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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1999 0-11757
J.B. HUNT TRANSPORT SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARKANSAS 71-0335111
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
615 J.B. HUNT CORPORATE DRIVE 72745
LOWELL, ARKANSAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(501) 820-0000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTIONS 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 _____
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN
DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART
III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF 17,213,282 SHARES OF THE REGISTRANT'S $.01 PAR
VALUE COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY 18,
2000 WAS $187,194,442 (BASED UPON $10.875 PER SHARE BEING THE CLOSING SALE
PRICE ON THAT DATE, AS REPORTED BY NASDAQ). IN MAKING THIS CALCULATION, THE
ISSUER HAS ASSUMED, WITHOUT ADMITTING FOR ANY PURPOSE, THAT ALL EXECUTIVE
OFFICERS AND DIRECTORS OF THE REGISTRANT, AND NO OTHER PERSONS, ARE AFFILIATES.
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF FEBRUARY 18, 2000: 35,638,986.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN PORTIONS OF THE NOTICE AND PROXY STATEMENT FOR THE
ANNUAL MEETING OF THE STOCKHOLDERS TO BE HELD APRIL 20, 2000 PART II.
PART I
ITEM 1. BUSINESS
- ------------------
GENERAL
J.B. Hunt Transport Services, Inc., together with its wholly-owned
subsidiaries ("JBH" or the "Company"), is a diversified transportation
services and logistics company operating under the jurisdiction of the U.S.
Department of Transportation (DOT) and various state regulatory agencies. JBH
is an Arkansas holding company incorporated on August 10, 1961. Through its
subsidiaries JBH provides a wide range of logistics and transportation
services to a diverse group of customers. The Company directly manages or
provides tailored, technology-driven solutions to a growing list of Fortune
500 companies. These customers may request specifically targeted
transportation service or outsource their entire logistics function to JBH.
The Company also directly transports full-load containerizable freight
throughout the continental United States and portions of Canada and Mexico.
Transportation services may utilize JBH equipment and employees, or may employ
equipment and services provided by unrelated third parties in the
transportation industry. For the periods presented, the Company had three
distinct operating segments: Van/Intermodal ("Van"); J.B. Hunt Logistics
("JBHL"); and Dedicated Contract Services ("DCS"). See Note (9) Segment
Information of the Notes to Consolidated Financial Statements.
VAN
Primary transportation service offerings classified in this segment
include full truck-load, dry-van, containerizable freight which is typically
transported utilizing company-owned revenue equipment. Freight is picked up at
the dock or specified location of the shipper and transported directly to the
location of the consignee. The load may be transported entirely by
company-owned and controlled power equipment or a portion of the movement may
be handled by a third-party motor carrier or a railroad. Approximately 46% of
Van revenue in 1999 was transported by a railroad for a portion of the
movement. If any portion of a movement is handled by a railroad, the entire
amount billed to the customer is considered to be intermodal revenue.
Typically, the charges for the entire movement are billed to the customer by
the Company and the Company, in turn, pays the railroad or third-party for
their portion of the transportation services provided. In 1993, rail
operations were expanded to utilize high-cube containers which can be
separated from the chassis and double-stacked on rail cars to provide improved
productivity. Freight may be transported by rail utilizing traditional
trailer-on-flatcar (TOFC) medium for a portion of the line-haul, or containers
separated from the chassis, double-stacked on railcars and moved as
container-on-flatcar (COFC). The Company has agreements with eight different
railroads and substantially all of the freight carried under these rail
arrangements receives priority space on trains and preferential loading and
unloading service at rail facilities.
JBH Van has certain Canadian authorities which were initially granted in
1988 and may transport freight to and from all points in the continental
United States to Quebec, British Columbia and Ontario. The Company has
authorization to operate directly in all the Canadian provinces, but to date
has served limited points in Canada, primarily through interchange operations
with Canadian motor carriers. The Company has provided transportation services
to and from Mexico since 1989, primarily through interchange operations with
various Mexican motor carriers. A joint venture agreement with Transportacion
Maritima Mexicana, one of the largest transportation companies in Mexico, was
signed in 1992. At December 31, 1999, Van operated approximately 6,730
tractors and 35,300 trailers/containers. Van gross operating revenues were
$1,415 million in 1999, an increase of 3% over 1998.
JBHL
The Company formally began offering transportation logistics services in
1992. JBHL services typically refer to an arrangement whereby a shipper may
outsource a substantial portion of or their entire distribution and
transportation process to one organization. JBHL provides a wide range of
comprehensive transportation and management services including experienced
professional managers, information and optimization technology, and the actual
design or redesign of system solutions. A new JBHL customer or arrangement may
require a significant amount of up-front analysis and design time while
alternatives are considered and custom systems and software are developed.
Once a logistics arrangement is in place, JBHL may utilize Van and/or DCS
owned and controlled transportation equipment, unrelated third-party equipment
and employees, or a combination to meet the customer's service requirements.
JBHL gross operating revenues were $388 million in 1999, an increase of 22%
over 1998.
2
DCS
The Company began formally offering dedicated contract services in 1992.
DCS operations typically include company-owned revenue equipment and employee
drivers that are assigned to a specific customer, traffic lane or service. The
service is engineered and customized for the specific customer and is
typically in accordance with a written, long-term agreement. Frequently DCS
operations provide service to customers that wish to augment or outsource
their private fleet. It is common for one customer's dedicated service
requirements to relate to limited traffic lanes or freight moving in only one
direction. As a result, DCS operations frequently utilize Van freight to
provide backhauls which allow equipment to be repositioned for the DCS
customer's next movement. The DCS and Van segments also frequently share
facilities such as terminals, maintenance shops, bulk fuel locations and
trailer pools. At December 31, 1999, DCS operated approximately 2,700 tractors
and 4,150 trailers. DCS gross operating revenues were $320 million in 1999, an
increase of 51% over 1998.
OTHER
Prior to 1996, the Company had operated additional businesses including a
flatbed division, a business that transported small parcels, and a division
that specialized in the transportation of hazardous commodities. In early
1996, the Company embarked upon a strategy to concentrate its efforts on Van,
JBHL and DCS. In accordance with that strategy, assets and operations of other
service offerings were subsequently sold. The small parcel and hazardous
commodities businesses were sold in 1996 and the flatbed business was sold in
1997.
The Company announced in late 1999, a decision to split the Van business
into separate intermodal and truck business segments. This separation is in
progress and the Company intends to begin reporting on four segments
(Intermodal, Truck, JBHL and DCS) in the first quarter of 2000.
MARKETING AND OPERATIONS
JBH transports a wide range of products including automotive parts,
department store merchandise, paper and wood products, food and beverages,
plastics, chemicals and manufacturing materials and supplies. The Company's
primary customers include many of the "Fortune 500" companies, but no single
customer accounted for more than 8% of revenues during 1999. A broad
geographic dispersion and a good balance in the type of freight transported
allows JBH some protection from major seasonal fluctuations. However,
consistent with the truckload industry in general, freight is typically
stronger during the second half of the year, with peak volume occurring in
August through mid November. Revenue and earnings are also affected by bad
weather, holidays, fuel prices and railroad service levels.
The Company generally markets all three of its service offerings through
a nationwide marketing network. All transportation services offered are
typically billed directly to the customer by JBH and all inquiries, claims and
other customer contacts are handled by the Company. Certain marketing, sales,
engineering and design functions are assigned to each operating segment.
However, marketing strategy, pricing and national account service coordination
is managed at the corporate level.
PERSONNEL
At December 31, 1999, JBH employed approximately 14,700 people, including
10,600 drivers. Historically the truckload transportation industry and the
Company have experienced shortages of qualified drivers. In addition, driver
turnover rates for truckload motor carriers frequently exceed 100%. In
September of 1996, J.B. Hunt announced a new compensation program for the
approximate 3,500 over-the-road Van drivers. This comprehensive package, which
was effective February 25, 1997, included an average 33% increase in wages for
this group of employees. This program was designed to attract and retain a
professional and experienced work force capable of delivering a high level of
customer service. As anticipated, this increase in driver wages and benefits
was partially offset by lower driver recruiting and training expense, reduced
accident costs and better equipment utilization. The average driver turnover
in the Van business was 49% in 1999 and 46% in 1998, down from 86% in 1996.
Drivers are frequently designated as local, regional, regular route or
dedicated and over-the-road and typically compensated on a rate-per-mile
basis, a rate-per-week basis or a combination of factors. JBH also employed
approximately 2,920 office personnel and 1,150 mechanics at December 31, 1999.
No employees are represented by collective bargaining agreements and
management believes that its relationship with its employees is excellent.
3
REVENUE EQUIPMENT
At December 31, 1999, JBH owned approximately 9,460 tractors and operated
17,320 trailers and 22,150 containers. JBH believes that modern, late-model,
clean equipment differentiates quality customer service, increases equipment
utilization and reduces maintenance costs and downtime. Accordingly, the
average age of the Van tractor and trailing fleet was approximately two years
and four years, respectively, at December 31, 1999. In 1993, the Company
commenced receiving a newly-designed container and chassis combination that
could be transported over the road by truck and also be moved by rail or ship.
The container and chassis may be transported as a single unit by rail (TOFC)
or the container can be separated from the chassis and double-stacked (COFC)
on rail cars or ships for improved productivity. Containers comprised
approximately 63% of the Van trailing fleet at December 31, 1999. The
composition of the dedicated contract fleet varies with specific customer
service requirements. All JBH revenue equipment is maintained in accordance
with a specific maintenance program primarily based on age and miles traveled.
The JBHL business is non-asset based, since the revenue equipment is provided
by Van, DCS and third parties.
COMPETITION
JBH is the largest publicly held truckload carrier in the United States.
