SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended |
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December 31, | 0-11757 |
J.B. HUNT TRANSPORT SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)Exact name of registrant as specified in its charter)
Arkansas | 71-0335111 | |
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615 J.B. Hunt Corporate Drive | 72745 | |
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Registrant’s telephone number, including area code:
(479) 820-0000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO THE FILING REQUIREMENTS FOR AT LEAST THE PAST 90 DAYS.Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value |
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEMIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 OF REGULATIONof Regulation S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT’S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PARTis not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III OF THIS FORMof this Form 10-K OR ANY AMENDMENT TO THIS FORMor any amendment to this Form 10-K. o
INDICATED BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN EXCHANGE ACT RULE 12b-2)Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).
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THE AGGREGATE MARKET VALUE OF 27,493,354 SHARES OF THE REGISTRANT’S $.01 PAR VALUE COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY 28, 2003 WAS $674,686,907 (BASED UPON $24.54 PER SHARE BEING THE CLOSING SALE PRICE ON THAT DATE, AS REPORTED BY NASDAQ). IN MAKING THIS CALCULATION, THE ISSUER HAS ASSUMED, WITHOUT ADMITTING FOR ANY PURPOSE, THAT ALL EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT, AND NO OTHER PERSONS, ARE AFFILIATES.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK, AS OF FEBRUARY 28, 2003: 39,352,835.The aggregate market value of 54,917,894 shares of the registrant’s $.01 par value common stock held by non-affiliates of the registrant as of January 31, 2005, was $2.423 billion (based upon $44.12 per share being the closing sale price on that date, as reported by NASDAQ). In making this calculation, the issuer has assumed, without admitting for any purpose, that all executive officers and directors of the registrant, and no other persons, are affiliates.
The number of shares outstanding of each of the registrant’s classes of common stock as of January 31, 2005: 81,029,821.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN PORTIONS OF THE NOTICE AND PROXY STATEMENT FOR THE ANNUAL MEETING OF THE STOCKHOLDERS, TO BE HELD APRIL 24, 2003, ARE INCORPORATED BY REFERENCE INTO PARTCertain portions of the Notice and Proxy Statement for the Annual Meeting of the Stockholders, to be held April 21, 2005, are incorporated by reference into Part III OF THIS FORMof this Form 10-K.
J.B. HUNT TRANSPORT SERVICES, INC.
Form 10-K
For The Calendar Year Ended December 31, 20022004
Table of Contents
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Exhibits, Financial Statement Schedules and Reports on Form 8-K | ||
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FORWARD-LOOKING STATEMENTS
This report, including documents which are incorporated by reference, and other documents which we file periodically with the Securities and Exchange Commission (SEC), contains statements that may be considered to be “forward-looking statements.” Such statements relate to our predictions concerning future events or operations and are within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are inherently uncertain, subject to risks, and should be viewed with caution. These statements are based on our belief or interpretation of information currently available. Stockholders and prospective investors are cautioned that actual results and future events may differ materially from the forward-looking statements as a result of many factors. Some of the factors and events that are not within our control and that could have a material impact on future operating results include: general economic and business conditions, competition and competitive rate fluctuations, cost and availability of diesel fuel, ability to attract and retain qualified drivers, a loss of one or more major customers, interference with or termination of our relationships with certain railroads, insurance costs and availability, claims expense, retention of key employees, terrorist attacks or actions, acts of war, adverse weather conditions, new or different environmental or other laws and regulations, increased costs for new revenue equipment or 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. Current and future changes in fuel prices could result in significant fluctuations of quarterly earnings.
You should understand that many important factors, in addition to those listed above, could impact us financially. Our operating results may fluctuate as a result of these and other risk factors or events as described in our filings with the SEC. Some important factors that could cause our actual results to differ from estimates or projections contained in the forward-looking statements are described under “Risk Factors” in Item 7. We assume no obligation to update any forward-looking statement to the extent we become aware that it will not be achieved for any reason.
GENERALOverview
We are one of the largest surface transportation companies in North America. J.B. Hunt Transport Services, Inc., (JBHT) is a publicly held holding company, which together with its wholly-ownedour wholly owned subsidiaries (“JBHT”), isand associated companies provides a diversifiedwide range of transportation services company operating underto a diverse group of customers throughout the jurisdiction of the U.S. Department of Transportation (DOT)continental United States, Canada and various state regulatory agencies. JBHT is anMexico. We were incorporated in Arkansas holding company incorporated on August 10, 1961. JBHT has1961, and have been a publicly held company since our initial public offering in 1983. ThroughOur service offerings include transportation of full truck-load containerizable freight, which we directly transport utilizing our subsidiariescompany-controlled revenue equipment and associated companies, we provide a wide range of logisticscompany drivers or independent contractors. We also manage and transportation services to a diverse group of customers. We directly manage or provide tailored, technology-driven solutions to a growing list of Fortune 500 companies. These customers may request specifically targeted transportation service or outsource their entire transportation function to us, or an associated company. We also directly transport full-load containerizable freight throughout the continental United States and portions of Canada and Mexico. Transportation services may utilize our equipment and employees, orwhich may employ equipment and transportation services provided by all major North American rail carriers, an associated logistics company or by unrelated third parties in the transportation industry. We had
Our business operations are primarily organized through three reportabledistinct, but complementary, business segments during calendar year 2002.segments. These segments include full truck-load dry-van (JBT), intermodal (JBI) and dedicated contract services (DCS). In addition, we operated a logistics business segment from 1992 until mid 2000.mid-2000. Effective July 1, 2000, JBHT,we, along with five other publicly-heldpublicly held transportation companies, contributed our logistics business to a new, commonly owned company, Transplace, Inc. For the calendar year ended December 31, 2004, our consolidated revenue totaled $2.8 billion. Of this total, $1.12 billion, or 40%, was generated by our JBI business segment. Our JBT segment generated $928 million, or 33%, of total revenue and DCS represented $760 million, or 27%.
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Additional general information about us is available from our Internet website at www.jbhunt.com. We make a number of reports and other information available free of charge on our website including our annual report on Form 10-K, our quarterly reports on Form 10-Q, as well as earnings releases. Our website also contains corporate governance guidelines, codes of conduct, our whistleblower policy, committee charters for our board of directors and officer certifications of our filings with the SEC.
Business Strategy
We seek to add value to each of our customer’s supply chain by providing superior service at competitive rates while controlling or minimizing our customers’ costs through network density, transportation mode conversion and dedicated fleets. We believe that our operating strategy can add value to customers and increase our profits and returns to stockholders.
Recent Focus
During the past four years, we have taken significant steps to re-establish a primary focus on the profitability of our three business segments. In each segment we have implemented capacity management decision-making processes that result in the deployment of our assets where we believe they will generate more profit. We continually seek to replace less-profitable freight with higher-margin freight and lanes. Selective pricing actions and ensuring that we properly charge for all services provided have also been areas of major focus. We have also worked to ingrain safety into our corporate culture, which has reduced our accident and injury costs during 2003 and 2004.
JBT SEGMENTSegment
PrimaryOur primary transportation service offerings classified in this segment include full truck-load, dry-van freight which is predominantly transported utilizing company-owned revenue equipment. Freight is pickedcompany-controlled tractors. We pick up our freight at the dock or specified location of the shipper and transportedtransport the load directly to the location of the consignee. The load may beMost of our loads are transported entirely by our power equipmentcompany-owned tractors and employee drivers, or a portion of the movement mayby independent contractors (ICs) who agree to transport freight in our trailers. We also assign freight to be handled by a third-party motor carrier.carriers other than ICs. Typically, in these cases, the charges for the entire movement are billed to the customer by us, and we, in turn, pay the third-partythird party for their portion of the transportation services provided. JBT operates
We operate utilizing certain Canadian authorities, which were initially granted in 1988 and mayallowing us to transport freight to and from all points in the continental United States to Quebec, British Columbia and Ontario. We have authorization to operate directly in all the Canadian provinces, but to date we have served limited points in Canada, primarily through interchange operations with Canadian motor carriers. We operated our JBT and JBI segments in combined fashion in periods prior to January 1, 2000. This combined operation was reported as Van/Intermodal (“Van”) in prior periods. In late 2000, we began utilizing independent contractors on a limited basisICs in the JBT segment. These independent contractors (I/C’s) provide their own tractorssegment and agree to transport freight in JBHT owned or controlled trailing equipment. Atat December 31, 2002, approximately 680 I/C’s were2004, we had 1,113 ICs operating in the JBT segment. JBT gross revenue for calendar year 20022004 was $827$928 million, compared with $829$841 million in 2001.2003. At December 31, 2002,2004, the JBT segment operated 4,924 company owned4,280 company-controlled tractors and employed 7,5735,846 people, 5,5414,866 of whom were drivers.
JBI SEGMENTSegment
TransportationThe transportation service offerings of our JBI segment utilize agreements with various railroadsmost major North American rail carriers to provide proven intermodal freight solutions tofor our customers in all major lanes of commerce inthroughout the continental United States, Canada and Mexico. We differentiate ourselves from others through our premium service network, as well as, coordinated door to door service on company-owned and controlled assets. We established our first intermodal agreementOur JBI segment began operations in 1989 with a unique partnership with the former Santa Fe Railway (now the Burlington Northern Santa Fe), a watershed event in 1989. Through growth of this transportation segmentthe industry and additions, deletions,the first agreement that linked major rail and mergerstruck-load carriers in a joint marketing environment. Essentially, JBI draws on the intermodal (also known as “container on flatcar”) services of rail carriers we now have agreements with seven North American rail carriers including: BNSF, Norfolk Southern, CSX, Kansas City Southern, Union Pacific, Canadian National,for the underlying linehaul movement of its equipment and Florida East Coast railroads. Typically, freight is picked upperforms the pickups and deliveries (“drayage”) for customers at the dock or specified location of the shipper and transported to the rail carrier for loading on rail cars. Upon completion of the rail routing, the freight is picked up at the rail carrier’s ramp and transported to the consignee. These originatingorigin and destination draysrail terminal locations. We may be transported entirely bydirectly provide the drayage service at either the origin or destination rail ramp utilizing our power equipmentcompany-controlled tractors, or may be handled by a third-party motor carrier. It is our customary business practice that all charges for the entire movement are billed to the customer by us and we in turn, pay the rail carrier and third-party motor carrier for their portion of the transportationpurchase these services provided. In 1993, rail operations were expanded to utilize high-cube containers which can be separated from the chassis and double-stacked on rail cars to provide improved productivity. This concept is known as container-on-flatcar. Most of our agreements with rail carriers allow for the majority ofthird parties. JBI business carried under these rail agreements to receive priority space on trains and preferential loading and unloading at rail facilities. JBI gross revenue for calendar year 2002 was $809 million, compared with $740 million inprovides
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2001.seamless coordination of the rail and over-the-road transport movements for our customers and delivers single billing for the complete door-to-door service.
Our intermodal program has grown from 20 loads in late 1989 to nearly 582,000 in 2004. JBI operates more than 22,000 company-controlled containers system wide. The entire fleet is comprised of 53-foot, high-cube containers and is designed to take advantage of intermodal double-stack economics and superior ride quality. JBI also manages a fleet of 1,192 tractors and 1,535 drivers in support of intermodal operations. At December 31, 2002,2004, the total JBI employee count was 1,759, including 1,535 drivers. Gross revenue for the JBI segment operated 917 tractors and employed 1,557 people, 1,215in calendar year 2004 was $1.12 billion, compared with $936 million in 2003. As we have previously reported, we are engaged in an arbitration process with Burlington Northern Santa Fe Railroad to clarify certain terms of whom were drivers.our Joint Service Agreement. See “Risk Factors” in Item 7 of this Form 10-K.
DCS SEGMENTSegment
Since 1992, we have offered dedicated contract carriage as a service option. DCS segment operations specialize in the design, development, and execution of supply chaincustomer specific fleet solutions. Capitalizing on advanced systems and technologies, DCS offers engineered transportation engineering solutions that support private fleet conversion, dedicated fleet creation and transportation system augmentation. DCS operations typically provide customized services that are governed by long-term contracts and currently include dry van,dry-van, flatbed, temperature-controlled and temperature-controlledlocal operations. Near 100% on-time service is standard with efficient routes executed to design specifications.
DCS operations focus on driving out costreducing costs and enhancing customer value through leveraging the JBHT network for backhaul repositioning freight. Network freight may be used to reposition equipment near outbound domiciles, thereby reducing inefficient empty miles and system cost. DCS also frequently finds synergy in shared resources with the JBT and JBI segments, including terminals, drivers, maintenance shops, bulk fuel locations, and trailer pools providing further economies of scale. DCS gross revenue for calendar year 20022004 was $628$760 million, compared with $549$671 million in 2001.2003. In early 2004, we began utilizing ICs in the DCS segment and at December 31, 2004, we had 188 ICs operating in the DCS segment. At December 31, 2002,2004, the DCS segment operated 4,8124,679 company-controlled and 178 customer-owned tractors, and employed 5,9895,733 people, 5,2735,082 of whom were drivers.
LOGISTICS BUSINESS AND ASSOCIATED COMPANYLogistics Business and Associated Company
We formallyofficially began offering transportation logistics transportation services in 1992 through a wholly-ownedwholly owned subsidiary, J.B. Hunt Logistics (JBL). JBL services frequently included an arrangement whereby a shipper might outsource a substantial portion of its entire distribution and transportation process to one organization. The JBL segment business included a wide range of comprehensive transportation and management services, including experienced professional managers, information and optimization technology and the actual design or redesign of system solutions. A new logistics customer or service arrangement may havefrequently required a significant amount of up-front analysis and design time, whileduring which alternatives were considered and custom systems and software were developed. Effective July 1, 2000, we contributed substantially all of our JBL segment business, all related intangible assets and $5 million of cash to a newly-formed, commonly-ownednewly formed company, Transplace, Inc. (“TPI”)(TPI).
TPI is an Internet-based global transportation logistics company. TPI commenced operations in July of 2000 and initially included substantially all of the logistics business of JBHT, Covenant Transport, Inc.;, Swift Transportation Co., Inc;Inc., U.S. Xpress Enterprises, Inc.;, and Werner Enterprises, Inc. TPI gross revenue for calendar year 2002 approximated $6722004 was $705 million, which revenue is not includedcompared with $655 million in our financial statements for 2002.2003. We initially had an approximate 27% ownership interest in TPI. In November of 2002, we agreed to purchase a portion of Werner Enterprises’Enterprises, Inc.’s (Werner) ownership interest in TPI. Effective January 1, 2003, our interest in TPI increased from 27% to 37% and Werner’s interest declined from 15% to 5%. The financial results of TPI are included on a one-line, non-operating item included on our Consolidated Statements of Earnings entitled “Equity in earnings (loss)loss of associated companies.”
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We have provided transportation services to and from Mexico since 1989. These services frequently involve equipment interchange operations with various Mexican motor carriers. In addition, a joint venture agreement with Transportacion Maritima Mexicana (TMM), one of the largest transportation companies in Mexico, was signed in 1992. The joint venture, Comercializadora Internacional de Carga S.A. de C.V. and its subsidiaries, originated and completed northbound and southbound international truck movements between the U.S.United States and Mexico. The joint venture also provided Mexican domestic irregular route truck service, refrigerated freight services, Mexican dedicated contract business and short-haul drayage to and from the Mexican maritime ports and rail heads. For the calendar year ended December 31, 2001 and for prior years, our share of the Mexican joint venture operating results was included on a one-line, non-operating item on the Consolidated Statements of Earnings entitled “Equity in earnings (loss) of associated companies. During the first quarter of 2002,
As previously reported, we sold our joint venture interest in Mexico to TMM.TMM during the first quarter of 2002 in exchange for $22.5 million, including a $18.1 million note receivable. We have received approximately $18.0 million of principal and interest related to this note. At December 31, 2004, we have a $1.7 million account receivable from TMM and expect to receive these remaining funds during the first quarter of 2005. These transactions have had no net impact on our earnings. We still provide transportation services to and from Mexico primarily by utilizing the services of a variety of Mexican carriers.
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MARKETING AND OPERATIONSMarketing and Operations
We transport, or arrange for the transportation of, a wide range of freight, including forest and paper products, including automotive parts, department storebuilding materials, general merchandise, paper and wood products, food and beverages, plastics, chemicals and manufacturing materialsautomotive parts. Our customer base is extremely diverse and supplies.includes a growing list of Fortune 500 companies. Our primary customers include manyability to offer multiple services, utilizing our three business segments and a full complement of the “Fortune 500” companies.logistics services through third parties, represents a competitive advantage. We have been reasonably successful providing a broad range of transportation services to larger shippers that seek to use a limited number of “core” carriers. Our largest customer in 20022004 was Wal-Mart Stores, Inc., which accounted for approximately 18%15% of our total revenue. A broad geographic dispersion and a good balance in the type of freight transported allows us some protection from major seasonal fluctuations. However, consistent with the truckload industry in general, freight is typically stronger during the second half of the year, with peak volume occurring in August through mid November. Revenue and earnings are also affected by bad weather, holidays, fuel prices, driver cost and availability, and railroad service levels.
We generally market all of our service offerings through a nationwide sales and marketing network. All transportation services offered are typically billed directly to the customer by usWe do have some sales and all inquiries, claims and other customer contacts are handled by us. Certain marketing sales, engineering and design functions are assigned to each operating segment. However, marketing and pricing strategy, and national account service coordination is managed at the corporate level.business unit level, particularly for our DCS segment. In accordance with our typical arrangements, we bill the customer for all services and we, in turn, pay all third parties for their portion of transportation services provided. In recent years, we have re-established a primary focus on improving the profitability of each of our business segments and charging a fair price for all services provided.
PERSONNELPeople
AtWe believe that one of the factors differentiating us from our competitors is our service-oriented people. As of December 31, 2002,2004, we had approximately 15,850 employees, including 11,483 company drivers. We also had arrangements with 1,301 ICs to transport freight in our trailing equipment. In addition, we employed 16,265 people, including 12,029 drivers. Historically1,072 mechanics and 3,295 office personnel at the truckload transportation industry and JBHT have experienced shortagesend of qualified drivers. In addition, driver turnover rates for truckload motor carriers frequently exceed 100%. During the past few years a number of changes have occurred within the industry relative to drivers. In 1996, we announced and implemented an approximate 33% increase in wages for our over-the-road drivers. As anticipated, this increase in driver compensation was partially offset by lower driver recruiting and training expense, reduced accident and safety costs and better equipment utilization. We also experienced a decline in driver turnover rates between 1997 and 1999. During late 2000 and 2001, supply and demand conditions for drivers changed and a number of truck load carriers, including JBHT, implemented lower mileage pay rates for newly hired drivers. Partly as a result of this reduced compensation level for drivers, our driver turnover rate increased during 2000 and has remained at historically high levels in 2001 and 2002. During calendar year 2002, we have once again experienced some difficulty attracting and retaining a desired level of drivers. To date, we continue to hire only experienced drivers and, although recruiting costs have increased significantly, operations have not been disrupted by a shortage of qualified drivers. At December 31, 2002, we also employed approximately 3,100 office employees and 1,137 mechanics.2004. None of our employees are represented by unions or covered by collective bargaining agreements.
Our industry has periodically had a difficult time attracting and retaining enough qualified truck drivers. It is also common for the driver turnover rate of individual carriers to exceed 100%. It has been our practice during the past few years to compensate our drivers at an above-average level in order to attract a high caliber of experience and minimize turnover. During 2004, we increased company driver and IC compensation in order to attract and retain an adequate supply of qualified drivers. While we have, to date, not experienced significant operational disruptions due to driver shortages, we expect costs to recruit, train and retain company drivers and ICs will continue to rise in the foreseeable future.
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REVENUE EQUIPMENTRevenue Equipment
As of December 31, 2004, we operated 10,151 company-controlled tractors. In addition, our 1,301 contracted ICs operate their own tractors, but transport freight in our trailing equipment. We operate with standardized tractors in as many fleets as possible, particularly in our JBT and JBI fleets. Based on customer preference and the actual business application, our DCS fleet is more diversified. We believe operating with relatively newer revenue equipment provides better customer service, attracts quality drivers and lowers maintenance expense. At December 31, 2002, we owned or leased 10,653 company operated tractors, 26,0872004, the average age of our combined tractor fleet was 2.0 years, our trailers were 4.1 years old and 19,672 containers.our containers were 6.4 years old. We believe that modern, late-model, cleanperform routine servicing and preventative maintenance of our equipment differentiates quality customer service, increases equipment utilization and reduces maintenance costs and downtime. at most of our regional terminal facilities.
We generallytypically operate with newer revenue equipment in theour JBT segment withto minimize downtime and maximize utilization. However, during 2003, the age of tractors and trailers approximating 2.1 years and 2.2 years, respectively, at December 31, 2002. Somewhat older equipment and tractors designed for local and regional operations are typically utilized in theour JBT tractor fleet increased, primarily due to our decision to delay trades. Our JBI and DCS segments. Specially designedsegment utilizes high-cube containers, which can be separated from the chassis and double-stacked on rail carscars. We are also operated by JBI. The average agecurrently in the process of JBI tractorsexpanding our container fleet and containers at December 31, 2002 was approximately 4.6 years and 5.2 years, respectively. The JBI segment commenced receiving brand new containers and reconditionedreconditioning our chassis in late 2001. Approximately 6,300 new containers and 6,300 new and reconditioned chassis were placed in service during 2002.fleet. The composition of the dedicated contractour DCS trailing fleet varies with specific customer service requirements. At December 31,requirements and may include dry-vans, flatbeds, temperature-controlled, curtain-side vans, or even straight trucks.
Effective October 1, 2002, the average age of DCS segment tractors was 2.8 years.Environmental Protection Agency (EPA) required that most newly manufactured heavy-duty tractor engines comply with certain new emission standards. In November of 2002, we committed to purchaseordered approximately 2,100 new tractors, the majority of which will be traded one-for-oneprimarily for units in theour JBI and DCS fleets.fleets, which were equipped with Mercedes engines. These tradesengines were exempt from the EPA’s October 1, 2002, rules. Except for these new tractors, which were utilized primarily for local and regional operations, we limited our new tractor purchases while we tested a limited number of the new engines. In late 2003, we commenced receiving new tractors with the 2002 EPA-compliant engines. At December 31, 2004, approximately 4,870 of our company-controlled fleet consisted of tractors with these compliant engines. In addition to higher initial purchase prices, these tractors also experience an approximate 3% to 5% reduction in fuel efficiency. We are uncertain if future maintenance costs will significantly reducebe higher, on the average, age offor these tractors as they age. We do anticipate continued increases in tractor fleets. Allownership costs and fuel costs as regular replacements and additions increase the percentage of our fleet with these newer engines. In addition higher worldwide steel prices have resulted in increased acquisition costs for new revenue equipmentequipment. A new set of proposed fuel-emission standards mandated by the EPA is maintainedexpected to become effective in accordance with a specific maintenance program primarily based2007. We are unable to predict the impact these proposed standards will have on age and/or miles traveled.our future operations and financial results.
COMPETITIONCompetition
We are oneAccording to the American Trucking Associations (ATA), all modes of the largest publicly held truckloaddomestic freight carriers in the United States. WeStates generated approximately $610 billion of revenue in 2003. Of this total, truck transportation represented about 87%, or $531 billion. ATA also estimated that approximately 54% of the nation’s 2003 truck revenue related to for-hire carriers, while 46% related to private carriers. As of July 2004, there were more than 573,000 private, for-hire, U.S. Mail and other U.S. interstate motor carriers on file with the Federal Motor Carrier Safety Administration (FMCSA). The top ten for-hire truck-load carriers only generate about 3% of the total revenue in this segment, and we represent approximately 1% of this segment’s revenue. The market in which we compete primarilyis frequently referred to as highly fragmented and includes thousands of carriers, many of which are very small. While we compete with other irregular route, truckload common carriers. Less-than-truckload common carriers and private carriers generally provide limited competition for truckload carriers. JBHT and our associated companies are one of a few carriers offering nationwide logistics management and dedicated revenue equipment services. Although a number of smaller carriers may provide competition on a regional basis, only a limited number of companies represent competition in all markets. The extensive rail network developed in conjunction withmarkets across the various railroads also allows us the opportunity to differentiate our services in the marketplace.country.
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REGULATIONRegulation
Our operations as a for-hire motor carrier are subject to regulation by the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA)Transportation (DOT), and certain business is also subject to state rules and regulations. The DOT periodically conducts reviews and audits to ensure our compliance with all federal safety requirements, and we report certain accident and other information to the DOT. Our operations into and out of Canada and Mexico are also subject to regulation by various Canadian provinces. Entry control barriers were substantially removed asthose countries.
