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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, 2020 , 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. 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 and business conditions; potential economic, business or operational disruptions resulting from the ongoing effects of the novel coronavirus (COVID-19) pandemic, including from the current spread of the Delta variant and 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, 2020 , 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 . 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 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°®, a multimodal digital freight platform that offers shippers and carriers greater access, visibility, and transparency to 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, 2020 . 12 -------------------------------------------------------------------------------- Our operations continue to be impacted by the COVID-19 global pandemic. Due to the nature of our business and the large portion of our workforce consisting of drivers and other non-office personnel, fewer than 25% of our total employees have been able to work remotely; however, we remain committed to the safety of our workforce, suppliers, and customers while continuing to meet our customers' needs. In the first quarter 2020, we began our COVID-19 response activities which have been expanded and will continue as necessary until the risks related to COVID-19 dissipate. Our COVID-19 safety response activities at our home office campus and all other field locations throughoutNorth America include requiring remote working when possible, expanded health and safety policies, facility modifications, increased security coverage, and purchase and distribution of personal protective equipment and supplies. During the first nine months of 2021, we committed to providing incremental paid time off for employees to eliminate any financial loss caused by their absence from work when receiving the COVID-19 vaccination. We also continue to work with local healthcare organizations to provide vaccination assistance under applicable area guidelines and procedures to all employees and their family members. OnSeptember 9, 2021 ,President Biden issued an executive order that, in conjunction with guidance issued pursuant to the order, requires all employers withU.S. Government contracts to require theirU.S. -based employees, contractors, or subcontractors who work on or in support of certainU.S. Government contracts, to be fully vaccinated byDecember 8, 2021 , with limited exceptions for medical and religious reasons permitted. In addition, on the same day,President Biden announced that he has directed theOccupational Safety and Health Administration (OSHA) to develop an Emergency Temporary Standard (ETS) mandating either the full vaccination or weekly testing of employees for employers with 100 or more employees.OSHA has not yet issued the ETS nor provided any additional information on its contents or requirements. We are currently taking steps to comply with these new rules and await the release of the ETS byOSHA . We continue to review and analyze both external and internal COVID-related data, including the effects of the Delta variant, on a daily basis in anticipation of the full return to office phase of our COVID-19 response. Thus far throughout the pandemic, we have been pleased with the continued performance of our employees, particularly our drivers, who have been consistently available to serve our customers.
Critical accounting conventions 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. 13
-------------------------------------------------------------------------------- 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, 2020 , 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, 2021 to Three Months EndedSeptember 30, 2020 Summary of Operating Segment Results For the Three Months Ended September 30, (in millions) Operating Revenues Operating Income/(Loss) 2021 2020 2021 2020 JBI$ 1,413 $ 1,211 $ 165.1 $ 108.4 DCS 665 553 78.1 80.4 ICS 666 431 14.7 (18.3 ) FMS 206 182 1.3 2.1 JBT 204 109 14.7 2.9 Other (includes corporate) - - (.1 ) - Subtotal 3,154 2,486 273.8 175.5 Inter-Segment eliminations (9 ) (13 ) - - Total$ 3,145 $ 2,473 $ 273.8 $ 175.5 Total consolidated operating revenues were$3.14 billion for the third quarter 2021, compared to$2.47 billion for the third quarter 2020. Total consolidated operating revenue, excluding fuel surcharge revenue, increased 23%. This increase was the result of all operating segments reporting revenue growth during the current period when compared to the third quarter 2020. JBT and ICS operating revenues increased as both segments were able to source and secure capacity for customers in the Marketplace forJ.B. Hunt 360 within the current capacity-constrained freight environment. JBI reported higher operating revenue over the third quarter 2020, due primarily to increased revenue per load, partially offset by a decrease in load volume. Current quarter DCS operating revenue increased primarily due to an increase in average revenue producing trucks and increased fleet productivity versus the prior year period. FMS operating revenue increased due primarily to an increase in revenue per stop, partially offset by a reduction in stops, compared to the comparable quarter in 2020. JBI segment revenue increased 17% to$1.41 billion during the third quarter 2021, compared with$1.21 billion in 2020. This increase in segment revenue was primarily a result of a 24% increase in revenue per load compared to a year ago, which is the combination of changes in freight mix, customer rates, cost recovery efforts, and fuel surcharge revenue, partially offset by a 6% decrease in load volume. Revenue per load excluding fuel surcharge revenue increased 18% compared to third quarter 2020. Load volume in our eastern network decreased 2% and transcontinental loads decreased 9% over the third quarter 2020. While customer demand for intermodal services remains strong, JBI continued to experience significant restrictions throughout the rail network, which combined with elevated levels of customer detention of trailing equipment during the current quarter to further pressure the availability of capacity and volumes. Operating income of our JBI segment increased 52% to$165.1 million in 2021, from$108.4 million in 2020. 