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, 1999
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, 1999 WAS 35,636,738.
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, 1999 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 1999.
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, 1998.
INDEX
-----
Condensed Consolidated Statements of Earnings for the
Three and Nine Months Ended September 30, 1999 and 1998 .............................................Page 3
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31,1998 .............................................................Page 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 .......................................................Page 5
Notes to Condensed Consolidated Financial Statements
as of September 30, 1999 ............................................................................Page 6
Review Report of KPMG LLP ..................................................................................Page 9
ITEM 2.Management's Discussion and Analysis of Results of Operations
and Financial Condition.............................................................................Page 10
ITEM 3.Quantitative and Qualitative Disclosures About Market Risk...........................................Page 17
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
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Operating revenues $ 523,901 $ 473,388 $ 1,491,699 $ 1,347,839
Operating expenses
Salaries, wages and employee benefits 181,206 165,722 530,068 470,561
Purchased transportation 179,957 161,354 485,591 453,746
Fuel and fuel taxes 44,305 34,537 120,226 101,895
Depreciation 38,129 35,655 114,563 101,133
Operating supplies and expenses 34,922 24,508 93,165 69,849
Insurance and claims 11,410 8,803 29,405 23,408
Operating taxes and licenses 6,694 5,891 20,260 17,901
General and administrative expenses 7,070 7,298 19,138 17,568
Communication and utilities 5,233 5,195 15,895 14,083
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 508,926 448,963 1,428,311 1,270,144
- ----------------------------------------------------------------------------------------------------------------------
Operating income 14,975 24,425 63,388 77,695
Interest expense 7,167 7,207 21,926 21,012
- ----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 7,808 17,218 41,462 56,683
Income taxes 2,850 6,371 15,134 20,728
- ----------------------------------------------------------------------------------------------------------------------
Net earnings $ 4,958 $ 10,847 $ 26,328 $ 35,955
======================================================================================================================
Average basic shares outstanding 35,635 35,597 35,625 35,574
======================================================================================================================
Basic earnings per share $ 0.14 0.30 $ 0.74 $ 1.01
======================================================================================================================
Average diluted shares outstanding 35,692 36,702 35,957 36,775
======================================================================================================================
Diluted earnings per share $ 0.14 0.30 $ 0.73 $ 0.98
======================================================================================================================
See accompanying notes to condensed consolidated financial statements.
3
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
- -----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,817 $ 9,227
Accounts receivable 225,305 184,367
Prepaid expenses 37,429 30,402
Deferred income taxes 1,275 1,275
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 266,826 225,271
- -----------------------------------------------------------------------------------------------------------------------
Property and equipment 1,494,360 1,418,033
Less accumulated depreciation 568,819 492,633
- -----------------------------------------------------------------------------------------------------------------------
Net property and equipment 925,541 925,400
- -----------------------------------------------------------------------------------------------------------------------
Other assets 48,444 20,808
$ 1,240,811 $ 1,171,479
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 19,300 $ 16,350
Trade accounts payable 183,300 147,967
Claims accruals 1,828 6,131
Accrued payroll 24,093 23,684
Other accrued expenses 12,155 11,909
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 240,676 206,041
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt 417,506 417,045
Claims accruals 7,662 7,166
Deferred income taxes 177,336 165,570
Stockholders' equity 397,631 375,657
- -----------------------------------------------------------------------------------------------------------------------
$ 1,240,811 $ 1,171,479
=======================================================================================================================
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
- ----------------------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 26,328 $ 35,955
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 114,563 101,133
Provision for noncurrent deferred income taxes 11,766 8,781
Tax benefit of stock options exercised 55 919
Termination of restricted stock (18) (23)
Amortization of discount, net 461 (498)
Changes in assets and liabilities:
Trade accounts receivable (40,938) (23,638)
Prepaid expenses (7,027) 3,996
Trade accounts payable 35,333 (1,975)
Claims accruals (3,807) (19,292)
Accrued payroll and other accrued expenses 655 26,477
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 137,371 131,835
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (133,626) (253,980)
Proceeds from sale of equipment 18,922 35,305
Decrease (increase) in other assets (27,261) 3,514
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (141,965) (215,161)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under commercial paper program 7,950 (1,900)
Proceeds from long-term debt -- 100,000
Repayments of long-term debt (5,000) (5,000)
Repurchase of treasury stock -- (5,814)
Proceeds from sale of treasury and common stock 580 2,792
Dividends paid (5,346) (5,320)
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used in) by financing activities (1,816) 84,758
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (6,410) 1,432
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 9,227 3,701
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,817 $ 5,133
==========================================================================================================
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 23,742 $ 20,312
Income taxes 295 (1,193)
==========================================================================================================
See accompanying notes to condensed consolidated financial statements.