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Effective January 4, 2004, the FMCSA, which is a result of federal deregulation statutes such asseparate administration within the Interstate Commerce Commission Termination Act of 1995 (ICCTA). The FMCSA continues to enforce safetyDOT, changed the regulations and has proposed new rules which, if approved in their present form, would limit driver’sthat govern driver hours of service. President Bush is considering implementation of provisions of the North America Free Trade Agreement (NAFTA), which may result in increased competition between U.S. and Mexican carriers for truckload services moving between these two countries. The Clean Air Act of 1990 established tighter pollution standards for emissions from automobiles and trucks. These new standardsrules were effective onthe most significant changes to driver hours of service in more than 40 years. In general, the new rules allow a phased in basis beginning with model year 1994. As partdriver to drive for up to 11 consecutive hours, instead of a 1998 consent decree with10, but require 10 hours of off-duty time, rather than 8, and reduce the U.S. Environmental Protection Agency (EPA), atotal number of heavy-duty diesel engine manufacturers agreeddriving hours to significantly reduce emissions from their engines produced subsequent14 in a 24-hour period, compared to October 1, 2002. JBHT and a number15 under the old rules. In addition, more off-duty “sleeper berth” time is required before on-duty time is allowed. In July 2004, the United States Court of other truckload motor carriers believeAppeals for the District of Columbia rejected the new engines havehours-of-service (HOS) rules, which had been newly effective in January 2004. The Court’s rejection was based on concerns regarding driver’s health, as well as other issues such as driving time, rest periods and monitoring compliance. In September 2004, the current HOS rules were extended for one year or the time at which FMCSA develops a set of new rules. In February 2005, the Bush administration proposed legislation that would convert the current HOS regulations into statutory law, a move that would keep the current rules in effect despite the Court of Appeals action to overturn them. We cannot predict the final resolution of this rules action. However, if the current HOS rules remain in effect, we do not yet been sufficiently tested for fuel economy and reliability. While we continue to testanticipate a limited number of the new EPA compliant engines, we committed in November of 2002 to purchase approximately 2,100 new tractors, the majority of which will be equipped with Mercedes engines, which are not covered by the EPA’s October 1, 2002 rules.
INTERNET WEB SITE
We maintain a web site on the Internet through which additional information about JBHT is available. Our web site address is www.jbhunt.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, press releases, earnings releases and other reports filed pursuant to Section 13 or 15 (d) of the Exchange Act are available, free of charge,significant adverse effect on our website as soon as practical after they are filed.
SEC FILINGS
We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (SEC). Our reports and any materials we file with the SEC are available at the Public Reference Room, located at 450 Fifth Street, N.W., Washington, D.C. 20549. Information may be obtained from the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains information we file with the agency. Our common stock is traded in the over-the-counter market under the symbol “JBHT.”operations or earnings.
Our corporate headquarters are in Lowell, Arkansas. A 150,000-square-foot building was constructedWe occupy a number of buildings in Lowell which we utilize for administrative support, data center, primary customer service and occupied in September 1990.freight dispatch. We also utilize our former corporate building as general offices. In 1999, a new 20,000 square foot building was constructed and occupied near the corporate headquarters. A portion of this leased facility serves asmaintain a backup data center and providesfor disaster recovery, support services. An additional 20,000maintenance shop and driver operations facility in Lowell. In June 2004, we commenced construction of a new, approximate 110,000 square foot office building consistinglocated adjacent to our existing corporate office in Lowell, Arkansas. We anticipate occupying this new building during the third quarter of general office space for2005. We also own or lease other significant facilities where we perform maintenance on our corporate employees was completedequipment, provide bulk fuel and occupied in 2000. This building is located nextemploy personnel to the data center building and is a leased facility.
Principal outside facilities consist primarily of general offices which support operational, safety and maintenance functions.operations. In addition to theour principal facilitiesproperties listed below, we lease numerousa number of small offices and trailer parking yards in various locations throughout the country towhich support customer trailing equipment pool commitments.our customers’ business needs.
7
A summary of our principal facilities follows:
Location |
| Acreage |
| Maintenance Shop |
| Office Space |
|
| Acreage |
| Maintenance Shop |
| Office Space |
|
Atlanta, Georgia |
| 30 |
| 29,800 |
| 10,400 |
|
| 28 |
| 29,800 |
| 10,400 |
|
Cedar Rapids, Iowa |
| 12 |
| 28,500 |
| 4,500 |
| |||||||
Chicago, Illinois |
| 27 |
| 50,000 |
| 14,000 |
|
| 27 |
| 50,000 |
| 14,000 |
|
Columbus, Ohio |
| 10 |
| 28,100 |
| 8,500 |
| |||||||
Concord, North Carolina |
| 6 |
| 12,200 |
| — |
| |||||||
Dallas, Texas |
| 14 |
| 24,000 |
| 7,800 |
|
| 14 |
| 24,000 |
| 7,800 |
|
East Brunswick, New Jersey |
| 20 |
| 20,000 |
| 7,800 |
|
| 19 |
| 20,000 |
| 3,200 |
|
Houston, Texas |
| 13 |
| 24,700 |
| 7,200 |
|
| 21 |
| 24,700 |
| 7,200 |
|
Kansas City, Missouri |
| 10 |
| 31,000 |
| 6,700 |
|
| 10 |
| 31,000 |
| 6,700 |
|
Louisville, Kentucky |
| 14 |
| 40,000 |
| 10,000 |
| |||||||
Little Rock, Arkansas |
| 24 |
| 29,200 |
| 7,200 |
|
| 24 |
| 29,200 |
| 7,200 |
|
Louisville, Kentucky |
| 14 |
| 40,000 |
| 10,000 |
| |||||||
Lowell, Arkansas (corporate headquarters) |
| 25 |
| — |
| 150,000 |
|
| 59 |
| — |
| 150,000 |
|
Lowell, Arkansas |
| 40 |
| 50,200 |
| 14,000 |
|
| 42 |
| 50,200 |
| 14,000 |
|
Lowell, Arkansas (office and data center) |
| 2 |
| — |
| 20,000 |
|
| 2 |
| — |
| 20,000 |
|
Lowell, Arkansas (office) |
| 2 |
| — |
| 20,000 |
|
| 2 |
| — |
| 20,000 |
|
Memphis, Tennessee |
| 10 |
| 26,700 |
| 8,000 |
|
| 10 |
| 26,700 |
| 8,000 |
|
Niles, Ohio |
| 5 |
| 9,500 |
| — |
| |||||||
Phoenix, Arizona |
| 14 |
| 10,000 |
| 5,300 |
|
| 15 |
| 15,200 |
| 5,300 |
|
Portland, Oregon |
| 8 |
| 20,000 |
| 3,300 |
| |||||||
San Bernardino, California |
| 8 |
| 14,000 |
| 4,000 |
|
| 9 |
| 18,300 |
| 9,300 |
|
South Boston, VA |
| 3 |
| 30,000 |
| 3,500 |
| |||||||
South Gate, California |
| 12 |
| 12,000 |
| 5,500 |
|
| 12 |
| 25,000 |
| 5,500 |
|
Stockton, California |
| 7 |
| 10,600 |
| 3,500 |
| |||||||
Syracuse, New York |
| 13 |
| 19,000 |
| 8,000 |
|
| 13 |
| 19,000 |
| 8,000 |
|
Vancouver, WA |
| 4 |
| 20,000 |
| — |
|
8
JBHT isWe are involved in certain claims and pending litigation arising from the normal conduct of business. Based on the present knowledge of the facts and, in certain cases, opinions of outside counsel, we believe the resolution of claims and pending litigation will not have a material adverse effect on our financial condition or our results of operations.
As mentioned above, we are currently engaged in an arbitration process with Burlington Northern Santa Fe Railroad to clarify certain terms of our Joint Service Agreement. See “Risk Factors” in Item 7 of this Form 10-K.
The Internal Revenue Service (IRS) has proposed to disallow the tax benefits associated with certain sale-and-leaseback transactions. See “Risk Factors” in Item 7 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 20022004 to a vote of security holders.
OUR EXECUTIVE OFFICERSExecutive Officers of the Registrant
Information with respect to our executive officers is set forth below:
Name |
| Age |
| Position with JBHT |
| Executive |
|
| Age |
| Position with JBHT |
| Executive |
|
J.B. Hunt |
| 76 |
| Senior Chairman of the Board; Director |
| 1961 |
| |||||||
|
|
|
|
|
|
|
| |||||||
Wayne Garrison |
| 50 |
| Chairman of the Board; Director |
| 1979 |
|
| 52 |
| Chairman of the Board; Director |
| 1979 |
|
|
|
|
|
|
|
|
| |||||||
Johnelle D. Hunt |
| 71 |
| Secretary; Director |
| 1972 |
|
| 73 |
| Secretary; Director |
| 1972 |
|
|
|
|
|
|
|
|
| |||||||
Kirk Thompson |
| 49 |
| President and Chief Executive Officer; Director |
| 1984 |
|
| 51 |
| President and Chief Executive Officer; Director |
| 1984 |
|
|
|
|
|
|
|
|
| |||||||
Paul R. Bergant |
| 56 |
| Executive Vice President, Marketing and Chief Marketing Officer |
| 1985 |
|
| 58 |
| Executive Vice President, Marketing and Chief Marketing Officer |
| 1985 |
|
|
|
|
|
|
|
|
| |||||||
Bob D. Ralston |
| 56 |
| Executive Vice President, Equipment and Properties |
| 1989 |
|
| 58 |
| Executive Vice President, Equipment and Properties |
| 1989 |
|
|
|
|
|
|
|
|
| |||||||
Jerry W. Walton |
| 56 |
| Executive Vice President, Finance and Administration and Chief Financial Officer |
| 1991 |
|
| 58 |
| Executive Vice President, Finance and Administration and Chief Financial Officer |
| 1991 |
|
|
|
|
|
|
|
|
| |||||||
Craig Harper |
| 45 |
| Executive Vice President, Operations and Chief Operations Officer |
| 1997 |
|
| 47 |
| Executive Vice President, Operations and Chief Operations Officer |
| 1997 |
|
John N. Roberts III(1) |
| 38 |
| President, Dedicated Contract Services, and Executive Vice President, Enterprise Solutions |
| 1997 |
| |||||||
Kay J. Palmer(2) |
| 39 |
| Executive Vice President and Chief Information Officer |
| 1999 |
| |||||||
|
|
|
|
|
|
|
| |||||||
John N. Roberts III |
| 40 |
| Executive Vice President and President, Dedicated Contract Services |
| 1997 |
| |||||||
|
|
|
|
|
|
|
| |||||||
Kay J. Palmer |
| 41 |
| Executive Vice President and Chief Information Officer |
| 1999 |
|
(1)On December 23, 2004, Mr. Roberts joined JBHT in 1989J.B. Hunt, founder and Senior Chairman of the Board, announced that he was stepping down as Senior Chairman and as a management trainee. Inmember of the Board of Directors effective December of 1990, he became a Regional Marketing Manager. In February of 1996, he was named Vice President, Marketing Strategy and was appointed President, Dedicated Contract Services, in July of 1997. In June of 1998, he was appointed to the additional position of Executive Vice President of Enterprise Solutions.31, 2004. Mr. Hunt had been an executive officer since 1961.
(2) Ms. Palmer joined JBHT in 1988 as a programming specialist. In June of 1989, sheOn December 23, 2004, Mr. Gene George, who was namedan original investor and founding Director of Application Services. In June of 1995, shethe Company, also announced that he was named Vice President of Applications. She became Senior Vice President of Information Services in August of 1998 and named Executive Vice President and Chief Information Officer in June of 1999.retiring effective December 31, 2004. Mr. George had been a Director for 43 years.
89
ITEM 5.5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON STOCKPrice Range of Common Stock
Our common stock is traded in the over-the-counter market under the symbol “JBHT.” The following table sets forth, for the calendar years indicated, the range of high and low sales prices for our common stock as reported by the National Association of Securities Dealers Automated Quotations National Market System (“NASDAQ”)(NASDAQ). The following sales prices all reflect a two-for-one stock split paid on August 29, 2003.
|
| 2002 |
| 2001 |
|
| 2004 |
| 2003 |
| ||||||||||||||||
Period |
| High |
| Low |
| High |
| Low |
|
| High |
| Low |
| High |
| Low |
| ||||||||
1st Quarter |
| $ | 29.39 |
| $ | 22.07 |
| $ | 20.50 |
| $ | 12.88 |
|
| $ | 29.45 |
| $ | 25.29 |
| $ | 15.55 |
| $ | 11.62 |
|
2nd Quarter |
| 32.37 |
| 24.60 |
| 20.75 |
| 14.63 |
|
| 38.97 |
| 28.12 |
| 19.70 |
| 13.36 |
| ||||||||
3rd Quarter |
| 29.83 |
| 21.55 |
| 25.60 |
| 12.15 |
|
| 39.65 |
| 31.76 |
| 27.60 |
| 18.85 |
| ||||||||
4th Quarter |
| 30.32 |
| 21.25 |
| 25.17 |
| 11.93 |
|
| 45.30 |
| 35.84 |
| 28.74 |
| 23.75 |
|
On February 28, 2003,January 31, 2005, the high and low sales prices for our common stock as reported by the NASDAQ were $24.91$44.18 and $24.51,$42.52, respectively. As of February 28, 2003,January 31, 2005, we had 1,3781,324 stockholders of record.
DIVIDEND POLICY
On January 21, 2000,From time to time, our Board of Directors declared aauthorizes the repurchase of our common stock. We did not repurchase any of our common stock during the years 2002 through 2004. As previously announced in December 2004, our Board authorized the purchase of up to $100 million of our common stock during the next year. We commenced repurchases of our common stock in January 2005.
Dividend Policy
We paid quarterly dividend of $.05 per share, paid on February 17, 2000 to shareholders of record on February 3, 2000. We declared and paid cash dividends of $.20 per share induring calendar year 1999 and 1998. On February 16,in a number of years prior to 1999. In early 2000, our Board of Directorswe announced a decision to discontinue our policy of payingdividend payments. In April 2004, we re-initiated a quarterly cash dividends. Nodividend of $.03 per share. This re-initiation was based on our lower debt levels and improving cash flows. We also paid a cash dividend of $.03 per share in July and October 2004. In December 2004, we announced an increase in our quarterly cash dividend from $.03 to $.12. Our first $.12 per share dividend was paid on February 18, 2005, to stockholders of record on January 31, 2005. We currently intend to continue paying cash dividends have beenon a quarterly basis. However, no assurance can be given that future dividends will be paid, since February of 2000.such payments are dependent on earnings, cash flows and other factors.
9Equity Compensation Plan Information
Plan Category |
| Number of Securities |
| Weighted-average |
| Number of Securities |
| |
|
| (A) |
| (B) |
| (C) |
| |
|
|
|
|
|
|
|
| |
Equity compensation plans |
| 6,920,084 |
| $ | 14.31 |
| 1,046,944 |
|
|
|
|
|
|
|
|
| |
Equity compensation plans not |
| — |
| — |
| — |
| |
|
|
|
|
|
|
|
| |
Total |
| 6,920,084 |
| $ | 14.31 |
| 1,046,944 |
|
10
ITEM 6.6. SELECTED FINANCIAL DATA
(Dollars in millions, except per share amounts)
Years Ended December 31 |
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| 2000 |
| |||||
Operating revenues |
| $ | 2,786.2 |
| $ | 2,433.5 |
| $ | 2,247.9 |
| $ | 2,100.3 |
| $ | 2,160.4 |
|
Operating income |
| 310.2 |
| 185.6 |
| 101.0 |
| 72.2 |
| 63.4 |
| |||||
Net earnings (1) |
| 146.3 |
| 95.5 |
| 51.8 |
| 32.9 |
| 36.1 |
| |||||
Basic earnings per share (1) |
| 1.81 |
| 1.20 |
| .68 |
| .46 |
| .51 |
| |||||
Diluted earnings per share (1) |
| 1.75 |
| 1.17 |
| .66 |
| .46 |
| .51 |
| |||||
Cash dividends per share |
| .09 |
| — |
| — |
| — |
| .03 |
| |||||
Total assets |
| 1,491.7 |
| 1,356.2 |
| 1,322.7 |
| 1,261.2 |
| 1,237.8 |
| |||||
Long-term debt and lease obligations |
| — |
| — |
| 219.0 |
| 353.6 |
| 300.4 |
| |||||
Stockholders’ equity |
| 860.9 |
| 703.1 |
| 590.5 |
| 458.3 |
| 417.8 |
| |||||
Years Ended December 31 |
| 2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
| |||||
Operating revenues |
| $ | 2,247.9 |
| $ | 2,100.3 |
| $ | 2,160.4 |
| $ | 2,045.1 |
| $ | 1,841.6 |
|
Operating income |
| 101.0 |
| 72.2 |
| 63.4 |
| 74.3 |
| 101.5 |
| |||||
Net earnings |
| 51.8 |
| 32.9 |
| 36.1 |
| 31.9 |
| 46.8 |
| |||||
Diluted earnings per share |
| 1.33 |
| .91 |
| 1.02 |
| .89 |
| 1.28 |
| |||||
Cash dividends per share |
| — |
| —- |
| .05 |
| .20 |
| .20 |
| |||||
Total assets |
| 1,318.7 |
| 1,260.3 |
| 1,231.9 |
| 1,127.5 |
| 1,171.5 |
| |||||
Long-term debt and lease obligations |
| 219.0 |
| 353.6 |
| 300.4 |
| 267.6 |
| 417.0 |
| |||||
Stockholders’ equity |
| 590.5 |
| 458.3 |
| 417.8 |
| 391.2 |
| 365.5 |
| |||||
(1) Reflects $33.6 million reserve, including accrued interest expense in 2004, and $7.7 million reversal of non-cash tax benefit in 2003. See “Risk Factors” in Item 7.
Percentage of Operating Revenue
Years Ended December 31 |
| 2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
|
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| 2000 |
|
Operating revenues |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
| 36.4 |
| 37.6 |
| 35.6 |
| 34.9 |
| 34.9 |
|
| 29.8 |
| 32.5 |
| 36.4 |
| 37.6 |
| 35.6 |
|
Rents and purchased transportation |
| 31.1 |
| 28.8 |
| 32.1 |
| 33.7 |
| 33.7 |
|
| 33.5 |
| 32.8 |
| 31.1 |
| 28.8 |
| 32.1 |
|
Fuel and fuel taxes |
| 9.4 |
| 10.8 |
| 11.3 |
| 8.3 |
| 7.5 |
|
| 10.4 |
| 9.6 |
| 9.4 |
| 10.8 |
| 11.3 |
|
Depreciation and amortization |
| 6.5 |
| 6.8 |
| 6.2 |
| 7.3 |
| 7.6 |
|
| 5.4 |
| 6.2 |
| 6.5 |
| 6.8 |
| 6.2 |
|
Operating supplies and expenses |
| 5.8 |
| 6.9 |
| 6.1 |
| 6.2 |
| 5.3 |
|
| 4.5 |
| 4.9 |
| 5.8 |
| 6.9 |
| 6.1 |
|
Insurance and claims |
| 2.5 |
| 2.0 |
| 1.8 |
| 2.0 |
| 1.8 |
|
| 2.0 |
| 2.6 |
| 2.5 |
| 2.0 |
| 1.8 |
|
Operating taxes and licenses |
| 1.4 |
| 1.6 |
| 1.5 |
| 1.3 |
| 1.3 |
|
| 1.3 |
| 1.4 |
| 1.4 |
| 1.6 |
| 1.5 |
|
General and administrative expenses, net of gains |
| 1.3 |
| .9 |
| 1.3 |
| 1.7 |
| 1.4 |
|
| 1.4 |
| 1.4 |
| 1.3 |
| 0.9 |
| 1.3 |
|
Communication and utilities |
| 1.1 |
| 1.2 |
| 1.2 |
| 1.0 |
| 1.0 |
|
| 0.8 |
| 1.0 |
| 1.1 |
| 1.2 |
| 1.2 |
|
Total operating expenses |
| 95.5 |
| 96.6 |
| 97.1 |
| 96.4 |
| 94.5 |
|
| 88.9 |
| 92.4 |
| 95.5 |
| 96.6 |
| 97.1 |
|
Operating income |
| 4.5 |
| 3.4 |
| 2.9 |
| 3.6 |
| 5.5 |
|
| 11.1 |
| 7.6 |
| 4.5 |
| 3.4 |
| 2.9 |
|
Interest income |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 |
| — |
| |||||||||||
Interest expense |
| (1.1 | ) | (1.3 | ) | (1.1 | ) | (1.4 | ) | (1.6 | ) |
| 0.3 |
| 0.8 |
| 1.2 |
| 1.4 |
| 1.1 |
|
Equity in earnings (loss) of associated companies |
| (.1 | ) | — |
| .2 |
| .2 |
| .1 |
| |||||||||||
Equity in loss (earnings) of associated companies |
| 0.1 |
| — |
| 0.1 |
| — |
| (0.2 | ) | |||||||||||
Earnings before income taxes |
| 3.3 |
| 2.1 |
| 2.0 |
| 2.4 |
| 4.0 |
|
| 10.8 |
| 6.9 |
| 3.3 |
| 2.1 |
| 2.0 |
|
Income taxes |
| 1.0 |
| .5 |
| .3 |
| .8 |
| 1.5 |
| |||||||||||
Income taxes (1) |
| 5.5 |
| 3.0 |
| 1.0 |
| 0.5 |
| 0.3 |
| |||||||||||
Net earnings |
| 2.3 | % | 1.6 | % | 1.7 | % | 1.6 | % | 2.5 | % |
| 5.3 | % | 3.9 | % | 2.3 | % | 1.6 | % | 1.7 | % |
(1) Reflects $33.6 million reserve, including accrued interest expense in 2004, and $7.7 million reversal of non-cash tax benefit in 2003. See “Risk Factors” in Item 7.
The following table sets forth certain operating data.
Years Ended December 31 |
| 2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
|
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| 2000 |
|
Total loads |
| 2,847,377 |
| 2,565,915 |
| 2,697,582 |
| 2,769,834 |
| 2,243,856 |
|
| 2,883,504 |
| 2,857,176 |
| 2,847,377 |
| 2,565,915 |
| 2,697,582 |
|
Average number of tractors owned/leased in the fleet during the year |
| 10,712 |
| 10,710 |
| 10,055 |
| 9,183 |
| 8,207 |
| |||||||||||
Average number of company-operated tractors during the year |
| 10,042 |
| 10,293 |
| 10,712 |
| 10,710 |
| 10,055 |
| |||||||||||
Company tractors operated (at year end) |
| 10,653 |
| 10,770 |
| 10,649 |
| 9,460 |
| 8,906 |
|
| 10,151 |
| 9,932 |
| 10,653 |
| 10,770 |
| 10,649 |
|
Independent contractors (at year end) |
| 679 |
| 336 |
| 16 |
| — |
| — |
|
| 1,301 |
| 994 |
| 679 |
| 336 |
| 16 |
|
Trailers/containers (at year end) |
| 45,759 |
| 44,318 |
| 44,330 |
| 39,465 |
| 35,366 |
|
| 48,317 |
| 46,747 |
| 45,759 |
| 44,318 |
| 44,330 |
|
Company tractor miles (in thousands) |
| 981,818 |
| 1,022,677 |
| 1,000,127 |
| 986,288 |
| 922,560 |
|
| 943,064 |
| 943,054 |
| 981,818 |
| 1,022,677 |
| 1,000,127 |
|
1011
ITEM 7.7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and related notes in Item 8. This discussion contains forward-looking statements. Please see “Forward-looking Statements” and “Risk Factors” for a discussion of items, uncertainties, assumptions and risks associated with these statements.
FORWARD-LOOKING STATEMENTSYEAR IN REVIEW
This report contains statements that may be consideredOur financial results for calendar year 2004 represented the third consecutive year of record revenues and earnings driven by strong performance from each of our segments. Our 2004 net earnings of $146.3 million, or $1.75 per diluted share, were up 53% over the $95.4 million, or $1.17 per diluted share, earned in 2003. While each of our three business segments contributed to be forward-looking or predictions concerning future operations or events. Such statements are made pursuant toour higher levels of profitability, the safe harbor provisionsincrease in operating income in the JBT segment was most evident. A significant part of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, subject to risks and should be viewed with caution. These statements are based on our belief or interpretation of information currently available. Shareholders and prospective investors are cautioned that actual results and future events may differ materially from the forward-looking statements asincreased JBT operating income in 2004 was a result of many factors. Amongour continued focus on capacity management. Capacity management is a continuous process of reviewing our freight to determine whether business which is generating low or negative margins can be replaced by different business with better margins. We also are continuing to analyze our business to ensure we are charging for all the factorsservices provided. Primarily due to our capacity management actions and events that are not withinrate increases required to offset certain non-fuel cost increases, our control2004 JBT segment revenue per loaded mile, excluding fuel surcharges (FSC), rose 8.7% over 2003.
During 2004, we also focused on revenue per load, revenue per mile and could have a material impactrevenue per tractor per day in our JBI and DCS business segments. Primarily due to our focus on future operating results include: general economicrate increases and business conditions, competitioncapacity management, we were able to increase 2004 revenue per loaded mile, excluding FSC, by 3.4% in our JBI segment and competitive rate fluctuations, cost and availability of diesel fuel, abilitynet revenue per tractor per week by 6.0% in our DCS segment. These increases significantly contributed to attract and retain qualified drivers, a loss of one or more major customers, interference with or termination of our relationships with certain railroads, insurance costs and availability, claims expense, retention of key employees, terrorists attacks or actions, acts of war, adverse weather conditions, new or different environmental or other laws and regulations, increased costs for new revenue equipment or decreaseshigher net earnings in the value of used equipment and the ability of revenue equipment manufacturers to perform2004.
Our increase in accordance with agreements for guaranteed equipment trade-in values. Current and future changes in fuel prices could result in significant fluctuations of quarterly earnings. The above is not an all-inclusive list. Financial and operating results of JBHT may fluctuate asconsolidated 2004 net earnings was also a result of thesesignificantly lower insurance, claims and workers’ compensation costs. We have continued to ingrain safety into our company culture and ask each of our drivers and other risk factors or events as describedemployees to make safety a daily priority. Our 2004 combined insurance claims and workers’ compensation expense declined approximately $23 million from time to2003 and increased our current year earnings per diluted share by approximately $.13.