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, wages, and incentive compensation, and higher equipment cost. The current period ended with 102,230 units of trailing capacity and 6,017 power units available to the dray fleet. 14 -------------------------------------------------------------------------------- DCS segment revenue increased 20% to$665 million in the third quarter of 2021, from$553 million in 2020. Productivity, defined as revenue per truck per week, increased 7% compared to 2020, while productivity excluding fuel surcharge revenue increased by approximately 3% from a year ago. A net additional 1,527 revenue producing trucks were in the fleet by the end of the current quarter compared to prior year, of which 744 net trucks were added in the third quarter 2021. Operating income of our DCS segment decreased 3% to$78.1 million in 2021, from$80.4 million in 2020. The decrease is primarily due to increased revenue being more than offset by higher driver wage and recruiting costs, increased non-driver salary, wages, and incentive compensation, and other costs related to the implementation of new, long-term customer contracts. ICS segment revenue increased 55% to$666 million in the third quarter 2021, from$431 million in the third quarter 2020. Overall volumes increased 4% while truckload volumes increased 14% when compared to third quarter 2020. Revenue per load increased 48%, primarily due to changes in customer freight mix and an improved pricing environment for both contractual and spot rates within the truckload business compared to 2020. Contractual business represented approximately 54% of total load volume and 41% of total revenue in the current period compared to 58% and 38%, respectively, in third quarter 2020. Approximately$397 million of third quarter 2021 ICS revenue was executed through the Marketplace forJ.B. Hunt 360 compared to$291 million in third quarter 2020. Gross profit margin increased to 12.0% in the current quarter versus 7.6% last year primarily due to increased rates within our contractual business resulting from the continuation of constricted supply dynamics compared to third quarter 2020. ICS segment had operating income of$14.7 million in third quarter 2021, compared to an operating loss of$18.3 million in 2020. The increase in operating income is primarily due to the higher gross profit margins, partially offset by higher personnel salary, wages, and incentive compensation, and increased technology costs compared to third quarter 2020. ICS's carrier base increased 35% compared to the same period last year. FMS segment revenue increased 13% to$206 million in the third quarter 2021 from$182 million in 2020. Stop count for the third quarter 2021 decreased 3% when compared to 2020, primarily due to a reduction in stops for several customers related to labor and supply-chain constraints, which more than offset the addition of multiple new customer contracts implemented over the past year. Productivity, defined as revenue per stop, increased 17% compared to 2020, primarily due to a shift in the mix of customer business and the implementation of higher rates. Operating income of our FMS segment decreased 39% to$1.3 million in 2021, from$2.1 million in 2020. The decrease is primarily due to implementation costs related to new long-term contractual business, higher third-party contract carrier costs, lower volumes with certain customers related to product availability because of supply-chain disruptions, and higher personnel salary, wages, and incentive compensation. JBT segment revenue increased 87% to$204 million for the third quarter 2021, from$109 million in the third quarter 2020. Revenue excluding fuel surcharge revenue increased 85%, primarily due to a 12% increase in load volumes and a 65% increase in revenue per load excluding fuel surcharge revenue, which benefited from a 20% increase in average length of haul, compared to third quarter 2020. Revenue per loaded mile excluding fuel surcharge revenue increased 36% while core customer rates increased 29% when compared to third quarter 2020. Load volume growth and the increase in average length of haul were primarily related to the continued expansion ofJ.B. Hunt 360box® which leverages the J.B. Hunt 360 platform to access drop-trailer capacity for customers across our transportation network. At the end of the current quarter, JBT operated 9,906 trailers and 1,965 tractors compared to 8,245 and 1,713, respectively in 2020. JBT segment operating income increased 397% to$14.7 million in 2021, compared with$2.9 million in 2020. Benefits from increased load counts and revenue per load during the current quarter were partially offset by increases in purchased transportation expense, higher costs to attract and retain drivers, increased non-driver salary, wages, and incentive compensation, and higher technology costs related to the continued expansion of 360box. 15 --------------------------------------------------------------------------------
Consolidated operating expenses
The following table sets forth items in our Condensed Consolidated Statements of
Earnings as a percentage of operating revenues and the percentage increase or
decrease of those items as compared with the prior period.