5
J.B. HUNT TRANSPORT SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) LONG-TERM DEBT
Long-term debt consists of (in thousands):
9/30/99 12/31/98
------- --------
Commercial paper $ 139,300 $ 131,350
Senior notes payable, interest at 7.84%
payable semiannually -- 5,000
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 100,000 100,000
Senior subordinated notes, interest at 7.80%
payable semiannually 50,000 50,000
------- ------
437,560 434,610
Less current maturities (19,300) (16,350)
Unamortized discount (754) (1,215)
--------- ---------
$ 417,506 $ 417,045
========= =========
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 7, 2000 and $120 million expires March 20, 2002.
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
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:
Weighted average Number of
Number of exercise price shares
shares per share exercisable
------ --------- -----------
Outstanding at December 31, 1998 3,349,890 $16.98 323,390
=======
Granted 57,000 21.53
Exercised (24,125) 12.77
Terminated (31,200) 13.99
------ -----
Outstanding at September 30, 1999 3,351,565 $17.12 554,190
========= ====== =======
On October 14, 1999, the Company's Board of Directors declared a
regular quarterly cash dividend of $.05 per share payable on November 22, 1999
to stockholders of record on November 2, 1999.
3) 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
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator (net earnings) $4,958 $10,847 $26,328 $35,955
Denominator - Basic earnings per share
Weighted average shares outstanding 35,635 35,597 35,625 35,574
====== ====== ====== ======
Basic earnings per share $ .14 $ .30 $ .74 $ 1.01
====== ====== ====== ======
Denominator - Diluted earnings per share
Weighted average share outstanding 35,635 35,597 35,625 35,574
Effect of common stock options 57 1,105 332 1,201
------ ------ ------ ------
Weighted average shares assuming dilution 35,692 36,702 35,957 36,775
====== ====== ====== ======
Diluted earnings per share $ .14 $ .30 $ .73 $ .98
====== ====== ====== ======
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
---------------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Number of shares under option 4,754,115 162,000 623,675 144,500
Range of exercise price $15.00-$37.50 $26.00-$37.50 $18.75-$37.50 $28.13-$37.50
7
4) COMPREHENSIVE INCOME
Comprehensive income consists of net earnings and foreign currency
translation adjustments. During the three and nine month periods ended
September 30, 1999, comprehensive income was equal to (in thousands):
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
Net earnings $4,958 $26,328
Foreign currency
translation gain 430 374
------ -------
Comprehensive income $5,388 $26,702
====== =======
During 1998, comprehensive income and net earnings were the same.
5) SEGMENTS
A summary of segment information is presented below (in millions):
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
REVENUES 1999 1998 1999 1998
-------- ---- ---- ---- ----
Van/Intermodal $358.0 $352.9 $1,047.3 $1,014.9
Logistics 103.7 84.0 272.2 229.5
Dedicated Contract Services 82.8 55.7 230.0 148.2
Other -- -- -- 8.0
------ ------ ------ ------
Subtotal 544.5 492.6 1,549.5 1,400.6
Inter-segment eliminations (20.6) (19.2) (57.8) (52.8)
--------- -------- --------- ---------
Total $523.9 $473.4 $1,491.7 $1,347.8
========= ======= ========= =========
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
OPERATING INCOME 1999 1998 1999 1998
---------------- ---- ---- ---- ----
Van/Intermodal $6.8 $18.7 $38.5 $59.2
Logistics 3.2 1.3 6.9 5.1
Dedicated Contract Services 4.5 4.9 15.7 13.1
Other .5 (.5) 2.3 .3
-------- ------- ------- -------
Total $15.0 $24.4 $63.4 $77.7
======== ======= ======= =======
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
NET DEPRECIATION EXPENSE 1999 1998 1999 1998
------------------------ ---- ---- ---- ----
Van/Intermodal $31.0 $30.8 $94.1 $88.5
Logistics .3 .2 .9 .5
Dedicated Contract Services 6.8 4.7 19.6 12.3
------- ------ ------ -------
Total $38.1 $35.7 $114.6 $101.3
======= ====== ====== =======
8
6) PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, 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,
as amended, is effective for fiscal years beginning after June 15, 2000. The
Company has not determined what impact, if any, Statement No. 133 will have on
its financial statements.