Our 2004 consolidated operating ratio (operating expenses divided by total operating revenues) was 88.9%, compared with 92.4% in 2003 and 95.5% in 2002. The current year was the first time in over ten years that we have achieved an operating ratio for a full year below 90%. We also paid off all of our filings with the Securitiesremaining balance sheet debt and Exchange Commission.capital lease obligations in 2004. We assume no obligationre-initiated paying a quarterly cash dividend in early 2004 and in December 2004, increased our quarterly dividend from $.03 to update any forward-looking statement$.12 per share and announced plans to the extent we become aware that it will not be achieved for any reason.repurchase up to $100 million of our common stock.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared.
The preparation of our financial statements in conformity with accounting principles generally accepted accounting principlesin the United States requires us to make estimates and assumptions that affect:
•impact the amounts reported for assetsin our consolidated financial statements and liabilities;
• the disclosure of contingent assets and liabilities at the date of the financial statements; and
• the amounts reported for revenues and expenses during the reporting period.
accompanying notes. Therefore, the reported amounts of assets, and liabilities, revenues, and expenses and associated disclosures with respect toof contingent assets and obligationsliabilities are necessarily 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 recordedrecognized in the accounting period in which the facts that give rise to the revision become known.
In preparing12
We consider our critical accounting policies and estimates to be those that require us to make more significant judgments and estimates when we prepare our financial statements and related disclosures, we must use estimates in determininginclude the economic useful lives of assets, provisions for uncollectible accounts receivable, exposures under self-insurance plans and various other recorded or disclosed amounts. However, we believe that certain accounting policies are of more significance in the financial statement preparation process than others and are discussed below. To the extent that actual outcomes differ from estimates, or additional facts and circumstances cause us to revise estimates, earnings will be affected.following:
We purchase insurance coverage for a portion of our expenses related to employee injuries (workers’ compensation), vehicular collisions and accidents and cargo claims. Most insurance arrangements include a level of self insuranceself-insurance (deductible) coverage applicable to each claim, but provide an umbrella policy to limit our exposure to catastrophic claim costs that are completely insured. The amounts of self insuranceself-insurance change from time to time based on certain measurement dates and policy expiration dates. Our current insurance coverage specifies that the self insured limit on the majorityDuring 2004, we were self-insured for a portion of our claims exposure resulting from cargo loss, personal injury, property damage, workers’ compensation and health claims for amounts up to the first $2 million for auto accidents and $1 million for workers’ compensation claims. These same levels of self-insurance are in effect for 2005.
Our claims accrual policy for all self-insured claims is $1.5 million, which is prefunded withto recognize a liability at the time of the incident based on our insurance carrier. We are substantially self-insured for lossanalysis of the nature and damage to our ownedseverity of the claims, analyses provided by third-party claims administrators, as well as legal, economic and leased revenue equipment.regulatory factors. Our safety and claims personnel work directly with representatives from ourthe insurance companies to continually update the estimated ultimate 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. In doing so, the recorded ultimate 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, 2002,2004, we
11
had approximately $15$19 million of estimated net claims payable. In addition, we are required to pay certain advanced deposits and monthly premiums. At December 31, 2002,2004, we had a prepaid insurance asset of approximately $45 million.$58 million, which represented pre-funded claims and premiums. We are also substantially self-insured for loss of and damage to our owned and leased revenue equipment.
We operate a significant number of tractors, trailers and containers in connection with our business. This equipment may be purchased or acquired under capital or operating leases.lease agreements. In addition, we may rent revenue equipment from third parties and various railroads under short-term rental arrangements. Revenue equipment which is purchased is depreciated on the straight-line method over the estimated useful life down to an estimated salvage or trade-in value. Equipment acquired under capital leases is initially recorded at the net present value of the minimum lease payments and amortized on the straight-line method over the lease term or the estimated useful life, whichever is shorter. We had no revenue equipment under capital lease arrangements at December 31, 2004.
We have an agreement with our primary tractor supplier for guaranteed residual or trade-in values for certain new equipment acquired since 1999. During the fourth quarter of 2003, we reviewed the useful lives and salvage values of our tractor fleet. We have utilized thesethe guaranteed trade-in values as well as other operational information, such as anticipated annual miles, in accounting for purchased and leased tractors. If theour tractor supplier was unable to perform under the terms of such agreements,our agreement for guaranteed trade-in values, it could have a materialmaterially negative impact on our financial results. We periodically review the useful lives and salvage values of our revenue equipment and evaluate our long-lived assets for impairment. We have not identified any impairments to our existing assets.
We recognize revenue based on the relative transit time of the freight transported. Accordingly, a portion of the total revenue which will be billed to the customer once a load is delivered is recognized in each reporting
13
period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period.
Segments
We operated three segments during calendar year 2002. Segments included Truck (JBT), Intermodal (JBI)2004. The operation of each of these businesses is described in footnote (11). The following tables summarize financial and Dedicated Contract Services (DCS). JBT business included full truck-load, dry-van freight which is primarily transported utilizing company-owned or controlled revenue equipment. Freight in the JBT segment is typically transported over roads and highways and no portion of a movement involves railroads. The JBI segment includes freight which is transportedoperating data by rail over at least a portion of the movement. JBI freight may also include certain repositioning truck loads which are moved by JBI equipment or third-party carriers, in circumstances where the movement directs JBI equipment back toward intermodal operations. DCS segment business usually includes company-owned revenue equipment and employee drivers who are assigned to a specific customer, traffic lane or service. DCS operations most frequently involve formal, written long-term agreements which govern services performed and applicable rates.segment.
Prior to July 1, 2000, the Logistics business segment (JBL) primarily consisted of J.B. Hunt Logistics, a wholly-owned subsidiary which provided a wide range of comprehensive transportation and freight management services. Such services included experienced professional managers, information and freight optimization technology and the actual design or redesign of freight system solutions. JBL utilized JBT, JBI or DCS owned or controlled assets and employees, third-party carriers, or a combination of these options to meet service requirements. JBL services were typically provided in accordance with written long-term agreements. Effective July 1, 2000, JBL exchanged its ownership in substantially all of its assets for an initial membership interest in TPI. As of January 1, 2003, we increased our interest in TPI from approximately 27% to 37%.Operating Revenue by Segment
|
| For Years Ended December 31 |
| |||||
|
| 2004 |
| 2003 |
| 2002 |
| |
JBT |
| $ | 928 |
| 841 |
| 827 |
|
JBI |
| 1,115 |
| 936 |
| 809 |
| |
DCS |
| 760 |
| 671 |
| 628 |
| |
Subtotal |
| 2,803 |
| 2,448 |
| 2,264 |
| |
Inter-segment eliminations |
| (17 | ) | (15 | ) | (16 | ) | |
Total |
| $ | 2,786 |
| 2,433 |
| 2,248 |
|
Operating Income by Segment
|
| For Years Ended December 31 |
| |||||
|
| 2004 |
| 2003 |
| 2002 |
| |
JBT |
| $ | 103 |
| 49 |
| 27 |
|
JBI |
| 131 |
| 91 |
| 55 |
| |
DCS |
| 75 |
| 45 |
| 20 |
| |
Other |
| 1 |
| 1 |
| (1 | ) | |
Total |
| $ | 310 |
| 186 |
| 101 |
|
14
12Operating Data By Segment
|
| For Years Ended December 31 |
| |||||||
|
| 2004 |
| 2003 |
| 2002 |
| |||
JBT |
|
|
|
|
|
|
| |||
Operating ratio |
| 88.9 | % | 94.1 | % | 96.8 | % | |||
Total loads |
| 932,818 |
| 959,551 |
| 970,055 |
| |||
Revenue (excl. fuel surcharge) per tractor per week |
| $ | 2,999 |
| $ | 2,739 |
| $ | 2,678 |
|
Length of haul in miles |
| 543 |
| 535 |
| 556 |
| |||
Revenue per loaded mile (excl. fuel surcharge) |
| $ | 1.659 |
| $ | 1.526 |
| $ | 1.443 |
|
Average number of tractors during the period |
| 5,420 |
| 5,592 |
| 5,751 |
| |||
Tractors at end of period |
|
|
|
|
|
|
| |||
Company owned |
| 4,280 |
| 4,429 |
| 4,924 |
| |||
Independent contractor |
| 1,113 |
| 994 |
| 679 |
| |||
Total tractors |
| 5,393 |
| 5,423 |
| 5,603 |
| |||
Average effective trailing equipment usage * |
| 14,852 |
| 14,979 |
| 15,591 |
| |||
|
|
|
|
|
|
|
| |||
JBI |
|
|
|
|
|
|
| |||
Operating ratio |
| 88.2 | % | 90.3 | % | 93.3 | % | |||
Total loads |
| 581,849 |
| 527,404 |
| 473,856 |
| |||
Net change in revenue per loaded mile (excl. fuel surcharge) |
| 3.4 | % | 0.7 | % | 0.6 | % | |||
Tractors at end of period |
| 1,192 |
| 1,047 |
| 917 |
| |||
Average effective trailing equipment usage * |
| 21,409 |
| 19,719 |
| 18,517 |
| |||
|
|
|
|
|
|
|
| |||
DCS |
|
|
|
|
|
|
| |||
Operating ratio |
| 90.2 | % | 93.3 | % | 96.9 | % | |||
Revenue (excl. fuel surch. & pur. trans.) per tractor per week |
| $ | 2,791 |
| $ | 2,644 |
| $ | 2,499 |
|
Average number of tractors during the period |
| 4,892 |
| 4,669 |
| 4,732 |
| |||
Tractors at end of period |
| 5,045 |
| 4,608 |
| 4,957 |
| |||
Average effective trailing equipment usage * |
| 11,237 |
| 11,448 |
| 10,860 |
|
* Reflects average use of corporate-wide trailing equipment
20022004 Compared With 20012003
Operating Segments
For Years Ended December 31
(in millions of dollars)
|
| Gross Revenue |
| Operating Income |
| ||||||||||
|
| 2002 |
| 2001 |
| % Change |
| 2002 |
| 2001 |
| ||||
JBT |
| $ | 827.3 |
| $ | 828.6 |
| — |
| 26.6 |
| $ | 8.7 |
| |
JBI |
| 809.1 |
| 740.5 |
| 9 | % | 54.6 |
| 42.1 |
| ||||
DCS |
| 628.3 |
| 548.7 |
| 15 | % | 19.7 |
| 17.4 |
| ||||
JBL |
| — |
| — |
| — |
| —- |
| — |
| ||||
Other |
| — |
| .6 |
| — |
| .1 |
| 4.0 |
| ||||
Subtotal |
| 2,264.7 |
| 2,118.4 |
| 7 | % | $ | 101.0 |
| 72.2 |
| |||
Inter-segment eliminations |
| (16.8 | ) | (18.1 | ) | — |
| — |
| — |
| ||||
Total |
| $ | 2,247.9 |
| $ | 2,100.3 |
| 7 | % | $ | 101.0 |
| $ | 72.2 |
|
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related footnotes appearing in this annual report.
Overview of 20022004
Our consolidated net earnings for calendar year 2002 were $51.82004 totaled a record $146 million. This compares with our previous record net earnings of $95 million or dilutedin 2003. Diluted earnings per share of $1.33,were $1.75 in 2004, also a record number, compared with 2001 full-year earnings of $32.9 million, or 91 cents per diluted share. We generated $101 million of operating income$1.17 in 2002, a nearly 40% increase over the $72.2 million of operating income in 2001. Our operating ratio was 95.5% in 2002 and 96.6% in 2001. Our increase in 2002 net earnings was in spite of an effective income tax rate which rose to 30.8% from 23.5% in 2001 and the2003. The average number of diluted shares outstanding increasing by nearly 8%. Thein 2004 was approximately 2% higher than the comparable number in 2003. Consolidated operating revenues were $2.79 billion in 2004, an increase of 14% over the $2.43 billion in shares outstanding reflects a secondary public offering, which closed in June of 2002. 2003.
15
Each of our threebusiness segments contributed to our improved financial results in 2004. While the overall economy and level of freight activity were not particularly strong during 2004, a number of factors contributed to our improved earningslevel of earnings. We have continued our focus on capacity management, as well as individual load and lane profitability. A number of new proprietary technology tools and increased management focus have allowed us to reduce the amount of unprofitable lanes and freight, and to properly charge for equipment and services provided to customers. In addition, the levels of available capacity in 2002.the industry have been reduced by significant increases in insurance, fuel, equipment and driver compensation costs. The availability of qualified drivers has also limited carriers’ ability to expand the size of their fleets.
JBT Segment
JBT segment gross revenue was essentially flat, totaling $827.3$928 million in 2002 and $828.62004, up 10% over the $841 million in 2001. However, 2002 revenues were generated with approximately 3% fewer tractors. In addition, 20022003. Higher fuel surcharge revenues were $14.2 million lower than(FSC) revenue in 2004 impacted this comparison. If the comparable amount of FSC revenue was excluded from both years, 2004 JBT segment revenue rose 7.9% over 2003. The average tractor count in 2001, which negatively impacted the revenue comparison by approximately 2%. Truck segment operating income rose to $26.6 million in 2002,2004 declined 3.1% from $8.7 million in 2001. The improvement in 2002 operating income reflected higher2003. However, revenue per loaded mile, reduced empty milesexcluding FSC, was 8.7% above 2003, offsetting the decrease in the tractor fleet and enhancing operating income. Current year revenue growth was also up approximately 2% from outsourced freight activity.
Operating income of the JBT segment rose to $103 million in 2004, from $49 million in 2003. The significant increase in revenue per loaded mile, excluding FSC, accounted for the majority of this operating income improvement. In addition, lower driver pay rates.JBT accident and workers’ compensation costs positively impacted current year operating income.
JBI Segment
JBI segment gross revenue grew by 19%, to $1,115 million in 2004, from $936 million in 2003. Higher FSC revenue in 2004 impacted this comparison. If FSC revenue was excluded from both years, 2004 JBI segment revenue increased 15.8% over 2003. A significant portion of this revenue growth was driven by a 10.3% increase in loads. Revenue per loaded mile, excluding FSC, was 3.4% above 2003 levels. The remaining portion of revenue growth was primarily a result of freight mix changes.
Operating income in the JBI segment increased to $131 million in 2004 from $91 million in 2003. The increase in current year JBI operating income levels was partly a result of the higher revenue per loaded mile, excluding FSC, increased load volume and reduced empty miles was a result of our continued focus on yield managementlower revenue equipment ownership costs, partly offset by higher rail and improved revenue quality. The reduction in driver pay per mile was a result of changes in pay scales for newly-hired drivers.dray purchased transportation expenses.
JBI segment gross revenue grew 9%, to $809.1 million in 2002, from $740.5 million in 2001. Revenue growth was due, in part, to continued demand for our intermodal service offering and conversion of our container fleet to 100% 53-foot units. Operating income in the JBI segment rose to $54.6 million in 2002 from $42.1 million in 2001. Our JBI operating ratio was 93.3% in 2002 and 94.3% in 2001. Financial results in this segment were enhanced by improved container utilization, improved driver productivity and a focus on revenue quality.DCS Segment
DCS segment revenue grew nearly 15%,over 13% to $628.3$760 million in 2002,2004 from $548.7 million$671 in 2001. Revenue2003. The higher level of FSC revenue in 2004 impacted this comparison. If FSC revenue was excluded from both years, 2004 DCS segment revenue rose 10% over 2003. The average number of trucks in the dedicated fleet increased nearly 5% in 2004. The additional revenue growth in the current year was primarily a result of a 9%6% increase in the size of the DCS tractor fleet and our focus on improving the quality of individual fleets. While operatingnet revenue per tractor.
Operating income roseincreased 65% to $19.7$75 million in 2002 from $17.42004 versus $45 million in 2001, the segment’s2003. During 2004, we have conducted reviews of our underperforming dedicated accounts and identified opportunities to either improve margins or redeploy assets. We have also implemented cost controls and raised rates as appropriate. These efforts have improved our DCS segment operating ratio was 96.9%to 90.2% in 2002 and 96.8%2004 from 93.3% in 2001. We reduced some costs in the DCS segment such as driver pay and overhead, however, higher accident and claims expenses, as well as new project start up costs, more than offset the improvements.2003.
1316
The following table sets forth items in our Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior year.
|
| Percentage of |
| Percentage Change |
| |||||||||
|
| 2002 |
| 2001 |
| 2002 vs. 2001 |
|
| Percentage of |
| Percentage Change |
| ||
|
|
|
|
|
|
|
|
| 2004 |
| 2003 |
| 2004 vs. 2003 |
|
Operating revenues |
| 100.0 | % | 100.0 | % | 7.0 | % |
| 100.0 | % | 100.0 | % | 14.5 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
| 36.4 | % | 37.6 | % | 3.6 | % |
| 29.8 | % | 32.5 | % | 4.8 | % |
Rents and purchased transportation |
| 31.1 |
| 28.8 |
| 15.5 |
|
| 33.5 |
| 32.8 |
| 16.6 |
|
Fuel and fuel taxes |
| 9.4 |
| 10.8 |
| (6.8 | ) |
| 10.4 |
| 9.6 |
| 24.2 |
|
Depreciation and amortization |
| 6.5 |
| 6.8 |
| 2.2 |
|
| 5.4 |
| 6.2 |
| (0.3 | ) |
Operating supplies and expenses |
| 5.8 |
| 6.9 |
| (10.3 | ) |
| 4.5 |
| 4.9 |
| 4.1 |
|
Insurance and claims |
| 2.5 |
| 2.0 |
| 32.4 |
|
| 2.0 |
| 2.6 |
| (13.8 | ) |
Operating taxes and licenses |
| 1.4 |
| 1.6 |
| .6 |
|
| 1.3 |
| 1.4 |
| 5.4 |
|
General and administrative expenses, net of gains |
| 1.3 |
| .9 |
| 55.7 |
|
| 1.4 |
| 1.4 |
| 10.7 |
|
Communication and utilities |
| 1.1 |
| 1.2 |
| (2.0 | ) |
| 0.8 |
| 1.0 |
| (1.8 | ) |
Total operating expenses |
| 95.5 |
| 96.6 |
| 5.9 |
|
| 88.9 |
| 92.4 |
| 10.2 |
|
Operating income |
| 4.5 |
| 3.4 |
| 39.8 |
|
| 11.1 |
| 7.6 |
| 67.1 |
|
Interest income |
| 0.1 |
| 0.1 |
| (30.9 | ) | |||||||
Interest expense |
| (1.1 | ) | (1.3 | ) | (8.4 | ) |
| 0.3 |
| 0.8 |
| (63.1 | ) |
Equity in earnings (loss) of associated companies |
| (.1 | ) | — |
| (35.0 | ) | |||||||
Equity in loss of associated companies |
| 0.1 |
| — |
| 255.9 |
| |||||||
Earnings before income taxes |
| 3.3 |
| 2.1 |
| 73.7 |
|
| 10.8 |
| 6.9 |
| 80.2 |
|
Income taxes |
| 1.0 |
| .5 |
| 127.2 |
|
| 5.5 |
| 3.0 |
| 69.4 |
|
Net earnings |
| 2.3 | % | 1.6 | % | 57.3 | % |
| 5.3 | % | 3.9 | % | 88.4 | % |
Consolidated Operating Expenses
Total operating expenses increased 10.2% in 2002 increased 5.9%2004 over 2001,2003, while operating revenues rose 7.0%increased 14.5%. OurThe combination of the change in these two categories resulted in our operating ratio improvedimproving by 350 basis points to 95.5%88.9% in 2002, compared2004, from 92.4% in 2003. As previously mentioned, increases in revenue per loaded mile, excluding fuel surcharges, and lower casualty and workers’ compensation claims costs were two of the more significant factors driving these changes. We also increased the number of ICs in our JBT and DCS fleets to 1,301 at December 31, 2004, from 994 at the end of 2003. When we replace company-operated tractors and driver employees with 96.6% in 2001. Salaries,ICs, certain costs such as salaries, wages, employee benefits and fuel are reduced and other costs such as purchased transportation increase.
The expense category of salaries, wages and employee benefits expense increased 3.6% in 2002, and declined to 36.4%29.8% of revenue in 20022004 from 37.6%32.5% in 2001. As previously mentioned, a lower mileage pay rate in our JBT segment for newly-hired drivers2003 and the usetotal expense dollars only increased 4.8% from 2003, compared with the 14.5% increase in revenue. While we did increase compensation levels for many of additional independent contractorsour drivers in 2004, these increases were primary contributorspartly offset by lower workers’ compensation costs. The number of company drivers at December 31, 2004 was approximately equal to the relationshipnumber at the end of this cost category to operating revenues. Partly offsetting a decline2003. The 16.6% increase in drivers’ wages relative to revenue were increases in maintenance wages, workers’ compensation, health insurance and office employee incentive expenses. We opened some new company managed maintenance facilities and increased our mechanic labor force by about 14% in order to reduce the amount of maintenance that we outsource. We also experienced higher costs in workers’ compensation and other fringe benefit programs and paid additional incentive payments to our office and administrative personnel that resulted from improved 2002 net earnings.
Rentsrents and purchased transportation expense increased 15.5%,was primarily due to the growth of our JBI business segment and the related paymentsadditional funds paid to railroads and drayage carrierscompanies, related to JBI business growth, and to the usecontinued expansion of more independent contractors. The 6.8% declineour IC fleets.
Fuel cost per gallon was approximately 21% higher in 2004 over 2003. This increase in fuel costs and slightly lower fuel tax expense was primarily a resultefficiency accounted for the 24.2% increase in fuel costs. We have fuel surcharge programs in place with the majority of our customers that allow us to adjust charges relatively quickly when fuel costs per gallon averaging about 5% less vs. 2001. Operating supplies and expenseschange. If fuel costs change rapidly, we may experience some financial impact from timing differences between financial reporting periods. We were down 10.3%able to recover substantially all of our increased fuel costs experienced in 2002 reflecting the reduced amount of outsourced tractor and trailer maintenance work and our focus on reducing travel expenses.
17
calendar year 2004. We currently have no contract or derivative programs in place to hedge changes in fuel costs.
The 32.4% increasesignificant decline in insurance and claims costs reflects escalating liability insurance premiums whichexpense was primarily due to lower accident and claims experience in 2004. As mentioned above, we have been experienced industry wide andmade safety a primary focus item throughout our higher accident costs.entire organization. The significant increase incategory of general and administrative expenses was due primarily to higherincludes driver advertisingrecruiting and recruiting expense in 2002testing, legal and changes in our gainsprofessional fees and bad debt expense. Gains and losses on revenue equipment dispositions. In 2002, we had a $1.8 million net loss on equipmentdispositions are also classified in the general and facility dispositions, compared withadministrative category. We experienced a net gain of $4.8approximately $402,000 on revenue equipment and other dispositions in 2004, compared with a $1.1 million loss in 2001.2003.
Our net interest expense declined to $5.5 million in 2002, partly2004 from $17.2 million in 2003. We were able to continue reducing our debt and capitalized lease obligations during 2004 and paid off all our remaining balance sheet debt and capital leases as of December 31, 2004. Our continued improvement in net earnings and strong cash flow allowed us to pay off this debt. Our effective income tax rate was 51.6% in 2004, compared with 43.1% in 2003. Income tax expense in 2004 reflects a contingent tax liability of $33.6 million, including accrued interest expense, related to certain sale-leaseback transactions that closed in 1999. Income tax expense in 2003 reflected the reversal of $7.7 million of non-cash tax benefits taken in early 2003, related to these sale-leaseback transactions. See Risk Factors for additional information on this matter. Our 2004 and 2003 income tax rates are also higher than statutory federal and state rates, primarily due to our driver per diem plan. This plan generates net benefits to most of our eligible drivers and to the approximate $68 million of capital we raised through a secondary public offering of common stock which closedCompany. However, it does result in June of 2002. an increase in our effective income tax rates.
We increasedexpect our effective income tax rate to 30.8% in 2002, from 23.5% in 2001, primarily to reflect additional taxes associated with our increased earnings.be 38.5% for the calendar year 2005.
14
EquityThe “Equity in lossesloss of associated companiescompany” item on our consolidated statement of earnings reflects our share of the operating results for Transplace, Inc. (TPI). Effective January 1, 2003, we increased our interest in TPI and for our Mexican joint venture. Amounts included the following:
|
| Years Ended December 31 |
| ||||
|
| 2002 |
| 2001 |
| ||
TPI |
| $ | (1,353 | ) | $ | (1,918 | ) |
|
|
|
|
|
| ||
Mexican joint venture |
| — |
| (165 | ) | ||
|
|
|
|
|
| ||
|
| $ | (1,353 | ) | $ | (2,083 | ) |
to approximately 37%, from 27% in 2002. JBHT’s financial exposure is limited to its approximate $8.5$5.3 million investment in TPI assince we have not made any additional commitments or guaranteed any of TPI’s financial obligations.
The year 2001 financial results of our Mexican joint venture primarily reflect adjustments to the carrying value of the investment due to the anticipated sale of our interests. During the first quarter of 2002, we sold our joint venture interest in Mexico for its carrying value, to the majority owner, Transportacion Maritima Mexicana (TMM). We recorded an $18.1 million note receivable from TMM, which, according to the terms of this sale, will be paid in four annual payments of approximately $4.5 million, plus interest at 5% per annum, through June of 2005. The first payment was received as scheduled in June of 2002.
