<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 JUNE 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 JUNE 30, 1998 WAS 35,574,104.
<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 six month periods
ended June 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
Condensed Consolidated Statements of Earnings for the Three and
Six Months Ended June 30, 1998 and 1997......................... Page 3
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31,1997.............................. Page 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997......................... Page 5
Notes to Condensed Consolidated Financial Statements
as of June 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
2
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(unaudited)
<TABLE>
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
- --------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 460,985 $ 385,198 $ 874,451 $ 750,599
Operating expenses
Salaries, wages and employee benefits 158,851 133,288 304,839 254,732
Purchased transportation 155,085 124,181 292,392 240,962
Fuel and fuel taxes 33,942 36,039 67,358 74,096
Depreciation 33,048 33,228 65,478 66,478
Operating supplies and expenses 23,994 23,680 45,341 45,825
Insurance and claims 6,632 9,920 14,604 20,113
Operating taxes and licenses 6,634 6,349 12,010 12,427
General and administrative expenses 6,570 5,244 10,270 11,206
Communication and utilities 4,616 4,015 8,888 8,186
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 429,372 375,944 821,180 734,025
- --------------------------------------------------------------------------------------------------------------
Operating income 31,613 9,254 53,271 16,574
Interest expense 7,200 6,246 13,806 12,650
- --------------------------------------------------------------------------------------------------------------
Earnings before income taxes 24,413 3,008 39,465 3,924
Income taxes 8,789 1,143 14,358 1,491
- --------------------------------------------------------------------------------------------------------------
Net earnings $ 15,624 $ 1,865 $ 25,107 $ 2,433
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Average common shares outstanding 35,511 36,456 35,562 36,602
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.44 $ 0.05 $ 0.71 $ 0.07
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Average diluted shares outstanding 36,970 36,483 36,818 36,621
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.42 $ 0.05 $ 0.68 $ 0.07
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
- ---------------------------------------------------------------------------------
JUNE 30, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,060 $ 3,701
Accounts receivable 180,791 169,198
Prepaid expenses 17,610 24,716
Deferred income taxes 2,337 2,337
- ---------------------------------------------------------------------------------
Total current assets 209,798 199,952
- ---------------------------------------------------------------------------------
Property and equipment 1,326,290 1,217,478
Less accumulated depreciation 441,519 420,671
- ---------------------------------------------------------------------------------
Net property and equipment 884,771 796,807
- ---------------------------------------------------------------------------------
Other assets 21,939 25,160
- ---------------------------------------------------------------------------------
$1,116,508 $1,021,919
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 97,350 $ 17,500
Trade accounts payable 135,731 138,509
Claims accruals 1,539 22,306
Accrued payroll 28,109 16,096
Other accrued expenses 17,053 10,677
- ---------------------------------------------------------------------------------
Total current liabilities 279,782 205,088
- ---------------------------------------------------------------------------------
Long-term debt 317,740 322,790
Claims accruals 15,253 15,168
Deferred income taxes 146,921 140,909
Stockholders' equity 356,812 337,964
- ---------------------------------------------------------------------------------
$1,116,508 $1,021,919
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
- ---------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30
- ---------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 25,107 $ 2,433
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 65,478 66,478
Deferred income taxes 6,012 581
Termination of restricted stock (23) 0
Tax benefit (expense) of stock options exercised 701 (36)
Changes in assets and liabilities:
Accounts receivable (11,593) 794
Prepaid expenses 7,106 17,036
Trade accounts payable (2,778) 10,659
Claims accruals (20,682) (2,875)
Accrued payroll and other accrued expenses 18,389 5,291
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 87,717 100,361
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (184,504) (79,113)
Proceeds from sale of equipment 31,062 36,317
Decrease in other assets 3,221 4,363
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities (150,221) (38,433)
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (5,000) (5,000)
Net borrowings (repayments) under commercial paper program 79,800 (41,250)
Proceeds from sale of treasury stock 2,417 35
Repurchase of treasury stock (5,814) (10,481)
Dividends paid (3,540) (3,683)
- ---------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 67,863 (60,379)
- ---------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,359 1,549
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 3,701 3,786
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 9,060 $ 5,335
- ---------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 13,859 $ 12,599
Income taxes (1,602) (6,742)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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>
6/30/98 12/31/97
------- --------
<S> <C> <C>
Commercial paper $202,350 $132,500
Uncommitted line of credit 10,000 --
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
-------- --------
415,610 340,760
Less current maturities (97,350) (17,500)
Unamortized discount (520) (470)
-------- --------
$317,740 $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 uncommitted line of credit is due in August of 1998.
