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, 2000 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, 2000 WAS 35,165,323. 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 month and nine month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2000. The interim condensed consolidated financial statements have been reviewed by KPMG 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, 1999. INDEX Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2000 and 1999............................. Page 3 Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999...................................... Page 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999................................. Page 5 Notes to Condensed Consolidated Financial Statements as of September 30, 2000...................................................... Page 6 Review Report of KPMG LLP.............................................................. Page 10 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition....................................................... Page 11 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............................. Page 18 2 J.B. HUNT TRANSPORT SERVICES, INC. Condensed Consolidated Statements of Earnings (in thousands, except per share data) (unaudited) - ----------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 - ----------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------- Operating revenues $ 509,422 $ 523,901 $ 1,626,478 $ 1,491,699 Operating expenses Salaries, wages and employee benefits 190,995 181,206 571,153 530,068 Rents and purchased transportation 140,997 179,958 545,226 485,591 Fuel and fuel taxes 61,282 44,305 176,156 120,226 Depreciation 34,244 38,129 98,911 114,563 Operating supplies and expenses 35,505 34,922 96,844 93,165 Insurance and claims 9,459 11,410 28,676 29,405 Operating taxes and licenses 8,390 6,694 24,383 20,259 General and administrative expenses 6,178 7,268 21,245 22,084 Communication and utilities 6,555 5,233 18,167 15,895 - ----------------------------------------------------------------------------------------------------------------- Total operating expenses 493,605 509,125 1,580,761 1,431,256 - ----------------------------------------------------------------------------------------------------------------- Operating income 15,817 14,776 45,717 60,443 Interest expense 6,813 7,166 19,666 21,926 Equity in earnings of associated companies 548 198 3,584 2,945 - ----------------------------------------------------------------------------------------------------------------- Earnings before income taxes 9,552 7,808 29,635 41,462 Income taxes 429 2,850 4,445 15,134 - ----------------------------------------------------------------------------------------------------------------- Net earnings $ 9,123 $ 4,958 $ 25,190 $ 26,328 ================================================================================================================= Average basic shares outstanding 35,161 35,635 35,359 35,625 ================================================================================================================= Basic earnings per share $ 0.26 0.14 $ 0.71 $ 0.74 ================================================================================================================= Average diluted shares outstanding 35,280 35,692 35,478 35,957 ================================================================================================================= Diluted earnings per share $ 0.26 0.14 $ 0.71 $ 0.73 ================================================================================================================= See accompanying notes to condensed consolidated financial statements. 3 J.B. HUNT TRANSPORT SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) - ------------------------------------------------------------------------------------------------ SEPTEMBER 30, 2000 DECEMBER 31, 1999 - ------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 9,147 $ 12,606 Accounts receivable 225,335 238,573 Prepaid expenses 55,855 43,962 - ------------------------------------------------------------------------------------------------ Total current assets 290,337 295,141 - ------------------------------------------------------------------------------------------------ Property and equipment 1,281,682 1,239,394 Less accumulated depreciation 475,176 453,509 - ------------------------------------------------------------------------------------------------ Net property and equipment 806,506 785,885 - ------------------------------------------------------------------------------------------------ Investments and other assets 57,485 46,438 - ------------------------------------------------------------------------------------------------ $ 1,154,328 $ 1,127,464 ================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 64,109 $ 60,000 Trade accounts payable 137,428 180,009 Claims accruals 4,687 788 Accrued payroll 31,128 19,462 Other accrued expenses 11,625 10,371 - ------------------------------------------------------------------------------------------------ Total current liabilities 248,977 270,630 - ------------------------------------------------------------------------------------------------ Long-term debt 300,174 267,639 Claims accruals 5,436 7,368 Deferred income taxes 182,781 180,441 Stockholders' equity 416,960 401,386 - ------------------------------------------------------------------------------------------------ $ 1,154,328 $ 1,127,464 ================================================================================================ See accompanying notes to condensed consolidated financial statements. 