7) RECLASSIFICATIONS
Certain amounts for 1998 have been reclassified to conform to the 1999
classifications.
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, 1999,
and the related condensed consolidated statements of earnings for the
three-month and nine-month periods ended September 30, 1999 and 1998, and the
condensed consolidated statements of cash flows for the nine-month periods
ended September 30, 1999 and 1998. 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, 1998, 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 5, 1999,
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, 1998, is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG LLP
------------
Little Rock, Arkansas
October 14, 1999
9
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, 1998.
RESULTS OF OPERATIONS
COMPARISON OF THIRD QUARTER 1999 TO THIRD QUARTER 1998
SUMMARY
Operating revenues for the third quarter of 1999 increased 11%, to
$523.9 million, from $473.4 million in the comparable period of 1998. Revenue
in the Van segment grew 1%, with truck revenue up 2% and intermodal up 1%. As
announced in September, 1999 rail service delays reduced intermodal volume
during the current quarter. Logistics segment (JBHL) revenues increased 23%
during the third quarter of 1999, while Dedicated Contract Services segment
(DCS) revenue grew 49%. Average tractor count in the Van fleet decreased 2%
during the current quarter, while the DCS fleet increased 41%. A portion of
the DCS fleet increase was due to the transfer of tractors from Van. Van
truck only revenue per mile was up approximately 2%, before fuel surcharges,
during the current quarter, while intermodal revenue per mile, before fuel
surcharges, declined about 2%.
Operating income in the Van segment declined during the third quarter
of 1999 to $6.8 million, from $18.7 million in the third quarter of 1998.
This decrease was due, in part, to significantly higher fuel costs, which
were not totally offset by fuel surcharges, and due to increased maintenance
expense on older tractors. In addition, maintenance costs on the trailing
fleet, and insurance and claims costs reduced Van operating income during the
current quarter. The increase in JBHL operating income was primarily due to
lower purchased transportation expense and improved margins on certain
projects. The decline in DCS operating income was primarily due to higher
fuel costs and increased insurance and claims expense.
Operating Segments
For Three Months Ended September 30
(dollars in millions)
Gross Revenue Operating Income
----------------------------------- --------------------
1999 1998 % CHANGE 1999 1998
---- ---- -------- ---- ----
Van /Intermodal $358.0 $352.9 1% $6.8 $18.7
Logistics 103.7 84.0 23% 3.2 1.3
Dedicated Contract Services 82.8 55.7 49% 4.5 4.9
Other -- -- -- .5 (0.5)
------ ------ ---- ---- ------
Subtotal 544.5 492.6 11% 15.0 24.4
Inter-segment eliminations (20.6) (19.2) -- -- --
------- ------- ---- ----- -----
Total $523.9 $473.4 11% $15.0 $24.4
======= ======= ==== ===== =====
10
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
------------------- -----------------
1999 1998 1999 vs. 1998
------ ------ -----------------
Operating revenues 100.0% 100.0% 10.7%
Operating expenses
Salaries, wages and employee benefits 34.6% 35.0% 9.3%
Purchased transportation 34.3% 34.1% 11.5%
Fuel and fuel taxes 8.5% 7.3% 28.3%
Depreciation 7.3% 7.5% 6.9%
Operating supplies and expenses 6.7% 5.2% 42.5%
Insurance and claims 2.2% 1.9% 29.6%
Operating taxes and licenses 1.3% 1.2% 13.6%
General and administrative expenses 1.3% 1.5% (3.1%)
Communication and utilities 1.0% 1.1% .7%
------------------- -----------------
Total operating expenses 97.1% 94.8% 13.4%
------------------- -----------------
Operating income 2.9% 5.2% (38.7%)
Interest expense 1.4% 1.6% (0.6%)
------------------- -----------------
Earnings before income taxes 1.5% 3.6% (54.7%)
Income taxes .5% 1.3% (55.3%)
------------------- -----------------
Net earnings 1.0% 2.3% (54.3%)
=================== =================
Total operating expenses for the third quarter of 1999 increased
approximately 13%, while operating revenues increased about 11%, compared
with the same period of 1998. Total operating expenses expressed as a
percentage of operating revenues (operating ratio) were 97.1% for the third
quarter of 1999, compared with 94.8% in 1998. Salaries, wages and employee
benefits increased approximately 9%, primarily due to higher office salary
and wage costs and higher health insurance and other benefit expenses.
