares outstanding		114,003		117,800

Diluted earnings per share	$	0.88	$	0.78

Dividends declared per common share	$	0.22	$	0.21

See Notes to Condensed Consolidated Financial Statements.

J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Balance Sheets

(in thousands)

	March 31, 2016		December 31, 2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,992	$	5,566
Trade accounts receivable, net		690,352		654,542
Prepaid expenses and other		118,586		197,817
Total current assets		814,930		857,925
Property and equipment, at cost		4,078,641		4,019,451
Less accumulated depreciation		1,339,275		1,318,122
Net property and equipment		2,739,366		2,701,329
Other assets		92,662		70,290
Total assets	$	3,646,958	$	3,629,544


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable	$	381,185	$	340,332
Claims accruals		107,241		104,220
Accrued payroll		70,997		59,420
Other accrued expenses		21,291		28,445
Total current liabilities		580,714		532,417

Long-term debt		961,346		998,003
Other long-term liabilities		63,341		58,552
Deferred income taxes		755,477		740,220
Stockholders' equity		1,286,080		1,300,352
Total liabilities and stockholders' equity	$	3,646,958	$	3,629,544

See Notes to Condensed Consolidated Financial Statements.

J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities:
Net earnings	$	100,098		$	91,932
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		88,352			81,378
Share-based compensation		10,972			10,129
(Gain)/Loss on sale of revenue equipment and other		30			(804	)
Deferred income taxes		15,257			22,094
Changes in operating assets and liabilities:
Trade accounts receivable		(31,254	)		22,623
Other assets		26,665			5,678
Trade accounts payable		41,168			1,742
Income taxes payable or receivable		41,803			30,883
Claims accruals		3,020			2,477
Accrued payroll and other accrued expenses		8,785			(12,589	)
Net cash provided by operating activities		304,896			255,543

Cash flows from investing activities:
Additions to property and equipment		(156,786	)		(180,158	)
Net proceeds from sale of equipment		42,328			38,814
Change in other assets		(2	)		(20,000	)
Net cash used in investing activities		(114,460	)		(161,344	)

Cash flows from financing activities:
Proceeds from revolving lines of credit and other		313,729			439,762
Payments on revolving lines of credit and other		(378,397	)		(505,071	)
Purchase of treasury stock		(100,000	)		(6,354	)
Stock option exercises and other		42			1,063
Stock repurchased for payroll taxes		(621	)		(505	)
Tax benefit of stock options exercised		47			1,060
Dividends paid		(24,810	)		(24,468	)
Net cash used in financing activities		(190,010	)		(94,513	)
Net change in cash and cash equivalents		426			(314	)
Cash and cash equivalents at beginning of period		5,566			5,961
Cash and cash equivalents at end of period	$	5,992		$	5,646

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	8,797		$	12,786
Income taxes	$	3,046		$	1,638

See Notes to Condensed Consolidated Financial Statements.

J.B. HUNT TRANSPORT SERVICES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.	General

Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. We believe such statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of our financial position, results of operations and cash flows at the dates and for the periods indicated. Pursuant to the requirements of the Securities and Exchange Commission (SEC) applicable to quarterly reports on Form 10-Q, the accompanying financial statements do not include all disclosures required by GAAP for annual financial statements. While we believe the disclosures presented are adequate to make the information not misleading, these unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015. Operating results for the periods presented in this report are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2016, or any other interim period. Our business is somewhat seasonal with slightly higher freight volumes typically experienced during August through early November in our full-load freight transportation business.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which supersedes virtually all existing revenue recognition guidance. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. We have the option of using either a full retrospective or a modified retrospective approach when adopting this new standard. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 one year to interim and annual periods beginning after December 15, 2017. Early adoption is permitted after the original effective date of December 15, 2016. We are currently evaluating the alternative transition methods and the potential effects of the adoption of this update on our financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments are to be applied by means of a cumulative-effect adjustment to the balance sheet and are effective for interim and annual periods beginning after December 15, 2017. With certain exceptions, early adoption is not permitted. The adoption of the new guidance is not expected to have a material impact on our financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a lease liability for most leases in the balance sheet as well as other qualitative and quantitative disclosures. ASU 2016-02 is to be applied using a modified retrospective method and is effective for interim and annual periods beginning after December 15, 2018, but early adoption is permitted. We are currently evaluating the potential effects of the adoption of this update on our financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which amends and simplifies certain aspects of accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments are effective for interim and annual periods beginning after December 15, 2016, but early adoption is permitted. The application methods to be used in adoption vary with each component of the standard. We are currently evaluating the potential effects of the adoption of this update on our financial statements.