It competes primarily with other irregular route, truckload common carriers.
Less-than-truckload common carriers and private carriers generally provide
limited competition for truckload carriers. JBH is one of a few carriers
offering nationwide logistics management and dedicated revenue equipment
services. Although a number of carriers may provide competition on a regional
basis, only a limited number of companies represent competition in all
markets. The extensive rail network developed in conjunction with the various
railroads also allows the Company the opportunity to differentiate its
services in the marketplace.
REGULATION
Prior to December of 1995, the Company's operations in interstate
commerce were regulated by the Interstate Commerce Commission ("ICC").
Commencing in January of 1996, the Interstate Commerce Commission Termination
Act closed the ICC and transferred all remaining regulatory responsibilities
to a new Surface Transportation Board and to the Federal Highway
Administration. Motor carrier operations are subject to safety requirements
prescribed by the United States DOT governing interstate operation. Such
matters as weight and dimension of equipment and commercial driver's licensing
are also subject to federal and state regulations. A federal requirement that
all drivers obtain a commercial driver's license became effective in April
1992.
The federal Motor Carrier Act of 1980 was the start of a program to
increase competition among motor carriers and limit the level of regulation in
the industry (sometimes referred to as "deregulation"). The Motor Carrier Act
of 1980 enabled applicants to obtain operating authority more easily and
allowed interstate motor carriers, such as the Company, to change their rates
by a certain percentage per year without approval. The new law also allowed
for the removal of many route and commodity restrictions regarding the
transportation of freight. As a result of the Motor Carrier Act of 1980, the
Company was able to obtain unlimited authority to carry general commodities
throughout the 48 contiguous states. Effective January 1, 1995, the federal
government issued guidelines which allow motor carriers more flexibility in
intrastate operations. Although this reduced level of state regulation
increased the level of competition in some regions, the Company believes it
has ultimately benefited from this legislation.
ITEM 2. PROPERTIES
- --------------------
The Company's corporate headquarters are in Lowell, Arkansas. A
150,000-square-foot building was constructed and occupied in September 1990.
In addition to the corporate headquarters, the Company owns a separate 40-acre
tract in Lowell, Arkansas with two separate buildings totaling 14,000 square
feet of office space and 50,000 square feet of maintenance and warehouse
space. These buildings serve as the Lowell operations terminal, tractor
maintenance facility and additional administrative offices. A new terminal and
maintenance facility was constructed and occupied in Chicago, Illinois during
1996. A new terminal and maintenance facility was also constructed and
occupied in Kansas City, Missouri during early 1999. In 1999, a new 20,000
square foot building was constructed and occupied near the corporate
headquarters. A portion of this leased facility will serve as a backup data
center and provide disaster recovery support services.
4
A summary of the Company's principal facilities follows:
Maintenance Shop Office Space
Location Acreage (square feet) (square feet)
- ----------------------------------------------------------------------------------------------------------------------
Atlanta, Georgia 30 29,800 10,400
Chicago, Illinois 27 50,000 14,000
Dallas, Texas 14 24,000 7,800
Detroit, Michigan 27 44,300 10,800
East Brunswick, New Jersey 20 20,000 7,800
Houston, Texas 13 24,700 7,200
Kansas City, Missouri 10 31,000 6,700
Little Rock, Arkansas 24 29,200 7,200
Louisville, Kentucky 14 40,000 10,000
Lowell, Arkansas (corporate headquarters) 25 -- 150,000
Lowell, Arkansas 40 50,200 14,000
Lowell, Arkansas (office and data center) 2 -- 20,000
Memphis, Tennessee 10 26,700 8,000
Phoenix, Arizona 14 10,000 5,300
San Bernardino, California 8 14,000 4.000
South Gate, California 12 12,000 5,500
Syracuse, New York 13 19,000 8,000
In addition to the above facilities, the Company leases numerous small offices
and trailer parking yards in various locations throughout the country.
5
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
The Company is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on the present knowledge of the
facts and, in certain cases, opinions of outside counsel, management believes
the resolution of claims and pending litigation will not have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders.
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to the executive officers of the Company is set
forth below:
Executive
Name Age Position with Company Officer Since
- ---- --- --------------------- -------------
J.B. Hunt 73 Senior Chairman of the Board; Director 1961
Wayne Garrison 47 Chairman of the Board; Director 1979
Johnelle Hunt 68 Secretary; Director 1972
Kirk Thompson 46 President and Chief Executive Officer; Director 1984
Paul R. Bergant 53 Executive Vice President, Marketing and Chief Marketing Officer 1985
Bob D. Ralston 53 Executive Vice President, Equipment and Properties 1989
Jerry W. Walton 53 Executive Vice President, Finance and Administration
and Chief Financial Officer 1991
Robert E. Logan (1) 61 Executive Vice President, Chief Information Officer 1997
Craig Harper 42 Executive Vice President, Operations
and Chief Operations Officer 1997
Jun-Sheng Li (2) 41 President J.B. Hunt Logistics
and Executive Vice President, Integrated Solutions 1998
John N. Roberts III (3) 35 President, Dedicated Contract Services,
and Executive Vice President, Enterprise Solutions 1997
Kay J. Palmer (4) 36 Chief Information Officer 1999
(1) Mr. Logan held the Chief Information Officer position until June, 1999, at
which time Ms. Palmer assumed the Chief Information Officer
responsibilities.
(2) Mr. Li joined the Company in 1994 as Senior Vice President of J.B. Hunt
Logistics. In June of 1995, he was named President of J.B. Hunt Logistics
and in June of 1998, he was appointed to the additional post of Executive
Vice President, Integrated Solutions.
(3) Mr. Roberts joined the Company in 1989 as a management trainee. In
December of 1990, he became a Regional Marketing Manager. In February of
1996, he was named Vice President, Marketing Strategy and was appointed
President, Dedicated Contract Services, in July of 1997. In June of 1998,
he was appointed to the additional position of Executive Vice President
of Enterprise Solutions.
(4) Ms. Palmer joined the Company in 1988 as a programming specialist. In June
of 1989, she was named Director of Application Services. In June of 1995,
she was named Vice President of Applications. She became Senior Vice
President of Information Services in August of 1998 and named Chief
Information Officer in June of 1999.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
- ------------------------------------------------------------------------------
MATTERS
- -------
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded in the over-the-counter market under
the symbol "JBHT." The following table sets forth, for the calendar years
indicated, the range of high and low sales prices for the Company's common
stock as reported by the National Association of Securities Dealers Automated
Quotations National Market System ("NASDAQ").
1999 1998
----------------- -----------------
Period High Low High Low
-------------------------------------------------------------------------------
1st Quarter $26.25 $18.00 $30.63 $17.38
2nd Quarter 23.25 14.19 36.13 27.50
3rd Quarter 16.75 11.88 38.88 14.00
4th Quarter 15.00 12.38 23.00 12.31
On February 18, 2000, the high and low sales prices for the Company's
common stock as reported by the NASDAQ were $11.25 and $10.75, respectively.
As of February 18, 2000, the Company had 1,642 stockholders of record.
DIVIDEND POLICY
On January 21, 2000, the Board of Directors declared a quarterly dividend
of $.05 per share, payable on February 17, 2000 to shareholders of record on
February 3, 2000. The Company declared and paid cash dividends of $.20 per
share in 1999 and 1998. On February 16, 2000, the Board of Directors announced
a decision to discontinue its policy of paying quarterly cash dividends. The
Board indicated an intent to repurchase up to 500,000 shares of outstanding
JBHT common stock with the cash previously used to pay dividends.
7
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
(Dollars in millions, except per share amounts)
Years Ended December 31 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
Operating revenues $2,045.1 $1,841.6 $1,554.3 $1,486.7 $1,352.2 $1,207.6 $1,020.9 $912.0 $733.3 $579.8
Operating income 77.4 103.0 42.9 60.4 21.3 84.9 78.6 69.1 59.4 56.9
Earnings (loss) before
cumulative effect
of changes in
accounting methods 31.9 46.8 11.4 22.1 (2.2) 40.4 38.2 36.9 29.5 30.0
Basic earnings (loss) per
share before cumulative
effect of changes in
accounting methods .90 1.32 .31 .58 (.06) 1.05 1.00 1.03 .85 .85
Cash dividends per share .20 .20 .20 .20 .20 .20 .20 .20 .19 .16
Total assets 1,127.5 1,171.5 1,021.9 1,043.4 1,016.8 993.7 862.4 715.7 520.1 452.7
Long-term debt 267.6 417.0 322.8 332.6 339.0 299.2 303.5 216.3 156.9 137.6
Stockholders' equity 401.4 375.7 338.0 357.3 356.9 377.9 344.0 308.6 215.8 191.1
Diluted earnings per share were $.89, $1.28, $.31 and $.58, for the years
1999, 1998, 1997 and 1996, respectively.