4 J.B. HUNT TRANSPORT SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) - -------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30 - -------------------------------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 25,190 $ 26,328 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation 98,911 114,563 Provision for noncurrent deferred income taxes 2,341 11,766 Equity in earnings of associated companies (3,584) (2,945) Tax benefit of stock options exercised 7 55 Forefeiture of restricted stock 0 (18) Amortization of discount, net 135 461 Changes in assets and liabilities: Trade accounts receivable 13,238 (40,938) Prepaid expenses (11,893) (7,027) Trade accounts payable (42,581) 35,333 Claims accruals 1,967 (3,807) Accrued payroll and other accrued expenses 12,920 655 - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 96,651 134,426 - -------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Additions to property and equipment (235,186) (133,626) Proceeds from sale of equipment 115,654 18,922 Investment in associated company (5,000) 0 Increase in investments and other assets (3,080) (24,316) - -------------------------------------------------------------------------------------------------------- Net cash used in investing activities (127,612) (139,020) - -------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings under commercial paper program 17,309 7,950 Net borrowings (payments) of long-term debt 19,200 (5,000) Repurchase of treasury stock (7,576) 0 Proceeds from sale of treasury stock 351 580 Dividends paid (1,782) (5,346) - -------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 27,502 (1,816) - -------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (3,459) (6,410) - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 12,606 9,227 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 9,147 $ 2,817 ======================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 21,012 $ 23,742 Income taxes 639 295 Contribution of assets to associated company 2,927 0 ======================================================================================================== See accompanying notes to condensed consolidated financial statements. 5 J.B. HUNT TRANSPORT SERVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1) The interim condensed consolidated financial statements at September 30, 2000 and for the three and nine months ended September 30, 2000 and 1999 are unaudited and include all adjustments, consisting only of normal recurring accruals, which the Company considers necessary for a fair presentation of financial position and operating results. The unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X and, therefore, do not contain all information and footnotes normally contained in annual financial statements. Accordingly, they should be read in conjunction with the financial statements and notes thereto appearing in the annual report on Form 10-K of the Company for the year ended December 31, 1999. 2) The results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of those to be expected for the calendar year ending December 31, 2000. 3) LONG-TERM DEBT Long-term debt consists of (in thousands): 9/30/2000 12/31/1999 --------- ---------- Commercial paper $ 48,200 $ 35,000 Senior notes payable, interest at 6.25% payable semiannually, due 11/17/2000 25,000 25,000 Senior notes payable, interest at 6.00% payable semiannually, due 12/12/2000 25,000 25,000 Senior notes payable, interest at 6.25% payable semiannually, due 9/1/2003 98,260 98,260 Senior notes payable, interest at 7.00% payable semiannually, due 9/15/2004 95,000 95,000 Senior subordinated notes, interest at 7.80% payable semiannually 50,000 50,000 Capitalized lease obligations 23,309 -- -------- -------- 364,769 328,260 Less current maturities (64,109) (60,000) Unamortized discount (486) (621) -------- -------- $300,174 $267,639 ======== ======== Under its commercial paper note program, the Company is authorized to issue up to $240 million in notes. These notes are supported by two credit agreements, which aggregate $240 million, with a group of banks, of which $120 million expires March 6, 2001 and $120 million expires March 20, 2002. 