20012003 Compared With 20002002
Operating Segments
For Years Ended December 31
(in millions of dollars)
|
| Gross Revenue |
| Operating Income |
| ||||||||||
|
| 2001 |
| 2000 |
| % Change |
| 2001 |
| 2000 |
| ||||
JBT |
| $ | 828.6 |
| $ | 833.8 |
| (1 | )% | $ | 8.7 |
| $ | (7.1 | ) |
JBI |
| 740.5 |
| 681.1 |
| 9 | % | 42.1 |
| 36.7 |
| ||||
DCS |
| 548.7 |
| 478.6 |
| 15 | % | 17.4 |
| 28.4 |
| ||||
JBL |
| — |
| 230.0 | * | — |
| — |
| 8.1 | * | ||||
Other |
| .6 |
| — |
| — |
| 4.0 |
| (2.7 | ) | ||||
Subtotal |
| 2,118.4 |
| 2,223.5 |
| (5 | )% | 72.2 |
| 63.4 |
| ||||
Inter-segment eliminations |
| (18.1 | ) | (63.1 | ) | — |
| — |
| — |
| ||||
Total |
| $ | 2,100.3 |
| $ | 2,160.4 |
| (3 | )% | $ | 72.2 |
| $ | 63.4 |
|
*As of December 31, 2000, TPI qualified as a reportable business segment for financial reporting purposes. However, the logistics segment (JBL) information for 2001 shown above excludes TPI. TPI is accounted for on the equity method and does not qualify as a reporting segment in 2001.
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related footnotes appearing in this annual report.
Overview of 20012003
FinancialOur consolidated net earnings for calendar year 2003 totaled $95 million, after reversing $7.7 million of non-cash tax benefits, which resulted from a sale-and-leaseback transaction on intermodal trailing equipment. This compares with our previous record net earnings of $52 million in 2002. Diluted earnings per share were $1.17 in 2003, also a record number, compared with $0.66 in 2002. The average number of diluted shares outstanding in 2003 was approximately 5% higher than the comparable number in 2002. Consolidated operating revenues were $2.43 billion in 2003, an increase of 8% over the $2.25 billion in 2002.
Each of our business segments contributed to our improved financial results in 2003. While the overall economy and operating results for the year 2001level of freight activity were impacted bynot particularly strong during 2003, a number of factors contributed to our improved level of earnings. We continued our focus on capacity management, as well as individual load and lane profitability. A number of new proprietary technology tools and increased management focus allowed us to reduce the amount of unprofitable lanes and freight, and to properly charge for equipment and services provided to customers. In addition, significant items. General economic conditionsincreases in certain operating costs, such as insurance, fuel and equipment, reduced the level of capacity available in the transportation industry were soft during the majority of the year and fuel costs varied dramatically, sometimes changing more than 10% from one month to the next. However, overall fuel costs for 2001 were down from the prior year. Consolidated operating revenues for 2001 decreased approximately 3% from 2000. Excluding the JBL operations, which were contributed to TPI as of July 1, 2000, revenue growth for the remaining business segments was approximately 6%. The growth in the remaining segments is attributable to expansion of our operating fleet of tractors from an average of 10,055 in 2000 to 10,710 in 2001, an average increase of 655 tractors or 6.5%. While fuel costs and related fuel surcharge revenues varied significantly during 2001, the net change in fuel surcharge revenue had less than a 1% impact on revenue between 2001 and 2000.industry.
JBT Segment
JBT segment gross revenue totaled $828.6was $841 million in 2001,2003, up 2% over the $827 million in 2002. Higher fuel prices in 2003 and the resulting increase in fuel surcharge revenue accounted for this entire level of revenue growth. The average tractor count in 2003 was down 1%nearly 3% from 2000.2002. However, revenue per loaded mile,
18
excluding fuel surcharges, rose 5.2% in 2003, more than offsetting the decline in the size of the fleet and enhancing operating income.
Operating income of the JBT segment rose to $49 million in 2003, from $27 million in 2002. In addition to the higher revenue per mile, we implemented an accountable expense reimbursement plan (driver per diem plan) in early 2003. This declinenew plan benefited most of our eligible drivers and increased operating income.
JBI Segment
JBI segment gross revenue grew by 16%, to $936 million in 2003, from $809 million in 2002. Revenue growth was due, in part, to the softer economy that created a reducedstrong demand for freight. JBT began focusing on improving the operating ratio through cost management initiatives rather than JBT fleet growth. We had no plans to grow the JBT fleet until such time that a reasonable operating income had been achieved, warranting the additional investment of capital. JBT tractor count,
15
including independent contractors (I/C’s) declined nearly 3% during 2001 and tractor utilization was also down approximately 3%. However, revenue per loaded mile increased 3.9%, excluding fuel surcharges, reflecting freight mix changes and pure rate increases,. The Truck segmentour unique intermodal service offering which generated operating income of $8.7 million in 2001, compared with a loss of $7.1 million in 2000. As a result of a new initiative commenced in late 2000, the number of I/C’s in JBT grew to 337 in 2001, from 16 at the end of 2000. Continued volatility in the earnings power of the Truck unit is likely to prevail until supply and demand factors in the truckload industry improve. Additional improvement is significantly dependent upon increases in the availability of freight.
JBI segment business was reasonably strong during 2001 and grew 9% to $740.5 million from $681.1 million in 2000. The Intermodal segment held its tractor count essentially flat at 910 during 2001. Unlike the other segments, growth of JBI is not easily tracked by number of tractors, as JBI can utilize outside dray carriers and the other JBHT business units to support load and revenue growth. Thean 11% increase in revenue can be attributed to a 5% increase in the number of loads from 2000year over year. Freight mix changes also played an important role that led to 2001, coupled with a 1.7% increase inimproved revenue per loaded mile, excluding fuel surcharges. As a result of revenue growthload.
Operating income in the JBI segment increased to $91 million in 2003 from $55 million in 2002. The JBI segment operating ratio improved by 300 basis points to 90.3% for 2003, compared to 93.3% for 2002. These improved financial results were attributable to our investment in upgrading our tractor fleet and adding incremental containers, improved utilization of containers, JBI operating income climbed 15% in 2001 to $42.1 million from $36.7 million in 2000.both drivers and equipment and a concentrated focus on yield management and revenue quality.
DCS Segment
DCS segment revenue grew 15% during 2001,approximately 7% to $548.7 million from $478.6$671 million in 2000. This growth rate was down significantly2003 from recent years due to: 1) soft economic conditions which made companies more apprehensive about changing or outsourcing their$628 in 2002. Revenue, net of purchased transportation needs, and; 2) our unwillingnessand fuel surcharge revenue increased 5%. The increase in revenue occurred even as the business unit’s average tractor count for 2003 declined approximately 1%, compared to reduce rates to increase market share. The DCS segment2002. More than offsetting the decline in the tractor fleet grewwas a nearly 6% improvement in revenue (excluding fuel surcharge) per tractor per day. Driving this increase in productivity was an increase in length of haul of 7% and increased focus on backhaul opportunities.
Operating income increased 130% to $45 million in 2003 versus $20 million in 2002. At the end of 2002, we began analyzing a number of underperforming accounts and identified opportunities to redeploy assets from accounts that did not offer appropriate financial returns on the segment’s assets. At the same time, cost controls were implemented to improve operating results at all accounts. The success of these efforts improved the operating ratio by 15% during 2001, but revenue growth was limited by idle tractors throughout most360 basis points, to 93.3% in 2003. Cost reductions in driver pay, salary and office wages and associated payroll taxes also enhanced 2003 operating income. A decline of 16% in the average age of the year. DCS generated $17.4 milliontractor fleet helped reduce maintenance costs and an ongoing commitment to safety contributed to an improvement in the segment’s insurance and claims costs. We also incurred certain new start-up costs in 2002 associated with several large accounts that did not impact 2003. Revenue growth will continue to be driven by improvement in productivity and new customer opportunities that provide appropriate financial returns to justify commitment of operating income in 2001, compared with $28.4 million in 2000. The lower margin and reduced operating income was primarily a result of idle tractors and a higher proportionate amount of shared trailer pool and corporate support costs being assigned to the business, as a result of improving the tracking of trailer usage and the increased internal transfer price, which is charged by JBT and JBI when DCS utilizes their assigned trailers. Cost control and close analysis of individual fleet profitability remains a DCS objective.additional assets.
For the year ended December 31, 2001, JBHT’s share of TPI’s results of operations totaled a loss of $1.9 million, compared with earnings of $440,000 for the six month period ended December 31, 2000. TPI’s operating loss in 2001 was primarily due to start up expenses. JBHT’s financial exposure is limited to its approximate $6.4 million investment in TPI as we have not made any additional commitments or guaranteed any of TPI’s financial obligations.19
The following table sets forth items in our Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior year.
|
| Percentage of |
| Percentage Change |
| ||
|
| 2001 |
| 2000 |
| 2001 vs. 2000 |
|
Operating revenues |
| 100.0 | % | 100.0 | % | (2.8 | )% |
Operating expenses: |
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
| 37.6 | % | 35.6 | % | 2.7 | % |
Rents and purchased transportation |
| 28.8 |
| 32.1 |
| (13.0 | ) |
Fuel and fuel taxes |
| 10.8 |
| 11.3 |
| (6.9 | ) |
Depreciation and amortization |
| 6.8 |
| 6.2 |
| 6.2 |
|
Operating supplies and expenses |
| 6.9 |
| 6.1 |
| 11.4 |
|
Insurance and claims |
| 2.0 |
| 1.8 |
| 8.7 |
|
Operating taxes and licenses |
| 1.6 |
| 1.5 |
| — |
|
General and administrative expenses, net of gains |
| .9 |
| 1.3 |
| (32.5 | ) |
Communication and utilities |
| 1.2 |
| 1.2 |
| (.7 | ) |
Total operating expenses |
| 96.6 |
| 97.1 |
| (3.3 | ) |
Operating income |
| 3.4 |
| 2.9 |
| 13.9 |
|
Interest expense |
| (1.3 | ) | (1.1 | ) | 5.0 |
|
Equity in earnings (loss) of associated companies |
| — |
| .2 |
| — |
|
Earnings before income taxes |
| 2.1 |
| 2.0 |
| 1.5 |
|
Income taxes |
| .5 |
| .3 |
| 59.2 |
|
Net earnings |
| 1.6 | % | 1.7 | % | (8.7 | )% |
16
|
| Percentage of |
| Percentage Change |
| ||
|
| Operating Revenue |
| Between Years |
| ||
|
| 2003 |
| 2002 |
| 2003 vs. 2002 |
|
|
|
|
|
|
|
|
|
Operating revenues |
| 100.0 | % | 100.0 | % | 8.3 | % |
Operating expenses: |
|
|
|
|
|
|
|
Salaries, wages and employee benefits |
| 32.5 | % | 36.4 | % | (3.2 | )% |
Rents and purchased transportation |
| 32.8 |
| 31.1 |
| 14.4 |
|
Fuel and fuel taxes |
| 9.6 |
| 9.4 |
| 10.3 |
|
Depreciation and amortization |
| 6.2 |
| 6.5 |
| 3.0 |
|
Operating supplies and expenses |
| 4.9 |
| 5.8 |
| (8.8 | ) |
Insurance and claims |
| 2.6 |
| 2.5 |
| 13.1 |
|
Operating taxes and licenses |
| 1.4 |
| 1.4 |
| 1.3 |
|
General and administrative expenses, net of gains |
| 1.4 |
| 1.3 |
| 15.7 |
|
Communication and utilities |
| 1.0 |
| 1.1 |
| (1.6 | ) |
Total operating expenses |
| 92.4 |
| 95.5 |
| 4.7 |
|
Operating income |
| 7.6 |
| 4.5 |
| 83.9 |
|
Interest income |
| 0.1 |
| 0.1 |
| — |
|
Interest expense |
| 0.8 |
| 1.2 |
| (30.5 | ) |
Equity in loss of associated companies |
| — |
| 0.1 |
| (48.7 | ) |
Earnings before income taxes |
| 6.9 |
| 3.3 |
| 124.1 |
|
Income taxes |
| 3.0 |
| 1.0 |
| 213.8 |
|
Net earnings |
| 3.9 | % | 2.3 | % | 84.2 | % |
Consolidated Operating Expenses
Total operating expenses increased 4.7% in 2001 declined 3.3% from 2000, decreasing2003 over 2002, while operating revenues increased 8.3%. The combination of the change in relative proportion to operating revenues. Ourthese two categories resulted in our operating ratio (operating expenses expressed as a percentage of operating revenues) improved slightlyimproving by 310 basis points to 96.6%92.4% in 20012003, from 97.1%95.5% in 2000.2002. As previously mentioned, increases in revenue per loaded mile, excluding fuel surcharges, and the JBL segment was contributedimplementation of a driver per-diem plan were two of the more significant factors driving these changes. We also increased the number of independent contractors (ICs) in our JBT fleet to TPI effective July 1, 2000. This approximate 10% reduction in consolidated operating revenues was994 at December 31, 2003, from 679 at the primary factor inend of 2002. When we replace company-operated tractors and driver employees with ICs, certain costs such as salaries, wages, employee benefits and fuel are reduced rents and other costs such as purchased transportation expense. The JBI segment relied solely on JBT and third party carriers for transportation services and accordingly, purchased transportation costs as a percent of revenue were significantly higher than the other segments. The decline in fuel and fuel tax expense was primarily due to significantly lower fuelincrease.
Fuel cost per gallon was approximately 13% higher in late 2001. The increase2003 over 2002. However, we have fuel surcharge programs in 2001 operating supplies and expenses reflected higher tractor and trailing equipment maintenance and tireplace with the majority of our customers that allow us to adjust charges relatively quickly when fuel costs change. If fuel costs change rapidly we may experience some financial impact from timing differences between financial reporting periods when fuel costs change more quickly than our compensating fuel surcharges. We recovered through our fuel surcharge programs substantially all of the increased fuel costs experienced in calendar year 2003. We currently have no contracts or derivative programs in place to hedge changes in fuel costs. Insurance and claims costs reflected higher collision rates in JBTrose during 2001. The significant decline in general and administrative expenses was2003, primarily due to an approximate $5.5 million gain onhigher premium costs. While our accident frequency declined in 2003, severity, or the salecost per accident, increased over 2002. General and administrative
20
expenses include driver recruiting and testing, bad debts and professional service fees, all of a group of trailers, which closedincreased in March of 2001.2003. Gains and losses on revenue equipment dispositions are includedalso classified in this expense classificationthe general and totaledadministrative category. We had a net gainloss of $4.8approximately $1.1 million on equipment and other dispositions in 2001,2003, compared with a $1.8 million loss in 2002. These losses were primarily a result of $267,000 in 2000.revenue equipment which was lost or written off.
EquityOur net interest expense declined to $17.2 million in 2003, from $24.8 million in 2002. We were able to reduce our total debt levels to $172 million as of December 31, 2003, from $343 million at the end of 2002. This reduced debt level was primarily a result of improved earnings (loss)and cash flow in 2003 and proceeds from a secondary stock offering which closed in mid-2002. Our effective income tax rate increased to 43.1% in 2003, from 30.8% in 2002. This higher tax rate was primarily due to our increased level of earnings, the driver-per diem plan and a reversal of a $7.7 million non-cash tax benefit taken in 2003 related to certain sale-leaseback transactions that closed in 1999. As previously mentioned, we implemented a driver per-diem pay plan in early 2003. This plan generates net benefits to most of our eligible drivers and to the Company. However, it does result in an increase in our effective income tax rate. The $7.7 million reversal of tax benefits was retroactive to January 1, 2003, and related to a proposed adjustment by the IRS that would disallow the tax benefits associated with a series of sale-and-leaseback transactions, which occurred in 1999. This issue is discussed in further detail under “Risk Factors.”
The “Equity in loss of associated companiescompany” item on our consolidated statement of earnings reflects our share of the operating results for Transplace, Inc. (TPI). Effective January 1, 2003, we increased our interest in TPI and for the Mexican joint venture. Equityto approximately 37%, from 27% in earnings amounts included the following:
|
| Year Ended December 31 |
| ||||
|
| 2001 |
| 2000 |
| ||
TPI |
| $ | (1,918 | ) | $ | 440 |
|
|
|
|
|
|
| ||
Mexican joint venture |
| (165 | ) | 4,337 |
| ||
|
|
|
|
|
| ||
|
| $ | (2,083 | ) | $ | 4,777 |
|
The year 2001 financial results of our Mexican joint venture primarily reflected adjustments to the carrying value of the investment due to the anticipated sale of our interests. We had an agreement in principle for a sale to the majority owner of the joint venture. This transaction was consummated in early 2002.
Cash Flow
We generate significant amounts of cash from operating activities. Net cash provided by operating activities was $394 million in 2004, $333 million in 2003 and $174 million in 2002. Part of the increase in net cash provided from 2002 $172 millionthrough 2004 was a result of our continued improvement in 2001net earnings. Increases in net cash provided have also resulted from deferred income taxes, tax benefits of stock options exercised and $125 millionhigher levels of accrued payroll and other accrued expenses. Some of the significant changes in 2000. While 2002 and 2001 reflected a typical levelthe trade accounts payable balances which appear on our consolidated statement of cash provided by operating activities, 2000 was impacted byflows in 2002 through 2004 were a significant prepayment for an operating lease which was funded in early 2000.result of timing differences among years of insurance-related payments. Cash flows used in investing activities primarily reflect additions to and dispositions from our fleet of revenue equipment. DuringThe higher level of cash used in investing activities during 2004 was due to delayed tractor purchases in early 2003 while we were still testing the latter partnew EPA-compliant engines and our decision in late 2003 to commence purchasing tractors that were under capital lease arrangements. We paid $60.8 million in 2004 to purchase tractors which were previously under capital lease programs. At December 31, 2004, we have no revenue equipment on capital leases. In 2004, we also purchased approximately $5.9 million of 2000 through late 2001, we utilized capital leases to acquire tractors. Tractor additions since October 2001 have been purchased. The majority of ourintermodal trailing equipment additions since October 2000 havethat had been under operating lease programs.
Net cash provided byused in financing activities in 2002during 2003 and 2004 reflects payments of our $68 million secondary stock offering, which closed in Juneremaining debt and capital lease obligations. Our improving cash flows allowed us to close calendar year 2004 with no balance sheet debt and no capital lease obligations. In addition, we re-initiated the payment of 2002. We discontinued a commercial paper borrowing program during 2001 and ceased paying cash dividendsdividend in early 2000.2004 and, in December 2004, announced an increase in our quarterly cash dividend to $.12 from $.03 per share. We also announced, in December 2004, our intent to purchase up to $100 million of our common stock during the next year.
21
SELECTED BALANCE SHEET DATASelected Balance Sheet Data
As of December 31 |
| 2002 |
| 2001 |
| 2000 |
| |||
Working capital ratio |
| 1.33 |
| 1.45 |
| 1.04 |
| |||
Current maturities of long-term debt and lease obligations (millions) |
| $ | 124 |
| $ | 38 |
| $ | 101 |
|
Total debt and capitalized lease obligations (millions) |
| $ | 343 |
| $ | 392 |
| $ | 401 |
|
Total debt to equity |
| .58 |
| .86 |
| .96 |
| |||
Total debt as a percentage of total capital |
| .37 |
| .46 |
| .49 |
|
17
As of December 31 |
| 2004 |
| 2003 |
| 2002 |
| ||
Working capital ratio |
| 1.51 |
| .99 |
| 1.32 |
| ||
|
|
|
|
|
|
|
| ||
Current maturities of long-term debt and lease obligations (millions) |
| — |
| $ | 172 |
| $ | 124 |
|
|
|
|
|
|
|
|
| ||
Total debt and capitalized lease obligations (millions) |
| — |
| $ | 172 |
| $ | 343 |
|
|
|
|
|
|
|
|
| ||
Total debt to equity |
| — |
| .24 |
| .58 |
| ||
|
|
|
|
|
|
|
| ||
Total debt as a percentage of total capital |
| — |
| .20 |
| .37 |
|
From time to time, our Board of Directors authorizes the repurchase of our common stock. PurchasesWe did not repurchase any of JBHTour common stock were:during the years 2002 through 2004. As previously mentioned, the Board, in December 2004, authorized the purchase of up to $100 million of our common stock during the next year. We commenced repurchases of our common stock in January 2005.
|
| 2002 |
| 2001 |
| 2000 |
|
Number of shares acquired |
| — |
| — |
| 500,000 |
|
Price range of shares |
| — |
| — |
| $10.94 - $16.13 |
|
Liquidity
Our need for capital typically has resulted from the acquisition of revenue equipment required to support our growth and the replacement of older tractors and trailingrevenue equipment with new, late modellate-model equipment. We are frequently able to accelerate or postpone a portion of equipment replacements depending on market conditions. We have recently obtained capital through a secondary common stock offering, revolving lines of credit and cash generated from operations. We have also periodically utilized capital and operating leases to acquire revenue equipment.
As mentioned above, weWe utilized capital leases to acquire certain tractors fromin 2000 and 2001. Since late 2000 through late 2001. We started purchasing2001, we have been acquiring tractors and containers in October of 2001trailing equipment under purchase arrangements and plan to continueanticipate purchasing tractors and containersour revenue equipment in the foreseeable future. We have been acquiring dry van trailing equipment since October of 2000, primarily under operating lease programs. Weare currently expectcommitted to spend in the range of $220approximately $189 million, net of expected proceeds from sale or trade-in allowances, on revenue equipment for the full calendar yearand construction of 2003.new facilities.
We are authorized to borrow up to $150 million under our current revolving linesline of credit, which expireexpires November 14, 2005. We had no balances outstanding under these lineson this line at December 31, 2002. Under the terms of2004. While we do anticipate some need to borrow on our credit and note agreements,revolver during 2005, we are required to maintain certain financial covenants including leverage tests, minimum tangible net worth levels and other financial ratios. We were in compliance with all of the financial covenants at December 31, 2002. As of December 31, 2002, we had committed to purchase approximately $184 million of revenue and service equipment, net of proceeds, from sale or trade-in allowances. We believe that our current liquid assets, cash generated from operations and our revolving linesline of credit will provide sufficient funds for our operating and capital requirements for the foreseeable future. Our revolving line of credit does not contain “ratings triggers” that would accelerate payments or amounts due under the agreement.
Off-Balance Sheet Arrangements
We have no remaining capitalized leases at December 31, 2004. Our only off-balance sheet arrangements are related to our operating leases for trailing equipment and some limited data processing equipment and facilities. As of December 31, 2004, we had approximately 20,300 trailers and 5,100 containers/chassis that were subject to operating leases, and we had approximately $151 million of obligations remaining under these leases. Our standby letters of credit are also not recorded on our books at December 31, 2004, since there were no balances outstanding at that time under these arrangements.
22
Contractual Cash Obligations
As of December 31, 20022004
(000)
|
| Amounts Due By Period |
| ||||||||||||||
|
| Total |
| One Year |
| One To |
| Four To |
| After |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating Leases |
| $ | 283,616 |
| $ | 74,233 |
| $ | 110,227 |
| $ | 80,769 |
| $ | 18,387 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital leases |
| 149,886 |
| 34,481 |
| 115,405 |
| — |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Senior and subordinated notes payable |
| 202,010 |
| 97,010 |
| 105,000 |
| — |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
| $ | 635,512 |
| $ | 205,724 |
| $ | 330,632 |
| $ | 80,769 |
| $ | 18,387 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commitments to acquire revenue equipment |
| 184,000 |
| 184,000 |
| — |
| — |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
| $ | 819,512 |
| $ | 389,724 |
| $ | 330,632 |
| $ | 80,769 |
| $ | 18,387 |
|
|
| Amounts Due By Period |
| |||||||||
|
|
|
| One Year |
| One To |
| Four To |
| After |
| |
|
| Total |
| Or Less |
| Three Years |
| Five Years |
| Five Years |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Operating leases |
| $ | 164,517 |
| 65,300 |
| 80,484 |
| 15,263 |
| 3,470 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Commitments to acquire revenue equipment |
| 175,454 |
| 175,454 |
| — |
| — |
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Facilities |
| 13,497 |
| 13,497 |
| — |
| — |
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Total |
| $ | 353,468 |
| 254,251 |
| 80,484 |
| 15,263 |
| 3,470 |
|
18
Financing Commitments
As of December 31, 20022004
(000)
|
| Commitments Expiring By Period |
|
| Commitments Expiring By Period |
| ||||||||||||||||||||
|
| Total |
| One Year |
| One To |
| Four To |
| After |
|
|
|
| One Year |
| One To |
| Four To |
| After |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| Or Less |
| Three Years |
| Five Years |
| Five Years |
| ||||
Revolving credit arrangements |
| $ | 150,000 |
| $ | — |
| $ | 150,000 |
| — |
| —- |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Revolving credit agreement |
| $ | 150,000 |
| 150,000 |
| — |
| — |
| —- |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Standby letters of credit |
| 26,510 |
| 26,510 |
| — |
| — |
| — |
|
| 18,510 |
| 18,510 |
| — |
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total |
| $ | 176,510 |
| $ | 26,510 |
| $ | 150,000 |
| — |
| — |
|
| $ | 168,510 |
| 168,510 |
| — |
| — |
| — |
|
Risk FactorsRISK FACTORS
Our business is subject to general economic and business factors that are largely out of our control, any of which could have a material adverse effect on our results of operations.
Our business is dependent upon a number of factors that may have a material adverse effect on the results of our operations, many of which are beyond our control. These factors include significant increases or rapid fluctuations in fuel prices, excess capacity in the trucking industry, surpluses in the market for used equipment, interest rates, fuel taxes, license and registration fees, insurance premiums, self-insurance levels, and difficulty in attracting and retaining qualified drivers and independent contractors.