Percentage of Operating Revenue
Years Ended December 31 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
Operating revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages
and employee benefits 34.9 34.9 34.4 32.6 33.8 33.5 36.4 38.2 40.0 41.4
Purchased transportation 30.8 30.7 30.6 27.2 25.4 23.9 18.4 12.2 7.0 0.7
Fuel and fuel taxes 8.3 7.5 9.1 10.8 10.6 10.9 12.4 14.2 16.3 17.3
Depreciation 7.3 7.4 8.4 8.4 9.6 9.2 8.2 9.5 9.4 9.7
Operating supplies and
expenses 9.1 8.3 8.4 8.0 8.4 6.9 7.2 7.4 8.0 8.8
Insurance and claims 2.0 1.8 2.4 3.9 3.8 3.1 4.0 4.8 4.7 5.4
Operating taxes and
licenses 1.3 1.3 1.6 1.9 2.0 2.2 2.8 2.8 3.0 3.2
General and administrative
expenses 1.5 1.5 1.2 1.9 2.4 2.2 1.9 2.0 2.1 2.3
Communication and
utilities 1.0 1.0 1.1 1.2 1.1 1.1 1.0 1.3 1.4 1.4
Special charges - - - - 1.3 - - - - -
---- ----- ---- ---- ---- ---- ---- ---- ---- ---
Total operating expenses 96.2 94.4 97.2 95.9 98.4 93.0 92.3 92.4 91.9 90.2
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Operating income 3.8 5.6 2.8 4.1 1.6 7.0 7.7 7.6 8.1 9.8
Interest expense 1.4 1.6 1.6 1.7 1.8 1.6 1.4 1.2 1.5 1.2
Income taxes .8 1.5 .5 .9 - 2.1 2.6 2.3 2.6 3.4
Cumulative effect of changes in
accounting methods - - - - - - - .2 (.2) -
----- ----- ----- ----- ----- ----- ------ ------ ----- ----
Net earnings (loss) 1.6% 2.5% .7% 1.5% (.2%) 3.3% 3.7% 4.3% 3.8% 5.2%
===== ===== ===== ===== ===== ===== ====== ====== ===== ====
The following table sets forth certain operating data of the Company.
Years Ended December 31 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
Total loads 2,769,834 2,243,856 1,802,006 1,605,546 1,361,251 1,187,815 1,081,013 960,031 796,929 596,574
Average number of
tractors in the fleet
during the year 9,183 8,207 7,629 7,728 7,559 7,094 6,890 6,424 5,286 4,413
Tractors operated
(at year end) 9,460 8,906 7,508 7,750 7,706 7,412 6,775 7,004 5,843 4,729
Trailers/containers
(at year end) 39,465 35,366 30,391 27,773 24,618 22,687 19,089 17,391 12,389 10,563
Tractor miles (in
thousands) 986,288 922,560 790,018 810,450 772,199 740,626 718,767 733,700 638,926 551,175
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- ---------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company and related footnotes
appearing in this annual report.
SUMMARY OF 1999
The 1999 financial and operating results were impacted by a number of
significant items during the year. Van revenue growth was limited to 3%,
partly due to rail service delays which occurred during the second and third
quarters of the year. Intermodal load count declined approximately 3% during
1999, while truck only loads increased about 6%. Tractor count in the Van
segment was essentially flat for the year. Truck only revenue per loaded mile,
before fuel surcharges, was up approximately 1%, while intermodal rates
declined about 1%. Van revenue growth increased slightly during the fourth
quarter of 1999 due to fuel surcharges which were initiated as fuel costs
began to rise significantly. Operating income in the Van segment was reduced,
in part, by higher revenue equipment maintenance and tire costs, and
significant increases in the cost of fuel. In addition, an initiative to
separate the intermodal and truck businesses resulted in higher third party
dray expense during the latter part of the year.
The 22% increase in JBHL segment revenue during 1999 was consistent with
the prior year. This growth reflected new logistics agreements with new
customers and growth of business volumes with existing customers. The increase
in 1999 JBHL operating income was primarily related to higher revenue levels
with some lower purchased transportation costs providing for slightly better
margins on some business. DCS segment revenue grew 51% to $320.2 million in
1999 from $211.9 million in 1998. This increase in DCS revenue was driven by
new customer contracts and projects and fleet additions to existing contracts.
The higher level of DCS operating income during 1999 was primarily due to the
growth of segment revenue. Margins in the DCS business declined slightly
during 1999, partly due to higher fuel costs and higher driver wage expense.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
Operating Segments
For Years Ended December 31
(in millions of dollars)
Gross Revenue Operating Income
---------------------------------------------- ------------------------
1999 1998 % Change 1999 1998
---- ---- -------- ---- ----
Van/Intermodal $1,414.8 $1,378.4 3% $44.4 $81.1
JBHL 387.9 317.3 22 10.5 7.5
DCS 320.2 211.9 51 24.1 17.0
Other -- 8.0 -- (1.6) (2.6)
-------- -------- ------ ----- ------
Subtotal 2,122.9 1,915.6 11 77.4 103.0
Inter-segment eliminations (77.8) (74.0) -- -- --
-------- -------- ------ ----- ------
Total $2,045.1 $1,841.6 11% $77.4 $103.0
======== ======== ====== ===== ======
9
The following table sets forth items in the Consolidated Statements
of Earnings as a percentage of operating revenues and the percentage increase
or decrease of those items as compared with the prior year.
Percentage of Percentage
Operating Revenue Change
--------------------- -------------
1999 1998 1999 vs. 1998
---- ---- -------------
Operating revenues 100.0% 100.0% 11.0%
Operating expenses:
Salaries, wages and employee benefits 34.9% 34.9% 11.0%
Purchased transportation 30.8 30.7 11.4
Fuel and fuel taxes 8.3 7.5 23.1
Depreciation 7.3 7.4 9.9
Operating supplies and expenses 9.1 8.3 22.0
Insurance and claims 2.0 1.8 24.1
Operating taxes and licenses 1.3 1.3 12.9
General and administrative expenses 1.5 1.5 7.4
Communication and utilities 1.0 1.0 10.8
----- ----- ------
Total operating expenses 96.2 94.4 13.2
----- ----- ------
Operating income 3.8 5.6 (24.9)
Interest expense 1.4 1.6 (1.2)
----- ----- ------
Earnings before income taxes 2.4 4.0 (34.0)
Income taxes .8 1.5 (37.6)
----- ----- ------
Net earnings 1.6% 2.5% (31.9%)
===== ===== ======
OPERATING EXPENSES
Total operating expenses in 1999 increased 13% over 1998, while total
operating revenues increased 11%. Operating expenses expressed as a percentage
of operating revenues (operating ratio) were 96.2% in 1999, compared with
94.4% in 1998. Salaries, wages and employee benefits increased 11% during 1999
and remained exactly the same percentage of operating revenue for 1999 and
1998. Purchased transportation expense increased 11.4% and also maintained a
consistent relationship with operating revenues. While fuel costs were below
prior year levels during the first quarter of 1999, cost per gallon started to
rise during March and April. During the third quarter of 1999, fuel prices
averaged nearly $.20 per gallon higher than the comparable period in 1998 and
the spread widened to nearly $.30 per gallon by November of 1999. For the year
1999, fuel and fuel taxes increased 23.1% and grew from 7.5% of operating
revenue in 1998 to 8.3% in 1999.
Depreciation expense increased 9.9% during 1999, but declined slightly as
a percentage of operating revenues. The amount of depreciation expense on
revenue equipment increased in relative proportion to the size of the fleet.
However, total 1999 depreciation expense also increased due to lower gains on
the sale of certain assets. Gains on asset dispositions reduce depreciation
expense, while losses on dispositions increase depreciation. A net loss of
$849,000 was incurred on dispositions in 1999, which increased depreciation,
compared with gains on dispositions of $4.1 million in 1998, which reduced
depreciation expense. Depreciation expense in 1999 was reduced, in part, by a
sale and immediate leaseback of certain trailing equipment. This transaction
closed during the fourth quarter of 1999. Operating supplies and expenses
increased 22% during 1999 and rose as a percentage of operating revenues. This
increase was primarily due to higher revenue equipment maintenance and tire
expenditures during 1999.
Insurance and claims expense, which had declined significantly from 1997
to 1998, increased approximately 24% in 1999. While the frequency of vehicle
collisions declined slightly during 1999, the severity, or cost per collision,
rose significantly during 1999. Operating taxes and licenses increased 12.9%
during 1999, partly due to the growth of the tractor fleet and increases in
licensing fees charged by certain states. General and administrative expenses
increased 7.4%, but remained the same percentage of operating revenue for both
years. A portion of this increased expense was for rental and maintenance of
computer equipment. Communication and utilities increased 10.8%, reflecting
expanded data and telecommunications networks and higher satellite
communications costs. Interest expense declined slightly and the effective
income tax rate declined to 35% in 1999 from 37% in 1998. These decreases were
due, in part, to the sale and leaseback transaction described above. The
overall impact of this sale and leaseback transaction increased 1999 earnings
per share by $.02. As a result of this sale and leaseback transaction, future
years' rent expense (included in operating supplies and expenses) will be
greater and depreciation, interest and income tax expense will be less than
what would otherwise have been reported absent the transaction.
10
As a result of the above, net earnings for 1999 declined to $31.9 million,
or diluted earnings per share of $.89, compared with $46.8 million in 1998, or
$1.28 per diluted share. The average number of weighted average shares
outstanding (before the effect of dilutive stock options) remained substantially
the same for 1999 and 1998. A decrease in weighted average shares assuming
dilution resulted from the decreased effect of dilutive stock options caused by
a decline in the Company's average price of common stock during 1999.
SUMMARY OF 1998
J.B. Hunt's 1998 financial and operating results reflected a number of
positive trends when compared with 1997. For the first time since 1996, the
Company experienced a net increase in the tractor fleet. A 9% increase in Van
tractor count and a 17% increase in the Van driver force during 1998 contributed
to a 19% increase in segment revenue. Intermodal revenue, which is included in
the Van segment, increased 12% during 1998 and also helped support revenue
growth. Van truck only revenue per loaded mile increased nearly 2% during 1998,
while intermodal rates declined nearly 3%. The significant increase in the
driver to tractor ratio also helped improve tractor utilization to 2,645 miles
per week in 1998 from 2,555 in 1997. This approximate $225 million increase in
segment revenue and higher tractor utilization contributed to the significant
increase in 1998 operating income. Van earnings were also favorably impacted in
1998 by lower fuel prices and lower insurance and claims costs.