Accounting Pronouncement Adopted in 2016

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which amended the current presentation of debt issuance costs in the financial statements. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, instead of as an asset. The amendments are to be applied retrospectively and were effective for interim and annual periods beginning after December 15, 2015. We retroactively adopted ASU 2015-03 at March 31, 2016, and have reclassified all prior periods to be consistent with the amendments outlined in the ASU. The impact of the prior period reclassification was a $1.4 million reduction of current assets, a $5.6 million reduction of other assets, and a $7.0 million reduction of long-term debt at December 31, 2015.

2.	Earnings Per Share

We compute basic earnings per share by dividing net earnings available to common stockholders by the actual weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if holders of unvested restricted and performance share units or vested or unvested stock options, exercised or converted their holdings into common stock. The dilutive effect of restricted and performance share units and stock options was 0.9 million shares during the first quarter 2016, compared to 1.2 million shares during the first quarter 2015.

3.	Share-based Compensation

The following table summarizes the components of our share-based compensation program expense (in thousands):

	Three Months Ended March 31,
	2016		2015
Restricted share units:
Pretax compensation expense	$	7,968	$	7,651
Tax benefit		3,028		2,915
Restricted share unit expense, net of tax	$	4,940	$	4,736
Performance share units:
Pretax compensation expense	$	3,004	$	2,478
Tax benefit		1,142		944
Performance share unit expense, net of tax	$	1,862	$	1,534

As of March 31, 2016, we had $57.7 million and $16.4 million of total unrecognized compensation expense related to restricted share units and performance share units, respectively, that is to be recognized over the remaining weighted-average period of approximately 3.7 years for restricted share units and 2.6 years for performance share units. During the first quarter 2016, we issued 18,923 shares for vested restricted share units and 2,000 shares as a result of stock option exercises.

4.	Financing Arrangements

Outstanding borrowings, net of unamortized discounts and debt issuance cost, under our current financing arrangements consist of the following (in millions):

		March 31, 2016		December 31, 2015
Senior revolving line of credit	$	100.8	$	148.7
Senior notes		860.5		849.3
Total long-term debt	$	961.3	$	998.0

Senior Revolving Line of Credit

At March 31, 2016, we were authorized to borrow up to $500 million under a senior revolving line of credit, which is supported by a credit agreement with a group of banks and expires in September 2020. This senior credit facility allows us to request an increase in the total commitment by up to $250 million and to request a one-year extension of the maturity date. The applicable interest rate under this agreement is based on either the Prime Rate, the Federal Funds Rate or LIBOR, depending upon the specific type of borrowing, plus an applicable margin based on our credit rating and other fees. At March 31, 2016, we had $102 million outstanding at an average interest rate of 1.45% under this agreement.

