J.B. Hunt Transport Services(JBHT) - 2022 Q4 - Annual Report

Part I Business Overview J.B. Hunt Transport Services, Inc. is a leading North American surface transportation and logistics company, offering diverse services through five segments and aiming to create the most efficient transportation network - The company's mission is to create the most efficient transportation network in North America, focusing on long-term customer relationships, multimodal solutions, and sustainability efforts, such as being an EPA SmartWay® Transport Partner for 12 consecutive years[23][24][26] - As of December 31, 2022, the company employed 37,151 people, including 24,411 company drivers, and had arrangements with 2,734 independent contractors, with no unionized employees[44] - The company maintains a relatively new fleet to enhance customer service, attract drivers, and improve fuel efficiency, with an average tractor age of 2.6 years, containers 8.3 years, and trailers 6.3 years at year-end 2022[52] Operating Segments The company's operations are divided into five distinct segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Truckload (JBT), and Final Mile Services (FMS) 2022 Revenue and Key Assets by Segment | Segment | 2022 Revenue | Key Assets (as of Dec 31, 2022) | | :--- | :--- | :--- | | JBI | $7.02 billion | 115,150 trailing equipment, 95,553 chassis, 6,081 tractors | | DCS | $3.38 billion | 12,328 company-owned trucks, 23,354 owned trailing equipment | | ICS | $2.39 billion | Approx. 156,400 third-party carriers | | JBT | $1.08 billion | 620 company-owned tractors, 14,718 company-owned trailers | | FMS | $980 million | 1,506 company-owned trucks, 1,297 owned trailing equipment | Risk Factors The company faces significant risks related to economic downturns, competition, fuel price volatility, driver shortages, dependence on third parties, customer concentration, and potential litigation - The business is highly dependent on a few major customers, with the top 10 customers accounting for approximately 38% of 2022 revenue, and a single customer representing about 14% of total revenue[74] - The company is dependent on third parties, including major railroads like BNSF and Norfolk Southern, where disruptions could materially impact business operations[65] - A determination that independent contractors are employees could significantly increase exposure under various federal and state tax, labor, and employment laws, potentially increasing costs[75] - The company relies heavily on its information technology systems, including the J.B. Hunt 360 platform, where a disruption or security breach could adversely affect business operations and reputation[77] Properties J.B. Hunt owns its corporate headquarters in Lowell, Arkansas, and operates a significant network of owned or leased facilities across the United States to support its diverse operations Summary of Principal Facilities | Type | Acreage | Maintenance Shop/Cross-dock (sq ft) | Office Space (sq ft) | | :--- | :--- | :--- | :--- | | Maintenance and support | 563 | 935,000 | 198,000 | | Cross-dock and delivery | 82 | 4,567,000 | 140,000 | | Corporate headquarters | 130 | - | 707,000 | | Other facilities/yards | 555 | 995,000 | 266,000 | Part II Common Stock Market, Dividends, and Buybacks J.B. Hunt's common stock trades on NASDAQ under 'JBHT', with the company maintaining a policy of paying quarterly cash dividends and having authorized funds for stock repurchases - On January 19, 2023, the company increased its quarterly cash dividend to $0.42 per share from $0.40 per share[88] - As of December 31, 2022, the company had $551.1 million available for share repurchases under its authorized programs[89] Management's Discussion and Analysis (MD&A) In 2022, consolidated operating revenues grew 21.7% to $14.81 billion, with operating income rising 27.4% to $1.33 billion, and net earnings increasing 27.4% to $969.4 million, reflecting strong performance across all segments Consolidated Financial Performance (2022 vs. 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $14.81 billion | $12.17 billion | +21.7% | | Operating Income | $1.33 billion | $1.05 billion | +27.4% | | Net Earnings | $969.4 million | $760.8 million | +27.4% | | Operating Ratio | 91.0% | 91.4% | -0.4 pts | - Net cash provided by operating activities increased to $1.78 billion in 2022 from $1.22 billion in 2021, primarily due to higher earnings[147] - The company has committed to spend approximately $2.37 billion during 2023 and 2024, primarily for the acquisition of tractors, containers, chassis, and other trailing equipment[154] Results of Operations by Segment (2022 vs. 2021) In 2022, all segments contributed to profitability growth, with JBI, DCS, ICS, JBT, and FMS all reporting increased operating income Operating Income by Segment (in millions) | Segment | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | JBI | $800 | $603 | +32.7% | | DCS | $345 | $304 | +13.5% | | ICS | $59 | $46 | +28.3% | | JBT | $93 | $65 | +43.1% | | FMS | $35 | $28 | +25.0% | | Total | $1,332 | $1,046 | +27.3% | - JBI revenue increased 29% due to a 24% rise in revenue per load and a 4% increase in load volume[118] - ICS revenue decreased 6% on a 7% volume decline, but operating income grew due to gross profit margin expansion from 11.8% in 2021 to 14.7% in 2022[122][123] Market Risk Disclosures The company is exposed to market risks from interest rates, foreign currency, and commodity prices, with diesel fuel price volatility largely mitigated by fuel surcharge programs - A one-percentage-point increase in the applicable interest rate on the company's variable-rate debt would reduce annual pretax earnings by $3.2 million[155] - The company has historically recovered a majority of fuel price increases through customer fuel surcharges and, as of December 31, 2022, did not hold any derivative financial instruments to hedge fuel-price fluctuations[157] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[160] Part III Directors, Executive Compensation, and Related Matters Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, and principal accounting fees is incorporated by reference from the company's upcoming proxy statement - The information required for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Notice and Proxy Statement for the Annual Meeting of Stockholders to be held April 27, 2023[169][170][171][174][175] Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 1,542,366 | N/A (Restricted Share Units) | 4,233,978 | Part IV Exhibits and Financial Statement Schedules This section lists the exhibits filed with the Form 10-K, including corporate governance documents and debt indentures, and presents the financial statement schedule for Valuation and Qualifying Accounts Schedule II – Valuation and Qualifying Accounts (in millions) | Allowance for Doubtful Accounts | Beginning Balance | Charged to Expense | Write-Offs, Net | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Dec 31, 2022 | $16.8 | $9.0 | $(3.5) | $22.3 | | Dec 31, 2021 | $18.4 | $2.6 | $(4.2) | $16.8 | | Dec 31, 2020 | $13.3 | $5.6 | $(0.5) | $18.4 | Financial Statements and Reports Auditor's Reports and Management's Report on Internal Control Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, and PricewaterhouseCoopers LLP issued an unqualified opinion on both the financial statements and internal controls - Management concluded that as of December 31, 2022, the company's internal control over financial reporting was effective based on the COSO framework[191] - PricewaterhouseCoopers LLP issued an unqualified (clean) opinion on the consolidated financial statements for 2022 and 2021 and on the effectiveness of internal control over financial reporting[197] - The audit identified the personal injury and property damage claims accrual as a Critical Audit Matter, highlighting the significant judgment and complexity in estimating this liability[203][204][205] Consolidated Financial Statements The consolidated financial statements reflect significant growth in 2022, with total assets increasing to $7.79 billion, net earnings of $969.4 million, and strong cash from operations at $1.78 billion Key Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $2,211,778 | $2,313,369 | | Net property and equipment | $4,979,817 | $4,067,655 | | Total assets | $7,786,582 | $6,794,348 | | Total current liabilities | $1,568,231 | $1,729,600 | | Long-term debt | $1,261,738 | $945,257 | | Total liabilities | $4,119,814 | $3,676,532 | | Total stockholders' equity | $3,666,768 | $3,117,816 | Key Consolidated Earnings Data (in thousands, except EPS) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total operating revenues | $14,813,999 | $12,168,302 | $9,636,573 | | Operating income | $1,331,553 | $1,045,530 | $713,119 | | Net earnings | $969,351 | $760,806 | $506,035 | | Diluted earnings per share | $9.21 | $7.14 | $4.74 | Key Consolidated Cash Flow Data (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $1,776,882 | $1,223,898 | | Net cash used in investing activities | $(1,550,070) | $(877,018) | | Net cash used in financing activities | $(530,434) | $(304,633) | | Net change in cash | $(303,622) | $42,247 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies and financial statement line items, including 2022 acquisitions, significant capital commitments, and liabilities for excess insurance claims - In 2022, the company acquired Zenith Freight Lines for $87.1 million and Alterri for $31.1 million, adding $11.1 million and $8.8 million to goodwill, respectively[283][284] - The company has outstanding commitments of approximately $2.37 billion for 2023 and 2024, primarily for acquiring new tractors, containers, and other trailing equipment[276] - During 2022, the company recorded a $94 million liability for its estimated exposure for excess claims where existing insurance coverage layer aggregate limits have been exceeded[279] - The company's claims accrual for self-insured claims was approximately $427 million at December 31, 2022, up from $287 million in 2021[252]