The 25% increase in the JBHL segment revenue during 1998 was due to new
logistics agreements with new customers and growth of business levels with
existing customers. The increase in 1998 JBHL operating income was primarily
related to the higher revenue levels, as JBHL margins remained relatively
constant. DCS segment revenue increased 41% to $211.9 million in 1998 from
$150.7 million in 1997. This increase in DCS revenue was driven by both new
customer contracts and additional projects or fleet additions to existing
contracts. The higher level of DCS operating income during 1998 was primarily
due to the growth of segment revenue and cost reduction actions in certain
projects. Lower fuel costs also contributed to higher operating income in the
DCS segment. Other revenue in 1997 included the flatbed business which was sold
in 1997.
1998 COMPARED WITH 1997
Operating Segments
For Years Ended December 31
(in millions of dollars)
Gross Revenue Operating Income
----------------------------------------- --------------------
1998 1997 % Change 1998 1997
---- ---- -------- ---- ----
Van/Intermodal $1,378.4 $1,153.5 19% $ 81.1 $28.2
JBHL 317.3 254.1 25 7.5 6.1
DCS 211.9 150.7 41 17.0 10.9
Other 8.0 59.8 (87) (2.6) (2.3)
------- ------- ---- ----- -----
Subtotal 1,915.6 1,618.1 18 103.0 42.9
Inter-segment eliminations (74.0) (63.8) -- -- --
--------- --------- --- ------ -----
Total $1,841.6 $1,554.3 18% $103.0 $42.9
======== ======== ===== ====== =====
11
The following table sets forth items in the Consolidated Statements of
Earnings as a percentage of operating revenues and the percentage increase or
decrease of those items as compared with the prior year.
Percentage of Percentage
Operating Revenues Change
------------------------ -------------
1998 1997 1998 vs. 1997
------ ------ -------------
Operating revenues 100.0% 100.0% 18.5%
Operating expenses:
Salaries, wages and employee benefits 34.9% 34.4% 20.3%
Purchased transportation 30.7 30.6 18.7
Fuel and fuel taxes 7.5 9.1 (3.0)
Depreciation 7.4 8.4 4.3
Operating supplies and expenses 8.3 8.4 17.3
Insurance and claims 1.8 2.4 (13.8)
Operating taxes and licenses 1.3 1.6 (2.3)
General and administrative expenses 1.5 1.2 49.0
Communication and utilities 1.0 1.1 13.3
------ -----
Total operating expenses 94.4 97.2 15.0
------ -----
Operating income 5.6 2.8 140.1
Interest expense 1.6 1.6 16.8
------ -----
Earnings before income taxes 4.0 1.2 305.5
Income taxes 1.5 .5 294.9
------ -----
Net earnings 2.5% .7% 312.1%
====== ===== ======
OPERATING EXPENSES
Total operating expenses in 1998 increased 15% over 1997, while total
operating revenues increased nearly 19% during the same period. Operating
expenses expressed as a percentage of operating revenues (operating ratio) were
94.4% in 1998, compared with 97.2% in 1997. Salaries, wages and employee
benefits increased 20% during 1998 and rose to 34.9% of revenue in 1998 from
34.4% in 1997. This increase was primarily due to an increase in driver wages
driven by the mix change of more experienced, higher paid drivers, partly offset
by lower worker's compensation claims costs. The increase in purchased
transportation expense was related to the growth of intermodal and JBHL
business, which results in higher payments to railroads and third-party motor
carriers for purchased transportation services. Significantly lower fuel costs
per gallon and slightly higher fuel miles per gallon performance helped drive
fuel and fuel tax expense down in 1998.
Depreciation expense increased approximately 4% during 1998, but declined
to 7.4% of revenue in 1998 from 8.4% in 1997. The amount of revenue equipment
depreciation expense increased in relative proportion to the size of the fleet.
However, depreciation was reduced by gains on the sale of certain assets. Gains
on asset dispositions reduce depreciation expense and totaled $4.1 million in
1998, compared with $.7 million in 1997. Gains were recognized during 1998 on
the sale of land in Lowell, Arkansas, a small subsidiary company and certain
tractors and trailing equipment. Operating supplies and expenses include
maintenance on revenue equipment and tires and increased in relative proportion
to the fleet size. The decline in operating supplies and expenses as a
percentage of revenue was due primarily to the growth of non-asset based
revenue.
The significant decrease in insurance and claims expense was the result of
fewer vehicle collisions during 1998 and a decline in the cost per collision.
The Company was successful in attracting and retaining experienced professional
drivers that have been involved in fewer vehicle collisions and reduced accident
costs. The decline in operating taxes and licenses was due, in part, to refunds
received from certain state taxing authorities. The increase in general and
administrative expenses was partly due to higher levels of spending for computer
rental and maintenance. This spending was related to the decision to lease
rather than purchase certain computer equipment and also for Year 2000
compliance work. Communications and utilities increased in relative proportion
to revenue growth. Interest expense increased 17%, primarily due to higher debt
levels. The effective income tax rate was 37% in 1998 and 38% in 1997.
As a result of the above, net earnings for 1998 increased to $46.8 million,
or diluted earnings per share of $1.28, compared with $11.4 million in 1997, or
$.31 per diluted share. A decrease in the number of weighted average shares
outstanding (before the effect of dilutive stock options), was primarily due to
the Company's acquisition of treasury shares. An increase in weighted average
shares assuming dilution resulted from the increased effect of dilutive stock
options caused by the increase in the Company's average market price of common
stock during 1998.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant amounts of cash from operating
activities. Net cash provided by operating activities was $136 million in 1999,
$181 million in 1998 and $160 million in 1997. During the three year period
ended December 31, 1999, primary operating cash requirements were applied to
increases in accounts receivable, other current assets (inventories, licenses
and permits) and to pay claims. Primary sources of cash included net earnings,
depreciation, trade accounts payable and deferred income taxes.
Net cash used in investing activities was $19 million in 1999, $259 million
in 1998 and $89 million in 1997. The primary use of funds for investing
activities was the acquisition of new revenue equipment. New tractor purchases
were approximately 2,200 in 1999, 2,900 in 1998 and 2,400 in 1997. The level of
investment spending for trailing equipment varied significantly during the three
year period ended December 31, 1999. The total number of trailing pieces of
equipment purchased was approximately 2,200 in 1999, 4,700 in 1998 and 490 in
1997. Net cash used in investing activities was also reduced during 1999 by a
financing transaction which closed during the fourth quarter. The arrangement
involved a sale and immediate leaseback of certain trailing revenue equipment.
This transaction generated approximately $175 of cash proceeds from sale of
equipment, which were used primarily to reduce outstanding debt.
Net financing activities consumed $113 million in 1999 and $71 million in
1997, and generated $83 million in 1998. Proceeds of approximately $175 million
from the 1999 sale and leaseback transaction were used to reduce commercial
paper notes. The Company sold $100 million of 7.00% senior notes in September of
1998, which will mature in September of 2004. Financing activities also included
the purchase of treasury stock, which totaled $5.8 million in 1998 and $22.0
million in 1997. Dividends of approximately $7 million were paid during each
year of 1997 through 1999. 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 will be held
in treasury for general corporate purposes, which may include acquisitions or
employee stock options.
SELECTED BALANCE SHEET DATA
As of December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------
Working capital ratio 1.09 1.09 .97
Current maturities of long-term debt (millions) $60.0 $ 16.4 $ 17.5
Total debt (millions) $328 $ 433 $ 340
Total debt to equity .82 1.15 1.01
Total debt as a percentage of total capital .45 .54 .50
The Company is authorized to issue up to $240 million in notes under a
commercial paper note program, of which $35 million was outstanding at December
31, 1999.
From time to time the Board of Directors authorizes the repurchase of
Company common stock. Purchases of Company stock were:
1999 1998 1997
---------------------------------------------------------------------------------
Number of shares acquired -- 225,000 1,468,000
Price range of shares -- $17.50 - $28.00 $13.50 - $17.00
At December 31, 1999, the Company had committed to purchase approximately
$242 million of revenue and service equipment net of expected proceeds from sale
or trade-in allowances. Additional capital spending for new revenue equipment is
anticipated during 2000, however, funding for such expenditures is expected to
come from cash generated from operations and existing borrowing facilities.
13
YEAR 2000
The Company utilizes and is dependent upon a wide variety of complex
information technologies (IT) to conduct daily business operations. The Year
2000 issue could have resulted in system disruptions or failures. A
comprehensive action plan was initiated in 1996 to conduct systematic reviews of
all internal hardware, software and functions to either verify that the system
was Year 2000 compliant or modify/replace the software or system as required. A
number of the primary financial systems utilized to pay vendors, track customer
accounts receivable and produce regular financial reports were converted to be
Year 2000 compliant.
The Company focused significant resources during 1998 and 1999 on the Year
2000 issue, with the goal of no material business or system disruption related
to dates on or after January 1, 2000. In addition to the work conducted on
internal IT systems, the Company initiated formal communications and requested
certifications of Year 2000 compliance from certain significant customers and
suppliers. A Year 2000 Business Continuity Plan was developed and completed on
June 30, 1999. The Plan provided for the establishment of a Year 2000 Command
Center which was activated on December 15, 1999 to monitor critical IT and other
systems and functions.
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 key customers or suppliers. From
inception of the Company's efforts on the Year 2000 issue through December 31,
1999, total costs of approximately $1.7 million were incurred related to the
Year 2000 readiness issue. These expenses included external consultants,
professional advisors, hardware and software. These costs were charged to
operations as incurred and excluded employee salaries and fringe benefits and
certain new system acquisitions, development and upgrades that relate to ongoing
business activity.
