J.B. HUNT TRANSPORT SERVICES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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, 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 to U.S. port-of-call activity; ability to attract and retain qualified drivers, delivery personnel, independent contractors, and third-party carriers; retention of key employees; insurance costs and availability; litigation and claims expense; determination that independent contractors are employees; new or different environmental or other laws and regulations; volatile financial credit markets or interest rates; terrorist attacks or actions; acts of war; adverse weather conditions; disruption or failure of information systems; inability to keep pace with technological advances affecting our information technology platforms; operational disruption or adverse effects of business acquisitions; increased costs for new revenue equipment; increased tariffs assessed on or disruptions in the procurement of imported revenue equipment; decreases in the value of used equipment; and the ability of revenue equipment manufacturers to perform in accordance with agreements for guaranteed equipment trade-in values. Additionally, our business is somewhat seasonal with slightly higher freight volumes typically experienced during August through early November in our full-load transportation business. You should also refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 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 the SEC.

GENERAL

We are one of the largest surface transportation, delivery, and logistics companies in North America. We operate five distinct, but complementary, business segments and provide a wide range of reliable transportation, brokerage, and delivery services to a diverse group of customers and consumers throughout the continental United States, Canada, and Mexico. Our service offerings include transportation of full-truckload containerized freight, which we directly transport utilizing our company-controlled revenue equipment and company drivers or independent contractors. We have arrangements with most of the major North American rail carriers to transport freight in containers or trailers, while we perform the majority of the pickup and delivery services. We also provide customized freight movement, revenue equipment, labor, systems, and delivery services that are tailored to meet individual customers’ requirements and typically involve long-term contracts. These arrangements are generally referred to as dedicated services and may include multiple pickups and drops, freight handling, specialized equipment, and freight network design. In addition, we provide or arrange for local and home delivery services, generally referred to as final-mile delivery services, to customers through a network of cross-dock and other delivery system locations throughout the continental United States. Utilizing thousands of reliable third-party carriers, we also provide comprehensive freight transportation brokerage and logistics services. In addition to dry-van, full-load operations, we also arrange for these unrelated outside carriers to provide flatbed, refrigerated, less-than-truckload (LTL), and other specialized equipment, drivers, and services. Also, we utilize a combination of company-owned and contracted power units to provide traditional over-the-road full truckload delivery services. Our customers, who include many Fortune 500 companies, have extremely diverse businesses. Many of them are served by J.B. Hunt 360°®, 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 on December 31 and our quarterly reporting periods ending on March 31, June 30, and September 30. The operation of each of our five business segments is described in Note 14, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2020.

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 throughout North 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 six 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. We are reviewing and analyzing 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 Policies and Estimates

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

Information regarding our Critical Accounting Policies and Estimates can be found in our Annual Report (Form 10-K). The critical accounting policies that we believe require us to make more significant judgments and estimates when we prepare our financial statements include those relating to self-insurance accruals, revenue equipment, revenue recognition and income taxes. We have discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors. In addition, Note 2, Summary of Significant Accounting Policies, to the financial statements in our Annual Report (Form 10-K) for the year ended December 31, 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 Ended June 30, 2021 to Three Months Ended June 30, 2020

Total consolidated operating revenue increased 36% to $2.91 billion for second quarter 2021, compared with $2.15 billion for second quarter 2020. Total consolidated operating revenue, excluding fuel surcharge revenue, increased 31%. This increase in operating revenues was driven by increased revenues in ICS and JBT as both segments benefited from a strong rate environment and captured capacity in the Marketplace for J.B. Hunt 360, increased revenues in JBI driven by increased volumes and higher revenue per load, increased stop counts in FMS, and improved fleet productivity and higher average truck counts in DCS.

JBI segment revenue increased 21% to $1.29 billion during the second quarter 2021, compared with $1.07 billion in 2020. This increase in segment revenue was primarily a result of a 6% increase in load volume and a 15% increase in revenue per load, which is the combination of changes in freight mix, customer rate changes, and fuel surcharge revenue, compared to a year ago. Revenue per load, excluding fuel surcharge revenue increased 9% compared to the second quarter 2020. Transcontinental load volume increased 3% and eastern network volumes increased 9% over the second quarter 2020. While customer demand for intermodal services remains strong, significant restrictions throughout the rail network were implemented during the current quarter by rail service providers reflecting challenges within the rail network related to equipment imbalances and chassis and labor shortages. JBI also experienced unprecedented levels of customer detention of trailing equipment during the quarter further pressuring the availability of capacity and volumes. Operating income of the JBI segment increased 26% to $134.6 million in the second quarter 2021, from $107.0 million in 2020. The increase is primarily due to higher load volumes and increased revenue per load, partially offset by higher rail and third-party dray purchased transportation expense, higher costs to attract and retain drivers, higher non-driver salary, wages and incentive compensation, and higher equipment cost. The current period ended with approximately 99,400 units of trailing capacity and 5,820 power units available to the dray fleet.

