<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11757
J.B. HUNT TRANSPORT SERVICES, INC.
(Exact name of registrant as specified in its charter)
Arkansas 71-0335111
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
615 J.B. Hunt Corporate Drive, Lowell, Arkansas 72745
(Address of principal executive offices, and Zip Code)
(501) 820-0000
(Registrant's telephone number, including area code)
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.
Yes X No
----- -----
The number of shares of the Company's $.01 par value common stock
outstanding on September 30, 1998 was 35,603,156.
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim condensed consolidated financial statements contained herein
reflect all adjustments which, in the opinion of management, are necessary for a
fair statement of financial condition, results of operations and cash flows for
the periods presented. They have been prepared in accordance with Rule 10-01 of
Regulation S-X and do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Operating results for the three and nine-month periods ended September 30, 1998
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998.
The interim condensed consolidated financial statements have been
reviewed by KPMG Peat Marwick LLP, independent public accountants.
These interim condensed consolidated financial statements should be read
in conjunction with the Company's latest annual report and Form 10-K for the
year ended December 31, 1997.
INDEX
<TABLE>
<S> <C>
Condensed Consolidated Statements of Earnings for the Three and
Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . Page 3
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31,1997 . . . . . . . . . . . . . . Page 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . Page 5
Notes to Condensed Consolidated Financial Statements
as of September 30, 1998. . . . . . . . . . . . . . . . . . . . . . Page 6
Review Report of KPMG Peat Marwick LLP . . . . . . . . . . . . . . . . . Page 8
ITEM 2.
Management's Discussion and Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . . . . . Page 9
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk . . . Not Applicable
</TABLE>
2
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
- ----------------------------------------------------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 473,388 $ 388,460 $ 1,347,839 $ 1,139,059
Operating expenses
Salaries, wages and employee 165,722 135,394 470,561 390,126
Purchased transportation 161,354 131,700 453,746 372,661
Fuel and fuel taxes 34,537 32,968 101,895 107,064
Depreciation 35,655 31,709 101,133 98,187
Operating supplies and expenses 24,508 23,237 69,849 69,063
Insurance and claims 8,803 9,780 23,408 29,893
General and administrative 7,298 4,447 17,568 15,653
Operating taxes and licenses 5,891 6,137 17,901 18,564
Communication and utilities 5,195 4,050 14,083 12,236
- ----------------------------------------------------------------------------------------
Total operating expenses 448,963 379,422 1,270,144 1,113,447
- ----------------------------------------------------------------------------------------
Operating income 24,425 9,038 77,695 25,612
Interest expense 7,207 5,938 21,012 18,588
- ----------------------------------------------------------------------------------------
Earnings before income taxes 17,218 3,100 56,683 7,024
Income taxes 6,371 1,178 20,728 2,669
- ----------------------------------------------------------------------------------------
Net earnings $ 10,847 $ 1,922 $ 35,955 $ 4,355
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Average common shares outstanding 35,597 36,387 35,574 36,530
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Basic earnings per share $ 0.30 $ 0.05 $ 1.01 $ 0.12
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Average diluted shares outstanding 36,702 36,469 36,775 36,563
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Diluted earnings per share $ 0.30 $ 0.05 $ 0.98 $ 0.12
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSET
Current assets:
Cash and cash equivalents $ 5,133 $ 3,701
Accounts receivable 192,836 169,198
Prepaid expenses 20,720 24,716
Deferred income taxes 2,337 2,337
- -------------------------------------------------------------------------------
Total current assets 221,026 199,952
- -------------------------------------------------------------------------------
Property and equipment 1,376,223 1,217,478
Less accumulated depreciation 461,874 420,671
- -------------------------------------------------------------------------------
Net property and equipment 914,349 796,807
- -------------------------------------------------------------------------------
Other assets 21,646 25,160
- -------------------------------------------------------------------------------
$ 1,157,021 $ 1,021,919
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 15,600 $ 17,500