Three Months Ended September 30,
Dollar Amounts as a Percentage Change
Percentage of Total of Dollar Amounts
Operating Revenues Between Quarters
2021 2020 2021 vs. 2020
Total operating revenues 100.0 % 100.0 % 27.2 %
Operating expenses:
Rents and purchased transportation 53.0 52.5 28.5
Salaries, wages and employee benefits 22.6 24.0 19.8
Depreciation and amortization 4.4 5.4 4.9
Fuel and fuel taxes 4.4 3.5 59.3
Operating supplies and expenses 3.1 3.5 14.4
General and administrative expenses, net of
asset dispositions 1.7 1.6 20.0
Insurance and claims 1.3 1.4 16.5
Operating taxes and licenses 0.5 0.6 12.9
Communication and utilities 0.3 0.4 (2.6 )
Total operating expenses 91.3 92.9 25.0
Operating income 8.7 7.1 56.0
Net interest expense 0.4 0.5 0.7
Earnings before income taxes 8.3 6.6 60.0
Income taxes 1.9 1.5 62.7
Net earnings 6.4 % 5.1 % 59.2 %
Total operating expenses increased 25.0%, while operating revenues increased
27.2% during the third quarter 2021, from the comparable period 2020. Operating
income increased to $273.8 million during the third quarter 2021 from $175.5
million in 2020.
Rents and purchased transportation costs increased 28.5% in third quarter 2021.
This increase was primarily the result of an increase in rail and truck carrier
purchased transportation rates within JBI and ICS segments, increased ICS load
volume, which increased services provided by third-party truck carriers, and an
increase in the use of third-party truck carriers by JBT and FMS during third
quarter of 2021 compared to 2020.
Salaries, wages and benefits increased by 19.8% in the third quarter of 2021, compared to 2020. This increase is mainly related to increases in the remuneration of drivers and the remuneration of clerical staff due to a smaller supply of qualified drivers, an increase in the number of employees, and additional incentive compensation.
Depreciation and amortization expense increased 4.9% in third quarter 2021, primarily due to equipment purchases related to new DCS long-term customer contracts, the addition of trailing equipment and accessories within our JBI segment, and increased capital investments in information technology. Fuel costs increased 59.3% in 2021, compared with 2020, due primarily to an increase in the price of fuel and increased road miles. Operating supplies and expenses increased 14.4%, driven primarily by higher equipment maintenance costs, increased tire expense, higher travel and entertainment expenses, and increased tolls expense. General and administrative expenses increased 20.0% for the current quarter from the comparable period in 2020, primarily due to higher advertising costs, increased bad debt expenses, higher charitable contributions, and increased driver hiring expenses. Net gain from sale or disposal of assets was$0.1 million in 2021, compared to$0.2 million in 2020. Insurance and claims expense increased 16.5% in 2021 compared with 2020, primarily due to higher insurance policy premium expenses and an increase in accident severity. Net interest expense increased 0.7% in 2021 due to an increase in effective interest rates on our debt compared to third quarter 2020. Income tax expense increased 62.7% in 2021, compared with 2020, primarily due to higher taxable earnings. Our effective income tax rate was 23.7% for the third quarter 2021, compared with 23.3% for the third quarter 2020. Our annual tax rate for 2021 is expected to be between 23.5% and 24.0%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits. 16 -------------------------------------------------------------------------------- Comparison of Nine Months EndedSeptember 30, 2021 to Nine Months EndedSeptember 30, 2020 Summary of Operating Segment Results For the Nine Months Ended September 30, (in millions) Operating Revenues Operating Income/(Loss) 2021 2020 2021 2020 JBI$ 3,879 $ 3,426 $ 407.2 $ 317.7 DCS 1,866 1,628 231.5 236.4 ICS 1,799 1,071 25.1 (50.3 ) FMS 620 475 20.5 (6.5 ) JBT 537 322 39.0 8.2 Other (includes corporate) - - (0.3 ) (0.1 ) Subtotal 8,701 6,922 723.0 505.4 Inter-segment eliminations (30 ) (23 ) - - Total$ 8,671 $ 6,899 $ 723.0 $ 505.4 Total consolidated operating revenues were$8.67 billion for the first nine months of 2021, a 26% increase from$6.90 billion for the comparable period in 2020. Fuel surcharge revenues were$862 million during the first nine months of 2021, compared with$571 million in 2020. Total consolidated operating revenue, excluding fuel surcharge revenue, increased 23% for the first nine months of 2021 compared to the prior year period. JBI segment revenue increased 13%, to$3.88 billion during the first nine months of 2021, compared with$3.43 billion in 2020. Revenue per load, which is the combination of changes in freight mix, customer rate changes, cost recovery efforts, and fuel surcharge revenue, increased 15% during the first nine months of 2021, partially offset by a 1% decrease in load volume, compared to a year ago. Revenue per load excluding fuel surcharge revenue increased 11% compared to the first nine months of 2020. Operating income of the JBI segment increased to$407.2 million in the first nine months of 2021, from$317.7 million in 2020. Benefits from increased revenue were partially offset by