Senior Notes

Our senior notes consist of three separate issuances. The first and second issuances are $250 million of 2.40% senior notes due March 2019 and $250 million of 3.85% senior notes due March 2024, respectively, both of which were issued in March 2014. Interest payments under both notes are due semiannually in March and September of each year, beginning September 2014. The third is $350 million of 3.30% senior notes due August 2022, issued in August 2015. Interest payments under this note are due semiannually in February and August of each year, beginning February 2016. All three senior notes were issued by J.B. Hunt Transport Services, Inc., a parent-level holding company with no significant assets or operations. The notes are guaranteed on a full and unconditional basis by a wholly-owned subsidiary. All other subsidiaries of the parent are minor. We registered these offerings and the sale of the notes under the Securities Act of 1933, pursuant to a shelf registration statement filed in February 2014. All notes are unsecured obligations and rank equally with our existing and future senior unsecured debt. We may redeem for cash some or all of the notes based on a redemption price set forth in the note indenture. See Note 5, Derivative Financial Instruments, for terms of interest rate swaps entered into on the $250 million of 2.40% senior notes due March 2019 and the $350 million of 3.30% senior notes due August 2022.

Our financing arrangements require us to maintain certain covenants and financial ratios. We were in compliance with all covenants and financial ratios at March 31, 2016.

5.	Derivative Financial Instruments

We periodically utilize derivative instruments for hedging and non-trading purposes to manage exposure to changes in interest rates and to maintain an appropriate mix of fixed and variable-rate debt. At inception of a derivative contract, we document relationships between derivative instruments and hedged items, as well as our risk-management objective and strategy for undertaking various derivative transactions, and assess hedge effectiveness. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively.

We entered into receive fixed-rate and pay variable-rate interest rate swap agreements simultaneously with the issuance of our $250 million of 2.40% senior notes due March 2019 and $350 million of 3.30% senior notes due August 2022, to effectively convert this fixed-rate debt to variable-rate. The notional amounts of these interest rate swap agreements equal those of the corresponding fixed-rate debt. The applicable interest rates under these agreements is based on LIBOR plus an established margin, resulting in an interest rate of 1.48% for our $250 million of 2.40% senior notes and 1.98% for our $350 million of 3.30% senior notes at March 31, 2016. The swaps expire when the corresponding senior notes are due. The fair values of these swaps are recorded in other assets in our Condensed Consolidated Balance Sheet at March 31, 2016. See Note 7, Fair Value Measurements, for disclosure of fair value. These derivatives meet the required criteria to be designated as fair value hedges, and as the specific terms and notional amounts of these derivative instruments match those of the fixed-rate debt being hedged, these derivative instruments are assumed to perfectly hedge the related debt against changes in fair value due to changes in the benchmark interest rate. Accordingly, any change in the fair value of these interest rate swaps recorded in earnings is offset by a corresponding change in the fair value of the related debt.

6.	Capital Stock

On October 22, 2015, our Board of Directors authorized the purchase of $500 million of our common stock, of which $351 million was remaining at March 31, 2016. We purchased approximately 1,305,000 shares, or $100 million, of our common stock under our repurchase authorization during the three months ended March 31, 2016. On January 28, 2016, we announced an increase in our quarterly cash dividend from $0.21 to $0.22, which was paid February 26, 2016, to stockholders of record on February 12, 2016. On April 21, 2016, our Board of Directors declared a regular quarterly dividend of $0.22 per common share, which will be paid on May 20, 2016, to stockholders of record on May 6, 2016.

7.	Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Our assets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2). The following are assets and liabilities measured at fair value on a recurring basis at March 31, 2016 (in millions):

	Asset/(Liability) Balance			Input Level
Trading investments	$	14.0			1
Interest rate swap	$	17.1			2
Senior notes	$	(613.4	)		2

The fair value of trading investments has been measured using the market approach (Level 1) and reflect quoted market prices. The fair values of interest rate swaps and corresponding senior notes have been measured using the income approach (Level 2), which include relevant interest rate curve inputs. Trading investments and interest rate swaps are classified in other assets in our Condensed Consolidated Balance Sheets and the senior notes are classified in long-term debt in our Condensed Consolidated Balance Sheets.

