Annual Report 2019 Percent of Revenue by Industry
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J.B. HUNT TRANSPORT SERVICES, INC. 2019 NOTICE OF ANNUAL MEETING, PROXY STATEMENT AND ANNUAL REPORT With more than 58 years of experience, J.B. Hunt continues to raise the expectations for companies in transportation and logistics. The company was founded by an entrepreneur which created a culture that places innovation at its core. Over the past few years, J.B. Hunt has taken unprecedented approaches to tackle some of the industry’s biggest challenges, such as uncovering new available capacity, improving the day-to-day experience for truck drivers, and enhancing its trucking fl eet to continue being one of the safest on the road. Table of Contents Letter to our Stockholders and Employees 3 Notice of Annual Meeting of Stockholders 8 Proxy Statement 9 Proxy Summary 9 Proposal Number One – Election of Directors 22 Information About the Board 22 Nominees for Director 23 Director Compensation 28 Executive Officers of the Company 30 Security Ownership of Management 31 Corporate Governance 33 Audit Committee 40 Executive Compensation Committee 41 Nominating and Corporate Governance Committee 42 Principal Stockholders of the Company 44 Executive Compensation 45 Compensation Discussion and Analysis 45 Process of Setting Compensation 48 2019 Compensation 54 Summary Compensation 61 Grants of Plan-Based Awards 62 Outstanding Equity Awards at Calendar Year-end 64 Restricted Share Units Vested 66 Nonqualified Deferred Compensation 67 Potential Post-Employment Benefits 68 CEO Pay Ratio 69 Report of the Executive Compensation Committee 71 Proposal Number Two – Advisory Vote on Executive Compensation 72 Report of the Audit Committee 74 Proposal Number Three – Ratification of Independent Registered Public Accounting Firm 75 Proposal Number Four – Stockholder Proposal Regarding Reporting Political Contributions 78 Proposal Number Five – Stockholder Proposal Seeking a Report on Climate Change Initiatives 81 Questions and Answers About the Proxy Materials and the Annual Meeting 86 J.B. HUNT TRANSPORT SERVICES, INC. Table of Contents 1 Table of Contents 2019 Annual Report PART I Item 1. Business 96 Item 1A. Risk Factors 100 Item 1B. Unresolved Staff Comments 103 Item 2. Properties 104 Item 3. Legal Proceedings 105 Item 4. Mine Safety Disclosures 105 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 106 Item 6. Selected Financial Data 108 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 109 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 119 Item 8. Financial Statements and Supplementary Data 120 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 120 Item 9A. Controls and Procedures 121 Item 9B. Other Information 121 PART III Item 10. Directors, Executive Officers and Corporate Governance 122 Item 11. Executive Compensation 122 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 122 Item 13. Certain Relationships and Related Transactions, and Director Independence 122 Item 14. Principal Accounting Fees and Services 122 PART IV Item 15. Exhibits, Financial Statement Schedules 123 Signatures 125 Index to Consolidated Financial Information 126 Revenue By Industry 155 2 J.B. HUNT TRANSPORT SERVICES, INC. Table of Contents To Our Stockholders and Employees, Beyond $10,000,000,000.00 First, would you look at that number? When we set that goal in 2010, it seemed extraordinary. It was a big number that needed even bigger ideas to help us close the gap between $3B and $10B. We used rigorous techniques to set the goal based on history and our participation as segment leaders, so we were confident. And J.B. Hunt is no stranger to big ideas. We challenged every person in our organization to “Think Big.” And here we are, in 2020, on the cusp of achieving exactly what we set out to do. We’ve taken some big steps to help us get to where we are today. In 2017, we committed to profoundly changing the way our customers and carriers do business with us. Carrier 360™ by J.B. Hunt was launched and has grown to encompass more than 100,000 users. We completed the build out of our Engineering and Technology teams – now totaling 1,200 employees. Last year we opened a Training and Technology Center on our campus and a new workspace in Fayetteville to accommodate the growth of these teams. We see these steps as fundamental to our ability to respond to the fast-developing, ever-changing supply chain environment. Of course, it all comes down to the people who commit to getting the job done every day. Our company’s success is directly attributed to the work of over 29,000 employees. We have adopted a saying internally that captures the essence of our approach: Bigger, Stronger, Better… Together. This approach will guide us as we prepare to take our next big steps in 2020. “To Create the Most Efficient Transportation Network in North America” This is a bold