Purchased transportation expense increased 11.5%, but remained nearly the
same percentage of revenue. This was due primarily to increases in JBHL
business which results in increased revenue and a corresponding increase in
purchased transportation expense. The significant increase in fuel and fuel
taxes expense was due, in part, to approximately 18% higher fuel cost per
gallon and slightly lower miles per gallon. This increased fuel expense was
only partly offset by additional fuel surcharge revenue during the current
quarter.
Depreciation expense increased about 7%, reflecting the approximate 7%
increase in the combined tractor fleet. Gains or losses on the disposition of
assets are also reflected in net depreciation expense. A net loss of $274,000
was incurred on asset dispositions during the current quarter, compared with
a net gain of $3,000 in 1998. Operating supplies and expenses increased 42.5%
during 1999, reflecting significantly higher levels of spending for tractor
and trailing equipment maintenance and tires. These higher maintenance costs
were due, in part, to an approximate 30% increase in the average age of the
Van tractor fleet.
11
While the frequency of vehicle collisions declined slightly during the
third quarter of 1999, the severity, or cost per collision, was up significantly
and resulted in nearly 30% higher insurance and claims expense. Operating taxes
and licenses expense increased 13.6%, partly due to the growth of the tractor
fleet and increases in licensing fees charged by certain states. General and
administrative expenses declined slightly, partly due to lower bad debt expense
in the current quarter. Communication and utilities expense increased slightly,
but remained nearly the same percentage of revenue. No significant changes in
the telecommunications network or rates were experienced during the current
quarter. The effective income tax rate was 36.5% in 1999 and 37.0% in 1998.
As a result of the above, net earnings for the third quarter of 1999 were
$5.0 million, or earnings per diluted share of $.14, compared with $10.8 million
or $.30 per diluted share in 1998.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
SUMMARY
Operating revenues for the nine month period ended September 30, 1999
increased 11%, to $1,491.7 million from $1,347.8 million in 1998. For the nine
month period Van segment revenue was up 3%, JBHL grew 19% and DCS revenue
increased 55%. The increase in Van revenue included 5% growth of truck and 2% in
intermodal. The Van tractor fleet declined about 2% during the nine month period
of 1999. Overall truck revenue per mile, before fuel surcharges, increased about
1%, while intermodal revenue per mile, excluding fuel surcharges, declined 1.5%.
The increase in JBHL revenue was a result of new accounts and growth with
existing customers. The significant increase in DCS revenue was driven by a 41%
increase in the tractor fleet, a portion of which was transferred from Van, new
contract arrangements and growth with existing customers. Other revenue in 1998
was generated by a small subsidiary, Lake City Express, which was sold in June
of 1998.
Operating income in the Van segment declined during the nine month period
ended September 30, 1999 to $38.5 million, from $59.2 million in 1998. This
decline was due, in part, to higher costs for office salaries and wages, tractor
and trailing equipment maintenance and tire costs, and increased fuel costs, not
totally offset by fuel surcharge revenue. JBHL operating income increased during
1999, primarily due to higher revenue volume and slightly lower purchased
transportation expense. The increase in DCS operating income was primarily due
to revenue growth. Overall margins in the DCS segment declined in 1999, partly
due to higher fuel costs and increased maintenance expense.
