2.	Summary of Significant Accounting Policies

Basis of Consolidation

Our C

onsolidated Financial Statements include all of our wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. J.B. Hunt Transport Services, Inc. is a parent-level holding company with

significant assets or operations. J.B. Hunt Transport, Inc. is a wholly owned subsidiary of J.B. Hunt Transport Services, Inc. and is the primary operating subsidiary. All other subsidiaries of J.B. Hunt Transport Services, Inc. are minor.

Use of Estimates

The

Consolidated Financial Statements contained in this report have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these statements requires us to make estimates and assumptions that directly affect the amounts reported in such statements and accompanying notes. We evaluate these estimates on an ongoing basis utilizing historical experience, consulting with experts and using other methods we consider reasonable in the particular circumstances. Nevertheless, our actual results

may

differ significantly from our estimates.

We believe certain accounting policies and estimates are of more significance in our financial statement preparation process than others. We believe the most critical accounting policies and estimates include the economic useful lives and salvage values of our assets, provisions for uncollectible accounts receivable, estimates of exposures under our insurance and claims p

olicies, and estimates for taxes. To the extent that actual, final outcomes are different from our estimates, or that additional facts and circumstances cause us to revise our estimates, our earnings during that accounting period will be affected.

Reclassifications

Certain prior year amounts have been reclassified to conform

to the

2017

presentation format. Insurance receivables for claims in excess of self-insurance levels, which were previously offset against our claims accruals, have been reclassed to other receivables, resulting in a

$121.7

million increase in other receivables and a corresponding increase in claims accruals in our Consolidated Balance Sheet at December

31,

2016.

Cash and Cash Equivalents

Cash in excess of current operating requirements is invested in short-term, highly liquid investments. We consider all highly liquid investments purchased with original maturities of

three

months or less to be cash equivalents.

Accounts Receivable

and Allowance

Our trade accounts receivable includes accounts receivable reduced by an allowance for uncollectible accounts and revenue adjustments.

Receivables are recorded at amounts billed to customers when loads are delivered or services are performed. The allowance for uncollectible accounts and revenue adjustments is based on historical experience, as well as any known trends or uncertainties related to customer billing and account collectability. The adequacy of our allowance is reviewed quarterly. Balances are charged against the allowance when it is determined the receivable will

not

be recovered. The allowance for uncollectible accounts and revenue adjustments for our trade accounts receivable was

$15.4

million and

$13.4

million at

December 31, 2017

and

2016,

respectively. The allowance for uncollectible accounts for our other receivables was

$8.6

million at

December 31, 2017.

Inventory

Our

inventories consist primarily of revenue equipment parts, tires, supplies, and fuel, and are valued using the lower of average cost or market.

nvestments in Marketable Equity Securities

Our investments consist of marketable equity securities stated at fair value and are designated

as either trading securities or available-for-sale securities at the time of purchase based upon the intended holding period. Changes in the fair value of our trading securities are recognized currently in “general and administrative expenses, net of asset dispositions” in our Consolidated Statements of Earnings. Changes in the fair value of our available-for-sale securities are recognized in “accumulated other comprehensive income” on our Consolidated Balance Sheets, unless we determine that an unrealized loss is other-than-temporary. If we determine that an unrealized loss is other-than-temporary, we recognize the loss in earnings. Cost basis is determined using average cost.

December 31, 2017

and

2016,

we had

available-for-sale securities. See Note

Employee Benefit Plans, for a discussion of our trading securities.

Property and Equipment

Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives of

years for tractors,

years for trailing equipment,

years for structures and improvements, and

years for furniture and office equipment. Salvage values are typically

10%

30%

of original cost for tractors and trailing equipment and reflect any agreements with tractor suppliers for residual or trade-in values for certain new equipment. We capitalize tires placed in service on new revenue equipment as a part of the equipment cost. Replacement tires and costs for recapping tires are expensed at the time the tires are placed in service. Gains and losses on the sale or other disposition of equipment are recognized at the time of the disposition and are classified in general and administrative expenses, net of asset dispositions in the Consolidated Statements of Earnings.

We continually evaluate the carrying value of our assets for events or changes in circumstances that indicate the carrying value

may

not

be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

Revenue Recognition

We recognize revenue based on relative transit time in each reporting period and as other services are provided, with expenses recognized as incurred. Accordingly, a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period.

We record revenues on the gross basis at amounts charged to our customers because we are the primary obligor, we are a principal in the transaction, we invoice our customers and retain all credit risks, and we maintain discretion over pricing. Additionally, we are responsible for selection of

third

-party transportation providers to the extent used to satisfy customer freight requirements.

Derivative Instruments

We periodically utilize derivative instruments to manage exposure to changes in interest rates. 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.

Income Taxes

Income taxes are accounted for under the liability method

. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. We record valuation allowances for deferred tax assets to the extent we believe these assets are

not

more likely than

not

to be realized through the reversal of existing taxable temporary differences, projected future taxable income, or tax-planning strategies. We record a liability for unrecognized tax benefits when the benefits of tax positions taken on a tax return are

not

more likely than

not

to be sustained upon audit. Interest and penalties related to uncertain tax positions are classified as interest expense in the Consolidated Statements of Earnings.