Trade accounts payable 136,534 138,509
Claims accruals -- 22,306
Accrued payroll 32,607 16,096
Other accrued expenses 20,643 10,677
- -------------------------------------------------------------------------------
Total current liabilities 205,384 205,088
- -------------------------------------------------------------------------------
Long-term debt 417,292 322,790
Claims accruals 18,182 15,168
Deferred income taxes 149,690 140,909
Stockholders' equity 366,473 337,964
- -------------------------------------------------------------------------------
$ 1,157,021 $ 1,021,919
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
- ----------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 35,955 $ 4,355
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, net of gain on disposition of equipment 101,133 98,187
Deferred income taxes 8,781 1,050
Termination of restricted stock (23) --
Tax benefit (expense) of stock options exercised 919 (33)
Changes in assets and liabilities:
Accounts receivable (23,638) (424)
Prepaid expenses 3,996 16,700
Trade accounts payable (1,975) 10,511
Claims accruals (19,292) (2,616)
Accrued payroll and other accrued expenses 26,477 4,606
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 132,333 132,336
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (253,980) (147,655)
Proceeds from sale of equipment 35,305 108,972
Decrease (increase) in other assets 3,514 (1,014)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (215,161) (39,697)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) of long-term debt 95,000 (5,000)
Net payments under commercial paper program (2,398) (62,736)
Proceeds from sale of treasury stock 2,792 296
Repurchase of treasury stock (5,814) (10,481)
Dividends paid (5,320) (5,502)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 84,260 (83,423)
- ----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,432 9,216
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 3,701 3,786
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,133 $ 13,002
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 20,312 $ 18,421
Income taxes (1,193) (6,895)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
9/30/98 12/31/97
-------- --------
<S> <C> <C>
Commercial paper $130,600 $132,500
Senior notes payable, interest at 7.00%
payable semiannually, due 9/15/04 100,000 --
Senior notes payable, interest at 6.25%
payable semiannually, due 9/1/03 98,260 98,260
Senior notes payable, interest at 7.84%
payable semiannually 5,000 10,000
Senior notes payable, interest at 6.25%
payable semiannually, due 11/17/00 25,000 25,000
Senior notes payable, interest at 6.00%
payable semiannually, due 12/12/00 25,000 25,000
Senior subordinated notes, interest at 7.80%
payable semiannually 50,000 50,000
-------- --------
433,860 340,760
Less current maturities (15,600) (17,500)
Unamortized discount (968) (470)
-------- --------
$417,292 $322,790
-------- --------
-------- --------
</TABLE>
The Company is authorized to issue up to $240 million in notes under its
commercial paper note program. These notes are supported by two credit
agreements with a group of banks. One agreement for $120 million expires
March 12, 1999 and $120 million expires March 20, 2002.
The 7.00% senior notes were issued on September 10, 1998 and are due on
September 15, 2004.
The 6.25% senior notes were issued on September 1, 1993 and are due on
September 1, 2003.
The 7.84% senior notes were issued on March 31, 1992 and are payable in
five equal annual installments commencing on March 31, 1995.
The 6.25% senior notes were issued on November 17, 1995 and are due on
November 17, 2000.
The 6.00% senior notes were issued on December 12, 1995 and are due on
December 12, 2000.
The 7.80% senior subordinated notes were issued on October 30, 1992 and
are payable in five equal annual installments beginning October 30, 2000.
6
<PAGE>
2) CAPITAL STOCK
The Company maintains a Management Incentive Plan that provides various
vehicles to compensate key employees with Company common stock. A summary of
the restricted and non-statutory options to purchase Company common stock
follows:
<TABLE>
<CAPTION>
Weighted average Number of
Number of exercise price shares
shares per share exercisable
--------- ---------------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1997 3,039,925 $16.70 274,225
-------
Granted 202,000 26.60 -------
Exercised (174,735) 16.73
Terminated (151,200) 16.64
--------- ------
Outstanding at September 2,915,990 $17.50 328,165
--------- ------ -------
--------- ------ -------
</TABLE>
On October 15, 1998, the Company's Board of Directors declared a regular
quarterly cash dividend of $.05 per share payable on November 23, 1998 to
stockholders of record on November 3, 1998.
3) NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Financial Accounting Standards Board Statement No.