6 4) 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: Weighted average Number of Number of exercise price shares shares per share exercisable --------- ----------------- ----------- Outstanding at December 31, 1999 3,737,565 $16.65 551,940 ======= Granted 746,000 13.06 Exercised (28,550) 13.02 Terminated (134,950) 16.14 --------- ------ Outstanding at September 30, 2000 4,320,065 $16.07 915,350 ========= ====== ======= The Company announced in February of 2000, a decision to discontinue a policy of paying dividends and an intent to use those funds to repurchase up to 500,000 shares of its common stock. These shares were repurchased during the first six months of 2000. 5) EARNINGS PER SHARE A reconciliation of the numerator and denominator of basic and diluted earnings per share is shown below: (in thousands, except per share data) ------------------------------------------------------ Three Months Ended Nine Months Ended September 30 September 30 ------------------------ ----------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Numerator (net earnings) $ 9,123 $ 4,958 $25,190 $26,328 Denominator - Basic earnings per share Weighted average shares outstanding 35,161 35,635 35,359 35,625 ======= ======= ======= ======= Basic earnings per share $ .26 $ .14 $ .71 $ .74 ======= ======= ======= ======= Denominator - Diluted earnings per share Weighted average share outstanding 35,161 35,635 35,359 35,625 Effect of common stock options 119 57 119 332 ------- ------- ------- ------- Weighted average shares assuming dilution 35,280 35,692 35,478 35,957 ======= ======= ======= ======= Diluted earnings per share $ .26 $ .14 $ .71 $ .73 ======= ======= ======= ======= Options which were outstanding to purchase shares of common stock during the periods indicated above, but were excluded from the computation of diluted earnings per share because the option price was greater than the average market price of the common shares were: Three Months Ended Nine Months Ended September 30 September 30 ------------------------- -------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Number of shares under option 2,852,965 4,754,115 2,840,465 623,675 Range of exercise price $14.19-$37.50 $15.00-$37.50 $14.25-$37.50 $18.75-$37.50 6) COMPREHENSIVE INCOME Comprehensive income consists of net earnings and foreign currency translation adjustments. During the three and nine months ended September 30, 2000 and 1999, comprehensive income was equal to (in thousands): 7 Three Months Ended Nine Months Ended September 30 September 30 ------------------------ ---------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net earnings $9,123 $4,958 $25,190 $26,328 Foreign currency translation (loss) gain 412 430 (616) 374 --------- --------- --------- --------- Comprehensive income $9,535 $5,388 $24,574 $26,702 ========= ========= ========= ========= 7) INCOME TAXES The effective income tax rates were approximately 4% for the three months ended September 30, 2000 and 15% for the nine months ended September 30, 2000, compared with 36.5% for both comparable periods in 1999. The primary reasons for the decrease in the current year's effective income tax rates were two sale and lease back transactions and a change in the expected effective rate for the full year 2000 from 20% during the second quarter to 15% during the third quarter. 8) BUSINESS SEGMENTS The Company had four reportable business segments during the first nine months of 2000. Segments included Truck (JBT), Intermodal (JBI), Dedicated Contract Services (DCS) and Logistics (JBL). JBT business includes full truck-load, dry-van freight which is typically transported utilizing company-owned or controlled revenue equipment. This freight is typically transported over roads and highways and does not move by rail. The JBI segment includes freight which is transported by rail over at least some portion of the movement and also includes certain repositioning truck freight moved by JBI equipment or third-party carriers, when such highway movement is intended to direct JBI equipment back toward intermodal operations. The JBT and JBI business segments were operated in combined fashion (formally reported as Van/Intermodal in prior periods) and limited identifiable comparative information is available for JBT and JBI prior to January 1, 2000. Accordingly, the Company has provided comparable segment information for the three and nine months ended September 30, 2000 based on the prior segmentation, which included JBT and JBI as the former segment, "Van/Intermodal." DCS segment business typically includes company-owned revenue equipment and employee drivers which are assigned to a specific customer, traffic lane or service. DCS operations usually include formal, written long-term agreements or contracts which govern services performed and applicable rates. The JBL business segment prior to July 1, 2000, included a wide range of comprehensive transportation and freight management services. Such services included experienced professional managers, information and optimization technology and the actual design or redesign of freight system solutions. JBL utilized JBT, JBI or DCS owned or controlled assets and employees, or third-party carriers, or a combination to meet customer service requirements. JBL services typically were provided in accordance