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 on March 31.
The 6.25% senior notes were issued on November 17, 1995 and are payable
at maturity on November 17, 2000.
The 6.00% senior notes were issued on December 12, 1995 and are payable
at maturity 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>
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 144,500 28.13
Exercised (138,310) 17.36
Terminated (169,950) 16.88
--------- ------
Outstanding at June 30 1998 2,876,165 $17.42 361,840
--------- ------ -------
--------- ------ -------
</TABLE>
On July 16, 1998, the Company's Board of Directors declared a regular
quarterly cash dividend of $.05 per share payable on August 21, 1998 to
stockholders of record on August 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 six months ended June 30, 1998
and 1997 have been computed based on the following:
<TABLE>
(in thousands, except per share data)
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator (net earnings) $15,624 $1,865 $25,107 $2,433
Denominator - Basic earnings per share
Weighted average shares outstanding 35,511 36,456 35,562 36,602
------- ------ ------- ------
------- ------ ------- ------
Basic earnings per share $.44 $.05 $.71 $.07
------- ------ ------- ------
------- ------ ------- ------
Denominator - Diluted earnings per share
Weighted average share outstanding 35,511 36,456 35,562 36,602
Effect of common stock options 1,459 27 1,256 19
------- ------ ------- ------
Weighted average shares assuming dilution 36,970 36,483 36,818 36,621
------- ------ ------- ------
------- ------ ------- ------
Diluted earnings per share $.42 $.05 $.68 $.07
------- ------ ------- ------
------- ------ ------- ------
</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>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of shares under option -- 4,756,000 134,500 4,795,000
Range of exercise price -- $15.00-$24.63 $28.13-$30.00 $14.67-$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 June 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 six months ended June 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 June 30, 1998, and
the related condensed consolidated statements of earnings for the three-month
and six-month periods ended June 30, 1998 and 1997 and the condensed
consolidated statements of cash flows for the six-month periods ended June
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
July 15, 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 SECOND QUARTER 1998 TO SECOND 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>
Three Months Ended June 30
Percentage of Percentage Change
Operating Revenues Between Quarters
------------------ -----------------
1998 1997 1998 vs. 1997
------------------ -------------
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 19.7%
Operating expenses
Salaries, wages and employee benefits 34.5% 34.6% 19.2%
Purchased transportation 33.6% 32.2% 24.9%
Fuel and fuel taxes 7.4% 9.4% (5.8%)
Depreciation 7.2% 8.6% (.5%)
Operating supplies and expenses 5.2% 6.1% 1.3%
Insurance and claims 1.4% 2.6% (33.1%)
Operating taxes and licenses 1.4% 1.7% 4.5%
General and administrative expenses 1.4% 1.4% 25.3%
Communication and utilities 1.0% 1.0% 15.0%
----------------------------------
Total operating expenses 93.1% 97.6% 14.2%
----------------------------------
Operating income 6.9% 2.4% 241.6%
Interest expense 1.6% 1.6% 15.3%
----------------------------------
Earnings before income taxes 5.3% .8% 711.6%
Income taxes 1.9% .3% 668.9%
----------------------------------
Net earnings 3.4% .5% 737.7%
----------------------------------
----------------------------------
</TABLE>
Operating revenues for the second quarter of 1998 increased
approximately 20%, to $461.0 million from $385.2 million in the second
quarter of 1997. Revenues from core operations grew 26% compared to the
second quarter of 1997, net of the flatbed business that was sold in July of
1997. Revenues in the dry-van business, which includes intermodal, grew 22%
during the second quarter, while revenues in the logistics business, which
includes dedicated contract services, increased 40%. The growth of dry-van
revenues was primarily due to an 18% increase in the size of the tractor
fleet and a 5% increase in tractor utilization. Dry-van truck rates rose
approximately 2%, compared with the second quarter of 1997, while intermodal
rates declined approximately 2%. The
9
<PAGE>
growth of logistics revenue was driven by strong demand from existing
customers and contracts, and new business generated during the current
quarter.