128, Earnings Per Share (SFAS 128), as of December 31, 1997. Accordingly,
earnings per share amounts for the three and nine months ended September 30,
1998 and 1997 have been computed based on the following:
<TABLE>
<CAPTION>
(in thousands, except per share data)
-------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator (net earnings) $10,847 $ 1,922 $35,955 $ 4,355
Denominator - Basic earnings per share
Weighted average shares outstanding 35,597 36,387 35,574 36,530
------- ------- ------- -------
------- ------- ------- -------
Basic earnings per share $ .30 $ .05 $ 1.01 $ .12
------- ------- ------- -------
------- ------- ------- -------
Denominator - Diluted earnings per share
Weighted average share outstanding 35,597 36,387 35,574 36,530
Effect of common stock options 1,105 82 1,201 33
------- ------- ------- -------
Weighted average shares assuming dilution 36,702 36,469 36,775 36,563
------- ------- ------- -------
------- ------- ------- -------
Diluted earnings per share $ .30 $ .05 $ .98 $ .12
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Options to purchase shares of common stock which were outstanding during
the periods indicated above, but were not included in the computation of
diluted earnings per share because the option price was greater than the
average market price of the common shares, are shown below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Number of shares
under option 162,000 4,428,750 144,500 4,457,750
Range of exercise
price $26.00-$37.50 $16.75-$24.63 $28.13-$37.50 $15.63-$24.63
</TABLE>
7
<PAGE>
The Company adopted Financial Accounting Standards Board Statement No.
130, Reporting Comprehensive Income (SFAS 130), as of January 1, 1998. SFAS
130 establishes standards for reporting and displaying comprehensive income
and its components in a financial statement that is displayed with the same
prominence as other financial statements. SFAS No. 130 also requires the
accumulated balance of other comprehensive income to be displayed separately
in the equity section of the consolidated balance sheet. The accumulated
balance of other comprehensive income of each of September 30, 1998 and
December 31, 1997 was $5.6 million. The adoption of this Statement had no
material impact on net earnings or stockholders' equity. Comprehensive
income was equal to net earnings during the three and nine months ended
September 30, 1998 and 1997.
4) RECLASSIFICATIONS
Certain amounts for 1997 have been reclassified to conform to the 1998
classifications.
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
The Board of Directors
J.B. Hunt Transport Services, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
J.B. Hunt Transport Services, Inc. and subsidiaries as of September 30, 1998,
and the related condensed consolidated statements of earnings for the
three-month and nine-month periods ended September 30, 1998 and 1997 and the
condensed consolidated statements of cash flows for the nine-month periods
ended September 30, 1998 and 1997. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of J.B. Hunt Transport Services,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended (not presented herein); and in our report dated January 30, 1998,
we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1997, is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
Little Rock, Arkansas
October 14, 1998
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the attached
interim condensed consolidated financial statements and notes thereto, and
with the Company's audited consolidated financial statements and notes
thereto for the calendar year ended December 31, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THIRD QUARTER 1998 TO THIRD QUARTER 1997
The following table sets forth items in the Condensed Consolidated
Statements of Earnings as a percentage of operating revenues and the
percentage increase or decrease of those items as compared with the prior
period.
<TABLE>
<CAPTION>
Three Months Ended September 30
--------------------------------------
Percentage of Percentage Change
Operating Revenues Between Quarters
------------------ -----------------
1998 1997 1998 vs. 1997
------ ------ -----------------
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 21.9%
Operating expenses
Salaries, wages and employee benefits 35.0% 34.9% 22.4%
Purchased transportation 34.1% 33.9% 22.5%
Fuel and fuel taxes 7.3% 8.5% 4.8%
Depreciation 7.5% 8.2% 12.4%
Operating supplies and expenses 5.2% 6.0% 5.5%
Insurance and claims 1.9% 2.5% (10.0%)
General and administrative expenses 1.5% 1.1% 64.1%
Operating taxes and licenses 1.2% 1.6% (4.0%)
Communication and utilities 1.1% 1.0% 28.3%
------------------ ------
Total operating expenses 94.8% 97.7% 18.3%
------------------ ------
Operating income 5.2% 2.3% 170.2%
Interest expense 1.6% 1.5% 21.4%
------------------ ------
Earnings before income taxes 3.6% .8% 455.4%
Income taxes 1.3% .3% 440.8%
------------------ ------
Net earnings 2.3% .5% 464.4%
------------------ ------
------------------ ------
</TABLE>
Operating revenues for the third quarter of 1998 increased approximately
22%, to $473.4 million from $388.5 million in the third quarter of 1997.
