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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, 1998 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 17,511,121 SHARES OF THE REGISTRANT'S $.01 PAR
VALUE COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY
26, 1999 WAS $411,511,344 (BASED UPON $23.50 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 26, 1999: 35,618,707.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN PORTIONS OF THE NOTICE AND PROXY STATEMENT FOR THE ANNUAL MEETING OF THE
STOCKHOLDERS TO BE HELD APRIL 15, 1999 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. The Company presently has 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 45% of VAN revenue in
1998 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
newly-designed 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 nine 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, 1998, VAN operated
approximately 6,700 tractors and 32,420 trailers/containers. VAN gross
operating revenues were $1,379 million in 1998, an increase of 19% over 1997.
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 $317 million in
1998, an increase of 25% over 1997.
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, 1998, DCS operated approximately 2,200
tractors and 2,950 trailers. DCS gross operating revenues were $212 million
in 1998, an increase of 41% over 1997.
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.
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 7% of revenues during 1998. A broad
geographic dispersion and a good balance in the type of freight transported
allow 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, 1998, JBH employed approximately 14,250 people,
including 10,500 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 46% in 1998 and 45% in 1997, 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 2,550 office personnel and 1,200 mechanics at
December 31, 1998. 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, 1998, JBH owned approximately 8,900 tractors and operated
12,980 trailers and 22,390 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, 1998. 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 70%
of the VAN trailing fleet at December 31, 1998. 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 three separate buildings totaling
18,000 square feet of office space and 80,000 square feet of maintenance and
warehouse space. These buildings serve as the Lowell operations terminal,
tractor and trailer maintenance facilities 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.
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) 50 -- 150,000
Lowell, Arkansas 40 50,200 14,000
Lowell, Arkansas (trailer facilities) 14 29,800 4,000
San Bernardino, California 8 14,000 4,000
South Gate, California 12 12,000 5,500
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 1998 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 72 Senior Chairman of the Board; Director 1961
Wayne Garrison 46 Chairman of the Board; Director 1979
Johnelle Hunt 67 Secretary; Director 1972
Kirk Thompson 45 President and Chief Executive Officer; Director 1984
Paul R. Bergant 52 Executive Vice President, Marketing 1985
Bob D. Ralston 52 Executive Vice President, Equipment and Properties 1989
Jerry W. Walton 52 Executive Vice President, Finance and Chief Financial Officer 1991
Robert E. Logan 60 Chief Information Officer 1997
A. Craig Harper 41 Executive Vice President, Operations 1997
Dr. Jun-Sheng Li (1) 40 President J.B. Hunt Logistics and Executive Vice President,
Integrated Solutions 1998
John N. Roberts III (2) 34 President, Dedicated Contract Services 1997
(1) Dr. Jun-Sheng 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.
(2) 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.
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").
1998 1997
----------------- -----------------
Period High Low High Low
- ------------------------------------------------------------------------------
1st Quarter $30.63 $17.38 $15.00 $13.38
2nd Quarter 36.13 27.50 16.13 13.63
3rd Quarter 38.88 14.00 18.50 14.50
4th Quarter 23.00 12.31 19.25 15.00
6
On February 26, 1999, the high and low sales prices for the Company's
common stock as reported by the NASDAQ were $23.50 and $22.875, respectively.
As of February 26, 1999, the Company had 1,693 stockholders of record.
DIVIDEND POLICY
On January 28, 1999, the Board of Directors declared a quarterly dividend
of $.05 per share, payable on February 24, 1999 to shareholders of record on
February 10, 1999. Although it is the present intention of the Board of
Directors to continue quarterly dividends, payment of future dividends will
depend upon the Company's financial condition, results of operations and other
factors deemed relevant by the Board of Directors. The Company declared and paid
cash dividends of $.20 per share in 1998 and 1997.
7
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in millions, except per share amounts)
Years Ended December 31 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
Operating revenues $1,841.6 $1,554.3 $1,486.7 $1,352.2 $1,207.6
Operating income 103.0 42.9 60.4 21.3 84.9
Earnings (loss) before cumulative effect
of changes in accounting methods 46.8 11.4 22.1 (2.2) 40.4
Basic earnings (loss) per share before
cumulative effect of changes in
accounting methods 1.32 .31 .58 (.06) 1.05
Cash dividends per share .20 .20 .20 .20 .20
Total assets 1,171.5 1,021.9 1,043.4 1,016.8 993.7
Long-term debt 417.0 322.8 332.6 339.0 299.2
Stockholders' equity 375.7 338.0 357.3 356.9 377.9
Years Ended December 31 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------
Operating revenues $1,020.9 $912.0 $733.3 $579.8 $509.3
Operating income 78.6 69.1 59.4 56.9 61.8
Earnings (loss) before cumulative effect
of changes in accounting methods 38.2 36.9 29.5 30.0 30.6
Basic earnings (loss) per share before
cumulative effect of changes in
accounting methods 1.00 1.03 .85 .85 .87
Cash dividends per share .20 .20 .19 .16 .16
Total assets 862.4 715.7 520.1 452.7 384.7
Long-term debt 303.5 216.3 156.9 137.6 105.0
Stockholders' equity 344.0 308.6 215.8 191.1 175.5
Diluted earnings per share were $1.28, $.31 and $.58, for the years 1998, 1997
and 1996, respectively.