Financial Instruments

The carrying amount and estimated fair value at March 31, 2016, using the income approach (Level 2), based on their net present value, discounted at our current borrowing rate, of our senior revolving line of credit and remaining senior notes not measured at fair value on a recurring basis, were $347.9 million and $364.1 million, respectively.

The carrying amounts of all other instruments at March 31, 2016, approximate their fair value due to the short maturity of these instruments.

8.	Income Taxes

Our effective income tax rate was 38.0% for the three months ended March 31, 2016, compared to 38.1% for the three months ended March 31, 2015. 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.

At March 31, 2016, we had a total of $32.8 million in gross unrecognized tax benefits, which are a component of other long-term liabilities in our Condensed Consolidated Balance Sheets. Of this amount, $21.3 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate. The total amount of accrued interest and penalties for such unrecognized tax benefits was $3.9 million at March 31, 2016.

9.	Legal Proceedings

We are a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the first half of 2014, the court in the lead class-action granted judgment in our favor with regard to all claims. The plaintiffs have appealed the case to the Ninth Circuit Court of Appeals where it is currently pending. The overlapping claims in the remaining action have been stayed pending a decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits.

We are involved in certain other claims and pending litigation arising from the normal conduct of business. Based on present knowledge of the facts and, in certain cases, opinions of outside counsel, we believe the resolution of these claims and pending litigation will not have a material adverse effect on our financial condition, results of operations or liquidity.

10.

Business Segments

We reported four distinct business segments during the three months ended March 31, 2016 and 2015. These segments included Intermodal (JBI), Dedicated Contract Services® (DCS), Integrated Capacity Solutions (ICS), and Truckload (JBT). The operation of each of these businesses is described in Note 11, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2015. A summary of certain segment information is presented below (in millions):

	Assets (Excludes intercompany accounts) As of
	March 31, 2016		December 31, 2015
JBI	$	1,898	$	1,848
DCS		982		949
ICS		96		99
JBT		299		286
Other (includes corporate)		372		448
Total	$	3,647	$	3,630

	Operating Revenues For The Three Months Ended March 31,
	2016			2015
JBI	$	895		$	844
DCS		358			345
ICS		183			163
JBT		96			91
Subtotal		1,532			1,443
Inter-segment eliminations		(3	)		(3	)
Total	$	1,529		$	1,440

	Operating Income For The Three Months Ended March 31,
	2016		2015
JBI	$	103.1	$	104.3
DCS		44.8		35.8
ICS		10.8		6.6
JBT		9.2		8.5
Total	$	167.9	$	155.2

	Depreciation and Amortization Expense For The Three Months Ended March 31,
	2016		2015
JBI	$	39.1	$	35.1
DCS		34.8		31.9
ICS		0.1		0.3
JBT		10.1		10.2
Other (includes corporate)		4.3		3.9
Total	$	88.4	$	81.4

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, 2015, 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, interference with or termination of our relationships with certain railroads, cost and availability of fuel, accidents, adverse weather conditions, disruption or failure of information technology systems, 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, 2015, for additional information on risk factors and other events that are not within our control. Our future financial and operating results may fluctuate as a result of these and other risk factors as described from time to time in our filings with the SEC.