severe weather-related disruptions in the first quarter of 2021 that further deteriorated network fluidity and challenges already present, higher rail and third-party dray purchased transportation expense, higher driver wages and recruiting costs, increased non-driver salary, wages, and incentive compensation, and higher equipment costs when compared to the first nine months of 2020. JBI operating income for the first nine months of 2020 included an$8.2 million rail purchase transportation expense resulting from an adjusted calculation of the revenue divisions owed toBNSF Railway Company (BNSF) for 2019 related to the final award of our completed arbitration with BNSF issued in 2019 and JBI's$4.0 million portion of a one-time COVID-19 related bonus paid to employee drivers and other key field personnel in the first quarter of 2020. DCS segment revenue increased 15%, to$1.87 billion during the first nine months of 2021, from$1.63 billion in 2020. Productivity, defined as revenue per truck per week, increased 8% from a year ago. Productivity excluding fuel surcharge revenue for the first nine months of 2021 increased 5% from a year ago. The increase in productivity was primarily due to higher utilization of assets, contracted indexed-based price escalators, and less idle equipment during the current period. Operating income of our DCS segment decreased to$231.5 million in 2021, from$236.4 million in 2020. Higher revenues during the current period were more than offset by increases in driver wage and recruiting costs, increased non-driver salary, wages, and incentive compensation, and additional costs related to the implementation of new, long term customer contracts. Operating income for the prior period included DCS's$6.5 million portion of a one-time COVID-19 bonus paid in first quarter 2020. ICS revenue increased 68% to$1.80 billion during the first nine months of 2021, from$1.07 billion in 2020. Volumes during the first nine months of 2021 increased 7% when compared to 2020. Revenue per load increased 57% primarily due to higher spot and contractual customer rates and changes in customer freight mix when compared to 2020. Gross profit margin increased to 11.6% in the current year versus 9.4% last year primarily due to increased contractual and spot rates, a higher mix of spot business, and changes in supply dynamics that occurred throughout the current period, compared to the first nine months of 2020. ICS segment had operating income of$25.1 million in the first nine months of 2021 compared to an operating loss of$50.3 million in 2020, primarily due to increased revenue and higher gross profit margins, partially offset by higher personnel salary, wages, and incentive compensation and increased technology costs during the first nine months of 2021. Approximately$1.15 billion of ICS revenue for the first nine months of 2021 was executed through the Marketplace forJ.B. Hunt 360 compared to$755 million in 2020. 17 -------------------------------------------------------------------------------- FMS revenue increased 30% to$620 million during the first nine months of 2021, from$475 million in 2020, primarily due to the addition of multiple customer contracts implemented during the current period and 2020 including temporary suspension of operations at several customer sites as a result of the COVID-19 pandemic. Stop count for the first nine months of 2021 increased 27%, while productivity, defined as revenue per stop, increased 3% compared to 2020. The increase in productivity was primarily due to a shift in the mix of customer business and the implementation of higher rates. FMS segment had operating income of$20.5 million in the first nine months of 2021 compared to an operating loss of$6.5 million in 2020. The increase in operating income was primarily due to increased revenues and a$3.2 million benefit from the net settlement of claims, partially offset by higher implementation costs related to new long-term contractual business, higher third-party contract carrier costs, lower volumes with certain customers related to product availability because of supply-chain disruptions, and higher personnel salary, wages, and incentive compensation. Operating loss for the first nine months of 2020 included FMS's$1.3 million portion of a one-time COVID-19 bonus paid in first quarter 2020. JBT segment revenue increased 67% to$537 million for the first nine months of 2021, from$322 million in 2020. Revenue excluding fuel surcharge revenue for the first nine months of 2021 increased 66%, primarily due to an 8% increase in load volume and a 54% increase in revenue excluding fuel surcharge revenue per load compared to 2020. Our JBT segment operating income increased to$39.0 million during the first nine months 2021, from$8.2 million in 2020. 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 increases in purchased transportation expense, higher costs to attract and retain drivers, and higher non-driver salary, wages, and incentive compensation related to the continued expansion of 360box and increased usage of non-asset power. Operating income for the first nine months of 2020 included JBT's$0.5 million portion of a one-time COVID-19 bonus paid in first quarter 2020.