DCS segment revenue increased 17% to $621 million in the second quarter 2021, from $533 million in 2020. Productivity, defined as revenue per truck per week, increased by approximately 11% when compared to the second quarter 2020, while productivity excluding fuel surcharge revenue increased 7% from a year ago. This increase was primarily due to higher utilization of assets, contracted indexed-based price escalators, and less idle equipment during the current quarter. A net additional 832 revenue producing trucks were in the fleet by the end of the current quarter compared to prior year. Operating income of our DCS segment decreased 5% to $79.0 million in second quarter 2021, from $83.1 million in 2020. Higher revenues during the current quarter were more than offset by increases in driver wage and recruiting costs, higher non-driver personnel salary, wages and incentive compensation, higher group medical expense, and additional costs related to the implementation of new, long term customer contracts.

ICS revenue increased 100% to $608 million in the second quarter of 2021, from $304 million in 2020. Overall volumes increased 20%, while truckload volumes increased 30% compared to the second quarter of 2020. Contractual business represented approximately 48% of total load volume and 35% of total revenue in the current period compared to 67% and 55%, respectively, in second quarter 2020. Revenue per load increased 66% primarily due to higher spot and contractual customer rates within the full truckload service offering and overall customer freight mix, compared to second quarter 2020. Approximately $396 million of second quarter 2021 ICS revenue was executed through the Marketplace for J.B. Hunt 360 compared to $229 million in second quarter 2020. Gross profit margin decreased to 10.5% in the current quarter versus 11.8%, primarily due to tightening supply dynamics during the current period compared to second quarter 2020. ICS segment had operating income of $3.1 million in second quarter 2021, compared to an operating loss of $13.1 million in 2020, primarily due to higher gross profit margin dollars, partially offset by higher personnel and technology costs in the current quarter. ICS’s carrier base increased 30% compared to second quarter 2020.

FMS segment revenue increased 52% to $212 million in the second quarter 2021 from $140 million in 2020. Stop count for the second quarter 2021 increased 59% when compared to 2020, primarily due to the addition of multiple customer contracts implemented over the last year and second quarter 2020 including temporary suspension of operations at several customer sites as a result of the COVID-19 pandemic. Productivity, defined as revenue per stop, decreased 4% compared to 2020, primarily due to a shift in the mix of business between asset and asset-light operations. FMS segment had operating income of $10.7 million in the second quarter of 2021 compared to an operating loss of $5.2 million in 2020. The increase in operating income in the second quarter 2021 was primarily the result of higher volumes compared to the prior year quarter and a $3.2 million benefit from the net settlement of claims, partially offset by higher personnel expense related to salary, wages and incentive compensation.

JBT segment revenue increased 70% to $184 million in the second quarter of 2021, from $108 million in 2020. Revenue excluding fuel surcharge revenue increased 66%, due primarily to a 58% increase in revenue per load excluding fuel surcharge revenue and a 5% increase in load count compared to second quarter 2020. Revenue per loaded mile excluding fuel surcharge revenue increased 40% and average length of haul increased 13% compared to the prior year quarter. In addition, comparable contractual customer rates increased 25% when compared to second quarter 2020. At the end of the current quarter, JBT operated 1,770 tractors and 8,958 trailers compared to 1,897 tractors and 7,985 trailers in 2020. JBT segment operating income increased 308% to $14.2 million in second quarter 2021, compared with $3.5 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 and higher salary and wage expenses for non-driver personnel related to the continued expansion of 360box® and increased usage of non-asset power.

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.

Total operating expenses increased 35.3%, while operating revenues increased 35.6%, during the second quarter 2021, from the comparable period 2020. Operating income increased to $241.5 million during the second quarter 2021, from $175.2 million in 2020.

Rents and purchased transportation costs increased 48.7% in second quarter 2021. This increase was primarily the result of the increase in load volume, which increased services provided by third-party rail and truck carriers within JBI and ICS segments, increased rail and truck carrier purchased transportation rates, and an increase in the use of third-party truck carriers by FMS and JBT during the current period.

Salaries, wages and employee benefits costs increased 20.1% during the second quarter 2021, compared with 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.