Total operating expenses for the second quarter of 1998 increased
approximately 14% over the comparable period of 1997. Total operating
expenses expressed as a percentage of operating revenues (operating ratio)
were 93.1% for the second quarter of 1998, as compared with 97.6% in 1997.
Salaries, wages and employee benefits increased approximately 19%, which was
in relative perspective with revenue growth. The 33% pay increase awarded to
certain over-the-road van drivers in February of 1997 does not impact the
quarter to quarter comparison. 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 of fuel and fuel taxes was primarily due to a 12%
decrease in fuel cost per gallon. This decrease of fuel expense was partly
offset by lower fuel surcharge revenue.
Depreciation expense declined slightly in terms of dollar amount between
the second quarter of 1998 and 1997, but decreased from 8.6% of revenue in
1997 to 7.2% in 1998. This decline in percentage rate was primarily due to
the amount of revenue growth that was non-asset related, such as logistics
and intermodal, and higher gains on asset dispositions recognized during the
current quarter. Gains on asset dispositions reduce depreciation expense and
totaled $1.4 million in 1998, compared with a loss of $76,000 in 1997. The
1998 gain amount included approximately $.5 million recognized on the sale of
Lake City Express, a small subsidiary which was sold in June of 1998.
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
growth, with no corresponding increase in operating supplies and expenses,
which costs tend to be driver and tractor related. The significant decrease
in insurance and claims costs was a result of fewer vehicle collisions during
the second quarter of 1998. The driver compensation package has been
successful in attracting and retaining experienced, professional drivers that
are involved in fewer vehicle collisions and lower accident costs. Although
general and administrative expenses remained at the same percentage of
revenue between the two comparable quarters, the dollar amount of expense
increased approximately 25%. This increase was due in part to expenditures
for professional services including contracted computer programmers.
Interest expense increased approximately 15% primarily due to higher debt
levels. The effective income tax rate was 36% during the current quarter,
compared with 38% in 1997. The reduction in the effective income tax rate
related, in part, to taxes applicable to the Company's Mexican operations.
As a result of the above, net earnings for the second quarter of 1998
increased to $15.6 million, or diluted earnings per share of 42 cents,
compared with 1997 second 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 full dilution results from the increased effect of
dilutive stock options caused by the increase in the Company's price of
common stock.