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
2021 2020 2021 vs. 2020
Total operating revenues 100.0 % 100.0 % 25.7 %
Operating expenses:
Rents and purchased transportation 52.6 50.3 31.4
Salaries, wages and employee benefits 23.0 25.0 15.9
Depreciation and amortization 4.8 5.7 5.9
Fuel and fuel taxes 4.4 3.8 43.6
Operating supplies and expenses 3.1 3.6 8.1
General and administrative expenses, net of
asset dispositions 1.7 1.9 8.4
Insurance and claims 1.3 1.4 16.3
Operating taxes and licenses 0.5 0.6 7.2
Communication and utilities 0.3 0.4 6.3
Total operating expenses 91.7 92.7 24.3
Operating income 8.3 7.3 43.1
Net interest expense 0.4 0.5 (1.9 )
Earnings before income taxes 7.9 6.8 46.6
Income taxes 1.9 1.7 44.3
Net earnings 6.0 % 5.1 % 47.3 %
18
-------------------------------------------------------------------------------- Total operating expenses increased 24.3%, while operating revenues increased 25.7%, during the first nine months 2021, from the comparable period of 2020. Operating income increased to$723.0 million during the first nine months 2021, from$505.4 million in 2020. Rents and purchased transportation costs increased 31.4% in 2021. This increase was primarily the result of an increase in rail and truck carrier purchased transportation rates within JBI and ICS segments, increased ICS load volume, which increased services provided by third-party truck carriers, and an increase in the use of third-party truck carriers by JBT and FMS during third quarter of 2021 compared to 2020. Salaries, wages and employee benefits costs increased 15.9% in 2021 from 2020. This increase was primarily related to increases in driver pay and office personnel compensation due to a tighter supply of qualified drivers, an increase in the number of employees, and additional incentive compensation. Salaries, wages and employee benefits costs for the first nine months of 2020 included a$12.3 million one-time COVID-19 related bonus paid to employee drivers and other key field personnel and$3.4 million of additional stock compensation expense related to the acceleration of equity award vesting for executive employee retirements. Depreciation and amortization expense increased 5.9% in 2021 primarily due to equipment purchases related to new DCS long-term customer contracts, the addition of trailing equipment and scheduled turnover of tractors within our JBI segment, and increased capital investments in information technology. Fuel costs increased 43.6% in 2021, compared with 2020, due primarily to an increase in the price of fuel and increased road miles. Operating supplies and expenses increased 8.1% driven primarily by higher equipment maintenance costs, increased tire expense, increased tolls expense, and higher weather-related towing costs, partially offset by reduced operating supplies and building maintenance costs in response to COVID-19 compared to 2020. General and administrative expenses increased 8.4% from the comparable period in 2020, primarily due to higher advertising costs, increased technology spend, and increased driver hiring expenses, partially offset by lower bad debt expenses. Net loss from sale or disposal of assets was$2.3 million in 2021 and 2020. Insurance and claims expense increased 16.3% in 2021 compared with 2020, primarily due to higher incident volume and higher insurance policy premium expenses, partially offset by a$3.2 million benefit from the net settlement of claims within the FMS segment. Net interest expense decreased 1.9% in 2021, due primarily to lower effective interest rates on our debt. Income tax expense increased 44.3% during the first nine months of 2021, compared with 2020 primarily due to increased taxable earnings in the first nine months of 2021. Our effective income tax rate was 24.5% for the nine months ended 2021, compared to 24.9% in 2020. Our annual tax rate for 2021 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.