Depreciation and amortization expense increased 7.0% in second quarter 2021, primarily due to equipment purchases related to new DCS long-term customer contracts, the addition of specialized trailing equipment and scheduled turnover of tractors within our JBI segment, and increased capital investments in information technology. Fuel costs increased 68.1% in 2021, compared with 2020, due primarily to an increase in the price of fuel and an increase in road miles.

Operating supplies and expenses increased 15%, driven primarily by higher equipment maintenance costs, increased tire expense, higher travel and entertainment expenses, and increased tolls expense. General and administrative expenses increased 6.5% for the current quarter from the comparable period in 2020, primarily due to higher advertising costs, increased technology spend on the J.B. Hunt 360 platform and legacy system upgrades, and increased driver hiring expenses, partially offset by lower bad debt expenses. Net loss from sale or disposal of assets was $1.2 million in 2021, compared to a net loss of $1.0 million in 2020. Insurance and claims expense increased 14.9% 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 5.9% in 2021 primarily due to lower effective interest rates on our debt compared to second quarter 2020. Income tax expense increased 41.0% in second quarter 2021, compared with 2020, primarily due to increased taxable earnings in second quarter 2021. Our effective income tax rate was 25.0% for both the second quarter 2021 and 2020. Our annual tax rate for 2021 is expected to be between 23.5% and 24.5%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.

Comparison of Six Months Ended June 30, 2021 to Six Months Ended June 30, 2020

Total consolidated operating revenues increased to $5.53 billion for the first six months of 2021, a 25% increase from $4.43 billion for the comparable period 2020. Fuel surcharge revenue increased to $531.5 million during the first six months of 2021, compared with $394.6 million in 2020. Total consolidated operating revenue, excluding fuel surcharge revenue, increased 24% for the first six months of 2021 compared to the prior year period.

JBI segment revenue increased 11% to $2.47 billion during the first six months of 2021, compared with $2.21 billion in 2020. Load volume during the first six months of 2021 increased 1% and revenue per load increased 10%, which is determined by the combination of changes in freight mix, customer rate changes, and fuel surcharge revenue, compared to a year ago. Revenue per load, excluding fuel surcharge revenue, increased 8% compared to the first six months of 2020. JBI segment operating income increased 16% to $242.1 million in the first six months of 2021, from $209.2 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 equipment costs, and higher salary, wages and incentive compensation for non-driver personnel, when compared to the first six months of 2020. JBI operating income for the first six months of 2020 included an $8.2 million rail purchase transportation expense resulting from an adjusted calculation of the revenue divisions owed to 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 the one-time COVID-19 related bonus paid to employee drivers and other key field personnel.

DCS segment revenue increased 12%, to $1.20 billion during the first six months of 2021, from $1.08 billion in 2020. Productivity, defined as revenue per truck per week, increased by approximately 8% from a year ago. Productivity excluding fuel surcharge revenue for the first six months of 2021 increased 6% 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 $153.3 million in the first six months of 2021, from $156.0 million in 2020. Higher revenues during the current period were more than offset by increases in driver wage and recruiting costs, non-driver personnel 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 the one-time COVID-19 bonus paid in first quarter 2020.

ICS revenue increased 77% to $1.13 billion during the first six months of 2021, from $640 million in 2020. Overall volumes increased 9%, while revenue per load increased 62% primarily due to higher spot and contractual customer rates compared to 2020. Approximately $755.0 million of ICS revenue for the first six months of 2021 was executed through the marketplace for J.B. Hunt 360 compared to $463.8 million in 2020. Gross profit margin increased to 11.4% in the current period compared to 10.7% in 2020, primarily due to the 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 six months of 2020. ICS segment had operating income of $10.4 million in the first six months of 2021 compared to operating loss of $32.0 million in 2020, primarily due to increased revenue and higher gross profit margins, partially offset by higher personnel and technology costs during the first six months of 2021.

FMS revenue increased 41% to $414 million during the first six months of 2021, from $293 million in 2020, primarily due to the addition of multiple customer contracts implemented over the last year and 2020 including temporary suspension of operations at several customer sites as a result of the COVID-19 pandemic. Stop count for the first six months of 2021 increased 47%, while productivity, defined as revenue per stop, decreased 4% compared to 2020. The reduction in productivity was primarily due to a shift in the mix of business between asset and asset-light operations resulting from the characteristics of new customer contracts. FMS segment had operating income of $19.2 million in the first six months of 2021 compared to an operating loss of $8.5 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 salary, wages and incentive compensation for non-driver personnel, and increased third-party truck purchased transportation costs. Operating loss for the first six months of 2020 included FMS’s $1.3 million portion of the one-time COVID-19 bonus paid in first quarter 2020.