14
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS 133 requires an entity to measure
all derivatives at fair value and to recognize them in the balance sheet as an
asset or liability, depending on the entity's rights or obligations under the
applicable derivative contract. The recognition of changes in fair value of a
derivative that affect the income statement will depend on the intended use of
the derivative. If the derivative does not qualify as a hedging instrument, the
gain or loss on the derivative will be recognized currently in earnings. If the
derivative qualifies for special hedge accounting, the gain or loss on the
derivative will either (1) be recognized in income along with an offsetting
adjustment to the basis of the item being hedged or (2) be deferred in other
comprehensive income and reclassified to earnings in the same period or periods
during which the hedged transaction affects earnings. SFAS 133 will be effective
for the Company beginning with the first fiscal quarter after June 15, 2000.
SFAS 133 may not be applied retroactively to financial statements of prior
periods. The Company has not determined the impact that Statement 133 will have
on its financial statements and believes that such determination will not be
meaningful until closer to the date of initial adoption.
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 and availability of drivers. Current and future
changes in fuel prices could result in significant fluctuations of quarterly
earnings. Financial and operating results of the Company may fluctuate as a
result of these and other risk factors as detailed from time to time in Company
filings with the Securities and Exchange Commission.
ITEM 7a. 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, the effects of interest rate
changes are 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 2000 than in 1999, there
would be no material adverse impact on the Company's results of operations. At
December 31, 1999, the Company had no interest rate swap agreements in effect.
The Company has no material future earnings or cash flow exposures from changes
in interest rates related to its long-term debt obligations as all of the
Company's long-term debt obligations have fixed rates. At December 31, 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 year ended December 31, 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.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
PAGE
- -----------------------------------------------------------------------------------------------------------
Independent Auditors' Report 17
Consolidated Balance Sheets as of December 31, 1999 and 1998 18
Consolidated Statements of Earnings for years ended December 31, 1999, 1998 and 1997 20
Consolidated Statements of Stockholders' Equity for years ended December 31, 1999, 1998 and 1997 21
Consolidated Statements of Cash Flows for years ended December 31, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements 25
16
INDEPENDENT AUDITORS' REPORT
The Board of Directors
J.B. Hunt Transport Services, Inc.:
We have audited the accompanying consolidated balance sheets of J.B. Hunt
Transport Services, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J.B. Hunt Transport
Services, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Little Rock, Arkansas
February 4, 2000
17
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
ASSETS 1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 12,606 9,227
Trade accounts receivable 238,573 184,367
Inventories 7,825 6,917
Prepaid licenses and permits 17,380 14,887
Other current assets 18,757 8,598
Deferred income taxes (note 4) -- 1,275
------------ ------------
Total current assets 295,141 225,271
------------ ------------
Property and equipment, at cost:
Revenue and service equipment 1,038,056 1,235,824
Land 20,949 20,337
Structures and improvements 76,517 67,937
Furniture and office equipment 103,872 93,935
------------ ------------
Total property and equipment 1,239,394 1,418,033
Less accumulated depreciation 453,509 492,633
------------ ------------
Net property and equipment 785,885 925,400
------------ ------------
Other assets (note 7) 46,438 20,808
------------ ------------
$ 1,127,464 1,171,479
============ ============
(Continued)
18
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ------------
Current liabilities:
Current maturities of long-term debt (note 2) $ 60,000 16,350
Trade accounts payable 180,009 147,967
Claims accruals 788 6,131
Accrued payroll 19,462 23,684
Other accrued expenses 10,371 11,909
------------ ------------
Total current liabilities 270,630 206,041
------------ ------------
Long-term debt, excluding current maturities (note 2) 267,639 417,045
Claims accruals 7,368 7,166
Deferred income taxes (note 4) 180,441 165,570
------------ ------------
Total liabilities 726,078 795,822
------------ ------------
Stockholders' equity (notes 2 and 3):
Preferred stock, par value $100. Authorized 10,000,000
shares; none outstanding -- --
Common stock, par value $.01 per share. Authorized
100,000,000 shares; issued 39,009,858 shares 390 390
Additional paid-in capital 107,172 106,985
Retained earnings 350,928 326,145
Accumulated other comprehensive loss (5,324) (5,621)
------------ ------------
453,166 427,899
Treasury stock, at cost (3,370,872 shares in 1999 and
3,401,501 shares in 1998) (51,780) (52,242)
------------ ------------
Total stockholders' equity 401,386 375,657
Commitments and contingencies (notes 2, 3, 5 and 8)
------------ ------------
$ 1,127,464 1,171,479
============ ============
See accompanying notes to consolidated financial statements.
19
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share amounts)
1999 1998 1997
------------ ------------ ------------
Operating revenues $ 2,045,073 1,841,628 1,554,292
Operating expenses:
Salaries, wages and employee benefits (note 5) 713,378 642,946 534,415
Purchased transportation 629,163 564,575 475,768
Fuel and fuel taxes 169,407 137,561 141,770
Depreciation 149,817 136,304 130,661
Operating supplies and expenses 186,146 152,622 130,065
Insurance and claims 40,555 32,674 37,904
Operating taxes and licenses 27,118 24,029 24,588
General and administrative expenses 30,750 28,636 19,225
Communication and utilities 21,309 19,237 16,986
------------ ------------ ------------
Total operating expenses 1,967,643 1,738,584 1,511,382
------------ ------------ ------------
Operating income 77,430 103,044 42,910
Interest expense 28,346 28,700 24,578
------------ ------------ ------------
Earnings before income taxes 49,084 74,344 18,332
Income taxes (note 4) 17,175 27,507 6,966
------------ ------------ ------------
Net earnings $ 31,909 46,837 11,366
============ ============ ============
Basic earnings per share $ .90 1.32 .31
============ ============ ============
Diluted earnings per share $ .89 1.28 .31
============ ============ ============
See accompanying notes to consolidated financial statements.
20
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
(Dollars in thousands, except per share amounts)
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------------ ------------
Balances at December 31, 1996 $ 390 105,897
Tax expense of stock options exercised -- (54)
Sale of treasury stock to employees -- 146
Forfeiture of restricted stock -- (307)
Repurchase of treasury stock -- --
Cash dividends paid ($.20 per share) -- --
Comprehensive income - net earnings -- --
------------ ------------
Balances at December 31, 1997 390 105,682
Tax benefit of stock options exercised -- 925
Sale of treasury stock to employees -- 382
Forfeiture of restricted stock -- (4)
Repurchase of treasury stock -- --
Cash dividends paid ($.20 per share) -- --
Comprehensive income - net earnings -- --
------------ ------------
Balances at December 31, 1998 390 106,985
Sale of subsidiary stock -- 200
Tax benefit of stock options exercised -- 55
Sale of treasury stock to employees -- (65)
Forfeiture of restricted stock -- (3)
Cash dividends paid ($.20 per share) -- --
Comprehensive income:
Net earnings -- --
Foreign currency translation adjustments -- --
------------ ------------
Total comprehensive income -- --
------------ ------------
Balances at December 31, 1999 $ 390 107,172
============ ============
See accompanying notes to consolidated financial statements.
(Continued)
21
ACCUMULATED TOTAL
OTHER STOCKHOLDERS'
COMPREHENSIVE RETAINED COMPREHENSIVE TREASURY EQUITY
INCOME EARNINGS LOSS STOCK (NOTES 2 AND 3)
-------------------- ----------------- ------------------ ----------------- -------------------
282,364 (5,621) (25,775) 357,255
-- -- -- (54)
-- -- 182 328
-- -- (1,269) (1,576)
-- -- (22,034) (22,034)
(7,321) -- -- (7,321)
$ 11,366 11,366 -- -- 11,366
==================== ----------------- ------------------ ----------------- -------------------
286,409 (5,621) (48,896) 337,964
-- -- -- 925
-- -- 2,486 2,868
-- -- (18) (22)
-- -- (5,814) (5,814)
(7,101) -- -- (7,101)
$ 46,837 46,837 -- -- 46,837
==================== ----------------- ------------------ ----------------- -------------------
326,145 (5,621) (52,242) 375,657
-- -- -- 200
-- -- -- 55
-- -- 477 412
-- -- (15) (18)
(7,126) -- -- (7,126)
31,909 31,909 -- -- 31,909
297 -- 297 -- 297
-------------------- ----------------- ------------------ ----------------- -------------------
$ 32,206 -- -- -- --
==================== ----------------- ------------------ ----------------- -------------------
350,928 (5,324) (51,780) 401,386
================= ================== ================= ===================
22
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------- ---------------- ---------------
Cash flows from operating activities:
Net earnings $ 31,909 46,837 11,366
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 149,817 136,304 130,661
Provision for noncurrent deferred
income taxes 14,871 24,661 (1,250)
Equity in joint venture earnings (3,141) (1,506) (806)
Tax benefit (expense) of stock options
exercised 55 925 (54)
Forfeiture of restricted stock (18) (22) (1,576)
Amortization of discount, net 594 (145) 219
Changes in operating assets and liabilities:
Trade accounts receivable (54,206) (15,169) (15,327)
Other assets (26,624) (5,686) 11,248
Deferred income taxes 1,275 1,062 8,663
Trade accounts payable 32,042 9,458 22,165
Claims accruals (5,141) (24,177) (9,019)
Accrued payroll and other accrued
expenses (5,760) 8,820 3,640
----------------- ---------------- ---------------
Net cash provided by operating
activities 135,673 181,362 159,930
---------------- ---------------- ---------------
Cash flows from investing activities:
Additions to property and equipment (224,795) (306,128) (174,141)
Proceeds from sale of equipment 214,493 41,231 84,192
Decrease (increase) in other assets (9,128) 5,858 1,121
----------------- ---------------- ---------------
Net cash used in investing activities (19,430) (259,039) (88,738)
----------------- ---------------- ---------------
(Continued)
23
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------------- ---------------- ----------------
Cash flows from financing activities:
Net repayments of commercial paper borrowings (96,350) (1,150) (37,250)
Proceeds from long-term debt -- 99,400 --
Repayments of long-term debt (10,000) (5,000) (5,000)
Proceeds from sale of subsidiary stock 200 -- --
Proceeds from sale of treasury stock 412 2,868 328
Repurchase of treasury stock -- (5,814) (22,034)
Dividends paid ( 7,126) (7,101) (7,321)
----------------- ---------------- ----------------
Net cash provided by (used in)
financing activities (112,864) 83,203 (71,277)
----------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 3,379 5,526 (85)
Cash and cash equivalents at beginning of year 9,227 3,701 3,786
================= ================ ================
Cash and cash equivalents at end of year $ 12,606 9,227 3,701
================= ================ ================
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 28,944 26,387 24,634
Income taxes 95 11 (6,162)
================= ================ ================
See accompanying notes to consolidated financial statements.