with written long-term agreements. Effective July 1, 2000, the Company, along with five other motor carriers, contributed all of its non-asset based logistics business into a new joint venture, Transplace.com. This contribution included all of the Company's JBL segment business and all related intangible assets, plus $5.0 million of cash, in exchange for an approximate 27% initial membership interest in Transplace.com. As a result of this transaction, effective July 1, 2000, the Company did not report JBL segment revenue, expenses and operating income as components of its consolidated statements of earnings. Effective July 1, 2000, the Company began reporting its approximate 27% interest in Transplace.com utilizing the equity method of accounting. No gain or loss was recognized upon formation and contribution of JBL segment assets to Transplace.com. The Company's share of Transplace.com's results of operations and its share of Mexican joint venture operating results were reported on a one-line, non-operating item on the condensed consolidated statements of earnings for the three and nine months ended September 30, 2000 and 1999. A summary of certain segment information is presented below (in millions): 8 Assets -------------------- As of September 30 -------------------- 2000 1999 ------- ------- JBT $ 816 $ -- JBI 108 -- ------- ------- Van/Intermodal 924 913 DCS 128 88 JBL 15 63 Other (includes corporate and intersegment eliminations) 87 177 ------- ------- Total $1,154 $1,241 ======= ======= Revenues ---------------------------------------------- Three Months Nine Months Ended September 30 Ended September 30 -------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- JBT $209 $191 $ 615 $ 566 JBI 178 167 495 482 ------- ------- ------- ------- Van/Intermodal 387 358 1,110 1,048 DCS 128 83 344 230 JBL 1 104 230 272 ------- ------- ------- ------- Subtotal 516 545 1,684 1,550 Inter-segment eliminations (7) (21) (58) (58) ------- ------- ------- ------- Total $509 $524 $1,626 $1,492 ======= ======= ======= ======= Operating Income (Loss) ---------------------------------------------- Three Months Nine Months Ended September 30 Ended September 30 -------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- JBT $(2.0) $ -- $(5.4) $ -- JBI 10.4 -- 27.5 -- ------- ------- ------- ------- Van/Intermodal 8.4 6.8 22.1 38.5 DCS 8.0 4.5 21.7 15.7 JBL .2 3.2 7.2 6.9 Other (includes corporate) (.8) .3 (5.3) (.7) ------- ------- ------- ------- Total $15.8 $14.8 $45.7 $60.4 ======= ======= ======= ======= Net Depreciation Expense Three Months Nine Months Ended September 30 Ended September 30 -------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- JBT $16.8 $ -- $49.6 $ -- JBI 5.9 -- 17.7 -- ------- ------- ------- ------- Van/Intermodal 22.7 29.3 67.3 86.6 DCS 9.6 6.8 26.3 19.6 JBL -- .3 .5 .9 Other (includes corporate) 1.9 1.7 4.8 7.5 ------- ------- ------- ------- Total $34.2 $38.1 $98.9 $114.6 ======= ======= ======= ======= 9) RECLASSIFICATIONS Certain amounts for 1999 have been reclassified to conform to the 2000 classifications. 9 INDEPENDENT ACCOUNTANTS' 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, 2000, and the related condensed consolidated statements of earnings for the three and nine months ended September 30, 2000 and 1999, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2000 and 1999. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 4, 2000, 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, 1999, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG LLP ----------------------- Tulsa, Oklahoma October 13, 2000 10 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, 1999 and Management's Discussion and Analysis of Results of Operations and Financial Condition included in the 1999 Annual Report to Shareholders. RESULTS OF OPERATIONS COMPARISON OF THIRD QUARTER 2000 TO THIRD QUARTER 1999 SUMMARY Consolidated operating revenues for the third quarter of 2000 were $509 million, compared with $524 million during the third quarter of 1999. The lower revenue reflected the previously announced contribution of all the Company's JBL segment logistics business to the jointly owned logistics company, Transplace.com. Adjusted for this contributed logistics business, which was effective July 1, 2000, the revenue growth for the third quarter of 2000 was approximately 21%. While the Company's results of operations includes approximately 27% of Transplace.com's net results of operations, all JBL segment revenue will be excluded from the Company's financial statements subsequent to June 30, 2000. JBT segment revenue, which consists primarily of full truckload, dry-van freight, increased 9%, to $209 million, during the third quarter of 2000. Prior to January 1, 2000, the JBT and JBI units had been operated and reported together as the Van/Intermodal segment. Accordingly, the only identifiable comparative segment information for JBT and JBI prior to January 1, 2000, is revenue. The JBT tractor fleet totaled 5,770 at September 30, 2000. Revenue growth in this segment was reduced