JBT segment revenue increased 56% to $333 million for the first six months of 2021, from $213 million in 2020. Revenue excluding fuel surcharge revenue also increased 56%, primarily due to a 5% increase in load volume and a 48% increase in revenue per load excluding fuel surcharge revenue compared to 2020. Operating income of our JBT segment increased to $24.4 million in the first six months of 2021, from $5.3 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 and higher salary and wage expenses for non-driver personnel related to the continued expansion of 360box and increased usage of non-asset power. Operating income for the first six months of 2020 included JBT’s $0.5 million portion of the 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.

Total operating expenses increased 23.9%, while operating revenues increased 24.9%, during the first six months of 2021, from the comparable period of 2020. Operating income increased to $449.2 million during the first six months of 2021, from $329.9 million in 2020.

Rents and purchased transportation costs increased 33.2% in 2021. This increase was primarily the result of increased load volumes, which increased services provided by third-party rail and truck carriers within JBI and ICS segments, increased rail and truck carrier purchased transportation rates, and an increase in the use of third-party truck carriers by FMS and JBT during the current period.

Salaries, wages and employee benefits costs increased 13.9% 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. This increase was partially offset by 2020 including 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 6.3% in 2021 primarily due to equipment purchases related to new DCS long-term customer contracts, the addition of specialized trailing equipment and scheduled turnover of tractors within our JBI segment, and increased capital investments in information technology. Fuel costs increased 35.8% in 2021, compared with 2020, due primarily to an increase in the price of fuel and an increase in road miles.

Operating supplies and expenses increased 4.8% driven primarily by higher equipment maintenance costs, increased tire expense, increased tolls expense, and higher weather-related towing costs. General and administrative expenses increased 2.9% from the comparable period in 2020, primarily due to higher advertising costs, increased technology spend on the J.B. Hunt 360 platform and legacy system upgrades, and increased driver hiring expenses, partially offset by lower bad debt expenses. Net loss from sale or disposal of assets was $2.4 million for both the 2021 and 2020 periods. Insurance and claims expense increased 16.2% 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 3.1% in 2021, due primarily to lower effective interest rates on our debt. Income tax expense increased 35.4% during the first six months of 2021, compared with 2020, primarily due to increased taxable earnings in the first six months of 2021, partially offset by a lower effective income tax rate. The decrease in our 2021 effective income tax rate when compared to 2020 was due to the impact of stock compensation accelerations for executive employee retirements in 2020. Our effective income tax rate was 25.0% for the first six months of 2021, compared to 25.7% in 2020. Our annual tax rate for 2021 is expected to be between 23.5% and 24.5%. 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 $668.7 million during the first six months of 2021, compared with $640.0 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 $260.8 million in 2021, compared with $264.5 million in 2020. The decrease resulted from a decrease in equipment purchases, net of proceeds from the sale of equipment during the current period. Net cash used in financing activities was $150.3 million in 2021, compared with $135.8 million in 2020. This change resulted primarily from an increase in treasury stock purchases and higher dividends paid during the first six months of 2021.

Debt and Liquidity Data

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.

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, at June 30, 2021, we had a cash balance of $571 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 in September 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. At June 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 expected obligations and commitments as of June 30, 2021 (in millions):

Our net capital expenditures were approximately $261 million during the first six months of 2021, compared with $265 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 $2.0 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 additional intermodal containers, trailers used in our 360box program, and additional DCS tractors. Accordingly, we now expect to spend in the range of $1.1 billion to $1.2 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 $77.6 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

We had no off-balance sheet arrangements, other than our net purchase commitments of $2.0 billion, as of June 30, 2021.

Risk Factors

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

Risks Related to Our Business

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our outstanding debt at June 30, 2021 includes our senior revolving line of credit and senior notes issuances. Our senior notes have fixed interest rates ranging from 3.30% to 3.875%. 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 an interest rate swap agreement which effectively converts our $350 million of 3.30% fixed rate senior notes due August 2022 to a variable rate, to allow us to maintain a desired mix of variable and fixed rate debt. The applicable interest rate under this agreement is 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 $3.5 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 or six months ended June 30, 2021. 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 June 30, 2021, 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 June 30, 2021, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

ITEM 4. CONTROLS AND PROCEDURES

We maintain controls and procedures designed to ensure that the information we are required to disclose in the reports we file with the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC rules, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 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 disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

There were no changes in our internal control over financial reporting during the second quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

We are involved in certain 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.

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, 2020.

Purchases of Equity Securities

The following table summarizes purchases of our common stock during the three months ended June 30, 2021:

Not applicable.

Not applicable.

Not applicable.

Index to Exhibits