GENERAL

We are one of the largest surface transportation, delivery, and logistics companies in North America. We operate four distinct, but complementary, business segments and provide a wide range of transportation and delivery services to a diverse group of customers throughout the continental United States, Canada, and Mexico. Our service offerings include transportation of full-truckload containerized freight, which we directly transport utilizing our company-controlled revenue equipment and company drivers or independent contractors. We have arrangements with most of the major North American rail carriers to transport freight in containers or trailers, while we perform the majority of the pickup and delivery services. We also provide customized freight movement, revenue equipment, labor, systems, and delivery services that are tailored to meet individual customers’ requirements and typically involve long-term contracts. These arrangements are generally referred to as dedicated services and may include multiple pickups and drops, local and home deliveries, freight handling, specialized equipment, and freight network design. Our local and home delivery services typically are provided through a network of cross-dock service centers throughout the continental United States. Utilizing a network of thousands of reliable third-party carriers, we also provide comprehensive transportation and logistics services. In addition to dry-van, full-load operations, these unrelated outside carriers also provide flatbed, refrigerated, less-than-truckload (LTL), and other specialized equipment, drivers, and services. Also, we utilize a combination of company-owned and contracted power units to provide traditional over-the-road full truckload delivery services. We account for our business on a calendar year basis, with our full year ending on December 31 and our quarterly reporting periods ending on March 31, June 30, and September 30. The operation of each of our four business segments is described in Note 11, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2015.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that impact the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenues, expenses and associated disclosures of contingent liabilities are affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recognized in the accounting period in which the facts that give rise to the revisions become known.

Information regarding our Critical Accounting Policies and Estimates can be found in our Annual Report (Form 10-K). The critical accounting policies that we believe require us to make more significant judgments and estimates when we prepare our financial statements include those relating to self-insurance accruals, revenue equipment, revenue recognition and income taxes. We have discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors. In addition, Note 2, Summary of Significant Accounting Policies, to the financial statements in our Annual Report (Form 10-K) for the year ended December 31, 2015, 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 March 31, 2016 to Three Months Ended March 31, 2015

	Summary of Operating Segment Results For the Three Months Ended March 31, (in millions)
	Operating Revenues						Operating Income
	2016			2015			2016		2015
JBI	$	895		$	844		$	103.1	$	104.3
DCS		358			345			44.8		35.8
ICS		183			163			10.8		6.6
JBT		96			91			9.2		8.5
Subtotal		1,532			1,443			167.9		155.2
Inter-segment eliminations		(3	)		(3	)		-		-
Total	$	1,529		$	1,440		$	167.9	$	155.2

Total consolidated operating revenues increased to $1.53 billion for the first quarter 2016, a 6% increase from $1.44 billion in the first quarter 2015, and a 13% increase excluding fuel surcharge revenues. This increase in operating revenues was primarily due to a 12% increase in load volumes in JBI and a 4% increase in revenues in DCS related to new customer contracts and rate increases from more mature customer contracts. ICS load growth was 45% over the same period in 2015 and JBT revenue increased 5% on a 12% increase in fleet size.

JBI segment revenue increased 6% to $895 million during the first quarter 2016, compared with $844 million in 2015. Eastern network realized load growth of 13% and Transcontinental loads grew 11% compared to prior year as rail service significantly improved and west coast port volumes returned to a more normal velocity from a year ago. The effect of this overall load growth of 12% was partially offset by a 5% decrease in revenue per load which is attributable to customer rate increases offset by lower fuel surcharges and freight mix. Revenue per load excluding fuel surcharge revenue increased 2% year over year. JBI segment operating income decreased 1%, to $103.1 million in the first quarter 2016, from $104.3 million in 2015. Benefits from customer rate increases, improved dray network efficiency and box utilization from improved rail service, and lower maintenance costs were not sufficient to offset increases in rail purchased transportation costs, equipment ownership costs, and higher driver wage and recruiting costs. The current period ended with approximately 79,800 units of trailing capacity and 5,160 power units available to the dray fleet.

DCS segment revenue increased 4% to $358 million in the first quarter 2016 from $345 million in 2015. Productivity, defined as revenue per truck per week, was down approximately 2% versus 2015 primarily from lower fuel surcharges. Productivity excluding fuel surcharges was up approximately 3% from improved overall operational efficiencies including better integration of assets between customer accounts, fewer unseated trucks, increased customer supply chain fluidity and load counts from a less severe winter and customer rate increases. A net additional 345 revenue producing trucks were in the fleet by the end of the quarter compared to prior year primarily from private fleet conversions in the current and prior periods. DCS segment operating income increased 25%, to $44.8 million in 2016, from $35.8 million in 2015. The increase is primarily due to increased revenue, improved asset utilization, and less reliance on third party carriers. These benefits were partially offset by higher driver wage and recruiting costs, increased salaries and group insurance benefits, and higher equipment ownership costs.