by the transfer of some revenue equipment to the DCS segment during the current quarter. Revenue per loaded mile in the JBT segment, exclusive of fuel surcharges, rose 3.3% in the current quarter, compared with the third quarter of 1999. JBI segment business, which includes primarily truckload freight transported by rail and some repositioning truck freight, grew 7% to $178 million, during the third quarter of 2000. The JBI tractor fleet totaled 846 at September 30, 2000. Intermodal revenue per loaded mile, exclusive of fuel surcharges, increased approximately .7% in the current quarter, compared with the third quarter of 1999 DCS segment business primarily includes services with company-owned revenue equipment and employee drivers assigned to specific customers or traffic lanes. During the third quarter of 2000, DCS revenue grew 54%, to $128 million, from $83 million, in the comparable period of 1999. A portion of the DCS segment revenue growth was due to transfers of equipment and drivers from the JBT business segment. The DCS tractor fleet totaled 3,793 units at September 30, 2000. Margins in the DCS segment increased during the third quarter of 2000, partly due to the recovery of fuel costs through fuel surcharge revenues. 11 As previously mentioned, all JBL segment business was contributed to Transplace.com effective July 1, 2000. The small amount of revenue and operating income reported in the JBL segment for the third quarter of 2000 was primarily due to differences between accruals and estimates versus final amounts, determined during the current quarter. During the third quarter of 2000, the Company recognized approximately $340,000 and $208,000 of equity in earnings of associated companies from Transplace.com and it's Mexican operations, respectively. Approximately $198,000 of equity in earnings was recognized during the third quarter of 1999 from Mexican operations. Summary of Operating Segments Results For Three Months Ended September 30 (dollars in millions) Gross Revenue Operating Income ------------------------------- ---------------------- 2000 1999 % Change 2000 1999 ----- ----- -------- ------ ------ JBT $209 $191 9 % $(2.0) -- JBI 178 167 6 % 10.4 -- ----- ----- ----- ------ ------ Van/Intermodal 387 358 8 % 8.4 $6.8 DCS 128 83 54 % 8.0 4.5 JBL 1 104 -- .2 3.2 Other -- -- -- (.8) .3 ----- ----- ----- ------ ------ Subtotal 516 545 (5)% 15.8 14.8 Inter-segment eliminations (7) (21) -- -- -- ----- ----- ----- ------ ------ Total $509 $524 (3)% $15.8 $14.8 ===== ===== ===== ====== ====== 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. Three Months Ended September 30 ---------------------------------------------- Percentage of Percentage Change Operating Revenues Between Quarters ------------------- ----------------- 2000 1999 2000 VS. 1999 -------- -------- ----------------- Operating revenues 100.0% 100.0% (2.8)% Operating expenses Salaries, wages and employee benefits 37.5% 34.6% 5.4 % Rents and purchased transportation 27.7% 34.3% (21.7)% Fuel and fuel taxes 12.0% 8.4% 38.3 % Depreciation 6.7% 7.3% (10.2)% Operating supplies and expenses 7.0% 6.7% 1.7 % Insurance and claims 1.9% 2.2% (17.1)% Operating taxes and licenses 1.6% 1.3% 25.3 % General and administrative expenses 1.2% 1.4% (15.0)% Communication and utilities 1.3% 1.0% 25.3 % -------------------- --------- Total operating expenses 96.9% 97.2% (3.0)% -------------------- --------- Operating income 3.1% 2.8% 7.0 % Interest expense 1.3% 1.3% (4.9)% Equity in earnings of associated companies 0.1% 0.0% 176.8 % -------------------- --------- Earnings before income taxes 1.9% 1.5% 22.3 % Income taxes 0.1% .5% (84.9)% Net earnings 1.8% 1.0% 84.0 % -------------------- --------- 12 Total operating expenses for the third quarter of 2000 decreased 3.0% from the comparable period of 1999. As previously discussed, operating revenues decreased 2.8% during the same period. These comparisons were impacted by the contribution of the JBL segment business to Transplace.com, effective July 1, 2000. The Company's operating ratio improved slightly to 96.9% during the third quarter of 2000, compared with 97.2% in 1999. Salaries, wages and employee benefits increased 5.4% during the current quarter and rose to 37.5% of revenue in 2000, from 34.6% in 1999. These increases were primarily due to increases in driver compensation and medical insurance costs. The increase as a percentage of revenue was partly a result of the contribution of the non-asset based JBL segment business to an associated company during the current quarter. The higher level of driver compensation in 2000 was due to changes in the mix of drivers and not a pay rate change. Rents and purchased transportation declined 21.7% and decreased as a percentage of revenue. This decrease was partly due to the contribution of the JBL segment business. This decline in purchased transportation expense was partly offset by increases in drayage and revenue equipment rents. Transactions to sell and leaseback or rent certain trailing equipment, which closed in the fourth quarter of 