Percentage of Operating Revenue
Years Ended December 31 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
Operating revenues 100.0% 100.0% 100.0 %100.0% 100.0%
Operating expenses:
Salaries, wages
and employee benefits 34.9 34.4 32.6 33.8 33.5
Purchased transportation 30.7 30.6 27.2 25.4 23.9
Fuel and fuel taxes 7.5 9.1 10.8 10.6 10.9
Depreciation 7.4 8.4 8.4 9.6 9.2
Operating supplies and expenses 8.2 8.4 8.0 8.4 6.9
Insurance and claims 1.8 2.4 3.9 3.8 3.1
Operating taxes and licenses 1.3 1.6 1.9 2.0 2.2
General and administrative expenses 1.6 1.2 1.9 2.4 2.2
Communication and utilities 1.0 1.1 1.2 1.1 1.1
Special charges -- -- -- 1.3 --
------ ------ ------ ------ ------
Total operating expenses 94.4 97.2 95.9 98.4 93.0
------ ------ ------ ------ ------
Operating income 5.6 2.8 4.1 1.6 7.0
Interest expense 1.6 1.6 1.7 1.8 1.6
Income taxes 1.5 .5 .9 -- 2.1
Cumulative effect of changes in
accounting methods -- -- -- -- --
------ ------ ------ ------ ------
Net earnings (loss) 2.5% .7% 1.5% (.2%) 3.3%
====== ====== ====== ====== ======
Years Ended December 31 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
Operating revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages
and employee benefits 36.4 38.2 40.0 41.4 42.1
Purchased transportation 18.4 12.2 7.0 0.7 0.7
Fuel and fuel taxes 12.4 14.2 16.3 17.3 15.7
Depreciation 8.2 9.5 9.4 9.7 9.5
Operating supplies and expenses 7.2 7.4 8.0 8.8 8.5
Insurance and claims 4.0 4.8 4.7 5.4 4.5
Operating taxes and licenses 2.8 2.8 3.0 3.2 3.5
General and administrative expenses 1.9 2.0 2.1 2.3 1.7
Communication and utilities 1.0 1.3 1.4 1.4 1.7
Special charges -- -- -- -- --
------ ------ ------ ------ ------
Total operating expenses 92.3 92.4 91.9 90.2 87.9
------ ------ ------ ------ ------
Operating income 7.7 7.6 8.1 9.8 12.1
Interest expense 1.4 1.2 1.5 1.2 1.8
Income taxes 2.6 2.3 2.6 3.4 4.3
Cumulative effect of changes in
accounting methods -- .2 (.2) -- --
------ ------ ------ ------ ------
Net earnings (loss) 3.7% 4.3% 3.8% 5.2% 6.0%
====== ====== ====== ====== ======
The following table sets forth certain operating data of the Company.
Years Ended December 31 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
Total loads 2,243,856 1,802,006 1,605,546 1,361,251 1,187,815
Average number of tractors in
the fleet during the year 8,207 7,629 7,728 7,559 7,094
Tractors operated (at year end) 8,906 7,508 7,750 7,706 7,412
Trailers/containers (at year end) 35,366 30,391 27,773 24,618 22,687
Tractor miles (in thousands) 922,560 790,018 810,450 772,199 740,626
Years Ended December 31 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------
Total loads 1,081,013 960,031 796,929 596,574 536,448
Average number of tractors in
the fleet during the year 6,890 6,424 5,286 4,413 3,616
Tractors operated (at year end) 6,775 7,004 5,843 4,729 4,096
Trailers/containers (at year end) 19,089 17,391 12,389 10,563 9,339
Tractor miles (in thousands) 718,767 733,700 638,926 551,175 495,377
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 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 VAN 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 VAN 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 VAN revenue and higher
tractor utilization contributed to the significant increase in 1998 VAN
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.
RESULTS OF OPERATIONS
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
======== ======== ==== ====== =====
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
--------------------- -------------
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 18.9
Fuel and fuel taxes 7.5 9.1 (3.0)
Depreciation 7.4 8.4 4.3
Operating supplies and expenses 8.2 8.4 16.6
Insurance and claims 1.8 2.4 (13.8)
Operating taxes and licenses 1.3 1.6 (2.3)
General and administrative expenses 1.6 1.2 49.0
Communication and utilities 1.0 1.1 13.2
----- ---- -----
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
as a percentage of revenue, 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.
10
SUMMARY OF 1997
J.B. Hunt's 1997 financial and operating results reflect some
significant management actions which were implemented during 1997 and late
1996. In early 1996, a decision was made to concentrate Company resources on
the three operating segments of VAN, JBHL and DCS. Assets and businesses
which did not relate to these segments were sold. Businesses which
transported small parcels and specialized in hazardous commodities were sold
during 1996 and a flatbed operation was sold in 1997. In September of 1996, a
new VAN over-the-road driver compensation package was announced, which became
effective in February of 1997. This new pay and benefit package, which
increased annual pay by approximately 33% for certain VAN drivers, was
successful in attracting and retaining experienced and professional drivers.
Driver turnover in the VAN business declined to 45% in 1997 from 86% in 1996.
The increased cost of the new pay and benefit package was partly offset, as
anticipated, by closing the two company-owned driver training schools, lower
driver recruiting expense, reduced vehicle collisions and higher tractor
utilization. The ability to add drivers and a strong demand for
transportation services during late 1997 combined to produce revenue growth
during the fourth quarter of 1997.