ICS segment revenue increased 12% to $183 million in the first quarter 2016, from $163 million in 2015. Overall volumes increased 45%. Spot volumes increased 51% and contractual business load counts increased 42% from a year ago. Contractual business represented approximately 73% of total load volume and 64% of total revenue in the current period compared to 74% and 65%, respectively, in first quarter 2015. Revenue per load decreased 23% primarily due to lower fuel prices and freight mix changes driven by customer demand. ICS segment operating income increased 63% to $10.8 million, from $6.6 million in 2015, primarily from improved gross profit margin. Gross profit margin increased to 17.3% in the current quarter versus 13.7% last year primarily due to rate increases on contractual business. Personnel costs increased as the total branch count grew to 35 compared to 30 at the end of the comparable period last year. ICS’s carrier base increased 17% and employee count increased 11% compared to first quarter 2015.

JBT segment revenue totaled $96 million for the first quarter 2016, an increase of 5% from $91 million in the first quarter 2015. Revenue excluding fuel surcharge increased 12% primarily from a 12% increase in fleet count. Revenue per loaded mile decreased approximately 2% primarily from changes in customer driven freight mix, increased length of haul, and a higher volume of spot market loads as the network continues to reconfigure. Core customer rates increased over 2% compared to the same period in 2015. At the end of the current quarter JBT operated 2,270 tractors compared to 2,020 in 2015. JBT segment operating income increased 8% to $9.2 million in 2016, compared with $8.5 million during first quarter 2015. Benefits from the larger fleet and improved fuel economy were partially offset by increased driver wages and recruiting costs, higher independent contractor cost per mile and increased tractor maintenance costs compared to first quarter 2015.

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 March 31,
	Dollar Amounts as a Percentage of Total Operating Revenues						Percentage Change of Dollar Amounts Between Quarters
	2016			2015			2016 vs. 2015
Total operating revenues		100.0	%		100.0	%		6.1	%
Operating expenses:
Rents and purchased transportation		48.4			48.2			6.7
Salaries, wages and employee benefits		23.7			22.9			9.7
Depreciation and amortization		5.8			5.7			8.6
Fuel and fuel taxes		3.9			5.7			(27.4	)
Operating supplies and expenses		3.6			3.4			8.0
General and administrative expenses, net of asset dispositions		1.5			1.0			56.7
Insurance and claims		1.1			1.2			-
Operating taxes and licenses		0.7			0.7			10.3
Communication and utilities		0.3			0.4			(7.5	)
Total operating expenses		89.0			89.2			5.9
Operating income		11.0			10.8			8.2
Net interest expense		0.4			0.5			(3.9	)
Earnings before income taxes		10.6			10.3			8.7
Income taxes		4.1			3.9			8.4
Net earnings		6.5	%		6.4	%		8.9	%

Total operating expenses increased 5.9%, while operating revenues increased 6.1%, during the first quarter 2016, from the comparable period 2015. Operating income increased to $167.9 million during the first quarter 2016, from $155.2 million in 2015.

Rents and purchased transportation costs increased 6.7% in 2016. This increase was primarily the result of the increase in load volume and increased rail purchased transportation rates, which increased services provided by third-party rail and truck carriers within JBI and ICS segments.

Salaries, wages and employee benefit costs increased 9.7% in 2016 compared with 2015. This increase was primarily related to increases in driver pay and office personnel compensation due to an increase in the number of employees and a tighter supply of qualified drivers.

Depreciation and amortization expense increased 8.6% in 2016, primarily due to additions to our JBI segment tractor, container and chassis fleets to support additional business demand, equipment purchased related to new DCS long-term customer contracts, and new replacement equipment in JBT. Fuel costs decreased 27.4% in 2016, compared with 2015, due to decreases in the price of fuel, partially offset by increased road miles.