Revenues in the dry-van business, which includes intermodal, grew 21% during
the third quarter. Revenues in the logistics business, which includes
dedicated contract services, increased 36%, compared with the third quarter
of 1997. The growth of dry-van revenues was primarily due to a 16% increase
in the size of the tractor fleet. The size of the dry-van trailing fleet
increased nearly 28% during the current quarter, compared with the third
quarter of 1997. While intermodal load volume grew 17% in the current
quarter vs. 1997, revenue and earnings growth were negatively impacted by
rail service that deteriorated beginning in June of 1998. As a result of
reduced rail service and other factors, the utilization of the dry-van
trailing fleet during the third quarter of 1998 was 9% below the second
quarter of 1998
9
<PAGE>
and 7% below the third quarter of 1997. Dry-van truck rates during the third
quarter of 1998 were approximately equal to the comparable period of 1997.
Intermodal rates declined approximately 2.7% in 1998, compared with 1997.
The 36% growth of the logistics business during the third quarter of 1998 was
driven by strong demand from existing customers and contracts, and from new
business generated during the current quarter.
Total operating expenses for the third quarter of 1998 increased
approximately 18% over the comparable period of 1997. Total operating
expenses expressed as a percentage of operating revenues (operating ratio)
were 94.8% for the third quarter of 1998, compared with 97.7% in 1997.
Salaries, wages and employee benefits increased approximately 22%, which was
in relative proportion with revenue growth. A 33% pay increase awarded to
certain over-the-road van drivers in February of 1997 does not impact the
quarter to quarter comparison. The nearly 23% increase in purchased
transportation expense was also comparable to the increase in revenues and,
consistent with intermodal and logistics growth, reflects payments to
railroads and third-party providers of truck line-haul transportation
services. The decline of fuel and fuel taxes as a percentage of revenue was
due to an approximate 12% decline in fuel cost per gallon and a slight
improvement in fuel miles per gallon. This decrease of fuel expense, as a
percentage of revenue, was partly offset by lower fuel surcharge revenue.
Depreciation expense increased approximately 12%, but declined as a
percentage of revenue. The increase in the dollar amount was primarily due
to the increase in the tractor and trailing fleet and reduced gains on the
disposition of assets in 1998. Gains on asset dispositions reduce
depreciation expense and totaled $3,000 in 1998 and $595,000 in 1997. The
decrease of depreciation as a percentage of revenue was primarily due to the
amount of revenue growth that was not as heavily asset related, such as
logistics and intermodal. Operating supplies and expenses increased nearly
6%, but declined from 6.0% of revenue in 1997 to 5.2% in 1998. This decrease
in percentage rate was also primarily due to the amount of logistics and
intermodal revenue growth, with no corresponding increase in operating
supplies and expenses. In addition, tractor maintenance and repairs expense
declined during 1998, partly due to a newer age of the fleet.
The nearly $1.0 million decrease in insurance and claims expense was the
result of fewer vehicle collisions during the third quarter of 1998. The
Company has been successful in attracting and retaining experienced,
professional drivers that have been involved in fewer vehicle collisions and
reduced accident costs. The significant increase in general and
administrative expense was primarily due to increased computer rental and
maintenance expenditures and foreign currency losses in the Company's Mexican
joint venture operation. The results of the Company's joint venture in
Mexico, including currency fluctuations of the Peso, have historically been
classified as general and administrative expense. A joint venture loss of
$374,000 was recognized during the current quarter, compared with earnings of
$418,000 in 1997. The decrease in operating taxes and licenses was primarily
due to certain refunds received from state taxing authorities.
Communications and utilities increased approximately 28%, partly due to
higher charges for satellite usage. Interest expense increased 21%,
primarily due to higher debt levels. The effective income tax rate was 37%
during the current quarter, compared with 38% in 1997.
10
<PAGE>
As a result of the above, net earnings for the third quarter of 1998
increased to $10.8 million, or diluted earnings per share of 30 cents,
compared with 1997 third quarter net earnings of $1.9 million, or 5 cents per
diluted share. The decrease in the number of weighted average shares
outstanding (before the effect of dilutive stock options) was primarily due
to the Company's acquisition of treasury shares. The increase in weighted
average shares assuming dilution results from the increased effect of
dilutive stock options caused by the increase in the Company's market price
of common stock.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
The following table sets forth items in the Condensed Consolidated
Statements of Earnings as a percentage of operating revenues and the
percentage increase or decrease of those items as compared with the prior
period.