Consolidated operating revenues increased 4.5% in 1997, to $1,554.3
million from $1,486.7 million in 1996. Operating revenue in the VAN segment
increased 7%, to $1,153.5 million in 1997 from $1,082.8 million in 1996. This
increase was primarily due to a 9% increase in the size of the tractor fleet,
offset by approximately 2% reductions in both truck only and intermodal
rates. JBHL revenues increased 46% to $254.1 million in 1997 from $173.6
million in 1996. This increase in JBHL revenue was primarily due to new
business and contracts executed with significant "Fortune 500" customers. DCS
revenue increased 19%, to $150.7 million in 1997 from $126.9 million in 1996.
This increase in DCS revenue was driven by both new customer contracts and
additional projects or fleet additions to existing contracts. The DCS tractor
count increased by 18% in 1997. Other revenue in 1997 and 1996 included the
parcel management and special commodities operations which were sold in 1996
and a flatbed division which was sold in 1997.
1997 COMPARED WITH 1996
Operating Segments
For Years Ended December 31
(in millions of dollars)
Gross Revenue Operating Income
--------------------------------------------- ------------------------
1997 1996 % Change 1997 1996
---- ---- -------- ---- ----
Van/Intermodal $1,153.5 $1,082.8 7% $28.2 $43.4
JBHL 254.1 173.6 46 6.1 5.1
DCS 150.7 126.9 19 10.9 10.0
Other 59.8 150.5 (60) (2.3) 1.9
------- ------- ---- ----- -----
Subtotal 1,618.1 1,533.8 5 42.9 60.4
Inter-segment eliminations (63.8) (47.1) -- -- --
--------- -------- ---- ----- -----
Total $1,554.3 $1,486.7 5% $42.9 $60.4
======== ======== ==== ===== =====
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
--------------------- -------------
1997 1996 1997 vs. 1996
---- ---- -------------
Operating revenues 100.0% 100.0% 4.5%
Operating expenses:
Salaries, wages and employee benefits 34.4% 32.6% 10.3%
Purchased transportation 30.6 27.2 17.7
Fuel and fuel taxes 9.1 10.8 (11.5)
Depreciation 8.4 8.4 4.6
Operating supplies and expenses 8.4 8.0 8.8
Insurance and claims 2.4 3.9 (35.1)
Operating taxes and licenses 1.6 1.9 (10.3)
General and administrative expenses 1.2 1.9 (32.5)
Communication and utilities 1.1 1.2 (8.0)
------- ------ ------
Total operating expenses 97.2 95.9 6.0
------- ------ ------
Operating income 2.8 4.1 (28.9)
Interest expense 1.6 1.7 (.5)
------ ----- ------
Earnings before income taxes 1.2 2.4 (48.6)
Income taxes .5 .9 (48.6)
------ ----- ------
Net earnings .7% 1.5% (48.6%)
====== ===== ======
OPERATING EXPENSES
Total operating expenses in 1997 increased 6% over 1996, while operating
revenues increased 4.5% over the same period. Operating expenses expressed as
a percentage of operating revenues (operating ratio) were 97.2% in 1997,
compared with 95.9% in 1996. The increase in salaries, wages and employee
benefits was primarily due to the new driver compensation package, which was
effective in February of 1997. The significant increase in purchased
transportation was consistent with trends in recent years and reflects
payments to railroads and other third-party companies that provided
transportation services to the Company. Fuel and fuel taxes expense declined,
primarily due to lower fuel cost per gallon and improved miles per gallon
performance.
The increase in operating supplies and expenses was primarily due to
higher trailing equipment lease and rental costs. The decline in insurance
and claims expense was a result of lower collision frequency, primarily
related to a decision to limit the speed of the tractor fleet to 59 miles per
hour and the more experienced driver force attracted by the new compensation
package. A related reduction in general and administrative expenses was
primarily due to reduced driver recruiting and training costs. Reduced
insurance related costs and lower driver hiring expenses were two primary
sources for funding the new driver compensation program.
As a result of the above, net earnings for 1997 declined to $11.4
million, or diluted earnings per share of $.31, from $22.1 million, or $.58
per diluted share in 1996. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant amounts of cash from operating
activities. Net cash provided by operating activities was $183 million in 1998,
$161 million in 1997 and $141 million in 1996. During the three year period
ended December 31, 1998, 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 $261 million in 1998, $90
million in 1997 and $131 million in 1996. The primary use of funds for
investing activities was the acquisition of new revenue equipment. New
tractor purchases were approximately 2,900 in 1998, 2,400 in 1997 and 2,000
in 1996. The level of investment spending for trailing equipment varied
significantly during the three year period ended December 31, 1998. The total
number of trailing pieces of equipment purchased was approximately 4,700 in
1998, 490 in 1997 and 1,900 in 1996. The Company leased trailing equipment in
1998 and 1997 to supplement its owned fleet.
12
Financing activities generated $83 million in 1998 and consumed $71
million in 1997 and $10 million in 1996. 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
totaling $5.8 million in 1998, $22.0 million in 1997 and $17.8 million in
1996. Funds were also used for repayments of debt and to pay dividends.
SELECTED BALANCE SHEET DATA
As of December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
Working capital ratio 1.09 .97 1.03
Current maturities of long-term debt (millions) $ 16.4 $ 17.5 $ 49.8
Total debt (millions) $ 433 $ 340 $ 382
Total debt to equity 1.15 1.01 1.07
Total debt as a percentage of total capital .54 .50 .52
The Company is authorized to issue up to $240 million in notes under a
commercial paper note program, of which $131 million was outstanding at
December 31, 1998. In addition, the Company has approximately $95 million of
uncommitted lines of credit, none of which were outstanding at December 31,
1998.