12
Operating Segments
For Nine Months Ended September 30
(dollars in millions)
Gross Revenue Operating Income
--------------------------------- --------------------
1999 1998 % CHANGE 1999 1998
-------- -------- -------- ---- ----
Van /Intermodal $1,047.3 $1,014.9 3% $38.5 $59.2
Logistics 272.2 229.5 19% 6.9 5.1
Dedicated Contract Services 230.0 148.2 55% 15.7 13.1
Other -- 8.0 -- 2.3 .3
-------- -------- ----- ----- -----
Subtotal 1,549.5 1,400.6 11% 63.4 77.7
Inter-segment eliminations (57.8) (52.8) -- -- --
-------- -------- ----- ----- -----
Total $1,491.7 $1,347.8 11% $63.4 $77.7
======== ======== ===== ===== =====
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
------------------ -----------------
1999 1998 1999 vs. 1998
------ ------ -----------------
Operating revenues 100.0% 100.0% 10.7%
Operating expenses
Salaries, wages and employee benefits 35.5% 34.9% 12.6%
Purchased transportation 32.6% 33.7% 7.0%
Fuel and fuel taxes 8.1% 7.6% 18.0%
Depreciation 7.7% 7.5% 13.3%
Operating supplies and expenses 6.2% 5.2% 33.4%
Insurance and claims 2.0% 1.7% 25.6%
Operating taxes and licenses 1.4% 1.3% 13.2%
General and administrative expenses 1.3% 1.3% 8.9%
Communication and utilities 1.1% 1.0% 12.9%
------ ------ ------
Total operating expenses 95.8% 94.2% 12.5%
------ ------ ------
Operating income 4.2% 5.8% (18.4%)
Interest expense 1.4% 1.6% 4.3%
------ ------ ------
Earnings before income taxes 2.8% 4.2% (26.9%)
Income taxes 1.0% 1.5% (27.0%)
------ ------ ------
Net earnings 1.8% 2.7% (26.8%)
====== ====== ======
Total operating expenses for the nine months ended September 30, 1999
increased 12.5%, while operating revenues increased 10.7%, compared with the
same period of 1998. Total operating expenses expressed as a percentage of
operating revenues (operating ratio) were 95.8% for the nine months ended
September 30, 1999, compared with 94.2% in 1998. Salaries, wages and employee
benefits increased 12.6%, primarily due to higher driver compensation, office
salaries and wage costs, and higher health insurance and other benefit expenses.
Purchased transportation expense increased 7%
13
over 1998 levels, but declined as a percentage of revenue, primarily due to
slower growth of intermodal volume and the 1998 sale of Lake City Express, which
compensated its drivers as independent contractors. Fuel and fuel taxes
increased 18% and increased as a percentage of revenue, due to additional truck
volume, approximately 4% higher fuel cost per gallon and slightly lower fuel
miles per gallon.
Depreciation expense increased 13.3%, reflecting the growth of the
tractor and trailing equipment fleets. The increase in depreciation was also due
to differences in gain or loss on asset dispositions. A net loss of $747,000 was
recognized on asset dispositions during the nine months ended September 30,
1999, which increased depreciation expense, compared with a gain of $2.1
million, which reduced depreciation in 1998. Operating supplies and expenses
increased 33.4% during 1999, primarily due to higher spending levels for tractor
and trailing equipment maintenance and tires. These higher maintenance costs
were partly due to an approximate 28% increase in the average age of the Van
tractor fleet and a $2 million cost to repair a group of leased trailers that
were returned to the lessor in 1999.
While the frequency of vehicle collisions declined slightly during the
nine months ended September 30, 1999, the severity, or cost per collision, was
up significantly and resulted in 25.6% higher insurance and claims expense.
Operating taxes and licenses increased 13.2%, partly due to the growth of the
tractor fleet and increases in licensing fees charged by certain states. General
and administrative expenses increased in relative proportion to revenue and
remained the same percentage of operating revenue. Communication and utilities
increased nearly 13%, partly due to expanded data and telecommunications
networks and higher satellite communications costs. The effective income tax
rate was 36.5% in 1999 and 36.6% in 1998.
As a result of the above, net earnings for the nine months ended
September 30, 1999 were $26.3 million, or diluted earnings per share of $.73,
compared with $36.0 million, or $.98 per diluted share in 1998.
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 $137.4 million for the nine
months ended September 30, 1999, compared with $131.8 million in 1998. Net cash
was generated during 1999 primarily from net earnings, depreciation, deferred
income taxes and increases in trade accounts payable. Net cash was used
primarily to fund an increase in accounts receivable, for prepaid expenses and
to pay claims. Net cash used in investing activities was $142 million in 1999,
compared with $215 million in 1998. This decline in investment spending was
primarily due to fewer additions and trades of new tractors and trailing
equipment in the current year. The Company had net borrowings of approximately
$3 million in 1999, compared with $93 million in 1998, and paid out $5.3 million
of dividends in 1999 and in 1998.
14
SELECTED BALANCE SHEET DATA
AS OF
---------------------------------------------------------------
September 30, 1999 December 31, 1998 September 30, 1998
------------------ ----------------- ------------------
Working capital ratio 1.11 1.09 1.08
Current maturities of long-
term debt (millions) $ 19.3 $ 16.4 $ 15.6
Total debt (millions) $ 436.8 $433.4 $ 432.9
Total debt to equity 1.10 1.15 1.18
Total debt as a percentage
of total capital .52 .54 .54
The Company's total debt level increased approximately $3 million to
$436.8 million at September 30, 1999 from $433.4 million at December 31, 1998.