We are also affected by recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries such as retail and manufacturing, where we have a significant concentration of customers. Economic conditions may adversely affect our customers and their ability to pay for our services. Customers encountering adverse economic conditions represent a greater potential for loss, and we may be required to increase our reserve for bad-debt losses. In addition, our results of operations may be affected by seasonal factors. Customers tend to reduce shipments after the winter holiday season, and our operating expenses tend to be higher in the winter months primarily due to colder weather, which causes higher fuel consumption from increased idle time and higher maintenance costs.
23
We operate in a highly competitive and fragmented industry. Numerous factors could impair our ability to maintain our current profitability and to compete with other carriers and private fleets.
Some of these factors include:
• We compete with many other truck-load carriers of varying sizes and, to a lesser extent, with less-than-truck-load carriers and railroads, some of which have more equipment and greater capital resources than we do.
• Some of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or maintain our profit margins.
• Many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved transportation service providers, and in some instances we may not be selected.
• Many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in the loss of some business to competitors.
• Certain of our customers that operate private fleets to transport their own freight could decide to expand their operations.
• The trend toward consolidation in the trucking industry may create other large carriers with greater financial resources and other competitive advantages relating to their size.
• Advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments.
We derive a significant portion of our revenue from a few major customers, the loss of one or more of which could have a material adverse effect on our business.
For the calendar year ended December 31, 2004, our top 10 customers, based on revenue, accounted for approximately 42% of our revenue. Our largest customer is Wal-Mart Stores, Inc., which accounted for approximately 15% of our total revenue in 2004. Generally, we do not have long-term contracts with our customers, and we cannot assure you that our current customers will continue to utilize our services or that they will continue at the same levels. A reduction in or termination of our services by one or more of our major customers could have a material adverse effect on our business and operating results.
We depend on third parties in the operation of our business.
Our Intermodal business segment utilizes railroads in the performance of its transportation services. These services are provided pursuant to contractual relationships with the railroads. While we have agreements with various Class I railroads, the majority of our business travels on the Burlington Northern Santa Fe and the Norfolk Southern Railroad. The inability to utilize one or more of these railroads could have a material adverse effect on our business and operating results. We also utilize the services of a number of third-party dray carriers to perform a significant number of our origin and destination pickups and deliveries. In addition, a portion of the freight we deliver is imported to the United States through ports of call that are subject to labor union contracts.
24
We are currently engaged in an arbitration process with the Burlington Northern Santa Fe (BNSF) railroad to clarify certain financial and operating terms in our Joint Service Agreement (JSA).
As previously reported, we are currently engaged in an arbitration process with the Burlington Northern Santa Fe (BNSF) railroad to clarify certain financial and operating terms in our Joint Service Agreement (JSA). BNSF provides a significant amount of rail transportation services to our JBI business segment. The JSA is an agreement between BNSF and us, which was signed in 1996, and defines a number of financial and operating arrangements relative to our intermodal business. The JSA specifies arbitration as the method of resolving disagreements if a mediation process does not result in resolution. We were unable to resolve our differences with BNSF through mediation during the second quarter of 2004.
The current arbitration process commenced on July 7, 2004. According to the JSA, any amounts due us or payable to BNSF, determined through the arbitration process, could be retroactive to July 7, 2004. Both parties have continued to exchange and analyze data during late 2004 and early 2005. Formal arbitration proceedings are currently scheduled for April and May 2005. At this time, we are unable to reasonably predict the outcome of this process and, as such, no gain or loss contingency can be determined or recorded. Normal commercial business activity between the parties, including load tendering, load tracing, billing and payments, continues on a timely basis.
Difficulty in attracting drivers could affect our profitability and ability to grow.
Periodically, the trucking industry experiences substantial difficulty in attracting and retaining qualified drivers, including ICs. A shortage of qualified company drivers and ICs has proven to be particularly severe during 2003 and 2004. In spite of significant increases in driver compensation and recruiting costs, the industry is currently experiencing a significant shortage of drivers. If we are unable to continue to attract an adequate number of drivers or contract with enough independent contractors, we could be required to significantly increase our driver compensation package or let trucks sit idle, which could adversely affect our growth and profitability.
Ongoing insurance and claims expenses could significantly reduce our earnings.
Our future insurance and claims expenses might exceed historical levels, which could reduce our earnings. During 2004, we self-insured a portion of our claims exposure resulting from cargo loss, personal injury, property damage and health claims for amounts up to the first $2 million for auto accidents and $1 million for workers’ compensation. These deductible limits are the same for 2005. If the number or severity of claims for which we are self-insured increases, our operating results could be adversely affected. Also, we maintain insurance above the amounts for which we self-insure with licensed insurance companies. Insurance carriers have recently raised premiums for most trucking companies. As a result, our insurance and claims expenses could increase when some of our current coverages expire on July 31, 2005. If these expenses increase, and we are unable to offset the increase with higher freight rates, our earnings could be materially and adversely affected.
The Internal Revenue Service (IRS) has proposed to disallow the tax benefits associated with certain sale- and-leaseback transactions.
In 1999, we entered into a series of transactions effecting a sale and leaseback of a portion of our Intermodal container and chassis fleet for a selling price of approximately $175 million. These transactions used a structure that the Internal Revenue Service (IRS) has recently indicated it intends to examine. We have voluntarily disclosed these transactions toThis transaction was examined by the IRS in an audit of our 1998 and in October1999 tax returns. In December 2003, we received an IRS Notice of 2002,Proposed Assessment which disallows the IRS began their examination of the specific facts of these transactions. If the IRS challenges our transactions, we intend to vigorously defend them. However, if the IRS successfully challengestax benefits associated with these transactions, and is successful in disallowing some or all of the tax benefits that we realized, these actions could have a material adverse effect on our financial condition and operating results.
Our effective income tax rates were 30.8%, 23.5% and 15.0% for the years 2002, 2001 and 2000, respectively. We implemented an accountable expense reimbursement plan for a portion of our drivers in February of 2003 (driver per diem). While this plan will generally benefit both JBHT and the majority of our drivers, it results in a higher effective income tax rate. Partly as a result, we have filed an appeal in the matter. We have had preliminary discussions with the IRS Appeals Division and have been informed that the IRS Examination Division has been instructed to prepare additional work since their case had not been developed adequately for the appellate hearing. To date, we have not been contacted by the IRS Examination Division to provide any additional information for their review. If a resolution of this changethe matter cannot be reached in the appeals process, the IRS will forward a 90 day letter, also known as a Notice of Deficiency. A resolution of the dispute could occur at any point in the administrative process or could extend through a trial and anticipated higher earnings, we are currently estimating an effective income tax rate of 37% to 39% for calendar year 2003.
In 1997, the Equal Employment Opportunity Commission (EEOC) commenced an action against us in Federal District Court alleging that we had violated the Americans With Disabilities Act by refusing to hire as truck drivers certain individuals who were taking certain medications. The EEOC sought injunctive relief and damages for a group of 540 individuals. The District Court dismissed the EEOC’s complaint on our motion for summary judgment. The EEOC appealed this decision to the Federal Court of Appeals. The Federal Court of Appeals upheld the District Court’s decision in our favor. However, the EEOC may still appeal this case to higher courts. If the higher courts rule against us, we could be subject to a new trial in the District Court.25
In a separate action filed in Michigan in November 2001, by a group of eight former employees, the plaintiffs alleged that we violated the Elliott-Larsen Civil Rights Act of Michigan. In February 2003, we reached an agreement to settle this complaint. The terms of the settlement are to remain confidential by agreement, however, this contemplated settlement will not materially impact our financial statements or results of operations.
In October 2002, we were assessed a judgment of approximately $7 million for an accident that occurred in August 2001. We are currently in dispute over the total value of this judgment and plan to file the appropriatecourt appeals. We believe, based on advise from outside counsel, that it is probable that this award will be substantially reduced by the appellate court. However, ifIf we are unsuccessful in our appealdefending this transaction, we could owe additional taxes and interest. In 2003, after receiving the IRS Notice of Proposed Assessment and reviewing applicable accounting literature, we reversed the 2003 expected non-cash tax benefits of approximately $7.7 million recognized during 2003, and suspended any further recognition of the benefit. Based on events occurring subsequent to the appellate court, the ultimate payments to the claimant could haveDecember 31, 2004, we established a material effectreserve for a contingent tax liability of $33.6 million, including accrued interest expense, which represents all previous tax benefits recognized on these transactions. The liability for this contingency is included on our financial statements.consolidated balance sheet at December 31, 2004, as a long-term liability. We continue to believe our tax positions comply with applicable tax law for which we received advice and opinions from our external public accountants and attorneys prior to entering into these transactions and we continue to vigorously defend against the IRS position using all administrative and legal processes available. If the IRS were successful in disallowing 100% of the tax benefit from this transaction, the total ultimate impact on liquidity could be approximately $44 million, excluding interest.
Inflation could have a material impact on our business. A prolonged or unusual periodOur operations are subject to various environmental laws and regulations, the violation of rising costswhich could result in fuel, wages, insurance, interestsubstantial fines or other costs increasing rapidly and could adversely affect our results of operations if we were unable to increase freight rates accordingly. The impact of inflation has been minimal during the past three years.
Our business is subject to general economic and business factors that are largely out of our control, any one of which could have a material adverse effect on our results of operations. These factors include significant increases or rapid fluctuations in fuel costs, excess capacity in the trucking industry, surpluses in the market for used equipment, interest rates, fuel taxes, license and registration fees, insurance premiums, self-insurance levels and difficulty attracting and retaining qualified drivers and independent contractors. We are also affected by recessionary economic cycles and downturns in customers’ business cycles.penalties.
We are subject to various environmental laws and regulations dealing with the handling of hazardous materials, underground fuel storage tanks, and discharge and retention of storm water. We operate in a highly competitiveindustrial areas, where truck terminals and fragmented industry. Numerous factors could impair our ability toother industrial activities are located, and where groundwater or other forms of environmental contamination have occurred. Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous wastes disposal, among others. We also maintain our current profitabilitybulk fuel storage and to compete with other carriers. We compete with many other truckload carriers of varying sizes, some of which have more equipment and greater capital resources that we do. Somefuel islands at several of our competitors periodically reduce their freight ratesfacilities. If we are involved in a spill or other accident involving hazardous substances, or if we are found to gainbe in violation of applicable laws or retain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain rates or maintain our profit margins.
19
We depend on third parties in the operation of our business. Our Intermodal business segment utilizes a number of railroads in the performance of transportation services. While the majority of these services are provided pursuant to written agreements with the railroads, the inability to utilize one or more of these railroadsregulations, it could have a material adverse effect on our business orand operating results. If we should fail to comply with applicable environmental regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.
If we are unable to retain our key employees, our business, financial conditionWe operate in a highly regulated industry, and resultsincreased direct and indirect costs of operations could be harmed. We are highly dependent upon the servicescompliance with, or liability for violation of, a number of our officers and other key employees. We do not have employment agreements with any of these employees. The loss of any of their servicesexisting or future regulations could have a materiallymaterial adverse effect on our operationsbusiness.
The U.S. Department of Transportation (DOT) and various state agencies exercise broad powers over our business, generally governing matters including authorization to engage in motor carrier service, equipment operation, safety and financial reporting. We are audited periodically by the DOT to ensure that we are in compliance with various safety, hours-of-service and other rules and regulations. If we were found to be out of compliance, the DOT could restrict or future profitability.otherwise impact our operations.
Effective January 4, 2004, the FMCSA, an administration within the DOT, changed the regulations that govern driver hours of service. As previously described, these new rules generally allow a driver to drive for up to 11 consecutive hours, rather than 10, but require 10 hours of off-duty time, rather than 8. In addition, more off-duty “sleeper berth” time is required before on-duty time is allowed. The United States Court of Appeals issued a decision in July 2004, rejecting these new hours-of-service (HOS) rules. The Court’s rejection was based on concerns regarding drivers’ health, as well as other issues. On September 30, 2004, the current HOS rules were extended for one year or the time at which the FMCSA develops a set of new rules. On February 7, 2005, the Bush administration proposed legislation that would convert the current HOS regulations into statutory law, a move that would keep the current rules in effect despite the Court of Appeals action to overturn them.
As part of a 1998 consent decree with the U.S. Environmental Protection Agency (EPA), a number of heavy-duty diesel engine manufacturers agreed to significantly reduce emissions from their engines which were produced subsequent to October 1, 2002. We have not yet had sufficient time to test these new engines. We will continue to test a limited number of the new EPA compliant engines. In November of 2002, we committed to purchaseordered approximately 2,100 new tractors, primarily for our JBI and DCS segments,fleets, which will bewere equipped with Mercedes engines. These engines are not covered bywere exempt from the EPA’s October 1, 2002 rules. Except for theseIn late 2003, after extensive testing, we commenced receiving new tractors with the 2002 EPA-compliant engines. At December 31, 2004, we operated approximately 2,100 tractors which will be utilized primarily for localwith the Mercedes engines and regional operations, we expect to limit new tractor purchases until we are able to complete further testing and evaluation ofabout 4,870 tractors with the EPA compliant2002 EPA-compliant engines. In addition to higher initial purchase prices, these new tractors have also experienced an average 3% to 5% reduction in fuel efficiency. We are uncertain if future maintenance costs will be higher, on the average, for these two groups of tractors as they
26
age. We do anticipate continued increases in ownership and fuel costs as regular replacement and fleet addition tractors increase the percentage of our fleet with the EPA-compliant units. A new set of proposed fuel-emission standards mandated by the EPA compliant engines areis expected to increasebecome effective in 2007. We are unable to predict the acquisitionimpact these proposed standards will have on our future operations and operatingfinancial results.
Rapid changes in fuel costs of these tractors and may negativelycan impact our future profitability.periodic financial results.
Fuel and fuel taxes currently represent our third largestthird-largest general expense category. During the past three years, fuel cost per gallon has varied significantly, with prices frequentlyat times changing as much as $.10 to $.15 per gallon between consecutive months. We have a fuel surcharge revenue program in place with the majority of our customers, which has historically enabled us to recover the majority of higher fuel costs. Most of these programs automatically adjust weekly depending on the cost of fuel. However, there can be timing differences between a change in our fuel cost and the timing of the fuel surcharges billed to our customers. In addition, we incur additional costs when fuel prices rise whichthat cannot be fully recovered due to our engines being idled during cold weather and empty or out-of-route miles whichthat cannot be billed to customers. In February of 2003, fuel prices averaged approximately 15% higher than December of 2002 and 45% higher than February of 2002. Rapid increases in fuel costs or shortages of fuel could have a material adverse effect on our operations or future profitability. As of December 31, 2002,2004, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
We have a $1.7 million account receivable from Transportacion Maritima Mexicana (TMM) related to the sale of our share of a Mexican joint venture.
As previously mentioned, we sold our joint venture interest in Mexico to TMM during the first quarter of 2002 for $22.5 million. We have received $18.0 million in principal and interest payments on this note. At December 31, 2004, we had a $1.7 million account receivable from TMM. We expect to receive these remaining funds during the first quarter of 2005.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001,December 2003, the Financial Accounting Standards Board (FASB) issued SFASrevised FASB Interpretation No. 143,46, Accounting for Asset Retirement ObligationsConsolidation of Variable Interest Entities (SFAS. Interpretation No. 143). SFAS46(R) addresses consolidation by business enterprises of certain variable interest entities. For public entities that are not small business issuers, the provisions of Interpretation No. 143 requires us to record the fair value of an asset retirement obligation as a liability in the period in which we incur a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. We also record a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at46(R) are effective no later than the end of eachthe first reporting period that ends after March 15, 2004. If the variable interest entity is considered to reflectbe a special-purpose entity, Interpretation No. 46(R) shall be applied no later than the passage of time and changes in the estimated future cash flows underlying the obligation. We were required to adopt SFAS No. 143 on January 1,first reporting period that ends after December 15, 2003. The adoption of SFAS 143 willthis Interpretation did not have aany material effect on our financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accountingposition, results of operations and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on our financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002, and are included in the notes to our consolidated financial statements.cash flows.
In December 2002,2004, the FASB issued SFAS No. 148,153, Accounting for Stock-Based Compensation Transition and Disclosure, an amendmentExchanges of FASB Statement No. 123Nonmonetary Assets. This Statement amends the guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions. APB 29 provided an exception to the basic measurement principle (fair value) for exchanges of similar assets, requiring that some nonmonetary exchanges be recorded on a carryover basis. SFAS 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance, that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. The provisions of SFAS 153 are effective for exchanges of nonmonetary assets occurring in fiscal periods beginning after June 15, 2005. As of December 31, 2004, we believe that SFAS 153 will have no significant effect on our financial position, results of operations and cash flows.
In December 2004, the FASB Statementissued SFAS No. 123(R), Share-Based Payment. SFAS No. 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methodsand supersedes APB 25. Among other items, SFAS 123(R) eliminates the use of transition for a voluntary change to the fairAPB 25 and intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for stock-basedawards of equity instruments, based on the grant date fair value of those awards, in the financial statements. In accordance with SFAS No. 123(R), the cost will be based on the grant-date fair value of the award and will be recognized over the period for which an employee compensation. In addition, this Statement amendsis required to provide service in exchange for the disclosure requirements ofaward. For public entities that do not file as
2027
Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certainsmall business issuers, the provisions of the disclosure modificationsrevised statement are requiredto be applied prospectively for fiscal years ending after December 15, 2002 andawards that are includedgranted, modified, or settled in the notesfirst interim or annual period beginning after June 15, 2005. When we adopt the standard on July 1, 2005, we will be required to report in our consolidated financial statements.statements the share-based compensation expense for the last six months of 2005 and may adopt it using the modified-prospective method effective July 1, 2005. We are currently evaluating the impact SFAS No. 123(R) will have on us and based on our preliminary analysis, expect to report approximately $2.3 million of additional compensation expense during the period July 1, 2005, through December 31, 2005, as a result of this new accounting standard.
ITEM 7a.7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings are affected by changes in short-term interest rates as a result of our issuance of short-term debt. We from time to time utilizehave utilized interest rate swaps to mitigate the effects of interest rate changes; none were outstanding at December 31, 2002.2004. Risk can be estimated by measuring the impact of a near-term adverse movement of 10% in short-term market interest rates. If short-term market interest rates average 10% more during the next twelve12 months, there would be no material adverse impact on our results of operations based on variable ratethe fact that we had no variable-rate debt outstanding at December 31, 2002.2004. At December 31, 2002, the fair value of our fixed rate2004, we also had no long-term debt obligations approximated carrying value.outstanding.
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 year ended December 31, 2002.2004. 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. To date, we have not entered into any 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 will continue in the future or the extent to which fuel surcharges could be collected to offset such increases. As of December 31, 2002,2004, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
ITEM 8.8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
2128
Report of Independent Auditors’ ReportRegistered Public Accounting Firm
The
To the Stockholders and Board of Directors
J. B. Hunt Transport Services, Inc.:
We have audited the accompanying consolidated balance sheets of J. B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 20022004 and 2001,2003, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2002.2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of J. B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 20022004 and 2001,2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002,2004, in conformity with accounting principlesU.S. generally accepted accounting principles.
We have also audited, in accordance with the United Statesstandards of America.the Public Company Accounting Oversight Board (United States), the effectiveness of J.B. Hunt Transport Services, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2005, expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
/s/ KPMG LLP |
Tulsa, Oklahoma
January 30, 2003March 11, 2005
2229
Report of Independent Registered Public Accounting Firm
The Board of Directors
J. B. Hunt Transport Services, Inc.:
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that J. B. Hunt Transport Services, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). J.B. Hunt Transport Services, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that J.B. Hunt Transport Services, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on COSO. Also, in our opinion, J.B. Hunt Transport Services, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2004, and our report dated March 11, 2005, expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP |
Tulsa, Oklahoma
March 11, 2005
30
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
December 31, 20022004 and 20012003
(Dollars in thousands, except per share amounts)
|
| 2002 |
| 2001 |
| |
Assets |
|
|
|
|
| |
|
|
|
|
|
| |
Current assets: |
|
|
|
|
| |
Cash and cash equivalents |
| $ | 80,628 |
| 49,245 |
|
Trade accounts receivable |
| 237,156 |
| 233,246 |
| |
Inventories |
| 9,515 |
| 8,915 |
| |
Prepaid licenses and permits |
| 20,054 |
| 17,507 |
| |
Other current assets |
| 85,828 |
| 75,886 |
| |
Total current assets |
| 433,181 |
| 384,799 |
| |
|
|
|
|
|
| |
Property and equipment, at cost: |
|
|
|
|
| |
Revenue and service equipment |
| 1,096,809 |
| 1,067,465 |
| |
Land |
| 20,469 |
| 19,834 |
| |
Structures and improvements |
| 80,667 |
| 78,469 |
| |
Furniture and office equipment |
| 107,708 |
| 98,201 |
| |
|
|
|
|
|
| |
Total property and equipment |
| 1,305,653 |
| 1,263,969 |
| |
Less accumulated depreciation |
| 461,091 |
| 432,258 |
| |
Net property and equipment |
| 844,562 |
| 831,711 |
| |
Other assets (notes 7 and 9) |
| 40,985 |
| 43,788 |
| |
|
| $ | 1,318,728 |
| 1,260,298 |
|
23
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2001
(Dollars in thousands, except per share amounts)
|
| 2004 |
| 2003 |
| |||||||
Assets |
|
|
|
|
| |||||||
Current assets: |
|
|
|
|
| |||||||
Cash and cash equivalents |
| $ | 23,838 |
| 58,112 |
| ||||||
Trade accounts receivable |
| 289,146 |
| 256,032 |
| |||||||
Income tax receivable |
| 19,418 |
| — |
| |||||||
Inventories |
| 9,692 |
| 8,640 |
| |||||||
Prepaid licenses and permits |
| 21,696 |
| 22,213 |
| |||||||
Prepaid insurance |
| 83,972 |
| 66,359 |
| |||||||
Other current assets |
| 16,280 |
| 17,631 |
| |||||||
Total current assets |
| 464,042 |
| 428,987 |
| |||||||
Property and equipment, at cost: |
|
|
|
|
| |||||||
Revenue and service equipment |
| 1,214,833 |
| 1,122,187 |
| |||||||
Land |
| 22,014 |
| 21,839 |
| |||||||
Structures and improvements |
| 95,156 |
| 83,782 |
| |||||||
Furniture and office equipment |
| 118,020 |
| 117,713 |
| |||||||
Total property and equipment |
| 1,450,023 |
| 1,345,521 |
| |||||||
Less accumulated depreciation |
| 438,644 |
| 460,556 |
| |||||||
Net property and equipment |
| 1,011,379 |
| 884,965 |
| |||||||
Other assets |
| 16,285 |
| 42,220 |
| |||||||
|
| $ | 1,491,706 |
| 1,356,172 |
| ||||||
|
| 2002 |
| 2001 |
|
|
|
|
|
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| |||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
| ||
Current maturities of long-term debt (note 2) |
| $ | 97,010 |
| 10,000 |
| ||||||
Current installments of obligations under capital leases (note 8) |
| 27,138 |
| 28,426 |
| |||||||
Current maturities of long-term debt |
| $ | — |
| 104,933 |
| ||||||
Current installments of obligations under capital leases |
| — |
| 66,844 |
| |||||||
Trade accounts payable |
| 117,931 |
| 163,291 |
|
| 180,018 |
| 158,886 |
| ||
Claims accruals |
| 14,706 |
| 18,003 |
|
| 18,535 |
| 16,876 |
| ||
Accrued payroll |
| 46,511 |
| 30,251 |
|
| 73,750 |
| 51,235 |
| ||
Other accrued expenses |
| 11,291 |
| 12,713 |
|
| 10,504 |
| 12,478 |
| ||
Deferred income taxes (note 4) |
| 10,742 |
| 3,150 |
| |||||||
|
|
|
|
|
| |||||||
Deferred income taxes |
| 25,414 |
| 23,499 |
| |||||||
Total current liabilities |
| 325,329 |
| 265,834 |
|
| 308,221 |
| 434,751 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Long-term debt, excluding current maturities (note 2) |
| 104,815 |
| 212,950 |
| |||||||
Obligations under capital leases, excluding current installments (note 8) |
| 114,152 |
| 140,657 |
| |||||||
Other long-term liabilities |
| 1,997 |
| 5,275 |
|
| 40,294 |
| 4,291 |
| ||
Deferred income taxes (note 4) |
| 181,948 |
| 177,265 |
| |||||||
|
|
|
|
|
| |||||||
Deferred income taxes |
| 282,241 |
| 213,994 |
| |||||||
Total liabilities |
| 728,241 |
| 801,981 |
|
| 630,756 |
| 653,036 |
| ||
|
|
|
|
|
| |||||||
Stockholders’ equity (notes 2, 3 and 12): |
|
|
|
|
| |||||||
Stockholders’ equity: |
|
|
|
|
| |||||||
Preferred stock, par value $100. Authorized 10,000,000 shares; none outstanding |
| — |
| — |
|
| — |
| — |
| ||
Common stock, par value $.01 per share. Authorized 100,000,000 shares; issued 41,774,858 and 39,009,858 shares at December 31, 2002 and 2001, respectively |
| 418 |
| 390 |
| |||||||
Common stock, par value $.01 per share. Authorized 100,000,000 shares; issued 83,549,716 shares at December 31, 2004 and 2003 |
| 418 |
| 418 |
| |||||||
Additional paid-in capital |
| 184,683 |
| 115,319 |
|
| 197,870 |
| 186,973 |
| ||
Retained earnings |
| 459,803 |
| 407,987 |
|
| 694,230 |
| 555,262 |
| ||
Accumulated other comprehensive loss |
| — |
| (7,037 | ) | |||||||
|
| 644,904 |
| 516,659 |
|
| 892,518 |
| 742,653 |
| ||
Treasury stock, at cost (2,457,280 shares in 2002 and 3,030,828 shares in 2001) |
| (54,417 | ) | (58,342 | ) | |||||||
Treasury stock, at cost (2,156,353 shares in 2004 and 3,439,437 shares in 2003) |
| (31,568 | ) | (39,517 | ) | |||||||
Total stockholders’ equity |
| 590,487 |
| 458,317 |
|
| 860,950 |
| 703,136 |
| ||
Commitments and contingencies (notes 2, 4, 6 and 8) |
|
|
|
|
| |||||||
Commitments and contingencies |
|
|
|
|
| |||||||
|
| $ | 1,318,728 |
| 1,260,298 |
|
| $ | 1,491,706 |
| 1,356,172 |
|
See accompanying notes to consolidated financial statements.