From time to time the Board of Directors authorizes the repurchase of
Company common stock. Purchases of Company stock were:
1998 1997 1996
-----------------------------------------------------------------------------------------
Number of shares acquired 225,000 1,468,000 1,159,000
Price range of shares $17.69 - $27.94 $13.50 - $17.00 $14.13 - $16.63
At December 31, 1998, the Company had committed to purchase
approximately $110 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 1999, however, funding for such
expenditures is expected to come from cash generated from operations and
existing borrowing facilities.
YEAR 2000
The Company utilizes and is dependent upon a wide variety of complex
information technologies (IT) to conduct daily business operations. Some of
the Company's older computer software programs and equipment use two digit
fields rather than four digit fields to define the applicable year. As a
result, some of the time or date-sensitive functions of these programs and
equipment could result in equipment shutdowns, miscalculations, inability to
process data and/or disruption of operations as the Year 2000 approaches. It
is possible that some problems may develop during 1999 (e.g. applications
that utilize future or projected data), well before January 1, 2000.
The Company recognized the importance of Year 2000 issues and developed
an action plan in 1996. The plan includes systematic reviews of all internal
hardware, software and functions to either verify that the system is Year
2000 compliant or modify/replace the software or system as required. The
process includes the use of a software testing tool which simulates the
transition to the Year 2000. The original plan contemplated all conversion
efforts to be completed by the end of 1998. As of December 31, 1998, the
majority of application programs (i.e. software that interacts with users
through computer terminals and produces reports) had been modified or
replaced. These programs have been unit tested by IT staff members, but still
require detail testing by users and Year 2000 simulation. A number of the
primary financial systems utilized to pay vendors, track customer accounts
receivable and produce regular financial reports have been converted or are
in the final stages of conversion to be Year 2000 compliant. The additional
modifications, installations and unit testing of the Company's internal
computer and IT applications are currently expected to be completed by July
1, 1999.
In addition to the issues and risks associated with the Company's
internal IT systems and equipment, the Company has relationships and is
dependent upon a number of third parties that include customers and suppliers
of goods and services. Daily business operations include the electronic data
interchange of information (EDI) with customers and providers of
transportation services such as railroads and motor freight carriers. Other
third party providers of critical services such as voice and data
communications, natural gas and electricity, and diesel fuel are also an
integral part of daily business operations. If significant numbers or certain
critical customers or suppliers
13
experience failures in their computer systems or equipment due to Year 2000
non-compliance, it could adversely affect the Company's normal business
activities. While some of these risks are not controllable by the Company, a
number of actions and procedures have been implemented to assess and/or
reduce this risk. Formal communications have been initiated with certain
significant customers and suppliers. Depending upon the circumstances, formal
certifications of Year 2000 compliance have been requested and received. The
Company has not received enough formal responses to date to make an accurate
assessment of the Year 2000 readiness of its primary customers and suppliers.
Since 1996, the Company has spent approximately $1.3 million on Year
2000 compliance. Estimated future expense to complete testing and related
compliance work is $200,000 for a total cost of $1.5 million. These costs are
being charged to operations as incurred. This cost estimate excludes certain
new system acquisitions, development and implementation expenses that relate
to on-going business activity, normal upgrades and enhancements. The Company
has also spent approximately $4.4 million of acquisition and implementation
costs for primary financial systems upgrades. These costs are being
capitalized and amortized over the estimated useful life of the software
since these new systems were acquired for business reasons and not to
remediate Year 2000 problems, if any, in the former systems. Current
estimated future costs for such financial systems upgrades are $3.0 million.
The Company presently believes that its internal computer systems and
equipment will not pose significant operational problems relative to the Year
2000 issue. There can be no assurance that the Company will properly identify
all Year 2000 issues or that certain external customers or suppliers will not
experience disruption of IT functions or actual services provided. Even
short-term disruption of telecommunications service, for example, could have
a material adverse impact on the Company's business. In order to reduce the
risks associated with the Year 2000 problem, the Company is developing a
contingency plan which is expected to be completed by June 30, 1999.
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 no later than the quarter ending March 31, 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. Future
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.
14
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 1999 than in
1998, there would be no material adverse impact on the Company's results of
operations. At December 31, 1998, the Company's interest rate swap agreements
had a fair value of $1.6 million (net liability position). The Company has no
material future earnings or cash flow expenses 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, 1998, 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 translation gains and losses were not material to the
Company's results of operations for the year ended December 31, 1998.