ambition for sure. The addressable North American transportation market is in excess of $444 billion. This mission lays the foundation for the next part of our journey. Growth of our brokerage business unit, currently known as Integrated Capacity Solutions™ (ICS), has shaped our views on how we can grow the scope and scale of services to our customers. During the past decade, a traditional approach has established J.B. Hunt as a top 10 provider in third-party logistics and a top 5 provider in the final mile delivery of big and bulky consumer goods. As the models of ICS and Final Mile Services® (FMS) have revealed, we see exponential opportunity in blending our unique, legacy business models with the scalable capacity of third-party carriers to deliver on our customers’ expectations. Success in these areas serves as further evidence of how we think differently about value-added services as opposed to maintaining the status quo. Freight Management in the Digital Age The competitive landscape for transportation companies is changing dramatically. Competition from software-based startups and expansion from traditional competitors J.B. HUNT TRANSPORT SERVICES, INC. Letter to Our Stockholders and Employees 3 Letter to Our Stockholders and Employees warrants a different mindset on the future of freight, management and carrier engagement. In most other industries customer expectations demand a mobile-first, real-time experience. With J.B. Hunt 360°® the opportunity to shape the next phase of transportation management is upon us. We anticipate a more aggressive growth curve than what we’ve aimed for in the past. We will improve cost, capacity and service to our customers while cementing our reputation with carriers as THE premier platform for finding and accepting loads and managing load details. In 2020, we will release shipment booking and pricing features in Shipper 360™ that will lead the industry and create new growth opportunities for J.B. Hunt. Our long- standing relationships with our current customers are as paramount as ever. But as we look to the future, we will rely on our technology to drive shifts in our sales processes. This evolution began in 2019 with the re-organization of our sales teams to serve a wider range of current and prospective customers. Now, as we prepare to launch a new, more powerful shipping platform, our use of technology and people will align more closely than ever to help us reach into new markets. The limiting factor to growth will be technical systems capabilities versus the buying of company-owned assets and hiring and placement of employees. We anticipate potential operating income pressure in the business segments most closely related to the development of J.B. Hunt 360°. We are making investments in this technology over the next 12 to 18 months. Like any long-term investment, the returns will be part of a greater vision for the future. Our ultimate goal is to realize accelerated growth in revenues, load counts and overall productivity for these business units. The near-term cost challenges in these areas relate to three categories: adding people to support operations until we can leverage automation and scale to achieve profitability, further technology development and cyclical gross margin pressure. As we have in the past, we will take the same disciplined approach to capital investment only in areas we feel will generate the strongest risk-adjusted returns, and we will pursue growth in these channels as we see clear evidence that the initial thoughts on scale, profitability and returns are presented. How to Measure Success • Grow legacy business lines and maintain profitability • Increase the number of J.B. Hunt 360° accounts and users • Increase daily user engagement inside of J.B. Hunt 360° • Leverage technology to drive efficiencies • Increase profitability per load Expanding The Final Mile The addressable market in home delivery of big and bulky consumer goods through our FMS model is approximately $14 billion and growing. Historically, FMS has been a component of Dedicated Contract Services® (DCS). This year, FMS will become its own stand-alone business unit and be a key component of our expansion and growth strategy. 4 J.B. HUNT TRANSPORT SERVICES, INC. Letter To Our Stockholders and Employees Letter to Our Stockholders and Employees In 2017, J.B. Hunt made its first acquisition in over 26 years with the purchase of Special Logistics Dedicated, LLC. Our progress with this acquisition outperformed our expectations and in 2019 we went forward with two more acquisitions: Cory 1st Choice Home Delivery and RDI Last Mile Co. These additions to the J.B. Hunt family will help us get a foothold in service and market areas faster than what we could establish organically. There is clear and compelling evidence that modern e-commerce consumers demand convenient and fully transparent delivery services.