Operating supplies and expenses increased 8.0% in 2016, compared with 2015, due to increases in toll activity and tire expense. General and administrative expenses increased 56.7% for the current quarter from the comparable period in 2015, primarily due to increased charitable contributions, higher professional fees expense, and the absence of net gains from asset sales and disposals. Insurance and claims expense remained flat in 2016, compared with 2015, due to increased accident severity being offset by fewer incidents.

Net interest expense decreased 3.9% in 2016, due primarily to lower effective interest rates on our debt.

Our effective income tax rate was 38.0% in 2016, compared to 38.1% in 2015. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities totaled $305 million during the first three months of 2016, compared with $256 million for the same period 2015. Operating cash flows increased due to increased earnings and the timing of general working capital activities. Net cash used in investing activities totaled $114 million in 2016, compared with $161 million in 2015. The decrease resulted from a decrease in equipment purchases in 2016 combined with an increase in proceeds from the sale of equipment during the same period. Net cash used in financing activities was $190 million in 2016, compared with $95 million in 2015. This change resulted primarily from an increase in treasury stock purchased.

Debt and Liquidity Data

	March 31, 2016			December 31, 2015			March 31, 2015
Working capital ratio		1.40			1.61			1.03
Current portion of long-term debt (millions)		-			-		$	249.8
Total debt (millions)	$	961.3		$	998.0		$	874.1
Total debt to equity		0.75			0.77			0.68
Total debt as a percentage of total capital		43	%		43	%		41	%

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. We are frequently able to accelerate or postpone a portion of equipment replacements depending on market conditions. We have, during the past few years, obtained capital through cash generated from operations, revolving lines of credit and long-term debt issuances. We have also periodically utilized operating leases to acquire revenue equipment.

We believe our liquid assets, cash generated from operations, and revolving line of credit will provide sufficient funds for our operating and capital requirements for the foreseeable future. The following table summarizes our expected obligations and commitments as of March 31, 2016 (in millions):

	Total		One Year Or Less		One to Three Years		Three to Five Years		After Five Years
Operating leases	$	26.4	$	12.5	$	11.8	$	1.9	$	0.2
Debt obligations		952.0		-		250.0		102.0		600.0
Interest payments on debt ⁽¹⁾		139.8		21.7		43.4		35.4		39.3
Commitments to acquire revenue equipment and facilities		432.8		410.6		22.2		-		-
Total	$	1,551.0	$	444.8	$	327.4	$	139.3	$	639.5

(1)	Interest payments on debt are based on the debt balance and applicable rate at March 31, 2016.

Our net capital expenditures were approximately $114 million during the first three months of 2016, compared with $161 million for the same period 2015. 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 2016 were primarily for tractors, additional intermodal containers and chassis, and other trailing equipment. We are currently committed to spend approximately $433 million during the remainder of 2016 and 2017. We expect to spend in the range of $410 million to $430 million for net capital expenditures during the remainder of 2016. The table above excludes $36.7 million of potential liabilities for uncertain tax positions, including interest and penalties, which are recorded on our Condensed Consolidated Balance Sheets. However, we are unable to reasonably estimate the ultimate timing of any settlements.

Off-Balance Sheet Arrangements

Our only off-balance sheet arrangements as of March 31, 2016, were operating leases related to facility lease obligations.

Risk Factors

You should refer to Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2015, under the caption “Risk Factors” for specific details on the following factors and events that are not within our control and could affect our financial results.

	●	Our business is subject to general economic and business factors, any of which could have a material adverse effect on our results of operations. Economic trends and tightening of credit in financial markets could adversely affect our ability, and the ability of our suppliers, to obtain financing for operations and capital expenditures.

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

	●	Rapid changes in fuel costs could impact our periodic financial results.