<TABLE>
<CAPTION>
Nine Months Ended September 30
-----------------------------------
Percentage of Percentage Change
Operating Revenues Between Quarters
------------------ ----------------
1998 1997 1998 vs. 1997
------ ------ ----------------
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 18.3%
Operating expenses
Salaries, wages and employee benefits 34.9% 34.3% 20.6%
Purchased transportation 33.7% 32.7% 21.8%
Fuel and fuel taxes 7.6% 9.4% (4.8%)
Depreciation 7.5% 8.6% 3.0%
Operating supplies and expenses 5.2% 6.1% 1.1%
Insurance and claims 1.7% 2.6% (21.7%)
General and administrative expenses 1.3% 1.4% 12.2%
Operating taxes and licenses 1.3% 1.6% (3.6%)
Communication and utilities 1.0% 1.1% 15.1%
----------------- ------
Total operating expenses 94.2% 97.8% 14.1%
----------------- ------
Operating income 5.8% 2.2% 203.4%
Interest expense 1.6% 1.6% 13.0%
----------------- ------
Earnings before income taxes 4.2% .6% 707.0%
Income taxes 1.5% .2% 676.6%
----------------- ------
Net earnings 2.7% .4% 725.6%
----------------- ------
----------------- ------
</TABLE>
Operating revenues for the nine month period ended September 30, 1998
increased approximately 18%, to $1.35 billion from $1.14 billion in 1997.
The increase in revenue would have been 23%, adjusted for the sale of the
flatbed business in July of 1997. Revenues in the dry-van business, which
includes intermodal, grew 20% during the nine months ended September 30,
1998. Revenues in the logistics business, which includes dedicated contract
services, increased 34% compared with the same period in 1997. The growth of
dry-van revenues was primarily due to a 17% increase in the size of the
tractor fleet and a 4% increase in tractor utilization. Dry-van truck rates
rose approximately 1.6% during the first nine months of 1998, while
intermodal rates declined nearly 3%. The 34% growth of logistics revenue
during 1998 was driven by strong demand from existing customers and
contracts, and from new business.
Total operating expenses for the first nine months of 1998 increased
approximately
11
<PAGE>
14% over the comparable period of 1997. Total operating expenses expressed
as a percentage of operating revenues (operating ratio) were 94.2% in 1998,
compared with 97.8% in 1997. Salaries, wages and employee benefits increased
approximately 21%, and increased from 34.3% of revenue in 1997 to 34.9% of
revenue in 1998. The primary reason for the increase relative to revenue was
the approximate 33% pay increase awarded to certain over-the-road van drivers
in February of 1997. The increase in purchased transportation expense was
consistent with trends in recent periods and reflects payments to railroads
and third-party providers of truck line-haul transportation services. The
decrease in fuel and fuel taxes was primarily due to an approximate 13%
decline in fuel cost per gallon and a slight improvement in fuel miles per
gallon during 1998. This decline in fuel expense was partly offset by a
decrease in fuel surcharge revenue.
Depreciation expense increased approximately 3%, but declined as a
percentage of revenue. The increase in the dollar amount of depreciation was
primarily due to the increase in the size of the tractor and trailing fleet
and reduced gains on the disposition of assets in 1998. Gains on asset
dispositions reduce depreciation expense and totaled $678,000 in 1998 and
$2.1 million in 1997. The decrease of depreciation, as a percentage of
revenue, was primarily due to the amount of revenue growth that was not as
heavily asset related, such as logistics and intermodal. Operating supplies
and expenses increased approximately 1%, but declined from 6.1% of revenue in
1997 to 5.2% in 1998. This decrease in percentage rate was also primarily due
to the amount of logistics and intermodal revenue growth, with no
corresponding increase in operating supplies and expenses. In addition,
tractor maintenance and repairs expense declined during 1998, partly due to a
newer age of the fleet.
The significant decline in insurance and claims expense was due to fewer
vehicle collisions and the more experienced driver force. The 12.2% increase
in general and administrative expense was primarily due to higher levels of
spending for computer rental and maintenance, including Year 2000 compliance
costs. The decrease in operating taxes and licenses was primarily due to
certain refunds received from state taxing authorities. Communications and
utilities increased in relative proportion to revenue. Interest expense
increased 13%, primarily due to higher debt levels. The effective income tax
rate was 36.6% in 1998 and 38% in 1997. The reduction in the effective tax
rate related, in part, to taxes applicable to the Mexican joint venture
operations.