Total debt increased approximately $4 million from September of 1998 to
September of 1999. However, total debt to equity and debt as a percentage of
total capital both declined in 1999. In August of 1999, the Company announced a
five year exclusive commitment to purchase approximately $1 billion of new
tractors from Freightliner Corporation, a member of the Daimler Chrysler Group.
Deliveries of the new tractors commenced in September of 1999. Approximately 800
of the new Freightliners are expected to be delivered during the remainder of
calendar year 1999 and preliminary estimates are for approximately 3,000 to be
delivered in calendar year 2000. The Company generates significant levels of
cash from operating activities and has borrowing capacity to meet its committed
and contemplated cash requirements.
YEAR 2000
The Company utilizes and is significantly dependent upon a wide variety
of complex information technologies (IT) to conduct daily business operations.
Company IT systems are used by shippers to request freight services and track
order status, and by the Company to process and manage orders, communicate with
drivers, bill customers, authorize the purchase of fuel and other maintenance
services, general accounting, payroll and a number of other functions. The
Company recognized the importance of the Year 2000 (Y2K) issue and developed an
action plan in 1996. The plan included systematic reviews of all internal
hardware, software and functions to either verify that the system is Y2K
compliant or modify/replace the software or system as required.
STATE OF READINESS
The Company has focused significant resources during 1998 and 1999 on Y2K
with the goal of no material business or system disruption related to dates on
or after January 1, 2000. The Company established July 1, 1999 as a completion
date for all modifications, installations and testing of mission critical
internal computer and IT applications. The Company has modified or otherwise
corrected all mission critical internal Y2K issues and problems that have been
identified. Although some limited reviews and testing will continue through 1999
and early 2000, the Company believes that all internal IT systems, which have a
material impact on daily operations, have been modified and tested to eliminate
or minimize the Y2K problem.
15
In addition to the issues and risks associated with internal IT systems, the
Company has relationships and is dependent upon a number of third parties such
as customers, suppliers and utility service providers. 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, water, 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 Y2K 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 Y2K compliance have been requested and received. The Company
has no knowledge of any primary or critical customer or supplier with potential
Y2K issues that might have a material adverse effect on the Company's
operations.
COSTS
Since 1996, the Company has spent approximately $1.7 million on Y2K
compliance. Estimated future expense to complete any remaining tests or
compliance work is $.1 million for an estimated total cost of $1.8 million.
These costs are being charged to operations as incurred. These costs exclude
certain new system acquisitions, development and implementation costs that
relate to on-going business activity, normal system upgrades and enhancements.
RISKS AND CONTINGENCY PLANS
The Company has no knowledge of any internal or external Y2K issues that
could materially affect business operations. However, there can be no assurance
that all internal IT issues have been identified or that no customers, suppliers
or utility service providers will experience Y2K disruptions. Accordingly, the
Company has developed a Y2K Business Continuity Plan which was completed on June
30, 1999. The purpose of the Plan is to identify the business critical processes
and functions, and to outline actions which will be taken to minimize the impact
of any Y2K related disruptions that might occur.
The Plan provides for the establishment of a Y2K Command Center which
will be activated on December 15, 1999. The Plan identifies certain critical
internal IT related systems as well as key external services such as
telecommunications, fuel distribution and utility services to terminals. The
Company is unable to determine or quantify the potential impact of the most
likely worst case scenario due to the number of variables and uncertainties.
Even short-term disruption of telecommunications service, for example, could
have a material adverse impact on the Company's business.
16
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.
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. However, due
to its selective utilization of interest rate swaps at certain times, the
effects of interest rate changes can be mitigated. 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 in 1999
than in 1998, there would be no material adverse impact on the Company's results
of operations. At September 30, 1999, the Company had no outstanding interest
rate swap agreements. The Company has no material future earnings or cash flow
exposures from changes in interest rates related to its long-term obligations as
all of the Company's long-term debt obligations have fixed rates. At September
30, 1999, 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, 1999.
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.
17
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
None applicable.
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 10, 1999 BY: /s/ Kirk Thompson
------------------------- --------------------------------------
Kirk Thompson
President and
Chief Executive Officer
DATE: November 10, 1999 BY: /s/ Jerry W. Walton
------------------------- --------------------------------------
Jerry W. Walton
Executive Vice President, Finance and
Administration
and Chief Financial Officer
DATE: November 10, 1999 BY: /s/ Donald G. Cope
------------------------- --------------------------------------
Donald G. Cope
Vice President, Controller
and Chief Accounting Officer
19