	●	Insurance and claims expenses could significantly reduce our earnings.

	●	We derive a significant portion of our revenue from a few major customers, the loss of one or more of which could have a material adverse effect on our business results.

	●	We operate in a regulated industry, and increased direct and indirect costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business.

	●	Difficulty in attracting and retaining drivers, delivery personnel and third-party carriers could affect our profitability and ability to grow.

	●	We rely significantly on our information technology systems, a disruption, failure or security breach of which could have a material adverse effect on our business.

	●	We operate in a competitive and highly fragmented industry. Numerous factors could impair our ability to maintain our current profitability and to compete with other carriers and private fleets.

	●	Extreme or unusual weather conditions can disrupt our operations, impact freight volumes and increase our costs, all of which could have a material adverse effect on our business results.

	●	Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.

ITEM 3. Quantitative And Qualitative Disclosures AbouT Market Risk

Our outstanding debt at March 31, 2016 includes our senior revolving line of credit and senior notes issuances. Our senior notes have fixed interest rates ranging from 2.40% to 3.85%. Our senior revolving line of credit has variable interest rates, which are based on the Prime Rate, the Federal Funds Rate, or LIBOR, depending upon the specific type of borrowing, plus any applicable margins. We currently have interest rate swap agreements which effectively convert our $250 million of 2.40% and $350 million of 3.30% fixed rate senior notes due March 2019 and August 2022, respectfully, to variable rates, to allow us to maintain a desired mix of variable and fixed rate debt. The applicable interest rates under these agreements are based on LIBOR plus an established margin. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. Our earnings would be affected by changes in these short-term variable interest rates. At our current level of borrowing, a one percentage point increase in our applicable rate would reduce annual pretax earnings by $7.0 million.

Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations or cash flows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the three months ended March 31, 2016. Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencies would have on our future costs or on future cash flows we would receive from our foreign investment. As of March 31, 2016, we had no foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.

The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather and other market factors. Historically, we have been able to recover a majority of fuel price increases from our customers in the form of fuel surcharges. We cannot predict the extent to which high fuel price levels may occur in the future, or the extent to which fuel surcharges could be collected to offset such increases. As of March 31, 2016, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our internal controls and disclosure controls. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective as of March 31, 2016, in alerting them on a timely basis to material information required to be disclosed by us in our periodic reports to the SEC.

During the first quarter of 2016, we implemented a new financial management system, which is part of our internal control environment. Except for this implementation and certain related controls, there were no changes in our internal control over financial reporting during our first three months of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report on Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.

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

Purchases of Equity Securities

The following table summarizes purchases of our common stock during the three months ended March 31, 2016:

Period	Number of Common Shares Purchased		Average Price Paid Per Common Share Purchased			Total Number of Shares Purchased as Part of a Publicly Announced Plan ⁽¹⁾		Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Plan (in millions)
January 1 through January 31, 2016		1,185,185	$	67.50	⁽²⁾		1,185,185	$	371
February 1 through February 29, 2016		-		-			-		371
March 1 through March 31, 2016		120,112		166.51	⁽²⁾		120,112		351
Total		1,305,297	$	76.61			1,305,297	$	351

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

(2) Number of common shares and average price paid per common share reflect the effective total purchases upon completion of our $100 million accelerated repurchase program, which commenced in January 2016. Terms of the program included a deferment of 120,112 shares until program completion in March 2016.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Index to Exhibits

Exhibit Number			Exhibits

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

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

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

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

32.1			Section 1350 Certification

32.2			Section 1350 Certification

101.INS			XBRL Instance Document

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Lowell, Arkansas, on the 29th day of April, 2016.

	J.B. HUNT TRANSPORT SERVICES, INC.
	(Registrant)



	BY:	/s/ John N. Roberts, III
		John N. Roberts, III
		President and Chief Executive Officer
		(Principal Executive Officer)


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


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