As a result of the above, net earnings for the nine months ended
September 30, 1998 increased to $36.0 million, or diluted earnings per share
of 98 cents, compared with $4.4 million in 1997, or 12 cents per diluted
share. The decrease in the number of weighted average shares outstanding
(before the effect of dilutive stock options), was primarily due to the
Company's acquisition of treasury shares. The increase in weighted average
shares assuming dilution results from the increased effect of dilutive stock
options caused by the increase in the Company's market price of common stock.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
This discussion of corporate liquidity and capital resources should be
read in conjunction with information presented in the Condensed Consolidated
Statements of Cash Flows and the Condensed Consolidated Balance Sheets.
Net cash provided by operating activities was $132.3 million for the
nine month periods ended September 30, 1998, and in 1997. Net cash was
generated during 1998 primarily from net earnings, depreciation and increases
in accrued payroll and other accrued expenses. Net cash was used primarily
to pay claims accruals and to fund an increase in customer accounts
receivable. Net cash used in investing activities was $215.2 million in
1998, compared with $39.7 million in 1997. This increase in net investment
spending was primarily to purchase revenue equipment. In addition, the
decline in proceeds from sale of equipment to $35.3 million in 1998 from
$109.0 million in 1997, was due, in part, to the sale of the flatbed and
owner-operator businesses in 1997. The purchases of revenue equipment in
1998 were funded by cash from operating activities and an increase in debt.
The Company also used $5.3 million and $5.8 million during the first nine
months of 1998 to pay dividends and purchase treasury stock, respectively.
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
As of
-----------------------------------------------------------
September 30, 1998 December 31, 1997 September 30, 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Working capital ratio 1.08 .97 1.18
Current maturities of long-
term debt (millions) $ 15.6 $ 17.5 $ 5.0
Total debt (millions) $432.9 $340.3 $314.6
Total debt to equity 1.18 1.01 .91
Total debt as a percentage
of total capital .54 .50 .48
</TABLE>
The Company's debt levels increased $92.6 million during the first nine
months of 1998, primarily to fund capital expenditures for revenue equipment.
On September 10, 1998, the Company sold $100 million of 7.00% senior notes
due September 15, 2004. The notes were pursuant to an original shelf
registration filed in June of 1993 and a prospectus supplement dated
September 4, 1998. The proceeds from the sale of these notes were used to
reduce indebtedness under the Company's existing commercial paper program and
two-uncommitted lines of credit. As of September 30, 1998, the Company had
commitments to purchase approximately $161 million of revenue and service
equipment, net cost, after expected proceeds from sale or trade-in allowances
of approximately $17 million. The Company generates significant cash from
operating activities and has borrowing capacity to meet its committed and
contemplated cash requirements.
13
<PAGE>
YEAR 2000
The Company utilizes and is dependent upon a wide variety of complex
information technologies (IT) to conduct daily business operations. Some of
the Company's older computer software programs and equipment use two digit
fields rather than four digit fields to define the applicable year. As a
result, some of the time or date-sensitive functions of these programs and
equipment could result in equipment shutdowns, miscalculations, inability to
process data and/or disruption of operations as the Year 2000 approaches. It
is possible that some problems may develop during 1999 (e.g. applications
that utilize future or projected data), well before January 1, 2000.
The Company recognized the importance of Year 2000 issues and developed
an action plan in 1996. The plan includes systematic reviews of all internal
hardware, software and functions to either verify that the system is Year
2000 compliant or modify/replace the software or system as required. The
process includes the use of a software testing tool which simulates the
transition to the Year 2000. The original plan contemplated all conversion
efforts to be completed by the end of 1998. As of September 30, 1998, the
majority of application programs (i.e. software that interacts with users
through computer terminals and produces reports) had been modified or
replaced. These programs have been unit tested by IT staff members, but
still require detail testing by users and Year 2000 simulation. A number of
the primary financial systems utilized to pay vendors, track customer
accounts receivable and produce regular financial reports have been converted
or are in the final stages of conversion to be Year 2000 compliant. The
additional modifications, installations and unit testing of the Company's
internal computer and IT applications are currently expected to be completed
by July 1, 1999.
In addition to the issues and risks associated with the Company's
internal IT systems and equipment, the Company has relationships and is
dependent upon a number of third parties that include customers and suppliers
of goods and services. Daily business operations include the electronic data
interchange of information (EDI) with customers and providers of
transportation services such as railroads and motor freight carriers. Other
third party providers of critical services such as voice and data
communications, natural gas and electricity, and diesel fuel are also an
integral part of daily business operations. If significant numbers or
certain critical customers or suppliers experience failures in their computer
systems or equipment due to Year 2000 non-compliance, it could affect the
Company's normal business activities. While some of these risks are not
controllable by the Company, a number of actions and procedures have been
implemented to assess and/or reduce this risk. Formal communications have
been initiated with certain significant customers and suppliers. Depending
upon the circumstances, formal certifications of Year 2000 compliance have
been requested and received. The Company has not received enough formal
responses to date to make an accurate assessment of the Year 2000 readiness
of its primary customers and suppliers.