Liquidity and capital resources
Cash Flow Net cash provided by operating activities totaled$969.8 million during the first nine months of 2021, compared with$911.0 million for the same period 2020. Operating cash flows increased due to increased earnings, partially offset the timing of general working capital activities. Net cash used in investing activities totaled$511.1 million in 2021, compared with$448.7 million in 2020. The increase resulted from an increase in equipment purchases, net of proceeds from the sale of equipment, during the current period. Net cash used in financing activities was$242.4 million in 2021, compared with$178.8 million in 2020. This increase resulted primarily from an increase in treasury stock purchased in 2021 compared to the same period in 2020. 19 --------------------------------------------------------------------------------
Debt and Liquidity Data
September 30, December 31, September 30,
2021 2020 2020
Working capital ratio 1.38 1.70 1.58
Current portion of long-term debt (millions)
- $ - Total debt (millions)$ 1,299.6 $ 1,305.4 $ 1,303.4 Total debt to equity 0.44 0.50 0.52 Total debt as a percentage of total capital 31 % 33 % 34 % 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. 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. For our senior notes maturing in 2022, it is our intent to pay the entire outstanding balances in full, on or before the maturity dates, using our existing senior revolving line of credit or other sources of long-term financing. 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. Should COVID-19 related economic conditions warrant, we believe we have sufficient credit resources available to meet our near and long-term operating and capital needs. Throughout 2020 and the start of 2021, we paused or cancelled certain capital expenditures and other discretionary spending in response to the COVID-19 pandemic. As a result, atSeptember 30, 2021 , we had a cash balance of$530 million and we had no outstanding balance on our revolving line of credit, which authorizes us to borrow up to$750 million and is supported by a credit agreement with a group of banks that expires inSeptember 2023 . 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. Our financing arrangements require us to maintain certain covenants and financial ratios. AtSeptember 30, 2021 , we were well above compliance with all covenants and financial ratios, and we fully intend and expect to emerge from the current COVID-19 related economic environment with our investment-grade rating intact. We are continually evaluating the possible effects of current COVID-19 related 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.
The following table summarizes our obligations and expected commitments at
One One to After
Year Or Three Three to Five
Total Less Years Five Years Years
Operating leases $ 194.4 $ 58.2 $ 69.2 $ 27.5 $ 39.5
Debt obligations 1,300.0 350.0 250.0 700.0 -
Interest payments on debt (1) 148.8 41.6 68.8
38.4 - Commitments to acquire revenue equipment and facilities 2,371.8 1,291.3 1,080.5 - - Total$ 4,015.0 $ 1,741.1 $ 1,468.5 $ 765.9 $ 39.5
(1) Interest payments on debt are based on the debt balance and the applicable rate
atSeptember 30, 2021 . 20
-------------------------------------------------------------------------------- Our net capital expenditures were approximately$511 million during the first nine months of 2021, compared with$449 million for the same period 2020. 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 2021 were primarily for tractors, intermodal containers and chassis, and other trailing equipment. We are currently committed to spend approximately$2.4 billion during the years 2021 to 2023. In response to the COVID-19 pandemic, we previously paused or cancelled certain capital expenditures originally planned for 2020. Based on the current economic environment and our longer-term outlook, we have increased our anticipated net capital expenditures for 2021, which will primarily be driven by purchasing additional intermodal containers, trailers used in our 360box program, and additional DCS tractors. Accordingly, we now expect to spend in the range of$950 million to$1.05 billion for net capital expenditures during 2021. However, our ultimate capital expenditure levels could be affected by evolving customer needs and any manufacturer production slowdowns resulting from the COVID-19 pandemic. The table above excludes$80.8 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 provisions
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, 2020 , 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, have an impact
freight volumes and increase our costs, which could have a
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 lead to significant expenses and
the violation of these regulations could result in substantial fines or
penalties.
? We depend on third parties in the operation of our business.
? Rapid changes in fuel costs could affect our periodic financial results.
? Insurance and claims expenses could significantly reduce our earnings.
? We operate in a regulated industry and increasing 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 our ability to grow.
? We operate in a competitive and highly fragmented industry. Many factors
could affect our ability to maintain our current profitability and be competitive
with other carriers and private fleets.
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Risks Related to Our Business
? We derive a significant portion of our revenue from a few large customers, the
the loss of one or more of them 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.
? We rely heavily on our computer systems, disruption,
a failure or breach of security could have a material adverse effect on
our business.
? Acquisitions or business combinations may disrupt or have a material adverse effect
effect on our operations or profits.
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