24
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
J. B. Hunt Transport Services, Inc., together with its
wholly-owned subsidiaries ("Company"), is a diversified
transportation services and logistics company operating under the
jurisdiction of the U.S. Department of Transportation and various
state regulatory agencies.
For the periods presented, the Company had three distinct
operating segments: Van/Intermodal; Logistics; and Dedicated
Contract Services. See note 9.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
(d) TIRES IN SERVICE
The Company capitalizes tires placed in service on new revenue
equipment as a part of the equipment cost. Replacement tires and
costs for recapping tires are expensed at the time the tires are
placed in service.
(e) PROPERTY AND EQUIPMENT
Depreciation of property and equipment is calculated on the
straight-line method over the estimated useful lives of 5 - 10
years for revenue and service equipment, 10 to 40 years for
structures and improvements, and 3 to 10 years for furniture and
office equipment. Gains (losses) on dispositions of revenue and
other equipment, which are included in depreciation expense, were
approximately $(849,000), $4,051,000 and $664,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
(f) REVENUE RECOGNITION
The Company recognizes revenue based on relative transit time in
each reporting period with expenses recognized as incurred.
(Continued)
25
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(h) 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 amounts):
YEARS ENDED DECEMBER 31
-------------------------------------------------------
1999 1998 1997
--------------- --------------- ----------------
Basic earnings per share:
Numerator (net earnings) $ 31,909 46,837 11,366
=============== =============== ================
Denominator (weighted
average shares outstanding) 35,628 35,582 36,405
=============== =============== ================
Earnings per share $ .90 1.32 .31
=============== =============== ================
Diluted earnings per share:
Numerator (net earnings) $ 31,909 46,837 11,366
=============== =============== ================
Denominator:
Weighted average shares
outstanding 35,628 35,582 36,405
Effect of common stock
options 174 1,019 43
--------------- --------------- ----------------
35,802 36,601 36,448
=============== =============== ================
Earnings per share $ .89 1.28 .31
=============== =============== ================
(Continued)
26
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Options to purchase shares of common stock that were outstanding
during each year but were not included in the computation of
diluted earnings per share because the options' exercise price was
greater than the average market price of the common shares are
shown in the table below.
1999 1998 1997
------------------- ------------------- -------------------
Number of shares under option 4,316,000 162,000 4,420,000
Range of exercise prices $ 17.38 - 37.50 $ 26.00 - 37.50 $ 15.63 - 24.63
(i) CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade
receivables. Concentrations of credit risk with respect to trade
receivables are limited due to the Company's large number of
customers and the diverse range of industries which they
represent. As of December 31, 1999 and 1998, the Company had no
significant concentrations of credit risk.
(j) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swaps to hedge the effects of
fluctuations in interest rates. The differential paid or received
on interest rate swap agreements is accrued as interest rates
change and is charged or credited to interest expense over the
life of the agreements. Any gains or losses realized upon the
termination of an interest rate swap agreement are deferred and
amortized over the remaining life of the original term as a charge
or credit to interest expense.
(k) FOREIGN CURRENCY TRANSLATION
Local currencies are generally considered the functional
currencies outside the United States. Assets and liabilities are
translated at year-end exchange rates for operations in local
currency environments. Income and expense items are translated at
average rates of exchange prevailing during the year.
Prior to January 1, 1997, foreign currency translation
adjustments, which reflect foreign currency exchange rate changes
applicable to the net assets of the Mexican operations have been
recorded as a separate item of accumulated other comprehensive
loss in stockholders' equity. From January 1, 1997 through
December 31, 1998, Mexico was considered a highly inflationary
economy as defined by Statement of Financial Accounting Standards
("SFAS") No. 52, FOREIGN CURRENCY TRANSLATION. Accordingly, the
more stable currency of the reporting parent (the Company) was
used, and the effect of exchange rates resulting in translation
adjustments
(Continued)
27
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
have been recorded as a component of net earnings for the years
ended December 31, 1998 and 1997. As of January 1, 1999, Mexico is
no longer considered a highly inflationary economy. Accordingly,
the local currency has been used, and the effect of exchange rates
resulting in translation adjustments have been recorded as a
separate item of accumulated other comprehensive loss in
stockholders' equity for the year ended December 31, 1999.
(l) STOCK BASED COMPENSATION
The Company has adopted the disclosure requirements of SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION and, as permitted
under SFAS No. 123, applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for compensation
costs for its stock option plans. Accordingly, compensation
expense is recognized on the date of grant only if the current
market price of the underlying common stock at date of grant
exceeds the exercise price.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company continually evaluates the carrying value of its assets
for events or changes in circumstances which indicate that the
carrying value may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(n) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
the consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(o) COMPREHENSIVE INCOME
Comprehensive income consists of net earnings and foreign currency
translation adjustments and is presented in the consolidated
statements of stockholders' equity.
(Continued)
28
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(p) RECLASSIFICATIONS
To conform to the 1999 presentation, certain accounts for 1998
and 1997 have been reclassified. The reclassifications had no
effect on net earnings.
(2) LONG-TERM DEBT
Long-term debt consists of (in thousands):
1999 1998
-------------- ---------------
Commercial paper $ 35,000 131,350
Senior notes payable, interest at 7.84% payable
semiannually -- 5,000
Senior notes payable, due 11/17/00, interest at
6.25% payable semiannually 25,000 25,000
Senior notes payable, due 12/12/00, interest at
6.00% payable semiannually 25,000 25,000
Senior notes payable, due 9/1/03, interest at
6.25% payable semiannually 98,260 98,260
Senior notes payable, due 9/15/04, interest at
7.00% payable semiannually 95,000 100,000
Senior subordinated notes, interest at 7.80%
payable semiannually 50,000 50,000
-------------- --------------
328,260 434,610
Less current maturities (60,000) (16,350)
Unamortized discount (621) (1,215)
-------------- --------------
$ 267,639 417,045
============== ==============
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 effective rate on the commercial note program was
5.27% and 5.70% for the years ended December 31, 1999 and 1998,
respectively. The 7.84% senior notes were repaid in 1999 and the 7.80%
senior subordinated notes are payable in five equal annual installments
beginning October 30, 2000.
Under the terms of the credit agreements and the note agreements, the
Company is required to maintain certain financial covenants including
leverage tests, minimum tangible net worth levels and other financial
ratios. The Company was in compliance with all of the financial covenants
at December 31, 1999.
(Continued)
29
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Current maturities of long-term debt at December 31, 1999 consist of
senior notes payable due in 2000 and the first installment of the 7.80%
senior notes. The aggregate annual maturities of long-term debt for each
of the five years ending December 31 are as follows (in thousands): 2000,
$60,000; 2001, $10,000; 2002, $45,000; 2003, $108,260; and 2004,
$105,000.
(3) CAPITAL STOCK
The Company maintains a Management Incentive Plan ("Plan") that provides
various vehicles to compensate key employees with Company common stock.
Under the original Plan, the Company was authorized to award, in
aggregate, not more than 5,000,000 shares. During 1998, the stockholders
of the Company amended the Plan whereby the Company is now authorized to
award, in aggregate, not more than 6,500,000 shares. At December 31, 1999
there were approximately 605,000 shares available for grant under the
Plan. The Company has utilized three such vehicles to award stock or
grant options to purchase the Company's common stock: restricted stock
awards, restricted options and nonstatutory stock options.
Restricted stock awards are granted to key employees subject to
restrictions regarding transferability and assignment. Shares of Company
common stock are issued to the key employees and held by the Company
until each employee becomes vested in the award. Vesting of the awards
generally occurs over a four year period of time from the award date.
Termination of the employee for any reason other than death, disability
or certain cases of retirement causes the unvested portion of the award
to be forfeited.
The Plan provides that nonstatutory stock options may be granted to key
employees for the purchase of Company common stock for 100% of the fair
market value of the common stock at the grant date. The options generally
vest over a ten year period and are forfeited if the employee terminates
for any reason.
Compensation expense (benefit) under the Plan is charged to earnings over
the vesting period and amounted to approximately $(5,400), $20,000, and
$(78,000) for the years ended December 31, 1999, 1998 and 1997,
respectively.