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 it's 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
- -------------------------------------------------------------------------------------------------------------------
Independent Auditors' Report 16
Consolidated Balance Sheets as of December 31, 1998 and 1997 17
Consolidated Statements of Earnings for years ended December 31, 1998, 1997 and 1996 19
Consolidated Statements of Stockholders' Equity for years ended December 31, 1998, 1997 and 1996 20
Consolidated Statements of Cash Flows for years ended December 31, 1998, 1997 and 1996 22
Notes to Consolidated Financial Statements 24
15
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, 1998 and
1997, 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, 1998. 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, 1998 and 1997,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Little Rock, Arkansas
February 5, 1999
16
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(Dollars in thousands, except per share amounts)
ASSETS 1998 1997
------------ ------------
Current assets:
Cash and cash equivalents $ 9,227 3,701
Trade accounts receivable 184,367 169,198
Refundable income taxes (note 4) 937 2,711
Inventories 6,917 6,339
Prepaid licenses and permits 14,887 10,476
Other current assets 7,661 5,190
Deferred income taxes (note 4) 1,275 2,337
------------ ------------
Total current assets 225,271 199,952
------------ ------------
Property and equipment, at cost:
Revenue and service equipment 1,235,824 1,045,069
Land 20,337 19,109
Structures and improvements 67,937 59,446
Furniture and office equipment 93,935 93,854
------------ ------------
Total property and equipment 1,418,033 1,217,478
Less accumulated depreciation 492,633 420,671
------------ ------------
Net property and equipment 925,400 796,807
------------ ------------
Other assets (note 7) 20,808 25,160
------------ ------------
------------ ------------
$ 1,171,479 1,021,919
------------ ------------
------------ ------------
17 (Continued)
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(Dollars in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------ ------------
Current liabilities:
Current maturities of long-term debt (note 2) $ 16,350 17,500
Trade accounts payable 147,967 138,509
Claims accruals 6,131 22,306
Accrued payroll 23,684 16,096
Other accrued expenses 11,909 10,677
------------- ------------
Total current liabilities 206,041 205,088
------------- ------------
Long-term debt, excluding current maturities (note 2) 417,045 322,790
Claims accruals 7,166 15,168
Deferred income taxes (note 4) 165,570 140,909
------------- ------------
Total liabilities 795,822 683,955
------------- ------------
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 106,985 105,682
Retained earnings 326,145 286,409
Accumulated other comprehensive loss (5,621) (5,621)
------------- ------------
427,899 386,860
Treasury stock, at cost (3,401,501 shares in 1998 and
3,346,550 shares in 1997) 52,242 48,896
------------- ------------
Total stockholders' equity 375,657 337,964
Commitments and contingencies (notes 2, 3, 5 and 8)
------------- ------------
$ 1,171,479 1,021,919
------------- ------------
------------- ------------
See accompanying notes to consolidated financial statements.
18
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
1998 1997 1996
------------ ------------ ------------
Operating revenues $ 1,841,628 1,554,292 1,486,748
Operating expenses:
Salaries, wages and employee benefits (note 5) 642,946 534,415 484,702
Purchased transportation 565,575 475,768 404,140
Fuel and fuel taxes 137,561 141,770 160,265
Depreciation 136,304 130,661 124,931
Operating supplies and expenses 151,622 130,065 119,581
Insurance and claims 32,674 37,904 58,387
Operating taxes and licenses 24,029 24,588 27,422
General and administrative expenses 28,636 19,225 28,501
Communication and utilities 19,237 16,986 18,456
------------ ------------ ------------
Total operating expenses 1,738,584 1,511,382 1,426,385
------------ ------------ ------------
Operating income 103,044 42,910 60,363
Interest expense 28,700 24,578 24,694
------------ ------------ ------------
Earnings before income taxes 74,344 18,332 35,669
Income taxes (note 4) 27,507 6,966 13,554
------------ ------------ ------------
Net earnings $ 46,837 11,366 22,115
------------ ------------ ------------
------------ ------------ ------------
Basic earnings per share $ 1.32 .31 .58
------------ ------------ ------------
------------ ------------ ------------
Diluted earnings per share $ 1.28 .31 .58
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
19
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------------ ------------
Balances at December 31, 1995 $ 390 105,577
Tax benefit of stock options exercised -- 325
Sale of treasury stock to employees -- (5)
Repurchase of treasury stock -- --
Cash dividends paid ($.20 per share) -- --
Comprehensive income:
Net earnings -- --
Foreign currency translation -- --
------------ ------------
Total comprehensive income
Balances at December 31, 1996 390 105,897
Tax benefit (expense) of stock options exercised -- (54)
Sale of treasury stock to employees -- 146
Forfeiture of restricted stock -- (307)
Repurchase of treasury stock -- --
Cash dividends paid ($.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
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
20 (Continued)
ACCUMULATED TOTAL
OTHER STOCKHOLDERS'
COMPREHENSIVE RETAINED COMPREHENSIVE TREASURY EQUITY
INCOME EARNINGS LOSS STOCK (NOTES 2 AND 3)
------------- ------------ ------------- ------------ ---------------
Balances at December 31, 1995 267,823 (6,739) (10,112) 356,939
Tax benefit of stock options exercised - - - 325
Sale of treasury stock to employees - - 2,114 2,109
Repurchase of treasury stock - - (17,777) (17,777)
Cash dividends paid ($.20 per share) (7,574) - - (7,574)
Comprehensive income:
Net earnings $ 22,115 22,115 - - 22,115
Foreign currency translation 1,118 - 1,118 - 1,118
------------ ------------ ------------ ------------ ------------
Total comprehensive income $ 23,233
------------
------------
Balances at December 31, 1996 282,364 (5,621) (25,775) 357,255