2431
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 2002, 20012004, 2003 and 20002002
(Dollars in thousands, except per share amounts)
|
| 2002 |
| 2001 |
| 2000 |
|
| 2004 |
| 2003 |
| 2002 |
| ||
Operating revenues |
| $ | 2,247,886 |
| 2,100,305 |
| 2,160,447 |
|
| $ | 2,786,154 |
| 2,433,469 |
| 2,247,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| |||||||||
Salaries, wages and employee benefits (note 5) |
| 818,318 |
| 790,210 |
| 769,393 |
| |||||||||
Salaries, wages and employee benefits |
| 830,005 |
| 791,778 |
| 818,318 |
| |||||||||
Rents and purchased transportation |
| 698,455 |
| 604,542 |
| 694,756 |
|
| 932,133 |
| 799,176 |
| 698,455 |
| ||
Fuel and fuel taxes |
| 210,632 |
| 226,102 |
| 242,835 |
|
| 288,562 |
| 232,378 |
| 210,632 |
| ||
Depreciation and amortization |
| 145,848 |
| 142,755 |
| 134,391 |
|
| 149,776 |
| 150,221 |
| 145,848 |
| ||
Operating supplies and expenses |
| 130,853 |
| 145,850 |
| 130,947 |
|
| 124,172 |
| 119,339 |
| 130,853 |
| ||
Insurance and claims |
| 56,132 |
| 42,381 |
| 38,982 |
|
| 54,757 |
| 63,500 |
| 56,132 |
| ||
Operating taxes and licenses |
| 32,797 |
| 32,616 |
| 32,641 |
|
| 35,020 |
| 33,226 |
| 32,797 |
| ||
General and administrative expenses, net of gains |
| 30,029 |
| 19,282 |
| 28,563 |
|
| 38,460 |
| 34,746 |
| 30,029 |
| ||
Communication and utilities |
| 23,859 |
| 24,358 |
| 24,528 |
|
| 23,046 |
| 23,470 |
| 23,859 |
| ||
Total operating expenses |
| 2,146,923 |
| 2,028,096 |
| 2,097,036 |
|
| 2,475,931 |
| 2,247,834 |
| 2,146,923 |
| ||
Operating income |
| 100,963 |
| 72,209 |
| 63,411 |
|
| 310,223 |
| 185,635 |
| 100,963 |
| ||
Interest income |
| 1,888 |
| 2,731 |
| 1,995 |
| |||||||||
Interest expense |
| (24,763 | ) | (27,044 | ) | (25,747 | ) |
| 7,362 |
| 19,943 |
| 26,758 |
| ||
Equity in earnings (loss) of associated companies |
| (1,353 | ) | (2,083 | ) | 4,777 |
| |||||||||
Equity in loss of associated companies |
| 2,470 |
| 694 |
| 1,353 |
| |||||||||
Earnings before income taxes |
| 74,847 |
| 43,082 |
| 42,441 |
|
| 302,279 |
| 167,729 |
| 74,847 |
| ||
Income taxes (note 4) |
| 23,031 |
| 10,137 |
| 6,366 |
| |||||||||
Income taxes |
| 156,023 |
| 72,270 |
| 23,031 |
| |||||||||
Net earnings |
| $ | 51,816 |
| 32,945 |
| 36,075 |
|
| $ | 146,256 |
| 95,459 |
| 51,816 |
|
Basic earnings per share |
| $ | 1.36 |
| 0.93 |
| 1.02 |
|
| $ | 1.81 |
| 1.20 |
| 0.68 |
|
Diluted earnings per share |
| $ | 1.33 |
| 0.91 |
| 1.02 |
|
| $ | 1.75 |
| 1.17 |
| 0.66 |
|
See accompanying notes to consolidated financial statements.
2532
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Years endedEnded December 31, 2002, 20012004, 2003 and 20002002
(Dollars in thousands, except per share amounts)
|
| Common |
| Additional |
| Retained |
| Other |
| Treasury |
| Stockholders’ |
|
|
|
| Additional |
|
|
| Other |
|
|
|
|
| ||
Balances at December 31, 1999 |
| $ | 390 |
| 107,172 |
| 340,749 |
| (5,324 | ) | (51,780 | ) | 391,207 |
| ||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earnings |
| — |
| — |
| 36,075 |
| — |
| — |
| 36,075 |
| |||||||||||||||
Foreign currency translation adjustments |
| — |
| — |
| — |
| (1,178 | ) | — |
| (1,178 | ) | |||||||||||||||
Total comprehensive income |
| — |
| — |
| — |
| — |
| — |
| 34,897 |
| |||||||||||||||
Remeasurement of stock options |
| — |
| 110 |
| — |
| — |
| — |
| 110 |
| |||||||||||||||
Tax benefit of stock options exercised |
| — |
| 31 |
| — |
| — |
| — |
| 31 |
| |||||||||||||||
Sale of treasury stock to employees |
| — |
| (223 | ) | — |
| — |
| 1,160 |
| 937 |
| |||||||||||||||
Repurchase of treasury stock |
| — |
| — |
| — |
| — |
| (7,576 | ) | (7,576 | ) | |||||||||||||||
Cash dividends paid ($0.05 per share) |
| — |
| — |
| (1,782 | ) | — |
| — |
| (1,782 | ) | |||||||||||||||
Balances at December 31, 2000 |
| $ | 390 |
| 107,090 |
| 375,042 |
| (6,502 | ) | (58,196 | ) | 417,824 |
| ||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earnings |
| — |
| — |
| 32,945 |
| — |
| — |
| 32,945 |
| |||||||||||||||
Foreign currency translation adjustments |
| — |
| — |
| — |
| (535 | ) | — |
| (535 | ) | |||||||||||||||
Total comprehensive income |
| — |
| — |
| — |
| — |
| — |
| 32,410 |
| |||||||||||||||
Tax benefit of stock options exercised |
| — |
| 5,361 |
| — |
| — |
| — |
| 5,361 |
| |||||||||||||||
Sale of treasury stock to employees |
| — |
| 2,868 |
| — |
| — |
| (146 | ) | 2,722 |
| |||||||||||||||
|
| Common |
| Paid-in |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ |
| |||||||||||||||
|
| Stock |
| Capital |
| Earnings |
| Loss |
| Stock |
| Equity |
| |||||||||||||||
Balances at December 31, 2001 |
| $ | 390 |
| 115,319 |
| 407,987 |
| (7,037 | ) | (58,342 | ) | 458,317 |
|
| $ | 390 |
| 115,319 |
| 407,987 |
| (7,037 | ) | (58,342 | ) | 458,317 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net earnings |
| — |
| — |
| 51,816 |
| — |
| — |
| 51,816 |
|
| — |
| — |
| 51,816 |
| — |
| — |
| 51,816 |
| ||
Foreign currency translation adjustments |
| — |
| — |
| — |
| 7,037 |
| — |
| 7,037 |
|
| — |
| — |
| — |
| 7,037 |
| — |
| 7,037 |
| ||
Total comprehensive income |
| — |
| — |
| — |
| — |
| — |
| 58,853 |
|
| — |
| — |
| — |
| — |
| — |
| 58,853 |
| ||
Common stock issued |
| 28 |
| 68,066 |
| — |
| — |
| — |
| 68,094 |
|
| 28 |
| 68,066 |
| — |
| — |
| — |
| 68,094 |
| ||
Tax benefit of stock options exercised |
| — |
| 5,822 |
| — |
| — |
| — |
| 5,822 |
|
| — |
| 5,822 |
| — |
| — |
| — |
| 5,822 |
| ||
Stock option exercises, net of stock repurchased for payroll taxes |
| — |
| (4,524 | ) | — |
| — |
| 3,925 |
| (599 | ) |
| — |
| (4,524 | ) | — |
| — |
| 3,925 |
| (599 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances at December 31, 2002 |
| $ | 418 |
| 184,683 |
| 459,803 |
| — |
| (54,417 | ) | 590,487 |
|
| $ | 418 |
| 184,683 |
| 459,803 |
| — |
| (54,417 | ) | 590,487 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earnings |
| — |
| — |
| 95,459 |
| — |
| — |
| 95,459 |
| |||||||||||||||
Tax benefit of stock options exercised |
| — |
| 7,226 |
| — |
| — |
| — |
| 7,226 |
| |||||||||||||||
Stock option exercises, net of stock repurchased for payroll taxes |
| — |
| (4,936 | ) | — |
| — |
| 14,900 |
| 9,964 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances at December 31, 2003 |
| $ | 418 |
| 186,973 |
| 555,262 |
| — |
| (39,517 | ) | 703,136 |
| ||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earnings |
| — |
| — |
| 146,256 |
| — |
| — |
| 146,256 |
| |||||||||||||||
Cash dividend paid ($0.09 per share) |
| — |
| — |
| (7,288 | ) |
|
|
|
| (7,288 | ) | |||||||||||||||
Tax benefit of stock options exercised |
| — | �� | 17,829 |
| — |
| — |
| — |
| 17,829 |
| |||||||||||||||
Stock option exercises, net of stock repurchased for payroll taxes |
| — |
| (6,932 | ) | — |
| — |
| 7,949 |
| 1,017 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances at December 31, 2004 |
| $ | 418 |
| 197,870 |
| 694,230 |
| — |
| (31,568 | ) | 860,950 |
|
See accompanying notes to consolidated financial statements.
2633
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 20012004, 2003 and 20002002
(Dollars in thousands)
|
| 2002 |
| 2001 |
| 2000 |
|
| 2004 |
| 2003 |
| 2002 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net earnings |
| $ | 51,816 |
| 32,945 |
| 36,075 |
|
| $ | 146,256 |
| 95,459 |
| 51,816 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Depreciation and amortization |
| 145,848 |
| 142,755 |
| 134,391 |
|
| 149,776 |
| 150,221 |
| 145,848 |
| ||
(Gain) loss on sale of revenue equipment |
| 1,798 |
| (4,833 | ) | 267 |
|
| (402 | ) | 1,082 |
| 1,798 |
| ||
Provision for deferred income taxes |
| 12,275 |
| 251 |
| 5,843 |
|
| 70,162 |
| 44,803 |
| 12,275 |
| ||
Equity in (earnings) loss of associated companies |
| 1,353 |
| 2,083 |
| (4,777 | ) | |||||||||
Equity in loss of associated companies |
| 2,470 |
| 694 |
| 1,353 |
| |||||||||
Tax benefit of stock options exercised |
| 5,822 |
| 5,361 |
| 31 |
|
| 17,829 |
| 7,226 |
| 5,822 |
| ||
Remeasurement of options |
| — |
| — |
| 110 |
| |||||||||
Amortization of discount |
| 125 |
| 256 |
| 55 |
|
| 67 |
| 118 |
| 125 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Trade accounts receivable |
| (3,910 | ) | (7,449 | ) | 12,776 |
|
| (33,114 | ) | (18,876 | ) | (3,910 | ) | ||
Income tax receivable |
| (19,418 | ) | — |
| — |
| |||||||||
Other assets |
| (3,667 | ) | 3,353 |
| (58,057 | ) |
| (19,224 | ) | 4,482 |
| (6,649 | ) | ||
Trade accounts payable |
| (45,360 | ) | 4,706 |
| (21,424 | ) |
| 21,132 |
| 40,955 |
| (45,360 | ) | ||
Claims accruals |
| (6,575 | ) | (11,256 | ) | 10,078 |
|
| 1,659 |
| (1,757 | ) | (3,851 | ) | ||
Accrued payroll and other accrued expenses |
| 14,838 |
| 3,427 |
| 9,705 |
|
| 56,544 |
| 8,204 |
| 15,096 |
| ||
Net cash provided by operating activities |
| 174,363 |
| 171,599 |
| 125,073 |
|
| 393,737 |
| 332,611 |
| 174,363 |
| ||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Additions to property and equipment |
| (239,341 | ) | (138,466 | ) | (225,672 | ) |
| (451,083 | ) | (316,926 | ) | (239,341 | ) | ||
Proceeds from sale of equipment |
| 80,005 |
| 110,711 |
| 126,350 |
|
| 175,295 |
| 125,220 |
| 80,005 |
| ||
Decrease (increase) in other assets |
| (2,096 | ) | 3,512 |
| (596 | ) |
| 25,892 |
| 69 |
| (2,354 | ) | ||
Net cash used in investing activities |
| (161,432 | ) | (24,243 | ) | (99,918 | ) |
| (249,896 | ) | (191,637 | ) | (161,690 | ) | ||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net borrowings (repayments) of commercial paper borrowings |
| $ | — |
| (74,400 | ) | 39,400 |
| ||||||||
Repayments of long-term debt |
| (21,250 | ) | (10,000 | ) | (60,000 | ) |
| $ | (105,000 | ) | (97,010 | ) | (21,250 | ) | |
Principal payments under capital lease obligations |
| (27,793 | ) | (21,803 | ) | (3,370 | ) |
| (66,844 | ) | (74,446 | ) | (27,793 | ) | ||
Proceeds from sale of common stock |
| 68,094 |
| — |
| — |
|
| — |
| — |
| 68,094 |
| ||
Stock option exercise |
| 3,313 |
| 2,722 |
| 937 |
|
| 8,045 |
| 11,399 |
| 3,313 |
| ||
Stock repurchased for payroll taxes |
| (3,912 | ) | — |
| — |
|
| (7,028 | ) | (1,435 | ) | (3,912 | ) | ||
Repurchase of treasury stock |
| — |
| — |
| (7,576 | ) | |||||||||
Dividends paid |
| — |
| — |
| (1,782 | ) |
| (7,288 | ) | — |
| — |
| ||
Net cash provided by (used in) financing activities |
| 18,452 |
| (103,481 | ) | (32,391 | ) |
| (178,115 | ) | (161,492 | ) | 18,452 |
| ||
Net increase (decrease) in cash and cash equivalents |
| 31,383 |
| 43,875 |
| (7,236 | ) |
| (34,274 | ) | (20,518 | ) | 31,125 |
| ||
Cash and cash equivalents at beginning of year |
| 49,245 |
| 5,370 |
| 12,606 |
|
| 58,112 |
| 78,630 |
| 47,505 |
| ||
Cash and cash equivalents at end of year |
| $ | 80,628 |
| 49,245 |
| 5,370 |
|
| $ | 23,838 |
| 58,112 |
| 78,630 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest |
| $ | 25,063 |
| 27,248 |
| 26,138 |
|
| $ | 7,559 |
| 19,221 |
| 25,063 |
|
Income taxes |
| $ | 22,953 |
| 779 |
| 3,654 |
|
| $ | 55,578 |
| 9,976 |
| 17,130 |
|
Non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital lease obligations for revenue equipment |
| $ | — |
| 96,703 |
| 97,553 |
| ||||||||
Assets contributed to associated company |
| $ | — |
| — |
| 2,927 |
| ||||||||
Sale of joint venture |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Non-monetary proceeds |
| $ | 1,161 |
| — |
| — |
|
| $ | — |
| — |
| 1,161 |
|
Note receivable |
| $ | 5,876 |
| — |
| — |
|
| $ | — |
| — |
| 5,876 |
|
See accompanying notes to consolidated financial statements.
2734
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 20012004, 2003 and 2000
2002
(1) Summary of Significant Accounting Policies
Business
(a) Description of Business
J. B. Hunt Transport Services, Inc. (JBHT)(JBHT or we), together with our wholly-ownedwholly owned subsidiaries, is a diversifiedare one of the largest truck-load transportation services companyand logistics companies in North America. We directly transport or arrange for the transportation of full truck-load, containerizable freight, while operating under the jurisdiction of the U.S. Department of Transportation and various state regulatory agencies.
(2)Summary of Significant Accounting Policies
(b)(A)Basis of Consolidation
Principles of Consolidation and Critical Accounting Policies
JBHT’s consolidated financial statements include our financial statements and those of our wholly-ownedwholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Our discussion and analysis(B)Use of financial condition and operations are based on ourEstimates
The consolidated financial statements contained in this report have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America and contained within this report. Certain amounts included in or affecting our financialAmerica. The preparation of these statements and related disclosure must be estimated, requiringrequires us to make certainestimates and assumptions with respect to values or conditions which cannot be known with certainty atthat directly affect the time the financialamounts reported in such statements are prepared. Therefore, the reported amount of our assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates.accompanying notes. We evaluate these estimates on an ongoing basis utilizing historical experience, consultationconsulting with experts and using other methods we consider reasonable in the particular circumstances. Nevertheless, our actual results may differ significantly from our estimates.
However, weWe believe that certain accounting policies and estimates are of more significance in our financial statement preparation process than others including determiningothers. 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 self-insuranceinsurance and claims plans, and various other recorded or disclosed amounts. To the extent that actual, final outcomes differ fromare different than our estimates, or additional facts and circumstances cause us to revise our estimates, our earnings during that accounting period will be affected.
(c)(C)Reclassifications
Certain reclassifications have been made to prior periods to conform to current presentations.
(D)Cash and Cash Equivalents
For purposes of the statements of cash flows, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
(d)(E)Tires in Service
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.
35
(e)(F)Property and Equipment
Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives of 3 to 15 years for revenue and service equipment, 10 to 40 years for structures and improvements and 3 to 10 years for furniture and office equipment.
Property and equipment under capital leases are stated at the present value of minimum lease payments and amortized overutilizing the straight-line method over the shorter of the lease term or estimated useful life of the asset.
28
Revenue Recognition
(f) Revenue Recognition
We recognize revenue based on relative transit time in each reporting period with expenses recognized as incurred.
(g)(H)Income Taxes
Income Taxes
Income taxes are accounted for under the asset and 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 carryforwards. 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 inas income in the period that includes the enactment date.
(h)(I)Earnings Per Share
A reconciliation of the numerator and denominator of basic and diluted earnings per share is shown below (in thousands, except per share amounts):
|
| Years ended December 31 |
|
| Years ended December 31 |
| ||||||||||
|
| 2002 |
| 2001 |
| 2000 |
|
| 2004 |
| 2003 |
| 2002 |
| ||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Numerator (net earnings) |
| $ | 51,816 |
| 32,945 |
| 36,075 |
|
| $ | 146,256 |
| 95,459 |
| 51,816 |
|
Denominator (weighted average shares outstanding) |
| 37,984 |
| 35,602 |
| 35,313 |
|
| 80,771 |
| 79,400 |
| 75,968 |
| ||
Earnings per share |
| $ | 1.36 |
| 0.93 |
| 1.02 |
|
| $ | 1.81 |
| 1.20 |
| .68 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Numerator (net earnings) |
| $ | 51,816 |
| 32,945 |
| 36,075 |
|
| $ | 146,256 |
| 95,459 |
| 51,816 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Weighted average shares outstanding |
| 37,984 |
| 35,602 |
| 35,313 |
|
| 80,771 |
| 79,400 |
| 75,968 |
| ||
Effect of common stock options |
| 1,058 |
| 597 |
| 104 |
|
| 2,697 |
| 2,454 |
| 2,117 |
| ||
|
| 39,042 |
| 36,199 |
| 35,417 |
|
| 83,468 |
| 81,854 |
| 78,085 |
| ||
Earnings per share |
| $ | 1.33 |
| 0.91 |
| 1.02 |
|
| $ | 1.75 |
| 1.17 |
| .66 |
|
36
Options to purchase shares of common stock that were outstanding during each year, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares, are shown in the table below.
|
| 2002 |
| 2001 |
| 2000 |
|
| 2004 |
| 2003 |
| 2002 |
| ||||||
Number of shares under option |
| 250,000 |
| 410,900 |
| 5,394,000 |
|
| 694,000 |
| 769,500 |
| 500,000 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Range of exercise prices |
| $ | 28.32 - 37.50 |
| $ | 18.38 - 37.50 |
| $ | 14.00 - 37.50 |
|
| $ | 37.00 – 40.73 |
| $ | 20.34 – 26.64 |
| $ | 14.16 – 18.75 |
|
(i)On July 17, 2003, we announced a two-for-one stock split on our common stock, payable August 29, 2003, to stockholders of record on July 31, 2003. All references in our financial statements and report on Form 10-K with regard to number of shares and the per share amounts have been retroactively adjusted to reflect this stock split. Credit Risk
(J)Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to our large number of customers and the diverse range of industries which they represent. As of December 31, 20022004 and 2001,2003, we had no significant concentrations of credit risk.
29
(j)(K)Foreign Currency Translation
Local currencies are generally considered the functional currencies outside the United States. Assets and liabilities are translated at year-end exchange rates for operations in local currency environments. Income and expense items are translated at average rates of exchange prevailing during the year.
Foreign currency translation adjustments, which reflect foreign currency exchange rate changes applicable to the net assets of the Mexican operations, have been recorded as a separate item of accumulated other comprehensive loss in stockholders’ equity as of December 31, 2001. This investment was sold during 2002.
(k)(L)Stock-Based Compensation
Stock Based Compensation
We have adopted the intrinsic value based method of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for compensation costs for our stock option plans. Accordingly, compensation expense is recognized on the date of grant only if the current market price of the underlying common stock at date of grant exceeds the exercise price.
Had we determined compensation cost based on the fair value at the grant date for our stock options under Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), our net earnings would have been reduced to the pro forma amounts indicated below.below:
|
| 2002 |
| 2001 |
| 2000 |
| |
Net earnings (in thousands) |
| $ | 51,816 |
| 32,945 |
| 36,075 |
|
As reported |
|
|
|
|
|
|
| |
Total stock-based employee compensation expense determined under fair value based methods for all awards, net of taxes |
| 5,008 |
| 3,083 |
| 5,352 |
| |
Pro forma |
| $ | 46,808 |
| 29,862 |
| 30,723 |
|
|
|
|
|
|
|
|
| |
Basic earnings per share |
|
|
|
|
|
|
| |
As reported |
| $ | 1.36 |
| 0.93 |
| 1.02 |
|
Pro forma |
| $ | 1.23 |
| 0.84 |
| 0.87 |
|
|
|
|
|
|
|
|
| |
Diluted earnings per share |
|
|
|
|
|
|
| |
As reported |
| $ | 1.33 |
| 0.91 |
| 1.02 |
|
Pro forma |
| $ | 1.20 |
| 0.82 |
| 0.87 |
|
37
|
| 2004 |
| 2003 |
| 2002 |
| |
Net earnings (in thousands) |
| $ | 146,256 |
| 95,459 |
| 51,816 |
|
As reported |
|
|
|
|
|
|
| |
Total stock-based employee compensation expense determined under fair value based methods for all awards, net of taxes |
| 5,246 |
| 4,642 |
| 5,008 |
| |
Pro forma |
| $ | 141,010 |
| 90,817 |
| 46,808 |
|
Basic earnings per share |
|
|
|
|
|
|
| |
As reported |
| $ | 1.81 |
| 1.20 |
| .68 |
|
Pro forma |
| $ | 1.75 |
| 1.14 |
| .62 |
|
Diluted earnings per share |
|
|
|
|
|
|
| |
As reported |
| $ | 1.75 |
| 1.17 |
| .66 |
|
Pro forma |
| $ | 1.69 |
| 1.11 |
| .60 |
|
Pro forma net earnings reflects only options granted since December 31, 1995. Therefore, the full impact of calculating compensation costs for stock options under SFAS No. 123 is not reflected in the pro forma net earnings amounts presented above because compensation cost is reflected over the options’ vesting periods of 5 to 10 years and compensation cost for options granted prior to January 1, 1996, is not considered.
The per share weighted-average fair value of stock options granted during 2004, 2003 and 2002 was $21.99, $12.90 and $7.26, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 2004 - expected dividend yield 1.08%, volatility of 55.6%, risk-free interest rate of 2.19% and an expected life of 6.6 years; 2003 - expected dividend yield 0.0%, volatility of 57.4%, risk-free interest rate of 1.53%, and an expected life of 6.3 years; 2002 - expected dividend yield 0.0%, volatility of 54.9%, risk-free interest rate of 3.24%, and an expected life of 6.7 years.
(l)(M)Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
We continually evaluate the carrying value of our assets for events or changes in circumstances which indicate that the carrying value may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of 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 exceedexceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(m)(N)Comprehensive Income
Comprehensive Income
Comprehensive income consists of net earnings and foreign currency translation adjustments and is presented in the consolidated statements of stockholders’ equity.