(Continued)
30
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
A summary of the restricted and nonstatutory options to purchase Company
common stock follows:
WEIGHTED
AVERAGE NUMBER
NUMBER EXERCISE PRICE OF SHARES
OF SHARES PER SHARE EXERCISABLE
---------------- ---------------- ----------------
Outstanding at December 31, 1996 2,740,925 $ 17.45 294,950
Granted 800,000 14.73
Exercised (57,650) 16.81
Terminated (443,350) 17.81
----------------
Outstanding at December 31, 1997 3,039,925 16.70 274,225
Granted 602,000 18.12
Exercised (176,760) 16.66
Terminated (115,275) 16.81
----------------
Outstanding at December 31, 1998 3,349,890 16.98 323,390
Granted 471,000 14.03
Exercised (26,375) 12.90
Terminated (56,950) 16.09
----------------
Outstanding at December 31, 1999 3,737,565 16.65 551,940
================ ================ ================
During 1995, the Board of Directors established a nonqualified stock
option plan to provide performance based compensation to the Chairman
of the Board. The plan allows the Chairman the option to purchase up to
2.5 million shares of the Company's common stock at a price of $17.63 per
share. These options vest after five years, except for special
circumstances in which the options vest earlier. The options must be
exercised within one year of vesting and all unexercised options will
terminate. On January 21, 2000, the Board of Directors, pending
stockholder approval, extended the exercise period from one year to two
years.
Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's
net earnings would have been reduced to the pro forma amounts indicated
below.
1999 1998 1997
----------- ----------- -----------
Net earnings (in thousands) As reported $ 31,909 46,837 11,366
Pro forma 27,391 42,881 7,800
Basic earnings per share As reported .90 1.32 .31
Pro forma .77 1.21 .21
Diluted earnings per share As reported .89 1.28 .31
Pro forma .76 1.17 .21
(Continued)
31
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Pro forma net earnings reflects only options granted since December 31,
1995. Therefore, the full impact of calculating compensation costs for
stock options under SFAS No. 123 is not reflected in the pro forma net
earnings amounts presented above because compensation cost is reflected
over the options' vesting periods of 5 to 10 years and compensation cost
for options granted prior to January 1, 1996 is not considered.
The per share weighted-average fair value of stock options granted
during 1999, 1998 and 1997 was $4.13, $13.23 and $6.86, respectively, on
the date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: 1999 - expected dividend yield
1.2%, volatility of 51.6%, risk-free interest rate of 6.5%, and an
expected life of 7.3 years; 1998 - expected dividend yield .9%,
volatility of 65.5%, risk-free interest rate of 4.7%, and an expected
life of 7.7 years; 1997 - expected dividend yield 1.1%, volatility of
34.1%, risk-free interest rate of 5.8%, and an expected life of 7.7
years.
The following table summarizes information about stock options
outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE REMAINING EXERCISE EXERCISE
OF EXERCISE OPTIONS CONTRACTUAL PRICE OPTIONS PRICE
PRICES OUTSTANDING LIFE (IN YEARS) PER SHARE EXERCISABLE PER SHARE
---------------- -------------- --------------- ------------- -------------- -------------
$ 11.58 - 15.00 1,435,950 7.3 $ 13.47 288,175 $ 13.69
15.01 - 18.75 4,202,440 3.5 17.42 141,940 16.66
18.76 - 22.50 348,000 6.8 20.10 64,300 20.37
22.51 - 26.25 106,675 6.1 23.62 46,825 23.10
26.26 - 30.00 134,500 9.4 28.92 9,700 28.63
30.01 - 37.50 10,000 9.5 37.50 1,000 37.50
---------------- -------------- --------------- ------------- -------------- -------------
$ 11.58 - 37.50 6,237,565 4.7 $ 17.04 551,940 $ 16.34
================ ============== =============== ============= ============== =============
On January 21, 2000, the Company's Board of Directors declared a cash
dividend of $.05 per share payable on February 17, 2000 to shareholders
of record on February 3, 2000.
(Continued)
32
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(4) INCOME TAXES
Total income tax expense for the years ended December 31, 1998, 1997
and 1996 was allocated as follows (in thousands):
1999 1998 1997
------------ ------------- ------------
Earnings before income taxes $ 17,175 27,507 6,966
Stockholders' equity, for tax benefit
(expense) of stock options exercised 55 925 (54)
------------ ------------- ------------
$ 17,120 26,582 7,020
============ ============ ============
Refundable income taxes at December 31, 1999 and 1998 were $3,000 and
$937,000, respectively. These amounts have been included in other current
assets on the balance sheet.
Income tax expense (benefit) attributable to earnings before income taxes
consists of (in thousands):
1999 1998 1997
------------ ------------ -------------
Current expense (benefit):
Federal $ 662 1,410 (715)
State and local 367 375 268
------------- ------------ ------------
1,029 1,785 (447)
------------- ------------ ------------
Deferred expense (benefit):
Federal 18,233 21,354 7,096
State and local (2,087) 4,368 317
------------- ------------ ------------
16,146 25,722 7,413
------------- ------------ ------------
Total tax expense $ 17,175 27,507 6,966
============= ============ ============
The following is a reconciliation between the effective income tax rate
and the applicable statutory Federal income tax rate for each of the
three fiscal years in the period ended December 31, 1999:
1999 1998 1997
------------ ----------- --------------
Income tax - statutory rate 35.00% 35.00 35.00
State tax, net of Federal benefit (1.77) 4.15 2.07
Other, net 1.77 (2.15) 0.93
----------- ----------- -------------
Effective income tax rate 35.00% 37.00 38.00
=========== =========== =============
(Continued)
33
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below (in thousands):
1999 1998
------------- -------------
Deferred tax assets:
Claims accruals, principally due to accrual
for financial reporting purposes $ 7,261 8,020
Tax credit carryforwards 7,321 7,321
Accounts receivable, principally due to
allowance for doubtful accounts 3,999 3,972
Other 4,176 3,892
------------ -------------
Total gross deferred tax assets 22,757 23,205
------------ -------------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation and
capitalized interest $ 137,903 174,570
Prepaid permits and insurance, principally
due to expensing for income tax purposes 12,809 7,943
Sale and leaseback transaction 44,709 --
Other 7,777 4,987
------------ -------------
Total gross deferred tax liabilities 203,198 187,500
------------ -------------
Net deferred tax liability $ 180,441 164,295
============= =============
The Company believes its history of profitability and taxable income and
its utilization of tax planning sufficiently supports the carrying amount
of the deferred tax assets. Accordingly, the Company has not recorded a
valuation allowance as all deferred tax benefits are more likely than not
to be realized.
At December 31, 1999, the Company had general business tax credit
carryforwards of approximately $2,621,000 expiring from the year 2007 to
2009, and alternative minimum tax credit carryforwards with no expiration
of approximately $4,700,000.
(5) EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution employee retirement plan,
which includes a 401(k) option, under which all employees are eligible to
participate. The Company matches a specified percentage of employee
contributions, subject to certain limitations. For the years ended
December 31, 1999, 1998 and 1997, total Company contributions to the
plan, including matching 401(k) contributions, were $7,348,000,
$6,533,000 and $4,951,000, respectively.
(Continued)
34
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(6) FAIR VALUE OF SIGNIFICANT FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, AND TRADE ACCOUNTS
PAYABLE
The carrying amount approximates fair value because of the short maturity
of these instruments.
LONG-TERM DEBT
The carrying amount of the commercial paper debt approximates the fair
value because of the short maturity of the commercial paper instruments.
The fair value of the fixed rate debt is presented as the present value
of future cash flows discounted using the Company's current borrowing
rate for notes of comparable maturity. The calculation arrives at a
theoretical amount the Company would pay a creditworthy third party to
assume its fixed rate obligations and not the termination value of these
obligations. Consistent with market practices, such termination values
may include various prepayment and termination fees that the Company
would contractually be required to pay if it retired the debt early.
INTEREST RATE SWAP AGREEMENTS
The fair values of interest rate swap agreements are obtained from dealer
quotes. These values represent the estimated amount the Company would pay
to terminate such agreements, taking into consideration current interest
rates and the creditworthiness of the counterparties. All interest rate
swap agreements were terminated during 1999 for an insignificant gain.
The estimated fair values of the Company's financial instruments are
summarized as follows (in thousands):
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
------------------------------- -----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- ------------
Cash and cash equivalents $ 12,606 12,606 9,227 9,227
Accounts receivable 238,573 238,573 184,367 184,367
Trade accounts payable 180,009 180,009 147,967 147,967
Long-term debt:
Commercial paper 35,000 35,000 131,350 131,350
Fixed rate obligations 293,260 287,754 303,260 302,131
Interest rate swap agreements -- -- -- (1,622)
============= ============= ============= ============
(Continued)
35
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(7) RELATED PARTY TRANSACTIONS
The Company advances premiums on life insurance policies on the lives of
the Company's principal stockholder and his wife. All premiums paid by
the Company, along with accrued interest thereon, are reimbursable from a
trust which is the owner and beneficiary of the policy. The Company has a
guarantee from the stockholder for the amount of premiums paid by the
Company together with interest at the rate of 5% per annum. The amounts
reimbursable to the Company amount to approximately $7,044,000 and
$6,068,000 at December 31, 1999 and 1998, respectively, and amounts are
included in other assets in the accompanying consolidated balance sheets.
(8) COMMITMENTS AND CONTINGENCIES
During 1999, the Company entered into a sale and leaseback transaction
for a portion of its container fleet. Containers having a net book value
of approximately $175 million were sold to third party leasing companies
at approximate net book value. A gain on this transaction has been
deferred and will be amortized to income in relation to rent expense
recognized under the leases. The containers are being leased back under
operating leases over terms of four to ten years. The Company also leases
terminal facilities, shuttle yards and computer equipment under operating
leases having various terms.
The future minimum lease payments under all noncancellable leases at
December 31, 1999, principally for revenue equipment, are shown in the
following table (in thousands):
2000 $84,315
2001 49,072
2002 37,075
2003 23,924
2004 21,941
Thereafter 35,372
Total rent expense was $39,862,000 in 1999, $28,692,000 in 1998, and
$17,656,000 in 1997, respectively.