Earnings Per Share

We compute basic earnings per share by dividing net earnings available to common s

tockholders by the actual weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflect the potential dilution that could occur if holders of unvested restricted and performance share units or options exercised or converted their holdings into common stock. Outstanding unvested restricted share units and stock options represent the dilutive effects on weighted average shares. A reconciliation of the number of shares used in computing basic and diluted earnings per share is shown below (in thousands):

	Years ended December 31 ,
	201 7		201 6		20 15

Weighted average shares outstanding – basic		109,987		112,474		115,677

Effect of common stock equivalents		1,062		887		1,051

Weighted average shares outstanding – diluted		111,049		113,361		116,728

Concentrations of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk,

include trade receivables. For each of the years ended

December 31, 2017,

2016,

and

2015,

our top

customers, based on revenue, accounted for approximately

29%

of our total revenue. Our top

customers, based on revenue, accounted for approximately

31%

and

28%

of our total trade accounts receivable at

December 31, 2017

and

2016,

respectively. We had

individual customers with revenues greater than

10%

of total revenues.

-based Compensation

We hav

e a share-based compensation plan covering certain employees, including officers and directors. We account for share-based compensation utilizing the fair value recognition provisions of current accounting standards for share-based payments. We currently utilize restricted share units and performance share units and in the past have also utilized nonstatutory stock options. Issuances of our stock upon restricted share unit and performance share unit vesting or share option exercise are made from treasury stock. Our restricted share unit and performance share unit awards

may

include both graded-vesting and cliff-vesting awards and therefore vest in increments during the requisite service period or at the end of the requisite service period, as appropriate for each type of vesting. We recognize compensation expense on a straight-line basis over the requisite service periods within each award. The benefit for the forfeiture of an award is recorded in the period in which it occurs.

Claims Accruals

We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents

, and cargo damage. We are substantially self-insured for loss of and damage to our owned and leased revenue equipment. Certain insurance arrangements include a level of self-insurance (deductible) coverage applicable to each claim. We have umbrella policies to limit our exposure to catastrophic claim costs.

The amounts of self-insurance change from time to time based on measurement dates, policy expiration dates, and claim type. For

2015

through

2017,

we were self-insured for

$500,000

per occurrence for personal injury and property damage and self-insured for

$100,000

per workers’ compensation claim. We have policies in place for

2018

with substantially the same terms as our

2017

policies for personal injury, workers’ compensation, and cargo and property damage.

Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and severity of the claims and analyses provided by

third

-party claims administrators, as well as legal, economic, and regulatory factors. Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated cost of each claim. The ultimate cost of a claim develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available. Accordingly, we use an actuarial method to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the use of loss-development factors based on our historical claims experience and includes a contractual premium adjustment factor, if applicable. In doing so, the recorded liability considers future claims growth and provides an allowance for incurred-but-

not

-reported claims. We do

not

discount our estimated losses. At

December 31, 2017

and

2016,

we had an accrual of approximately

$238

million and

$220

million, respectively, for estimated claims. In addition, we record receivables for amounts expected to be reimbursed for payments made in excess of self-insurance levels on covered claims. At

December 31, 2017

and

2016,

we have recorded

$256

million and

$254

million, respectively, of expected reimbursement for covered excess claims, insurance premiums and other insurance deposits.

Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired in a business combination. Goodwill and intangible assets with indefinite lives are

not

amortized. Goodwill is reviewed, using a market based approach, for potential impairment as of

October 1

on an annual basis or, more frequently, if circumstances indicate a potential impairment is present. Intangible assets with finite lives are amortized on the straight-line method over the estimated useful lives of

years.

Recent Accounting Pronouncements

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.

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

was permitted after the original effective date of

December 15, 2016.

ur implementation team has completed the process of contract review and documentation in accordance with the standard. We will adopt this new standard in the

first

quarter

2018,

using the modified retrospective transition approach. We do

not

expect the standard to have a material impact on our financial statements, although additional disclosures will be required.

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

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.

See Note

10,

Commitments and Contingencies, in our Consolidated Financial Statements for discussion of our remaining obligations under operating lease arrangements.

Accounting Pronouncements Adopted in

201

March 2016,

the FASB issued ASU

2016

09,

Compensation

– Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which amended and simplified 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 were effective for interim and annual periods beginning after

December 15, 2016.

The application methods used in adoption varied with each component of the standard. We prospectively adopted ASU

2016

during the

first

quarter

2017,

which, upon vesting of share-based awards, resulted in the recognition of excess tax benefits or tax deficiencies from share-based compensation as a discrete item in our income tax expense. Historically, these amounts were recorded as additional paid-in capital. Effectively all of our outstanding share-based awards as of

December 31, 2017

vest within the

third

quarter of the vesting year, and accordingly, we recognized an excess tax benefit of

$4.9

million during the

third

quarter

2017.

In addition, cash flows from excess tax benefits from share-based compensation, which historically have been reported as cash flows from financing activities, are now reported, on a prospective basis, as cash flows from operating activities in our Consolidated Statement of Cash Flows. The remaining amendments within the standard had

impact on our Consolidated Financial Statements.

January 2017,

the FASB issued ASU

2017

04,

Intangibles - Goodwill and Other, Simplifying the Test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of

step

two

of the goodwill impairment test. Instead, this update requires an entity to recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value. ASU

2017

is effective for interim and annual periods beginning after

December 15, 2019.

Early adoption is permitted for impairment measurement tests occurring after

January 1, 2017,

and accordingly, we early adopted ASU

2017

2017,

which did

not

have a material impact on our financial statements.