38
(n)(O)Claims Accruals
Claims Accruals
Claims payable represent accruals for the self-insured portion of pending accident liability, workers’ compensation physical damage and cargophysical damage. These accruals are estimated based on our evaluation of the nature and severity of individual claims and an estimate of future claims development based on our past claims experience. Our claims accrual policy for all self-insurance is to recognize the expense when the event occurs and the costs of such events are probable and reasonably estimable. We apply loss development factors to our accident and workers’ compensation claims history as a part of our process of recording accruals for losses which are incurred but not reported. We do not discount our estimated losses.
Our current insurance coverage specifiesfor the year ended December 31, 2004, specified that the self-insured limit was the first $2 million for auto accidents and $1 million for workers’ compensation claims. During the year ended December 31, 2003, our self-insured limit on the majority of all our claims iswas $1.5 million, which is prefunded with our insurance carrier.million. Our self-insured limits for 2005 are the same as 2004. We are substantially self-insured for loss of and damage to our owned and leased revenue equipment.
(o)(P)Recent Accounting Pronouncements
Recently Issued Accounting Standards
In June 2001,December 2003, the Financial Accounting Standards Board (FASB) issued SFASrevised FASB Interpretation No. 143,46, Accounting for Asset Retirement ObligationsConsolidation of Variable Interest Entities (SFAS. Interpretation No. 143). SFAS46(R) addresses consolidation by business enterprises of certain variable interest entities. For public entities that are not small business issuers, the provisions of Interpretation No. 143 requires us to record46(R) are effective no later than the fair value of an asset retirement obligation as a liability in the period in which we incur a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal useend of the assets. We also recordfirst reporting period that ends after March 15, 2004. If the variable interest entity is considered to be a corresponding asset which is depreciated overspecial-purpose entity, Interpretation No. 46(R) shall be applied no later than the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the
30
end of eachfirst reporting period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. We were required to adopt SFAS No. 143 on January 1,that ends after December 15, 2003. The adoption of SFAS 143 willthis Interpretation did not have aany material effect on our financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accountingposition, results of operations and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on our financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002 and are included in the notes to our consolidated financial statements.cash flows.
In December 2002,2004, the FASB issued SFAS No. 148,153, Exchanges of Nonmonetary Assets. This Statement amends the guidance in APB Opinion No. 29, Accounting for Stock-Based Compensation TransitionNonmonetary Transactions. APB 29 provided an exception to the basic measurement principle (fair value) for exchanges of similar assets, requiring that some nonmonetary exchanges be recorded on a carryover basis. SFAS 153 eliminates the exception to fair value for exchanges of similar productive assets and Disclosure, an amendmentreplaces it with a general exception for exchange transactions that do not have commercial substance, that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. The provisions of SFAS 153 are effective for exchanges of nonmonetary assets occurring in fiscal periods beginning after June 15, 2005. As of December 31, 2004, we believe that SFAS 153 will have no significant effect on our financial position, results of operations and cash flows.
In December 2004, the FASB Statementissued SFAS No. 123.123(R), Share-Based Payment This Statement amends FASB Statement. SFAS No. 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based Compensation to provide alternative methods, and supersedes APB 25. Among other items, SFAS 123(R) eliminates the use of transition for a voluntary change to the fairAPB 25 and intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for stock-based employee compensation. In addition, this Statement amendsawards of equity instruments, based on the disclosure requirementsgrant-date fair value of Statement No. 123 to require prominent disclosuresthose awards, in both annual and interimthe financial statements. CertainIn accordance with SFAS No. 123(R), the cost will be based on the grant-date fair value of the disclosure modifications award and will be recognized over the period for which an employee is required to provide service in exchange for the award. For public entities that do not file as small business issuers, the provisions of the revised statement
39
are requiredto be applied prospectively for fiscal years ending after December 15, 2002 andawards that are includedgranted, modified, or settled in the notesfirst interim or annual period beginning after June 15, 2005. When we adopt the standard on July 1, 2005, we will be required to these consolidatedreport in our financial statements.statements the share-based compensation expense for the last six months of 2005 and may adopt it using the modified-prospective method effective July 1, 2005. We are currently evaluating the impact SFAS No. 123(R) will have on us and based on our preliminary analysis, expect to report approximately $2.3 million of additional compensation expense during the period July 1, 2005, through December 31, 2005, as a result of this new accounting standard.
(2)(3)Long-Term Debt
Long-term debt consists of (in thousands):
|
| 2002 |
| 2001 |
| |||||||
Senior notes payable, due September 1, 2003, interest at 6.25% payable semianually |
| $ | 87,010 |
| 98,260 |
| ||||||
|
|
|
|
|
|
| 2004 |
| 2003 |
| ||
Senior notes payable, due September 15, 2004, interest at 7.00% payable semiannually |
| 95,000 |
| 95,000 |
|
| $ | — |
| 95,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Senior subordinated notes, due October 30, 2004, interest at 7.80% payable semiannually |
| 20,000 |
| 30,000 |
|
| — |
| 10,000 |
| ||
|
| 202,010 |
| 223,260 |
|
|
|
| 105,000 |
| ||
Less current maturities |
| (97,010 | ) | (10,000 | ) |
| — |
| (104,933 | ) | ||
Unamortized discount |
| (185 | ) | (310 | ) |
| — |
| (67 | ) | ||
|
| $ | 104,815 |
| 212,950 |
|
| $ | — |
| — |
|
We are authorized to issueborrow up to $150 million under our current revolving linesline of credit. These linesThis line of credit areis supported by a credit agreements,agreement with a group of banks, which expireexpires November 14, 2005. No balances were outstanding under these linesthis line of credit at December 31, 2002. The 7.80% senior subordinated notes are payable in five equal annual installments of $10 million, which commenced October 30, 2000.
Under the terms of the credit agreements and the note agreements, we are required to maintain certain financial covenants including leverage tests, minimum tangible net worth levels and other financial ratios. We were in compliance with all of the financial covenants at December 31, 2002.
31
Current maturities of long-term debt at December 31, 2002 consist of the 6.25% senior notes and the fourth installment of the 7.80% senior subordinated notes. The aggregate annual maturities of long-term debt for each of the two years ending December 31 are $97.0 million in 2003 and $105.0 million in 2004. There is no long-term debt due in 2005.
(3)(4)Capital Stock
In late May and June of 2002, we closed an offering of approximately 5.911.8 million shares (adjusted for the stock split in 2003) of common stock. Approximately 2.85.6 million shares were issued and sold by JBHT and 3.16.2 million shares were sold by a shareholder. The selling price of the stock was $26$13 ($26 before the stock split in 2003) per share before underwriter discounts and other expenses.
We maintain a Management Incentive Plan (“Plan”) that provides various financial vehicles to compensate our key employees with JBHT common stock or common stock equivalents. Under the original Plan, as amended, we wereare authorized to award, in aggregate, not more than 5,000,000 shares. During 1998 and again in 2000, the stockholders of JBHT amended the Plan whereby we are now authorized to award, in aggregate, not more than 8,500,00017 million shares. At December 31, 2002,2004, there were approximately 1,076,0001.0 million shares available for grant under the Plan. We have utilized three such vehicles to award stock or grant options to purchase JBHT common stock: restricted stock awards, restricted options and nonstatutory stock options. As of December 31, 2002,2004, there are no restricted stock awards or restricted options issued or outstanding.
The Plan provides that nonstatutory stock options may be granted to key employees for the purchase of JBHT common stock for 100% of the fair market value of the common stock at the grant date. The options generally vest over a ten-year10-year period and are forfeited if the employee terminates for any reason. The plan Plan
40
allows the employee to surrender shares of common stock whichthat the employee already owns in full or partial payment of the option price of an option being exercised and/or to satisfy withholding tax obligations incident to the exercise of an option. We amended certain vested options related to employees of our logistics segment, extending the exercise period after termination. This resulted in a remeasurement of these options and accordingly $110,000 was charged to compensation expense in 2000.
A summary of the restricted and nonstatutory options to purchase JBHT common stock follows:
|
| Number |
| Weighted Average |
| Number |
| |
Outstanding at December 31, 1999 |
| 3,737,565 |
| $ | 16.65 |
| 551,940 |
|
Granted |
| 908,250 |
| 12.75 |
|
|
| |
Exercised |
| (98,100 | ) | 13.06 |
|
|
| |
Terminated |
| (237,950 | ) | 16.15 |
|
|
| |
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2000 |
| 4,309,765 |
| 15.94 |
| 831,812 |
| |
Granted |
| 881,000 |
| 14.43 |
|
|
| |
Exercised |
| (600,051 | ) | 14.78 |
|
|
| |
Terminated |
| (553,570 | ) | 17.48 |
|
|
| |
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2001 |
| 4,037,144 |
| 15.57 |
| 488,620 |
| |
Granted |
| 992,900 |
| 25.41 |
|
|
| |
Exercised |
| (431,794 | ) | 14.51 |
|
|
| |
Terminated |
| (147,300 | ) | 15.27 |
|
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2002 |
| 4,450,950 |
| $ | 17.88 |
| 494,413 |
|
32
|
|
|
| Weighted Average |
| Number |
| |
|
| Number |
| Exercise Price |
| of Shares |
| |
|
| of Shares |
| Per Share |
| Exercisable |
| |
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2001 |
| 8,072,488 |
| $ | 7.79 |
| 977,240 |
|
Granted |
| 1,990,800 |
| 12.71 |
|
|
| |
Exercised |
| (861,288 | ) | 7.26 |
|
|
| |
Terminated |
| (294,600 | ) | 7.64 |
|
|
| |
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2002 |
| 8,907,400 |
| 8.94 |
| 988,826 |
| |
Granted |
| 884,500 |
| 23.43 |
|
|
| |
Exercised |
| (1,686,733 | ) | 8.28 |
|
|
| |
Terminated |
| (219,610 | ) | 10.19 |
|
|
| |
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2003 |
| 7,885,557 |
| 10.67 |
| 711,358 |
| |
Granted |
| 776,500 |
| 39.45 |
|
|
| |
Exercised |
| (1,697,123 | ) | 8.84 |
|
|
| |
Terminated |
| (44,850 | ) | 16.56 |
|
|
| |
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2004 |
| 6,920,084 |
| $ | 14.31 |
| 459,262 |
|
During 1995, our Board of Directors established a nonqualified stock option plan to provide performanceperformance- based compensation to the Chairman of the Board (Chairman’s Plan). The Chairman’s Plan allowed the Chairman the option to purchase up to 2.55.0 million shares (adjusted for the 2003 stock split) of JBHT common stock at a price of $17.63$8.81 per share.share (adjusted for the stock split). These options vested after five years. The Chairman'sChairman’s Plan allowsallowed the Chairman to surrender shares of common stock which he already ownsowned in full or partial payment of the option price of an option being exercised and/or to satisfy withholding tax obligations incident to the exercise of an option. Under the original Chairman’s Plan, the options were to be exercised within one year of vesting and all unexercised options would have terminated. During 2000, our stockholders amended the Chairman’s Plan whereby the exercise period was extended two years from date of vesting. OneTwo million options were exercised during the year ended December 31, 2002, and 1.53.0 million options were exercised in 2001. There were no options outstanding for the Chairman’s Plan at December 31, 2002.2004.
The per share weighted-average fair value of stock options granted during 2002, 2001 and 2000 was $14.53, $10.82 and $9.07, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 2002 - expected dividend yield 0.0%, volatility of 54.9%, risk-free interest rate of 3.2%, and an expected life of 6.7 years; 2001 - expected dividend yield 0.0%, volatility of 59.9%, risk-free interest rate of 4.7%, and an expected life of 6.2 years; 2000 - expected dividend yield 0.0%, volatility of 52.4%, risk-free interest rate of 5.2%, and an expected life of 6.6 years.
3341
The following table summarizes information about stock options outstanding at December 31, 2002:2004:
|
| Options outstanding |
| Options exercisable |
| |||||||||
Range of exercise prices |
| Options |
| Weighted |
| Weighted |
| Options |
| Weighted |
| |||
$ | 10.01-20.00 |
| 3,233,387 |
| 5.7 |
| $ | 15.14 |
| 402,800 |
| $ | 14.71 |
|
20.01-30.00 |
| 1,207,563 |
| 9.2 |
| 25.06 |
| 87,613 |
| 23.15 |
| |||
30.01-40.00 |
| 10,000 |
| 6.5 |
| 37.50 |
| 4,000 |
| 37.50 |
| |||
$ | 10.01-40.00 |
| 4,450,950 |
| 6.7 |
| $ | 17.88 |
| 494,413 |
| $ | 16.39 |
|
|
| Options outstanding |
| Options exercisable |
| |||||||||
|
|
|
| Weighted |
| Weighted |
|
|
| Weighted |
| |||
|
|
|
| Average |
| average |
|
|
| average |
| |||
Range |
|
|
| remaining |
| exercise |
|
|
| exercise |
| |||
of exercise |
| Options |
| contractual |
| price |
| Options |
| price |
| |||
prices |
| outstanding |
| life (in years) |
| per share |
| exercisable |
| per share |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
$ | 0.00 - 10.00 |
| 3,599,542 |
| 4.6 |
| $ | 7.55 |
| 334,741 |
| $ | 7.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10.01 - 20.00 |
| 1,818,823 |
| 7.9 |
| 12.93 |
| 104,702 |
| 12.56 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| 20.01 - 30.00 |
| 779,719 |
| 9.4 |
| 24.58 |
| 19,819 |
| 24.51 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| 30.01 - 40.00 |
| 33,000 |
| 10.4 |
| 33.29 |
| — |
| 0.00 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| 40.01 - 50.00 |
| 689,000 |
| 10.5 |
| 40.73 |
| — |
| 0.00 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
$ | 0.00 - 50.00 |
| 6,920,084 |
| 6.6 |
| $ | 14.31 |
| 459,262 |
| $ | 9.40 |
|
(4)The weighted average exercise price per share of options exercisable at December 31, 2003 and 2002 was $8.42 and $8.20, respectively.
(5)Income Taxes
Total income tax (benefit) expense for the years ended December 31, 2002, 20012004, 2003 and 20002002 was allocated as follows (in thousands):
|
| 2002 |
| 2001 |
| 2000 |
|
| 2004 |
| 2003 |
| 2002 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Earnings before income taxes |
| $ | 23,031 |
| 10,137 |
| 6,366 |
|
| $ | 156,023 |
| 72,270 |
| 23,031 |
|
|
|
|
|
|
|
|
| |||||||||
Stockholders’ equity, for tax benefit of stock options exercised |
| 5,823 |
| 5,361 |
| 31 |
|
| (17,829 | ) | (7,226 | ) | (5,822 | ) | ||
|
| $ | 17,208 |
| 4,776 |
| 6,335 |
|
|
|
|
|
|
|
| |
Total tax expense |
| $ | 138,194 |
| 65,044 |
| 17,209 |
|
Refundable income taxes at December 31, 20022004, were $8,538,000$19.4 million and payable income taxes payable at December 31, 20012003, were $3,659,000.$1.7 million. These amounts have been included in accounts receivable and other current assets and liabilitiesaccrued expenses on the balance sheet, respectively.
42
Income tax expense (benefit) attributable to earnings before income taxes consists of (in thousands):
|
| 2002 |
| 2001 |
| 2000 |
|
| 2004 |
| 2003 |
| 2002 |
| ||
Current expense: |
|
|
|
|
|
|
| |||||||||
Current: |
|
|
|
|
|
|
| |||||||||
Federal |
| $ | 10,413 |
| 9,661 |
| 66 |
|
| $ | 83,428 |
| 26,439 |
| 10,413 |
|
State and local |
| 343 |
| 225 |
| 457 |
|
| 2,433 |
| 1,028 |
| 343 |
| ||
|
| 10,756 |
| 9,886 |
| 523 |
|
| 85,861 |
| 27,467 |
| 10,756 |
| ||
Deferred expense (benefit): |
|
|
|
|
|
|
| |||||||||
Deferred: |
|
|
|
|
|
|
| |||||||||
Federal |
| 3,892 |
| 208 |
| 8,032 |
|
| 61,375 |
| 38,535 |
| 3,892 |
| ||
State and local |
| 8,383 |
| 43 |
| (2,189 | ) |
| 8,787 |
| 6,268 |
| 8,383 |
| ||
|
| 12,275 |
| 251 |
| 5,843 |
|
| 70,162 |
| 44,803 |
| 12,275 |
| ||
|
|
|
|
|
|
|
| |||||||||
Total tax expense |
| $ | 23,031 |
| 10,137 |
| 6,366 |
|
| $ | 156,023 |
| 72,270 |
| 23,031 |
|
34
Income tax expense attributable to earnings before income taxes differed from the amounts computed using the statutory federal income tax rate of 35% for the following reasons (in thousands):
|
| 2002 |
| 2001 |
| 2000 |
| |
Income tax - statutory rate |
| $ | 26,196 |
| 15,078 |
| 14,854 |
|
State tax, net of Federal effect |
| 1,295 |
| (174 | ) | (1,125 | ) | |
Sale/leaseback benefit |
| (8,021 | ) | (8,021 | ) | (7,863 | ) | |
Mexican joint-venture redemption |
| — |
| 2,331 |
| — |
| |
Change in effective state tax rate, net of federal effect |
| 4,514 |
| — |
| — |
| |
Other, net |
| (953 | ) | 923 |
| 500 |
| |
Total tax expense |
| $ | 23,031 |
| 10,137 |
| 6,366 |
|
|
| 2004 |
| 2003 |
| 2002 |
| |
Income tax - statutory rate |
| $ | 105,798 |
| 58,706 |
| 26,196 |
|
State tax, net of federal effect |
| 6,439 |
| 3,019 |
| 1,295 |
| |
Non-deductible meals and entertainment |
| 6,255 |
| 6,694 |
| 285 |
| |
Sale/leaseback benefit |
| — |
| — |
| (8,021 | ) | |
Reserve for tax contingency |
| 33,600 |
| — |
| — |
| |
Change in effective state tax rate, net of federal effect |
| 2,622 |
| 2,215 |
| 4,514 |
| |
Other, net |
| 1,309 |
| 1,636 |
| (1,238 | ) | |
|
|
|
|
|
|
|
| |
Total tax expense |
| $ | 156,023 |
| 72,270 |
| 23,031 |
|
43
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 20022004 and 20012003, are presented below (in thousands):
|
| 2002 |
| 2001 |
| |
Deferred tax assets: |
|
|
|
|
| |
Claims accruals, principally due to accrual for financial reporting purposes |
| $ | 3,362 |
| 12,419 |
|
Tax credit carryforwards |
| 17,037 |
| 12,181 |
| |
Net operating loss carryforwards |
| 9,382 |
| — |
| |
Accounts receivable, principally due to allowance for doubtful accounts |
| 1,812 |
| 1,635 |
| |
Other |
| 5,560 |
| 1,266 |
| |
Total gross deferred tax assets |
| $ | 37,153 |
| 27,501 |
|
|
| 2002 |
| 2001 |
| |
Deferred tax liabilities: |
|
|
|
|
| |
Plant and equipment, principally due to differences in depreciation and capitalized interest |
| $ | 169,515 |
| 162,406 |
|
Prepaid permits and insurance, principally due to expensing for income tax purposes |
| 16,514 |
| 7,877 |
| |
Sale and leaseback transaction |
| 20,102 |
| 28,123 |
| |
Mexican joint-venture |
| — |
| 3,396 |
| |
Other |
| 23,712 |
| 6,114 |
| |
Total gross deferred tax liabilities |
| 229,843 |
| 207,916 |
| |
Net deferred tax liability |
| $ | 192,690 |
| 180,415 |
|
35
|
| 2004 |
| 2003 |
| |
Deferred tax assets: |
|
|
|
|
| |
Claims accruals, principally due to accruals for financial reporting purposes |
| $ | 1,987 |
| 2,198 |
|
Tax credit carryforwards |
| — |
| 11,392 |
| |
Accounts receivable, principally due to allowance for doubtful accounts |
| 2,541 |
| 3,031 |
| |
Other |
| 7,431 |
| 6,045 |
| |
Total gross deferred tax assets |
| 11,959 |
| 22,666 |
| |
|
|
|
|
|
| |
Deferred tax liabilities: |
|
|
|
|
| |
Plant and equipment, principally due to differences in depreciation and capitalized interest |
| 259,999 |
| 202,508 |
| |
Prepaid permits and insurance, principally due to expensing for income tax purposes |
| 29,963 |
| 29,730 |
| |
Sale-and-leaseback transaction |
| 20,102 |
| 20,102 |
| |
Other |
| 9,550 |
| 7,819 |
| |
Total gross deferred tax liabilities |
| 319,614 |
| 260,159 |
| |
Net deferred tax liability |
| $ | 307,655 |
| 237,493 |
|
We believe our history of profitability and taxable income, the reversal of deferred tax liabilities, and our utilization of tax planning sufficiently supports the carrying amount of the deferred tax assets. Accordingly, we have not recorded a valuation allowance as all deferred tax benefits are more likely than not to be realized.
At December 31, 2002, we had general businessThe Internal Revenue Service (IRS) has proposed to disallow the tax credit carryforwards of approximately $4,174,000 expiring from the year 2007 to 2009, and alternative minimum tax credit carryforwardsbenefits associated with no expiration of approximately $12,863,000.certain sale- and-leaseback transactions.
In 1999, we entered into a series of transactions effecting a sale and leaseback of a portion of our Intermodal container and chassis fleet for a selling price of approximately $175 million. TheseThis transaction was examined by the IRS in an audit of our 1998 and 1999 tax returns. In December 2003, we received an IRS Notice of Proposed Assessment which disallows the tax benefits associated with these transactions, usedand as a structureresult, we have filed an appeal in the matter. We have had preliminary discussions with the IRS Appeals Division and have been informed that the Internal Revenue Service (IRS)IRS Examination Division has recently indicated it intendsbeen instructed to examine.prepare additional work since their case had not been developed adequately for the appellate hearing. To date, we have not been contacted by the IRS Examination Division to provide any additional information for their review. If a resolution of the matter cannot be reached in the appeals process, the IRS will forward a 90 day letter, also known as a Notice of Deficiency. A resolution of the dispute could occur at any point in the administrative process or could extend through a trial and court appeals. If we are unsuccessful in defending this transaction, we could owe additional taxes and interest. In 2003, after receiving the IRS Notice of Proposed Assessment and reviewing applicable accounting literature, we reversed the 2003 expected non-cash tax benefits of approximately $7.7 million recognized during 2003, and suspended any further recognition of the benefit. Based on events occurring subsequent to December 31, 2004, we established a reserve for a contingent tax liability of $33.6 million, including accrued interest expense, which represents all previous tax benefits recognized on these transactions.
44
The liability for this contingency is included on our consolidated balance sheet at December 31, 2004, as a long-term liability. We have voluntarily disclosedcontinue to believe our tax positions comply with applicable tax law for which we received advice and opinions from our external public accountants and attorneys prior to entering into these transactions and we continue to vigorously defend against the IRS position using all administrative and in October 2002, the IRS began their examination of the specific facts of these transactions.legal processes available. If the IRS challenges these transactions, we intend to vigorously defend them. However, if the IRS successfully challenges these transactions, and disallows some or allwere successful in disallowing 100% of the tax benefits that have been realized, these actionsbenefit from this transaction, the total ultimate impact on liquidity could have a material adverse effect on our financial condition and operating results.be approximately $44 million, excluding interest.
(5)(6)Employee Benefit Plans
We maintain a defined contribution employee retirement plan, which includes a 401(k) option, under which all employees are eligible to participate. We match a specified percentage of employee contributions, subject to certain limitations. For the years ended December 31, 2002, 20012004, 2003 and 2000,2002, JBHT matching contributions to the plan were $6,813,000, $7,555,000$6.0 million, $6.2 million and $6,553,000,$6.8 million, respectively.
(6)(7)Fair Value of Significant Financial Instruments
(a)(A)Cash and Cash Equivalents, Accounts Receivable, and Trade Accounts Payable
The carrying amount approximates fair value because of the short maturity of these instruments.
(b)(B)Long-Term Debt
Long-Term Debt
The fair value of the fixed ratefixed-rate debt is presented as the present value of future cash flows discounted using our current borrowing rate for notes of comparable maturity. The calculation arrives at a theoretical amount we would pay a creditworthy third party to assume our fixed ratefixed-rate obligations and not the termination value of these obligations. Consistent with market practices, such termination values may include various prepayment and termination fees that we would contractually be required to pay if we retired the debt early.
The estimated fair values of our financial instruments are summarized as follows (in thousands):
|
| At December 31, 2002 |
| At December 31, 2001 |
| |||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| |
Cash and cash equivalents |
| $ | 80,628 |
| 80,628 |
| 49,245 |
| 49,245 |
|
Trade accounts receivable |
| 237,156 |
| 237,156 |
| 233,246 |
| 233,246 |
| |
Trade accounts payable |
| 117,931 |
| 117,931 |
| 163,291 |
| 163,291 |
| |
Long-term debt: |
|
|
|
|
|
|
|
|
| |
Fixed rate obligations |
| 202,010 |
| 213,397 |
| 223,260 |
| 228,331 |
| |
36
|
| At December 31, 2004 |
| At December 31, 2003 |
| |||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| |
|
| amount |
| fair value |
| amount |
| fair value |
| |
Cash and cash equivalents |
| $ | 23,838 |
| 23,838 |
| 58,112 |
| 58,112 |
|
Trade accounts receivable |
| 289,146 |
| 289,146 |
| 256,032 |
| 256,032 |
| |
Trade accounts payable |
| 180,018 |
| 180,018 |
| 158,886 |
| 158,886 |
| |
Long-term debt: |
|
|
|
|
|
|
|
|
| |
Fixed-rate obligations |
| — |
| — |
| 105,000 |
| 111,003 |
| |
(7)(8)Related Party Transactions
We advancedDuring 2001 and in prior years, we paid premiums on life insurance policies on the lives of our principal stockholderformer Senior Chairman of the Board of Directors, Mr. J.B. Hunt and his wife. In 2002, we ceased advancing premiums onpaying these policies.premiums. All premiums paid by JBHT, along with accrued interest thereon, arewere reimbursable from a trust which iswas the owner and beneficiary of the policy. We haveThe interest rate applied to these premiums receivable varied from time to time, but generally reflected JBHT’s cost of borrowed funds. In December 2004, the entire amount receivable of $11.2 million, including interest was repaid to JBHT. Mr. Hunt retired from his position of Senior Chairman effective December 31, 2004.