1999 and the third quarter of 2000, resulted in higher revenue equipment rent and lower depreciation expense. Fuel and fuel taxes expense rose 38.3% during the current quarter, driven by a 30% higher cost per gallon and slightly lower fuel miles per gallon. Fuel surcharges, which were initiated in late 1999, recovered the majority of the increased fuel cost relative to the third quarter of 1999. Depreciation expense declined 10.2% during the third quarter of 2000, primarily due to the sale and leaseback transaction which closed in late 1999. Insurance and claims expense declined 17.1%, primarily due to lower liability and accident costs. The 25.3% increase in operating taxes and license expense was due to the larger size of the tractor fleet and a higher state base plate cost per tractor in 2000. The 15.0% decrease in general and administrative costs was partly due to certain support service charges which were charged to Transplace.com and lower professional fees and bad debt expenses, partly offset by higher driver recruiting and increased computer rental expense. Communication and utility costs were up 25.3%, primarily due to expanded data and telecommunication networks and higher satellite communication expenses. Interest expense declined 4.9%, primarily due to reduced debt levels associated with the sale and leaseback transactions. The effective income tax rates were approximately 4% in the third quarter of 2000 and 36.5% in the comparable period of 1999. The primary reasons for the decrease in the current quarter's effective income tax rate were two sale and lease back transactions and a change in the expected effective rate for the full year 2000 from 20% during the second quarter to 15% during the third quarter. As a result of the above, net earnings for the third quarter of 2000 increased to $9.1 million, or diluted earnings per share of $.26, compared with $5.0 million, or $.14 per diluted share, in 1999. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED SEPTEMBER 30, 1999 SUMMARY Consolidated operating revenues for the nine months ended September 30, 2000 increased 9.0%, to $1.626 billion, from $1.492 billion in 1999. This increase in revenue was 15%, adjusted for the contributed JBL business. Revenue in the JBT segment increased approximately 9%, to $615 million in 2000, from $566 million in 1999. Revenue growth in this segment was reduced by the transfer of some revenue equipment to the DCS segment during the period. Revenue per loaded mile in the JBT segment, exclusive of fuel surcharges, rose 3.7% during the first nine months of 2000, compared with the same period in 1999. 13 JBI segment business grew approximately 3%, to $495 million during the first nine months of 2000, from $482 million in the comparable period of 1999. Intermodal revenue per loaded mile during the first nine months of 2000, exclusive of fuel surcharges, were essentially flat when compared with the same period in 1999. DCS segment revenue grew approximately 50% during the first nine months of 2000, to $344 million, from $230 million in 1999. A portion of this segment revenue growth was due to transfers of equipment and drivers from the JBT business segment. Operating income was $21.7 million during the first nine months of 2000, compared with $15.7 million in 1999. This increase was due primarily to higher segment revenue. As previously mentioned, all JBL segment business was contributed to Transplace.com effective July 1, 2000. Substantially all of the $230 million of JBL revenue reported for the first nine months of 2000 was generated between January 1, 2000 and June 30, 2000. While the Company's results of operations includes approximately 27% of Transplace.com's net results of operations, all JBL revenue will be excluded from the Company's financial statements subsequent to June 30, 2000. Summary of Operating Segments Results For Nine Months Ended September 30 (dollars in millions) Gross Revenue Operating Income ------------------------------- -------------------- 2000 1999 % Change 2000 1999 ------ ------ -------- ----- ----- JBT $ 615 $ 566 9 % $(5.4) -- JBI 495 482 3 % 27.5 -- ------ ------ ---- ----- ----- Van/Intermodal 1,110 1,048 6 % 22.1 $38.5 DCS 344 230 50 % 21.7 15.7 JBL 230 272 (15)% 7.2 6.9 Other -- -- -- (5.3) (.7) ------ ----- ----- ----- ----- Subtotal 1,684 1,550 9 % 45.7 60.4 Inter-segment eliminations (58) (58) -- -- -- ------ ------ ----- ----- ----- Total $1,626 $1,492 9 % $45.7 $60.4 ====== ====== ===== ===== ===== 14 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. Nine Months Ended September 30 ---------------------------------------------- Percentage of Percentage Change Operating Revenues Between Quarters ------------------- ----------------- 2000 1999 2000 VS. 1999 ---- ---- ------------- Operating revenues 100.0% 100.0% 9.0 % Operating expenses Salaries, wages and employee benefits 35.1% 35.5% 7.8 % Rents and purchased transportation 33.5% 32.5% 12.2 % Fuel and fuel taxes 10.8% 8.1% 46.5 % Depreciation 6.1% 7.7% (13.7)% Operating supplies and expenses 6.0% 6.2% 3.9 % Insurance and claims 1.8% 2.0% (2.5)% Operating taxes and licenses 1.5% 1.3% 20.4 % General and administrative expenses 1.3% 1.5% (3.8)% Communication and utilities 1.1% 1.1% 14.3 % -------------------- --------- Total operating expenses 97.2% 95.9% 10.4 % -------------------- --------- Operating income 2.8% 4.1% (24.4)% Interest expense 1.2% 1.5% (10.3)% Equity in earnings of associated companies 0.2% 0.2% 21.7 % -------------------- --------- Earnings before income taxes 1.8% 2.8% (28.5)% Income taxes 0.3% 1.0% (70.6)% -------------------- --------- Net earnings 1.5% 1.8% (4.3)% -------------------- --------- Total operating expenses for the nine month period ended September 30, 2000 increased 10.4% over the comparable period of 1999. As previously discussed, operating revenues increased 9.0% during this same period. These comparisons were impacted by the contribution of the JBL segment business to Transplace.com, effective July 1, 2000. The Company's operating ratio increased to 97.2% during the first nine months of 2000, compared with 95.9% in 1999. Salaries, wages and employee benefits increased 7.8% during the first nine months of 2000, but declined slightly as a percentage of revenue. The increase in the dollar amount of this expense category was partly due to increases in driver compensation and higher costs of medical insurance. The slight decline in percentage of revenue was primarily due to growth of the non-asset based JBL business during the first six months of 2000 and growth of the JBI business. The higher level of driver compensation in 2000 was due to changes in the mix of drivers and not a pay rate change. Rents and purchased transportation expense increased 12.2% and increased as a percentage of revenue. This increase was due primarily to the additional use of third-party dray carriers and higher revenue equipment rental expense. A transaction to sell and leaseback certain trailing equipment, which closed in late 1999, increased equipment rent and decreased depreciation expense. Fuel and fuel tax expense increased 46.5% and increased as a percentage of revenue, driven by a 39% higher cost per gallon and slightly lower fuel miles per gallon. Fuel surcharges, which were initiated in late 1999, recovered approximately 77% of higher fuel costs during the nine months ended September 30, 2000. 15 Depreciation expense declined 13.7% and also declined as a percentage of revenue, primarily due to the sale and leaseback transactions previously discussed. Operating supplies and expenses and insurance and claims costs remained relatively consistent in proportion to revenue during 2000 and 1999. The 20.4% increase in operating taxes and licenses expense was due to the larger size of the tractor fleet and a higher state base plate cost per tractor in 2000. Communication and utility costs were up 14.3%, primarily due to expanded data and telecommunication networks and higher satellite communication expenses. Interest expense declined 10.3% in 2000, primarily due to reduced debt levels associated with the sale and leaseback transactions. The effective income tax rates were approximately 15% in 2000 and 36.5% in 1999. These were the effective rates expected for the full year 2000 and 1999, respectively. The primary reason for the decrease in the effective income tax rate was the sale and leaseback transaction, which closed in late 1999. As a result of the above, net earnings for the nine months ended September 30, 2000 were $25.2 million, or diluted earnings per share of $.71, compared with $26.3 million, or $.73 per diluted share, in 1999. 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 $96.7 million for the first nine months of 2000, compared with $134.4 million provided during the same period of 1999. This decrease in net cash provided was primarily due to funds used for prepaid expenses and trade accounts payable, partly offset by cash generated from accounts receivable, claims accruals and accrued payroll and other accrued expenses. In addition, net earnings, depreciation expense and the provision for noncurrent deferred income taxes all declined in 2000. As previously discussed, the lower depreciation expense was due to the sale and leaseback of certain trailing equipment. Net cash used in investing activities was $127.6 million in 2000, down from $139.0 million in 1999. Additions to property and equipment were up significantly during 2000. New tractor purchases totaled approximately 1,860 during the first nine months of 2000, compared with about 1,120 in 1999. This increase in capital spending for tractors was offset by reduced purchases of trailing equipment and the conversion of approximately $66 million of trailing equipment from owned to leased in September of 2000. The Company also commenced tractor leasing programs in July of 2000 and anticipates leasing a significant number of new tractor acquisitions during the remainder of year 2000 and in 2001. Financing activities generated $27.5 million during the first nine months of 2000, compared with a use of $1.8 million in 1999. Financing activities included net borrowings of $36.5 million, $7.6 million used to repurchase treasury stock and $1.8 million paid out in dividends. The Company announced in February of 2000, an intent to cease the payment of dividends and to utilize those funds to purchase additional treasury stock. The purchase of additional treasury stock was completed during the first six months of 2000. 