10
<PAGE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED JUNE 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>
Six Months Ended June 30
Percentage of Percentage Change
Operating Revenues Between Quarters
------------------ -----------------
1998 1997 1998 vs. 1997
-------- -------- -----------------
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 16.5%
Operating expenses
Salaries, wages and employee benefits 34.9% 33.9% 19.7%
Purchased transportation 33.4% 32.1% 21.3%
Fuel and fuel taxes 7.7% 9.9% (9.1%)
Depreciation 7.5% 8.8% (1.5%)
Operating supplies and expenses 5.2% 6.1% (1.1%)
Insurance and claims 1.6% 2.7% (27.4%)
Operating taxes and licenses 1.4% 1.7% (3.4%)
General and administrative expenses 1.2% 1.5% (8.4%)
Communication and utilities 1.0% 1.1% 8.6%
---------------- -------
Total operating expenses 93.9% 97.8% 11.9%
---------------- -------
Operating income 6.1% 2.2% 221.4%
Interest expense 1.6% 1.7% 9.1%
---------------- -------
Earnings before income taxes 4.5% .5% 905.7%
Income taxes 1.6% .2% 863.0%
---------------- -------
Net earnings 2.9% .3% 931.9%
---------------- -------
---------------- -------
</TABLE>
Operating revenues for the six month period ended June 30, 1998
increased approximately 17% to $874.5 million from $750.6 million 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 19% during the first six months of 1998, while
revenues in the logistics business, which includes dedicated contract
services, increased 33%. The increase in dry-van revenue was primarily due
to an 18% increase in the size of the tractor fleet and a 6% increase in
tractor utilization. Dry-van truck rates rose approximately 2.4% during the
first six months of 1998, while intermodal rates declined nearly 3%. The
growth of logistics revenue was driven by strong demand from existing
customers and contracts, and new business generated during 1998.
Total operating expenses for the first six months of 1998 increased
approximately 12% over the comparable period of 1997. Total operating
expenses expressed as a percentage of operating revenues (operating ratio)
were 93.9% for the six months ended June 30, 1998, compared with 97.8% in
1997. Salaries, wages and employee benefits increased 19.7%, primarily due
to an approximate 33% pay increase for certain over-the-road van drivers
which was effective February 28, 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
services. The decrease in fuel and fuel taxes was primarily due to a nearly
14% decrease in fuel cost per gallon during 1998.
11
<PAGE>
This decline in fuel expense was partly offset by a decrease in fuel
surcharge revenue during the same period.
Depreciation expense declined slightly in terms of dollar amount between
the two comparable six month periods and also declined as a percentage of
revenue. This decrease was due to the amount of revenue growth in 1998 that
was non-asset related, such as logistics and intermodal, and also higher
gains on asset dispositions recognized in 1998. Gains on asset dispositions
reduce depreciation expense and totaled $2.1 million in 1998, compared with
$83,000 in 1997. The 1998 gain included approximately $.5 million recognized
on the sale of Lake City Express, a small subsidiary, which was sold in June
of 1998. The additional gains were related to sales and dispositions of
revenue equipment in the normal course of business.
Operating supplies and expenses decreased slightly in dollar amount and
declined from 6.1% of revenue in 1997 to 5.2% in 1998. This decrease was
partly due to lower tractor maintenance expenditures associated with a newer
age of fleet, and also growth of logistics and intermodal revenue with no
corresponding increase in operating supplies and expenses, which tend to be
driver and tractor related. The significant decline in insurance and claims
expense was due to fewer vehicle collisions and the more experienced driver
force. The lower level of general and administrative expenses was due
primarily to reduced driver advertising expense, and earnings recognized
from the Company's operations in Mexico, which were recorded as an offset to
general and administrative expenses. The effective income tax rate was
approximately 36% for the six months ended June 30, 1998 and 38% for the
comparable period of 1997. The reduction in the effective income tax rate
related, in part, to taxes applicable to the Company's Mexican operations.
As a result of the above, net earnings for the six months ended June 30,
1998 were $25.1 million, or diluted earnings per share of 68 cents, compared
with $2.4 million, or 7 cents per diluted share in 1997. The decrease in the
number of weighted average shares outstanding (before the effect of dilutive
stock options) was primarily due to the acquisition of treasury shares. The
increase in weighted average shares assuming full dilution results from the
increased effect of dilutive stock options caused by the increase in the
Company's price of common stock.
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 $87.7 million for the
first six months of 1998, compared with $100.4 million in 1997. Net cash was
generated during the first six months of 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
$150.2 million in 1998 and $38.4 million in 1997. This increase in
investment spending was primarily to purchase revenue equipment. These
purchases of revenue equipment were funded by cash from operating activities
and an increase in debt. The Company also used $5.8 million of cash to
purchase treasury stock during the first six months of 1998.