At December 31, 1999, the Company had committed to purchase $242 million
of revenue and service equipment net of expected proceeds from sale or
trade-in allowances.
The Company is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on the present knowledge of
the facts and, in certain cases, opinions of outside counsel, management
believes the resolution of claims and pending litigation will not have a
material adverse effect on the financial condition or results of
operations of the Company.
(Continued)
36
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(9) SEGMENT INFORMATION
Van/Intermodal services include full truck-load, dry-Van,
container-sizable freight which is typically transported utilizing
company-owned revenue equipment. The load may be transported entirely by
company-owned and controlled equipment or a portion of the movement may
be handled by a third-party motor carrier or a railroad. Logistics
provides a wide range of comprehensive transportation and management
services including experienced professional managers, information and
optimization technology and the actual design or redesign of system
solutions. Logistics may utilize Van/Intermodal and/or dedicated contract
owned and controlled equipment, unrelated third-party equipment and
employees, or a combination to meet the customer's service requirements.
Dedicated Contract Services typically include company-owned revenue
equipment and employee drivers that are assigned to a specific customer,
traffic lane or service. The dedicated service is engineered and
customized for the specific customer and is typically in accordance with
a written, long-term agreement. Substantially all of the Company's
revenues are from domestic customers. Intersegment revenues primarily
consist of Van/Intermodal services provided to logistics. Such services
are priced at approximately the same basis as services to external
customers. Certain administrative and other costs are allocated among the
segments utilizing various allocation factors which include revenues,
equipment usage and maintenance, accounts receivable and other estimates.
Substantially all of the Company's capital expenditures are made by the
Van/Intermodal division with assets transferred to the dedicated contract
division as needed. A summary of other segment information is presented
below (in millions):
ASSETS
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
Van/Intermodal $ 900 1,025 931
Logistics 73 43 29
Dedicated Contract Services 95 62 42
Other (includes corporate) 59 41 20
----------- ----------- -----------
Total $ 1,127 1,171 1,022
=========== =========== ===========
(Continued)
37
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
REVENUES
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
Van/Intermodal $ 1,415 1,379 1,153
Logistics 388 317 254
Dedicated Contract Services 320 212 151
Other -- 8 60
----------- ----------- -----------
Subtotal 2,123 1,916 1,618
Inter-segment eliminations (78) (74) (64)
----------- ----------- -----------
Total $ 2,045 1,842 1,554
=========== =========== ===========
OPERATING INCOME
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
Van/Intermodal $ 44 81 28
Logistics 11 8 6
Dedicated Contract Services 24 17 11
Other (2) (3) (2)
----------- ----------- -----------
Total $ 77 103 43
=========== =========== ===========
NET DEPRECIATION EXPENSE
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
Van/Intermodal $ 113 106 96
Logistics 1 1 1
Dedicated Contract Services 26 18 13
Other 10 11 21
----------- ----------- -----------
Total $ 150 136 131
=========== =========== ===========
The Company announced in late 1999, a decision to split the
Van/Intermodal business into separate intermodal and truck business
segments. This segregation is in progress and the Company intends to
begin reporting on four segments (Intermodal, Truck, Logistics and
Dedicated Contract Services) in the first quarter of 2000.
(Continued)
38
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Operating results by quarter for the years ended December 31, 1999 and
1998 are as follows (in thousands, except per share data):
QUARTER
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------ ------------- ------------ ------------
1999:
Operating revenues $ 470,244 497,554 523,901 553,374
============ ============= ============ ============
Operating income $ 24,174 24,240 14,975 14,041
============ ============= ============ ============
Net earnings $ 10,585 10,785 4,958 5,581
============ ============= ============ ============
Basic earnings per share $ .30 .30 .14 .16
============ ============= ============ ============
Diluted earnings per share $ .29 .30 .14 .16
============ ============= ============ ============
1998:
Operating revenues $ 413,466 460,985 473,388 493,789
============ ============= ============ ============
Operating income $ 21,658 31,613 24,424 25,349
============ ============= ============ ============
Net earnings $ 9,483 15,624 10,848 10,882
============ ============= ============ ============
Basic earnings per share $ .27 .44 .30 .31
============ ============= ============ ============
Diluted earnings per share $ .26 .42 .30 .30
============ ============= ============ ============
39
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months prior
to December 31, 1999 involving a change of accountants or disagreements on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS
The schedule of directors is hereby incorporated by reference from the
Notice and Proxy Statement For Annual Stockholder's Meeting of April 20, 2000
set forth under section entitled "Proposal One Election of Directors".
EXECUTIVE OFFICERS
Information with respect to executive officers of the Company is set forth
in Item 4 of this Report under the caption "Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for Items 11 and 12 is hereby incorporated by
reference from the Notice and Proxy Statement For Annual Stockholders' Meeting
of April 20, 2000 set forth under sections entitled "Stock Ownership," "Report
of the Compensation Committee on Executive Compensation," "2000 Performance
Based Compensation," and "Compensation Committee Interlocks and Insider
Participation."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for Item 13 is hereby incorporated by reference
from Note (7) Related Party Transactions of the Notes to Consolidated Financial
Statements and from the Notice and Proxy Statement For Annual Stockholders'
Meeting of April 20, 2000 set forth under the section entitled "Compensation
Committee Interlocks and Insider Participation."
PART IV
ITEM 14. EXHIBITS
The following documents are filed as part of this report:
(a) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report ("Exhibit Index").
40
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant had duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Lowell,
Arkansas, on February 28,2000.
J.B. HUNT TRANSPORT SERVICES, INC.
(Registrant)
By: /s/ Kirk Thompson
---------------------------
Kirk Thompson
President and Chief Executive Officer
By: /s/ Jerry W. Walton
---------------------------
Jerry W. Walton
Executive Vice President, Finance and
Administration, Chief Financial Officer
By: /s/ Donald G. Cope
---------------------------
Donald G. Cope
Vice President, Controller,
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John A. Cooper, Jr. Member of the Board February 28, 2000
- -------------------------------------------- of Directors
John A. Cooper, Jr.
/s/ Wayne Garrison Member of the Board February 28, 2000
- -------------------------------------------- of Directors (Chairman)
Wayne Garrison
/s/ Gene George Member of the Board February 28, 2000
- -------------------------------------------- of Directors
Gene George
/s/ Thomas L. Hardeman Member of the Board February 28, 2000
- -------------------------------------------- of Directors
Thomas L. Hardeman
/s/ J. Bryan Hunt, Jr. Member of the Board February 28, 2000
- -------------------------------------------- of Directors (Vice Chairman)
J. Bryan Hunt, Jr.
/s/ J.B. Hunt Member of the Board February 28, 2000
- -------------------------------------------- of Directors (Senior Chairman)
J.B. Hunt
/s/ Johnelle Hunt Member of the Board February 28, 2000
- -------------------------------------------- of Directors (Corporate
Johnelle Hunt Secretary)
/s/ Lloyd E. Peterson Member of the Board February 28, 2000
- -------------------------------------------- of Directors
Lloyd E. Peterson
/s/ Kirk Thompson Member of the Board February 28, 2000
- -------------------------------------------- of Directors (President and
Kirk Thompson Chief Executive Officer)
/s/ John A. White Member of the Board February 28, 2000
- -------------------------------------------- of Directors
John A. White
41
EXHIBIT INDEX
Exhibit
Number Description
- --------------------------------------------------------------------------------
3A The Company's Amended and Restated Articles of Incorporation dated May
19, 1988 (incorporated by reference from Exhibit 4A of the Company's
S-8 Registration Statement filed April 16, 1991; Registration Statement
Number 33-40028).
3B The Company's Amended Bylaws dated September 19, 1983 (incorporated by
reference from Exhibit 3C of the Company's S-1 Registration Statement
filed February 7, 1985; Registration Number 2-95714).
10A Material Contracts of the Company (incorporated by reference from
Exhibits 10A-10N of the Company's S-1 Registration Statement filed
February 7, 1985; Registration Number 2-95714).
10B The Company has an Employee Stock Purchase Plan filed on Form S-8 on
February 3, 1984 (Registration Number 2-93928), and a Management
Incentive Plan filed on Form S-8 on April 16, 1991 (Registration
Statement Number 33-40028). The Management Incentive Plan is
incorporated herein by reference from Exhibit 4B of Registration
Statement 33-40028. The Company amended and restated its Employee
Retirement Plan on Form S-8 (Registration Statement Number 33-57127)
filed December 30, 1994. The Employee Retirement Plan is incorporated
herein by reference from Exhibit 99 of Registration Statement Number
33-57127. The Company amended and restated its Management Incentive
Plan on Form S-8 (Registration Statement Number 33-40028) filed July 7,
1995. The Company filed the Chairman's Stock Option Incentive Plan as
part of a definitive 14A on March 26, 1996.
21 Subsidiaries of J.B. Hunt Transport Services, Inc.
- J.B. Hunt Transport, Inc., a Georgia corporation
- L.A., Inc., an Arkansas corporation
- J.B. Hunt Corp., a Delaware corporation
- J.B. Hunt Logistics, Inc., an Arkansas corporation
- Comercializadora Internacional de Cargo S.A. De C.V., a
Mexican corporation
- Hunt Mexicana, S.A. de C.V., a Mexican corporation
- Servicios de Logistica de Mexico, S.A. de C.V., a
Mexican corporation
- Servicios Administratios de Logistica, S.A. de C.V., a
Mexican corporation
- Asesoria Administrativa de Logistica, S.A. de C.V., a
Mexican corporation.
- FIS, Inc., a Nevada corporation
23 Consent of KPMG LLP
27 Financial Data Schedule for the year ended December 31, 1999.
42