16 SELECTED BALANCE SHEET DATA As of --------------------------------------------------------------------- September 30, 2000 December 31, 1999 September 30, 1999 ------------------ ----------------- ------------------ Working capital ratio 1.17 1.09 1.11 Current maturities of long- term debt (millions) $ 64 $ 60 $ 19 Total debt (millions) $ 364 $ 328 $ 437 Total debt to equity .87 .82 1.10 Total debt as a percentage of total capital .47 .45 .52 The Company's total debt levels increased approximately $36 million from December 31, 1999 to September 30, 2000. As of September 30, 2000, the Company had intentions to acquire or lease approximately $405 million of revenue and service equipment net of expected proceeds from sale or trade-in allowances. As previously discussed, the Company has been leasing significant portions of its tractor and trailing equipment since July of 2000. Funding for future acquisitions of revenue equipment is expected to come from cash generated from operations, existing borrowing facilities and rental or leasing arrangements. PROSPECTIVE ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, as amended, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement requires the recognition of all derivatives in the statement of financial position as either assets or liabilities and their measurement at fair value. Statement No. 133 is effective for fiscal years beginning after June 15, 2000. The Company has not completed its analysis of Statement No. 133, but does not expect adoption on January 1, 2001 to have a material effect on results of operations. FORWARD-LOOKING STATEMENTS This Form 10-Q may contain statements that may constitute "forward-looking statements." Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Shareholders and prospective investors are cautioned that actual results and experience may differ materially from the forward-looking statements as a result of many factors, possibly including changes in general economic conditions, fuel prices, driver availability and other items as described in periodic Company filings with the SEC, including the annual report filed on Form 10-K for the year ended December 31, 1999. YEAR 2000 As of the date of this filing, the Company had not experienced any material Year 2000 problems or disruptions with internal systems, nor had any material problems or disruptions been experienced with customers or suppliers. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's earnings are affected by changes in short-term interest rates as a result of its issuance of short-term commercial paper. The Company from time to time utilizes interest rate swaps to mitigate the effects of interest rate changes; none were outstanding at September 30, 2000. Risk can be estimated by measuring the impact of a near-term adverse movement of 10% in short-term market interest rates. If short-term market interest rates average 10% more during the next twelve months, there would be no material adverse impact on the Company's results of operations based on variable rate debt outstanding at September 30, 2000. At September 30, 2000, the fair value of the Company's fixed rate long-term obligations approximated carrying value. Although the Company conducts business in foreign countries, international operations are not material to the Company's consolidated financial position, results of operations or cash flows. Additionally, foreign currency transaction gains and losses were not material to the Company's results of operations for the three and nine months ended September 30, 2000. Accordingly, the Company is not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencies would have on the Company's future costs or on future cash flows it would receive from its foreign investment. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. 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 November 1, 2000, Moody's Investors Service announced that it had placed the Company's Baa2 Senior unsecured and Prime-2 short-term ratings under review for possible downgrade. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule 18 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 13, 2000 BY: /s/ Kirk Thompson ------------------------- -------------------------------- Kirk Thompson President and Chief Executive Officer DATE: November 13, 2000 BY: /s/ Jerry W. Walton ------------------------- -------------------------------- Jerry W. Walton Executive Vice President, Finance and Chief Financial Officer DATE: November 13, 2000 BY: /s/ Donald G. Cope ------------------------- -------------------------------- Donald G. Cope Vice President, Controller and Chief Accounting Officer 19