Tax benefit (expense) of stock options exercised - - - (54)
------------ ------------ ------------ ------------ ------------
Sale of treasury stock to employees - - 182 328
Forfeiture of restricted stock - - (1,269) (1,576)
Repurchase of treasury stock - - (22,034) (22,034)
Cash dividends paid ($.20 per share) (7,321) - - (7,321)
Comprehensive income - net earnings $ 11,366 11,366 - - 11,366
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1997 286,409 (5,621) (48,896) 337,964
Tax benefit of stock options exercised - - - 925
Sale of treasury stock to employees - - 2,486 2,868
Forfeiture of restricted stock - - (18) (22)
Repurchase of treasury stock - - (5,814) (5,814)
Cash dividends paid ($.20 per share) (7,101) - - (7,101)
Comprehensive income - net earnings $ 46,837 46,837 - - 46,837
------------ ------------ ------------ ------------ ------------
------------
Balances at December 31, 1998 326,145 (5,621) (52,242) 375,657
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
21
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 46,837 11,366 22,115
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 136,304 130,661 124,931
Provision for noncurrent deferred
income taxes 24,661 (1,250) 19,430
Tax benefit (expense) of stock options
exercised 925 (54) 325
Termination of restricted stock (22) (1,576) (277)
Amortization of discount, net (145) 219 296
Changes in operating assets and liabilities:
Trade accounts receivable (15,169) (15,327) (8,734)
Other current assets (5,686) 11,248 (6,319)
Deferred income taxes 1,062 8,663 (829)
Trade accounts payable 9,458 22,165 (9,291)
Claims accruals (24,177) (9,019) (5,021)
Accrued payroll and other accrued
expenses 8,820 3,640 4,035
------------ ------------ ------------
Net cash provided by operating
activities 182,868 160,736 140,661
------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment (306,128) (174,141) (190,377)
Proceeds from sale of equipment 41,231 84,192 63,260
Decrease (increase) in other assets 4,352 405 (3,753)
------------ ------------ ------------
Net cash used in investing activities (260,545) (89,544) (130,870)
------------ ------------ ------------
22 (Continued)
J. B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) on short-term
obligations $ (1,150) (37,250) 24,440
Proceeds from long-term debt 99,400 - -
Repayments of long-term debt (5,000) (5,000) (11,740)
Proceeds from sale of treasury stock 2,868 328 2,386
Repurchase of treasury stock (5,814) (22,034) (17,777)
Dividends paid (7,101) (7,321) (7,574)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 83,203 (71,277) (10,265)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 5,526 (85) (474)
Cash and cash equivalents at beginning of year 3,701 3,786 4,260
------------ ------------ ------------
Cash and cash equivalents at end of year $ 9,227 3,701 3,786
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest $ 26,387 24,634 25,258
Income taxes 11 (6,162) (2,602)
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
23
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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.
The Company presently has three distinct operating segments:
Van/Intermodal: Logistics; and Dedicated Contract Services.
(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 on dispositions of revenue and other
equipment, which are included in depreciation expense, were
approximately $4,051,000, $664,000 and $7,949,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
(f) REVENUE RECOGNITION
The Company recognizes revenue based on relative transit time in
each reporting period with expenses recognized as incurred.
24 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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:
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
Basic earnings per share:
Numerator (net earnings) $ 46,837,000 11,366,000 22,115,000
------------ ------------ ------------
------------ ------------ ------------
Denominator (weighted
average shares outstanding) 35,581,579 36,404,932 37,913,331
------------ ------------ ------------
------------ ------------ ------------
Earnings per share $ 1.32 .31 .58
------------ ------------ ------------
------------ ------------ ------------
Diluted earnings per share:
Numerator (net earnings) $ 46,837,000 11,366,000 22,115,000
------------ ------------ ------------
------------ ------------ ------------
Denominator:
Weighted average shares
outstanding 35,581,579 36,404,932 37,913,331
Effect of common stock
options 1,019,624 43,510 61,482
------------ ------------ ------------
36,601,203 36,448,442 37,974,813
------------ ------------ ------------
------------ ------------ ------------
Earnings per share $ 1.28 .31 .58
------------ ------------ ------------
------------ ------------ ------------
25 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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.
1998 1997 1996
----------------- ----------------- ----------------
Number of shares under option 162,000 4,420,000 613,800
Range of exercise prices $ 26.00 - 37.50 $ 15.63 - 24.63 $ 17.81 - 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, 1998 and 1997, 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. As of January 1, 1997, Mexico is
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) has been used, and the effect of
exchange rates resulting in translation adjustments have been
recorded as a component of net earnings for the years ended
December 31, 1998 and 1997, respectively. Management of the
Company expects foreign currency translation adjustments in 1999
to be included as accumulated other comprehensive loss.
26 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its
components in a full set of financial statements. Comprehensive
income consists of net earnings and foreign currency translation
adjustments and is presented in the consolidated statements of
stockholders' equity. The Statement requires only additional
disclosures in the consolidated financial statements; it does not
affect the Company's financial position or results of operations.
Prior year consolidated financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
During 1998 and 1997, comprehensive income and net earnings were
the same (see note 1k).