45
In April 2004, we sold an aircraft hanger, which the Company had owned since 1993. Net proceeds from this sale totaled $988,000 and we recognized an approximate $532,000 gain on this sale. The hanger was sold to Pinnacle Air Facilities LLC (Pinnacle). Mr. J.B. Hunt, our former Senior Chairman, is a guarantee fromprincipal and a director of Pinnacle. The selling price of the stockholder for the amount of premiums paidhanger was approved by JBHT together with interest at the rate of 5% per annum through June of 2000. In July of 2000 our Board of Directors approvedand was based on a written appraisal of the property prepared by an adjustment to the interest rate to be our average borrowing rate when additional advances were made. The interest rate changed to 7.42% in August 2001 and to 7.39% in July 2002. The amounts reimbursable to JBHT amount to approximately $10,153,000 and $9,049,000 at December 31, 2002 and 2001, respectively, and are included in other assets in our accompanying consolidated balance sheets. See also note 9 for disclosure of transactions with an associated company.independent third-party appraiser.
(8)(9)Commitments and Contingencies
During 1999, we entered into a sale and leasebacksale-and-leaseback transaction for a portion of our container fleet. Containers having a net book value of approximately $175,000,000$175 million were sold to third partythird-party leasing companies at approximate net book value. A gain on the transaction has been deferred and will be amortized to income in relation to rent expense recognized under the leases. The containers are being leased back under operating leases over terms of four to ten10 years. Approximately $5.9 million of this intermodal trailing equipment was repurchased in December 2004. As of December 31, 2004, we had approximately $151 million of obligations remaining under operating lease arrangements related to trailing equipment. We also lease terminal facilities, shuttle yards and computer equipment under operating leases having various terms. None of our operating leases contain any guaranteed residual value clauses. Under the terms of certain lease agreements, we are required to maintain certain covenants, including minimum credit ratings. We were in compliance with these requirements at December 31, 2002.2004.
During 2000, we entered into various capital lease agreements to lease revenue equipment.tractors. These tractors were purchased as the applicable capital leases are secured by revenue equipment with a net book value atreached maturity. At December 31, 2002 of approximately $139,000,000 and contain certain guarantees of residual value at the end of the2004, we had no remaining capital lease terms with fixed price purchase options.obligations.
Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 20022004, are (in thousands):
|
| Capital |
| Operating |
| |
|
|
|
|
|
| |
2003 |
| $ | 34,481 |
| 74,233 |
|
2004 |
| 115,405 |
| 56,414 |
| |
2005 |
| — |
| 53,813 |
| |
2006 |
| — |
| 44,053 |
| |
2007 |
| — |
| 36,716 |
| |
Thereafter |
| — |
| 18,387 |
| |
Total minimum lease payments |
| 149,886 |
| 283,616 |
| |
Less amount representing interest (at rates ranging from 4.2% to 8.5%) |
| 8,596 |
|
|
| |
|
|
|
|
|
| |
Present value of net minimum capital lease payments |
| 141,290 |
|
|
| |
Less current installments of obligations under capital leases |
| 27,138 |
|
|
| |
|
|
|
|
|
| |
Obligations under capital leases excluding current installments |
| $ | 114,152 |
|
|
|
37
|
| Operating |
| |
|
| Leases |
| |
2005 |
| $ | 65,300 |
|
2006 |
| 44,074 |
| |
2007 |
| 36,409 |
| |
2008 |
| 14,135 |
| |
2009 |
| 1,129 |
| |
Thereafter |
| 3,470 |
| |
|
| $ | 164,517 |
|
At December 31, 20022004 and 20012003, gross property and equipment recorded under capital leases was $193,953,000zero and $194,256,000,$110.8 million, respectively.
Total rent expense was $115,084,000$95.0 million in 2002, $98,783,0002004, $109.2 million in 2001,2003, and $87,545,000$115.1 million in 2000, respectively.2002.
At December 31, 2002,2004, we had committed to purchase approximately $184,000,000 of revenueproperty and service equipment purchases, net of expected proceeds from sale or trade-in allowances.allowances on revenue equipment sales and trade ins, of approximately $189 million.
We adopted the provisions of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation requires that we recognize the fair value of guarantee and indemnification arrangements issued or modified by JBHT after December 31, 2002, if these arrangements are within the scope of that Interpretation. In addition, under previously existing generally accepted accounting principles, we continue to monitor the conditions that are subject to the guarantees and indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications when those losses are estimable.46
In 2002,During 2004, we issued financial standby letters of credit as a guarantee of our performance under certain operating lease commitments and insurance policies.self-insurance arrangements. If we default on our commitments under the lease agreements or insurance policies,other arrangements, we are required to perform under these guarantees. The undiscounted maximum amount of our obligation to make future payments in the event of defaults is approximately $27$18.5 million. As of December 31, 2002,2004, no amounts havehad been accrued for any estimated losses under thethese obligations, as it is probable that the suppliers will be able to make all scheduled payments.
The IRS has proposed to disallow the tax benefits associated with a series of transactions effecting a sale and leaseback of intermodal equipment. See Note 5 for additional information.
We are involved in certain other claims and pending litigation arising from the normal conduct of business. Based on the 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, or our results of operations.operations, or our liquidity.
We are currently engaged in an arbitration process with the Burlington Northern Santa Fe (BNSF) railroad to clarify certain financial and operating terms in our Joint Service Agreement (JSA). BNSF provides a significant amount of rail transportation services to our JBI business segment. The JSA is an agreement between BNSF and us, which was signed in 1996, and defines a number of financial and operating arrangements relative to our intermodal business. The JSA specifies arbitration as the method of resolving disagreements if a mediation process does not result in resolution. We were unable to resolve our differences with BNSF through mediation during the second quarter of 2004.
The current arbitration process commenced on July 7, 2004. According to the JSA, any amounts due us or payable to BNSF, determined through the arbitration process, could be retroactive to July 7, 2004. Both parties have continued to exchange and analyze data during late 2004 and early 2005. Formal arbitration proceedings are currently scheduled for April and May of 2005. At this time, we are unable to reasonably predict the outcome of this process and, as such, no gain or loss contingency can be determined or recorded. Normal commercial business activity between the parties, including load tendering, load tracing, billing and payments continues on a timely basis.
(9)(10)Investment in Affiliated Company
In March 2000, we, along with five other motor carriers, announced the intent to contribute all of our non-asset based logistics business into a recently formed joint venture, Transplace, Inc. (TPI). TPI is an Internet-based global transportation logistics company. TPI commenced operations effective July 1, 2000. We contributed all of our logistics segment business and all related intangible assets, plus $5.0 million of cash, in exchange for an approximate 27% initial membership interest in TPI. On December 31, 2002, we acquired an additional 10% interest in TPI from one of the initial members. We account for our approximate 27%37% interest in TPI utilizing the equity method of accounting. No gain or loss was recognized upon formation and contribution of logistics segment assets to TPI. Equity in earnings of TPI was a loss of $1,353,000$2.5 million in 2002. On December 31, 2002, we acquired an additional 10% interest in TPI from one of the initial members.2004.
We provided various services to TPI under a shared serviceshared-service agreement, the terms of which expired on December 31, 2002.2004. The services included the following: payroll and benefits; accounting;primarily computer system maintenance; office facilities;operations and telecommunications.maintenance. The fees from these services approximated $6,299,000$5.4 million in 2004 and $6,483,000$6.3 million in 2002 and 2001, respectively,2003, and were recorded in the
47
consolidated statement of earnings as reimbursements of salaries, wages and employee benefits and general and administrative expenses. An agreement for similar services was signed in early 2005.
We earned revenues of $40,406,000$67.9 million and $69,696,000$57.6 million from TPI in providing transportation services during 20022004 and 2001,2003, respectively.
At December 31, 20022004 and 2001,2003, trade accounts receivable included $2,383,000$9.1 million and $4,198,000,$7.6 million, respectively, due from TPI for freight and fees related to the shared serviceshared-service agreement.
38
For the years ending December 31, 20022004 and 2001,2003, we incurred approximately $34,994,000$3.3 million and $32,649,000,$14.3 million, respectively, in purchased transportation expense as a result of TPI providing transportation services.
(10)(11)Segment Information
We have three reportable business segments, Truck (JBT), Intermodal (JBI), and Dedicated Contract Services (DCS). JBT business includes full truck-load dry-van freight which is typically transported utilizing company-owned or controlled revenue equipment. This freight is typically transported over roads and highways and does not move by rail. The JBI segment includes freight whichthat is transported by rail over at least some portion of the movement and also includes certain repositioning truck freight moved by JBI equipment or third-party carriers, when such highway movement is intended to direct JBI equipment back toward intermodal operations. DCS segment business typically includes company-owned revenue equipment and employee drivers whichthat are assigned to a specific customer, traffic lane or service. DCS operations usually include formal, written long-term agreements or contracts which govern services performed and applicable rates.
Prior to July 1, 2000, the Logistics business segment primarily consisted of J. B. Hunt Logistics (JBL) a wholly-owned subsidiary which provided a wide range of comprehensive transportation and freight management services. Such services included experienced professional managers, information and optimization technology and the actual design or redesign of freight system solutions. JBL utilized JBT, JBI or DCS owned or controlled assets and employees, third-party carriers, or a combination of these options to meet customer service requirements. JBL services typically were provided in accordance with written long-term agreements. As discussed in Note 9, we exchanged our ownership in JBL for an initial membership interest in TPI. Effective July 1, 2000, we began accounting for our ownership in TPI utilizing the equity method of accounting. As of December 31, 2000, TPI qualified as a reportable business segment and, accordingly, the Logistics segment information shown below includes both JBL and TPI. Information for TPI included in the following tables is the entity’s results of operations without regard to our ownership interest which is then subtracted in reconciling to the consolidated statement of earnings.
Our customers are geographically dispersed across the United States and include many of the “Fortune 500” companies.States. One customer accounted for approximately 18%15%, 16%13% and 12%18% of consolidated operating revenues in 2002, 20012004, 2003 and 2000,2002, respectively. A summary of certain segment information is presented below (in millions):
|
| Assets |
| |||||
|
| 2002 |
| 2001 |
| 2000 |
| |
Truck |
| $ | 844 |
| 892 |
| 871 |
|
Intermodal |
| 227 |
| 172 |
| 128 |
| |
Logistics |
| — |
| — |
| 33 |
| |
Dedicated Contract Services |
| 227 |
| 179 |
| 138 |
| |
Other (includes corporate and intersegment eliminations) |
| 21 |
| 17 |
| 62 |
| |
Total |
| $ | 1,319 |
| 1,260 |
| 1,232 |
|
|
| Assets |
| |||||
|
| 2004 |
| 2003 |
| 2002 |
| |
JBT |
| $ | 703 |
| 729 |
| 817 |
|
JBI |
| 490 |
| 329 |
| 225 |
| |
DCS |
| 314 |
| 242 |
| 207 |
| |
Other (includes corporate) |
| (15 | ) | 56 |
| 74 |
| |
Total |
| $ | 1,492 |
| 1,356 |
| 1,323 |
|
|
| Revenues |
| |||||
|
| 2004 |
| 2003 |
| 2002 |
| |
JBT |
| $ | 928 |
| 841 |
| 827 |
|
JBI |
| 1,115 |
| 936 |
| 809 |
| |
DCS |
| 760 |
| 671 |
| 628 |
| |
Total segment revenues |
| 2,803 |
| 2,448 |
| 2,264 |
| |
Inter-segment eliminations |
| (17 | ) | (15 | ) | (16 | ) | |
Total |
| $ | 2,786 |
| 2,433 |
| 2,248 |
|
3948
|
| Revenues |
| |||||
|
| 2002 |
| 2001 |
| 2000 |
| |
Truck |
| $ | 827 |
| 829 |
| 834 |
|
Intermodal |
| 809 |
| 740 |
| 681 |
| |
Logistics |
| — |
| — |
| 727 |
| |
Dedicated Contract Services |
| 628 |
| 549 |
| 479 |
| |
Total segment revenues |
| 2,264 |
| 2,118 |
| 2,721 |
| |
Inter-segment eliminations |
| (16 | ) | (18 | ) | (63 | ) | |
Less revenues of equity method investee |
| — |
| — |
| (498 | ) | |
Consolidated statements of earnings amount |
| $ | 2,248 |
| 2,100 |
| 2,160 |
|
|
| Operating Income |
| |||||
|
| 2004 |
| 2003 |
| 2002 |
| |
JBT |
| $ | 103 |
| 49 |
| 27 |
|
JBI |
| 131 |
| 91 |
| 55 |
| |
DCS |
| 75 |
| 45 |
| 20 |
| |
Other |
| 1 |
| 1 |
| (1 | ) | |
Total |
| $ | 310 |
| 186 |
| 101 |
|
|
| Operating income |
| |||||
|
| 2002 |
| 2001 |
| 2000 |
| |
Truck |
| $ | 27 |
| 9 |
| (7 | ) |
Intermodal |
| 55 |
| 42 |
| 37 |
| |
Logistics |
| — |
| — |
| 9 |
| |
Dedicated Contract Services |
| 20 |
| 17 |
| 28 |
| |
Other |
| (1 | ) | 4 |
| (3 | ) | |
Total segment operating income |
| $ | 101 |
| 72 |
| 64 |
|
Less operating income of equity method investee |
| — |
| — |
| (1 | ) | |
Consolidated statements of earnings amount |
| $ | 101 |
| 72 |
| 63 |
|
|
| Depreciation Expense |
| |||||
|
| 2004 |
| 2003 |
| 2002 |
| |
JBT |
| $ | 61 |
| 67 |
| 69 |
|
JBI |
| 22 |
| 20 |
| 19 |
| |
DCS |
| 56 |
| 51 |
| 49 |
| |
Other |
| 11 |
| 12 |
| 9 |
| |
Total |
| $ | 150 |
| 150 |
| 146 |
|
|
| Depreciation expense | ||||||
|
| 2002 |
| 2001 |
| 2000 |
| |
Truck |
| $ | 69 |
| 70 |
| 65 |
|
Intermodal |
| 19 |
| 21 |
| 23 |
| |
Dedicated Contract Services |
| 49 |
| 44 |
| 36 |
| |
Other |
| 9 |
| 8 |
| 10 |
| |
Total |
| $ | 146 |
| 143 |
| 134 |
|
40
(11)(12)Quarterly Financial Information (Unaudited)
Operating results by quarter for the years ended December 31, 20022004 and 20012003, are as follows (in thousands, except per share data):
|
| Quarter |
|
| Quarter |
| ||||||||||||||
|
| First |
| Second |
| Third |
| Fourth |
|
| First |
| Second |
| Third |
| Fourth |
| ||
2002: |
|
|
|
|
|
|
|
|
| |||||||||||
2004: |
|
|
|
|
|
|
|
|
| |||||||||||
Operating revenues |
| $ | 510,221 |
| 557,328 |
| 582,671 |
| 597,666 |
|
| $ | 617,698 |
| 679,037 |
| 718,614 |
| 770,805 |
|
Operating income |
| $ | 13,631 |
| 28,509 |
| 28,026 |
| 30,797 |
|
| $ | 58,217 |
| 79,174 |
| 82,669 |
| 90,163 |
|
Net earnings |
| $ | 4,854 |
| 15,479 |
| 16,756 |
| 14,727 |
|
| $ | 32,974 |
| 45,625 |
| 47,875 |
| 19,782 |
|
Basic earnings per share |
| $ | 0.13 |
| 0.42 |
| 0.43 |
| 0.37 |
|
| $ | .41 |
| .57 |
| .59 |
| .24 |
|
Diluted earnings per share |
| $ | 0.13 |
| 0.40 |
| 0.42 |
| 0.37 |
|
| $ | .40 |
| .55 |
| .57 |
| .24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
2001: |
|
|
|
|
|
|
|
|
| |||||||||||
2003: |
|
|
|
|
|
|
|
|
| |||||||||||
Operating revenues |
| $ | 495,419 |
| 521,489 |
| 537,156 |
| 546,241 |
|
| $ | 571,213 |
| 599,866 |
| 621,644 |
| 640,746 |
|
Operating income |
| $ | 8,367 |
| 15,818 |
| 11,950 |
| 36,074 |
|
| $ | 23,860 |
| 46,440 |
| 57,575 |
| 57,760 |
|
Net earnings |
| $ | 1,645 |
| 8,568 |
| 4,549 |
| 18,183 |
|
| $ | 11,178 |
| 25,129 |
| 32,661 |
| 26,491 |
|
Basic earnings per share |
| $ | 0.05 |
| 0.24 |
| 0.13 |
| 0.51 |
|
| $ | .14 |
| .32 |
| .41 |
| .33 |
|
Diluted earnings per share |
| $ | 0.05 |
| 0.24 |
| 0.12 |
| 0.50 |
|
| $ | .14 |
| .31 |
| .40 |
| .32 |
|
4149
ITEM 9.9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months prior to December 31, 2002 involving a change of accountants or disagreements on accounting and financial disclosure.None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the SEC rules. Based on an evaluation of our disclosure controls and procedures, as of the end of the period covered by this report, and conducted by our management, with the participation of our Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers believe that these controls and procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in our reports filed with the SEC within the required time periods.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on our assessment, we believe that as of December 31, 2004, our internal control over financial reporting is effective based on those criteria.
Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004, has been audited by KPMG LLP, the independent registered public accounting firm that also audited our consolidated financial statements. KPMG LLP’s attestation report on management’s assessment of our internal control over financial reporting appears on page 30 of this report.
ITEM 9B. OTHER INFORMATION
None
50
ITEM 10.10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORSDirectors
The schedule of directors is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 24, 2003 set forth under section entitled “Proposal One Election of Directors.”21, 2005.
EXECUTIVE OFFICERSExecutive Officers
Information with respect to ourThe schedule of executive officers is set forth in Item 4 of this Report under the caption “Our Executive Officers.“Executive Officers of the Registrant.”
Code of Ethics
The Company has adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer/controller, and all other officers, employees, and directors. Our code of ethics is available on our Internet website at www.jbhunt.com. If we make substantive amendments to this code of ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K within four days of such amendment or waiver.
Corporate Governance
In complying with the new rules and regulations required by the Sarbanes-Oxley Act of 2002, NASDAQ, PCAOB, and others, we have attempted to do so in a manner that clearly meets legal requirements, but does not create a bureaucracy of forms, checklists and other inefficient or expensive procedures. We have adopted a code of conduct, code of ethics, whistleblower policy and charters for all of our Board of Director Committees and other formal policies and procedures. Most of these items are available on our Company website, www.jbhunt.com. If we make significant amendments to our code of ethics or whistleblower policy, or grant any waivers to these items, we will disclose such amendments or waivers on our website or in a report on Form 8-K within four days of such action.
ITEM 11.11. EXECUTIVE COMPENSATION
The information required for Item 11 is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held on April 21, 2005.
ITEM 12.12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The information required for Items 11 andItem 12 is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held on April 24, 2003 set forth under sections entitled “Principal Stockholders of the Company,” “Report of the Compensation Committee,” “2003 Performance-based Compensation,” and “Compensation Committee Interlocks and Insider Participation.”21, 2005.
ITEM 13.13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for Item 13 is hereby incorporated by reference from Note (7)(8) Related Party Transactions and Note (9)(10) Investment in Affiliated Company of the Notes to Consolidated Financial Statements and from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held on April 24, 2003 set forth under21, 2005.
51
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required for Item 14 is hereby incorporated by reference from the section entitled “Compensation Committee InterlocksNotice and Insider Participation.”Proxy Statement for Annual Meeting of Stockholders to be held on April 21, 2005.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in alerting them, in a timely manner, to material information required to be disclosed by us in our periodic reports to the Securities and Exchange Commission. In addition, the CEO and CFO determined that there were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their most recent evaluation.
42
PART IV
ITEM 15.15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a)(A) Financial Statements, Financial Statement Schedules and Exhibits:
(1) Financial Statements
The financial statements included in Item 8 above are filed as part of this filing are listed on the index to Consolidated Financial Statements, Item 8, on page 21.annual report.
(3) Exhibits
The response to this portion of Item 1415 is submitted as a separate section of this report on Form 10-K (“Exhibit Index”) on page 47.54.
(b) Reports on Form 8-K52
On November 21, 2002, we filed a current report on Form 8-K announcing that we had reached an agreement in principle with Werner Enterprises, Inc. to transfer a portion of Werner Enterprises’ ownership interest in Transplace, Inc. to J.B. Hunt.
On November 25, 2002, we filed a current report on Form 8-K announcing that an agreement had been reached with Freightliner LLC for a comprehensive truck sale and trade package for 2003.
On January 30, 2003, we filed a current report on Form 8-K announcing our financial results for the fourth quarter and year ended December 31, 2002.
43
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Lowell, Arkansas, on the 10th11th day of March 2003.2005.
|
| J. B. HUNT TRANSPORT SERVICES, INC. | ||||||
|
| (Registrant) |
| |||||
|
|
| ||||||
| By: | /s/ | Kirk Thompson |
| ||||
|
|
| Kirk Thompson | |||||
|
|
| President and Chief Executive Officer | |||||
|
|
| ||||||
| By: | /s/ | Jerry W. Walton |
| ||||
|
|
| Jerry W. Walton | |||||
|
|
| Executive Vice President, Finance and Administration, | |||||
|
|
| Chief Financial Officer | |||||
|
|
| ||||||
| By: | /s/ | Donald G. Cope |
| ||||
|
|
| Donald G. Cope | |||||
|
|
| Senior Vice President, Controller, | |||||
|
|
| Chief Accounting Officer | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on the 10th11th day of March 20032005, on behalf of the registrant and in the capacities indicated.
| /s/ | John A. Cooper, Jr. |
| Member of the Board | |
| of Directors | ||||
| John A. Cooper, Jr. | ||||
|
|
| |||
| /s/ | Wayne Garrison |
| Member of the Board of Directors | |
|
| Wayne Garrison |
| ||
|
|
| |||
| /s/ |
|
| Member of the Board | |
| of Directors | ||||
| Thomas L. Hardeman | ||||
|
|
| |||
| /s/ |
|
| Member of the Board | |
| of Directors | ||||
| J. Bryan Hunt, Jr. | ||||
|
|
| |||
| /s/ |
|
| Member of the Board of Directors | |
| Johnelle D. Hunt |
|
| ||
|
|
| |||
| /s/ |
|
| Member of the Board of Directors | |
|
|
|
|
| |
|
|
| |||
| /s/ |
|
| Member of the Board of Directors | |
|
|
|
|
| |
|
|
| |||
| /s/ |
|
| Member of the Board | |
| of Directors | ||||
| Kirk Thompson | (President and Chief Executive Officer) | |||
|
|
| |||
| /s/ |
|
| Member of the Board of Directors | |
|
|
|
|
| |
|
|
| |||
| /s/ |
|
| ||
|
| ||||
| John A. White |
| Member of the Board of Directors | ||
|
| John A. White |
|
4453
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
J.B. Hunt Transport Services, Inc.
I, Kirk Thompson, certify that:
1. I have reviewed this annual report on Form 10-K of J.B. Hunt Transport Services, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|
| |
| ||
|
45
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
J.B. Hunt Transport Services, Inc.
I, Jerry W. Walton, certify that:
1. I have reviewed this annual report on Form 10-K of J.B. Hunt Transport Services, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|
| |
| ||
|
46
EXHIBIT INDEX
Exhibit | |||
Number | Description | ||
|
|
| |
3A |
| The Company’s Amended and Restated Articles of Incorporation dated May 19, 1988 (incorporated by reference from Exhibit 4A of the Company’s S-8 Registration Statement filed April 16, 1991; Registration Statement Number 33-40028) | |
|
|
| |
3B |
| The Company’s Amended Bylaws dated September 19, 1983 (incorporated by reference from Exhibit 3C of the Company’s S-1 Registration Statement filed February 7, 1985; Registration Number 2-95714) | |
|
|
| |
10A |
| Material Contracts of the Company (incorporated by reference from Exhibits 10A-10N of the Company’s S-1 Registration Statement filed February 7, 1985; Registration Number 2-95714) | |
|
|
| |
10B |
| The Company has an Employee Stock Purchase Plan filed on Form S-8 on February 3, 1984 (Registration Number 2-93928), and a Management Incentive Plan filed on Form D-8 on April 16, 1991 (Registration Number 33-40028). The Management Incentive Plan is | |
|
|
| |
21 |
| Subsidiaries of J.B. Hunt Transport Services, Inc. | |
|
|
| |
23 |
| Consent of KPMG LLP | |
|
|
| |
| 31.1 |
| Certification of Chief Executive Officer pursuant to Section |
|
|
| |
| 31.2 |
| Certification of Chief Financial Officer pursuant to Section |
32.1 | Certification of Chief Executive Officer pursuant to Section 1350 of the | ||
32.2 | Certification of Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 |
4754