Since 1996, the Company has spent approximately $1.1 million on Year
2000 compliance. Estimated future expense to complete testing and related
compliance work is $300,000 for a total cost of $1.4 million. These costs
are being charged to operations as incurred. This cost estimate excludes
certain new system acquisitions, development and implementation expenses that
relate to on-going business activity, normal upgrades and enhancements. The
Company has also spent approximately $3.8 million of acquisition and
14
<PAGE>
implementation costs for primary financial systems. These costs are being
capitalized and amortized over the estimated useful life of the software.
Current estimated future costs for such financial systems upgrades are $2.0
million.
The Company presently believes that its internal computer systems and
equipment will not pose significant operational problems relative to the Year
2000 issue. There can be no assurance that the Company will properly
identify all year 2000 issues or that certain external customers or suppliers
will not experience disruption of IT functions or actual services provided.
Even short-term disruption of telecommunications service, for example, could
have a material adverse impact on the Company's business. A contingency plan
has not yet been developed for dealing with the most reasonably likely worst
case scenario. A contingency plan will be completed by June 30, 1999.
FORWARD-LOOKING STATEMENTS
This report contains statements that may be considered as
forward-looking or predictions concerning future operations. Such statements
are based on management's belief or interpretation of information currently
available. These statements and assumptions involve certain risks and
uncertainties and management can give no assurance that such expectations
will be realized. Among all the factors and events that are not within the
Company's control and could have a material impact on future operating
results are general economic conditions, cost and availability of diesel
fuel, adverse weather conditions and competitive rate fluctuations. The
ultimate net cost of the new driver compensation package will be dependent on
the mix of experienced drivers attracted to the Company and on rates and
severity of future accidents, cargo damage and worker's compensation claims,
as well as other factors. In addition, the Year 2000 issue is extremely
complex and compliance failures on the part of customers and/or suppliers
that are outside the control of the Company could have a material negative
impact on future operating results.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None applicable.
ITEM 2. CHANGES IN SECURITIES
None applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None applicable.
ITEM 5. OTHER INFORMATION
As discussed in Part 1, Item 2, the Company closed a $100 million
offering of senior notes in September of 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
27.2 1997 Restated Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on September 10, 1998 containing
information relating to Items 5 and 7 of that Form and
announcing a $100 million sale of senior notes dated September
10, 1998 and due September 15, 2004.
16
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
J.B. HUNT TRANSPORT SERVICES, INC.
DATE: November 12, 1998 BY: /s/ Kirk Thompson
----------------------------------
Kirk Thompson
President and
Chief Executive Officer
DATE: November 12, 1998 BY: /s/ Jerry W. Walton
----------------------------------
Jerry W. Walton
Executive Vice President, Finance
and Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,133
<SECURITIES> 0
<RECEIVABLES> 192,836
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 221,026
<PP&E> 1,376,223
<DEPRECIATION> 461,874
<TOTAL-ASSETS> 1,157,021
<CURRENT-LIABILITIES> 204,653
<BONDS> 0
390
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,157,021
<SALES> 1,347,839
<TOTAL-REVENUES> 1,347,839
<CGS> 0
<TOTAL-COSTS> 1,270,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,012
<INCOME-PRETAX> 56,683
<INCOME-TAX> 20,728
<INCOME-CONTINUING> 35,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,955
<EPS-PRIMARY> 1.01
<EPS-DILUTED> .98
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,002
<SECURITIES> 0
<RECEIVABLES> 154,295
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 197,561
<PP&E> 1,163,258
<DEPRECIATION> 409,509
<TOTAL-ASSETS> 978,307
<CURRENT-LIABILITIES> 167,981
<BONDS> 0
390
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 978,307
<SALES> 1,139,059
<TOTAL-REVENUES> 1,139,059
<CGS> 0
<TOTAL-COSTS> 1,113,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,588
<INCOME-PRETAX> 7,024
<INCOME-TAX> 2,669
<INCOME-CONTINUING> 4,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,355
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