12
<PAGE>
SELECTED BALANCE SHEET DATA
<TABLE>
As of
--------------------------------------------------
June 30, 1998 December 31, 1997 June 30, 1997
------------- ----------------- -------------
<S> <C> <C> <C>
Working capital ratio .75 .97 1.07
Current maturities of long-
term debt (millions) 97.4 $ 17.5 $ 13.3
Total debt (millions) 415.1 $ 340 $ 336.1
Total debt to equity 1.16 1.01 .97
Total debt as a percentage
of total capital .54 .50 .49
</TABLE>
The Company's debt levels increased during the first six months of 1998
primarily to fund capital expenditures for revenue equipment. The Company
has commitments to purchase approximately $204 million of revenue and service
equipment, net cost, after expected proceeds from sale or trade-in allowances
of approximately $22 million.
The Company borrowed $10 million on an uncommitted line-of-credit in May
of 1998. This short-term line matures in August of 1998. A plan to issue up
to $100 million of senior notes is currently anticipated and expected to
close during the third quarter of 1998. Proceeds from such an offering would
most likely be used to pay off the uncommitted line-of-credit, reduce
commercial paper indebtedness and other general corporate purposes.
YEAR 2000
The Company developed a plan during 1996 to deal with the Year 2000
problem. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company's plan provides for the conversion efforts to be completed by the end
of 1998. The total cost of the project is currently estimated to be $870,000
and is being funded through operating cash flows. The Company is expensing
all costs associated with these systems changes as the costs are incurred.
As of June 30, 1998, approximately $680,000 had been expensed since the
project was initiated.
FORWARD-LOOKING STATEMENTS
This report may contain 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. In
addition, 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 future accident, cargo and worker's compensation claims, as well as other
factors.
13
<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
On June 26, 1998 the Company announced that it had completed the sale
of its subsidiary, Lake City Express (LXI). The sale was made to the
then current president of LXI and a group of investors. This sale
completed a previously announced plan to divest of business units not
strategically aligned with its core transportation focus of truckload,
including intermodal and logistics, including dedicated contract
services.
The Company currently plans to issue approximately $100 million of
senior notes during the third quarter of 1998. Proceeds from such an
offering would most likely be used to pay off an uncommitted
line-of-credit, reduce commercial paper indebtedness and other general
corporate purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
27.2 1997 Restated Financial Data Schedule
14
<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: August 6, 1998 BY: /s/ Kirk Thompson
------------------------------ ------------------------------
Kirk Thompson
President and
Chief Executive Officer
DATE: August 6, 1998 BY: /s/ Jerry W. Walton
------------------------------ ------------------------------
Jerry W. Walton
Executive Vice President, Finance
and Chief Financial Officer
15
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,060
<SECURITIES> 0
<RECEIVABLES> 180,791
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 209,798
<PP&E> 1,326,290
<DEPRECIATION> 441,519
<TOTAL-ASSETS> 1,116,508
<CURRENT-LIABILITIES> 279,782
<BONDS> 0
390
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,116,508
<SALES> 874,451
<TOTAL-REVENUES> 874,451
<CGS> 0
<TOTAL-COSTS> 821,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,806
<INCOME-PRETAX> 39,465
<INCOME-TAX> 14,358
<INCOME-CONTINUING> 25,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,107
<EPS-PRIMARY> .71
<EPS-DILUTED> .68
</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 SIX MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,335
<SECURITIES> 0
<RECEIVABLES> 150,398
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 185,662
<PP&E> 1,213,238
<DEPRECIATION> 423,667
<TOTAL-ASSETS> 997,181
<CURRENT-LIABILITIES> 172,600
<BONDS> 0
390
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 997,181
<SALES> 750,599
<TOTAL-REVENUES> 750,599
<CGS> 0
<TOTAL-COSTS> 734,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,650
<INCOME-PRETAX> 3,924
<INCOME-TAX> 1,491
<INCOME-CONTINUING> 2,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,433
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