27 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(2) LONG-TERM DEBT
Long-term debt consists of (in thousands):
1998 1997
------------ ------------
Commercial paper $ 131,350 132,500
Senior notes payable, interest at 7.84% payable
semiannually 5,000 10,000
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 100,000 -
Senior subordinated notes, interest at 7.80%
payable semiannually 50,000 50,000
------------ ------------
434,610 340,760
Less current maturities (16,350) (17,500)
Unamortized discount (1,215) (470)
------------ ------------
$ 417,045 322,790
------------ ------------
------------ ------------
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 12, 1999 and $120 million expires
March 20, 2002. The effective rate on the commercial note program was
5.70% and 5.69% for the years ended December 31, 1998 and 1997,
respectively. The 7.84% senior notes are payable in annual installments
of $5,000,000 on March 31 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, 1998.
28 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
The Company has approximately $95 million of uncommitted lines of credit,
none of which were outstanding at December 31, 1998. These lines are with
various domestic and international banks and are due on demand. Interest
on borrowings is generally tied to the banks' prevailing base rates or
other alternative market rates. No commitment or facility fees are paid
on these lines of credit and the obligations are typically evidenced by
unsecured demand notes.
Current maturities of long-term debt at December 31, 1998 consist of
outstanding commercial paper associated with the revolving credit
agreement which expires March 12, 1999 and the remaining installment of
the 7.84% senior notes. The aggregate annual maturities of long-term debt
for each of the five years ending December 31 are as follows (in
thousands): 1999, $16,350; 2000, $60,000; 2001, $10,000; 2002, $130,000;
and 2003, $108,260.
(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, 1998
there were approximately 1,019,000 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.
Prior to 1994, key employees were granted restricted options to purchase
stock. Vesting of the award generally occurred over a four year period
beginning on the grant date. Failure to exercise a vested option within
210 days after vesting or termination of the employee for any reason
other than death or disability resulted in forfeiture.
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 $20,000, $(78,000) and
$628,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
29 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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, 1995 2,725,731 $ 17.16 415,606
Granted 493,000 17.34
Exercised (192,956) 13.39
Terminated (284,850) 17.32
----------------
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
---------------- ---------------- ----------------
---------------- ---------------- ----------------
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.
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.
1998 1997 1996
------------ ------------ -----------
Net earnings As reported $ 46,837 11,366 22,115
Pro forma 42,881 7,800 19,180
Basic earnings per share As reported 1.32 .31 .58
Pro forma 1.21 .21 .51
Diluted earnings per share As reported 1.28 .31 .58
Pro forma 1.17 .21 .51
30 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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
1998, 1997 and 1996 was $13.23, $6.86 and $7.88, respectively, on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: 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; 1996 - expected dividend yield 1.4%, volatility of
34.8%, risk-free interest rate of 6.2%, and an expected life of 5.6
years.
The following table summarizes information about stock options
outstanding at December 31, 1998:
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 1,078,275 7.9 $ 13.65 183,250 $ 13.60
15.01 - 18.75 4,224,440 4.5 17.42 67,540 17.39
18.76 - 22.50 313,000 7.4 20.09 36,875 20.40
22.51 - 26.25 89,675 6.4 23.59 35,725 22.94
26.26 - 30.00 134,500 10.4 28.92 - -
30.01 - 37.50 10,000 10.5 37.50 - -
---------------- -------------- --------------- -------------- -------------- -------------
$11.58 - 37.50 5,849,890 5.5 $ 17.26 323,390 $ 16.20
---------------- -------------- --------------- -------------- -------------- -------------
---------------- -------------- --------------- -------------- -------------- -------------
On January 28, 1999, the Company's Board of Directors declared a cash
dividend of $.05 per share payable on February 24, 1999 to shareholders
of record on February 10, 1999.
(4) INCOME TAXES
Total income tax expense for the years ended December 31, 1998, 1997 and
1996 was allocated as follows (in thousands):
1998 1997 1996
------------- ------------- -------------
Earnings before income taxes $ 27,507 6,966 13,554
Stockholders' equity, for tax benefit
(expense) of stock options exercised 925 (54) 325
------------- ------------- -------------
$ 26,582 7,020 13,229
------------- ------------- -------------
------------- ------------- -------------
31 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
Income tax expense (benefit) attributable to earnings before income taxes
consists of (in thousands):
1998 1997 1996
------------ ------------ -------------
Current expense (benefit):
Federal $ 1,410 (715) (5,830)
State and local 375 268 783
------------ ------------ -------------
1,785 (447) (5,047)
------------ ------------ -------------
Deferred expense (benefit):
Federal 21,354 7,096 20,366
State and local 4,368 317 (1,765)
------------ ------------ -------------
25,722 7,413 18,601
------------ ------------ -------------
Total tax expense $ 27,507 6,966 13,554
------------ ------------ -------------
------------ ------------ -------------
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, 1998:
1998 1997 1996
------------ ------------ -------------
Income tax - statutory rate 35.00% 35.00 35.00
State tax, net of Federal benefit 4.15 2.07 (1.79)
Tax credits - - (0.87)
Other, net (2.15) 0.93 3.92
------------ ------------ -------------
Effective income tax rate 37.00% 38.00 38.00
------------ ------------ -------------
------------ ------------ -------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below (in thousands):
1998 1997
------------- -------------
Deferred tax assets:
Claims accruals, principally due to accrual
for financial reporting purposes $ 8,020 12,449
Tax credit carryforwards 7,321 7,321
Accounts receivable, principally due to
allowance for doubtful accounts 3,972 1,770
Other 3,892 3,518
------------- -------------
Total gross deferred tax assets 23,205 25,058
------------- -------------
32 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1998 1997
-------------- --------------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation and
capitalized interest $ 174,570 149,093
Prepaid permits and insurance, principally
due to expensing for income tax purposes 7,943 4,846
Other 4,987 9,691
-------------- --------------
Total gross deferred tax liabilities 187,500 163,630
-------------- --------------
Net deferred tax liability $ 164,295 138,572
-------------- --------------
-------------- --------------
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, 1998, 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, 1998, 1997 and 1996, total Company contributions to the
plan, including matching 401(k) contributions, were $6,533,000,
$4,951,000 and $3,450,000, respectively.
(6) FAIR VALUE OF 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.
33 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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.
The estimated fair values of the Company's financial instruments are
summarized as follows (in thousands):
AT DECEMBER 31, 1998 AT DECEMBER 31, 1997
------------------------------- ------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
Cash and cash equivalents $ 9,227 9,227 3,701 3,701
Accounts receivable 184,367 184,367 169,198 169,198
Trade accounts payable 147,967 147,967 138,509 138,509
Other assets 20,808 (a) 25,160 (a)
Long-term debt:
Commercial paper 131,350 131,350 132,500 132,500
Fixed rate obligations 303,260 302,131 207,790 204,889
Interest rate swap agreements - (1,622) - (198)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(a) The fair value for these assets either approximated carrying
value because of the nature of these instruments, or was
impracticable to determine.
(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 $6,068,000 and
$5,408,000 at December 31, 1998 and 1997, respectively. These amounts are
included in other assets in the accompanying consolidated balance sheets.
(8) COMMITMENTS AND CONTINGENCIES
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.
34 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Van/Intermodal $ 1,025 931 940
Logistics 43 29 20
Dedicated Contract Services 62 42 27
Other (includes corporate) 41 20 56
----------- ----------- -----------
Total $ 1,171 1,022 1,043
----------- ----------- -----------
----------- ----------- -----------
REVENUES
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Van/Intermodal $ 1,379 1,153 1,083
Logistics 317 254 174
Dedicated Contract Services 212 151 127
Other 8 60 150
----------- ----------- -----------
Subtotal 1,916 1,618 1,534
Inter-segment eliminations (74) (64) (47)
----------- ----------- -----------
Total $ 1,842 1,554 1,487
----------- ----------- -----------
----------- ----------- -----------
35 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
OPERATING INCOME
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Van/Intermodal $ 81 28 43
Logistics 8 6 5
Dedicated Contract Services 17 11 10
Other (3) (2) 2
----------- ----------- -----------
Total $ 103 43 60
----------- ----------- -----------
----------- ----------- -----------
NET DEPRECIATION EXPENSE
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Van/Intermodal $ 106 96 91
Logistics 1 1 (5)*
Dedicated Contract Services 18 13 11
Other 11 21 28
----------- ----------- -----------
Total $ 136 131 125
----------- ----------- -----------
----------- ----------- -----------
* Includes gain on sale of business
of $5.7 million.
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Included in the fourth quarter 1997 results is a pre-tax charge of $4.3
million to adjust workers compensation reserves. The additional workers
compensation expense was accrued as a result of an in-depth case by case
analysis.
Operating results by quarter for the years ended December 31, 1998 and
1997 are as follows (in thousands, except per share data):
QUARTER
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------ ------------- ------------ ------------
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
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
36 (Continued)
J.B. HUNT TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
QUARTER
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------ ------------- ------------ ------------
1997:
Operating revenues $ 365,401 385,198 388,460 415,233
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Operating income $ 7,320 9,254 9,038 17,298
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Net earnings $ 568 1,865 1,922 7,011
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Basic earnings per share $ .02 .05 .05 .19
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Diluted earnings per share $ .02 .05 .05 .19
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
37
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, 1998 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 15, 1999
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 15, 1999 set forth under sections entitled "Stock
Ownership," "Executive Compensation and Other Information," "1999 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 15, 1999 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").
38
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 March 1, 1999.
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 Chief Financial Officer
By: /s/ Donald G. Cope
-------------------------------------------
Donald G. Cope
Vice President, Controller
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 March 1, 1999
- ----------------------------- of Directors
John A. Cooper, Jr.
/s/ Wayne Garrison Member of the Board March 1, 1999
- ---------------------------- of Directors (Chairman)
Wayne Garrison
/s/ Gene George Member of the Board March 1, 1999
- ---------------------------- of Directors
Gene George
/s/ Thomas L. Hardeman Member of the Board March 1, 1999
- ---------------------------- of Directors
Thomas L. Hardeman
/s/ J. Bryan Hunt, Jr. Member of the Board March 1, 1999
- ---------------------------- of Directors (Vice Chairman)
J. Bryan Hunt, Jr.
/s/ J.B. Hunt Member of the Board March 1, 1999
- ---------------------------- of Directors (Senior Chairman)
J.B. Hunt
/s/ Johnelle Hunt Member of the Board March 1, 1999
- ---------------------------- of Directors (Corporate
Johnelle Hunt Secretary)
/s/ Lloyd E. Peterson Member of the Board March 1, 1999
- ---------------------------- of Directors
Lloyd E. Peterson
/s/ Kirk Thompson Member of the Board March 1, 1999
- ---------------------------- of Directors (President and
Kirk Thompson Chief Executive Officer)
/s/ John A. White Member of the Board March 1, 1999
- ---------------------------- of Directors
John A. White
39
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.
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, 1998.
40