<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11757
J.B. HUNT TRANSPORT SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARKANSAS 71-0335111
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
615 J.B. HUNT CORPORATE DRIVE, LOWELL, ARKANSAS 72745
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, AND ZIP CODE)
(501) 820-0000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO THE
FILING REQUIREMENTS FOR AT LEAST THE PAST 90 DAYS.
YES X NO
----- -----
THE NUMBER OF SHARES OF THE COMPANY'S $.01 PAR VALUE COMMON STOCK
OUTSTANDING ON MARCH 31, 1999 WAS 35,622,449.
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim condensed consolidated financial statements contained
herein reflect all adjustments which, in the opinion of management, are
necessary for a fair statement of financial condition, results of operations and
cash flows for the periods presented. They have been prepared in accordance with
Rule 10-01 of Regulation S-X and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Operating results for the three month period ended March
31, 1999 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1999.
The interim condensed consolidated financial statements have been
reviewed by KPMG LLP, independent public accountants.
These interim condensed consolidated financial statements should be
read in conjunction with the Company's latest annual report and Form 10-K for
the year ended December 31, 1998.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Condensed Consolidated Statements of Earnings for the Three
Months Ended March 31, 1999 and 1998..................................Page 3
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998..................................Page 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998............................Page 5
Notes to Condensed Consolidated Financial Statements as of
March 31, 1999........................................................Page 6
Review Report of KPMG LLP.................................................Page 9
ITEM 2.
Management's Discussion and Analysis of Results of
Operations and Financial Condition....................................Page 10
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk................Page 14
</TABLE>
2
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
- ---------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $470,244 $413,466
Operating expenses
Salaries, wages and employee benefits 172,688 145,988
Purchased transportation 144,350 137,307
Fuel and fuel taxes 36,710 33,416
Depreciation 37,910 32,430
Operating supplies and expenses 27,550 21,347
Insurance and claims 9,781 7,972
Operating taxes and licenses 6,502 5,376
General and administrative expenses 5,026 3,700
Communication and utilities 5,553 4,272
- ------------------------------------------------------------------------------
Total operating expenses 446,070 391,808
- ------------------------------------------------------------------------------
Operating income 24,174 21,658
Interest expense 7,504 6,606
- ------------------------------------------------------------------------------
Earnings before income taxes 16,670 15,052
Income taxes 6,084 5,569
- ------------------------------------------------------------------------------
Net earnings $ 10,586 $ 9,483
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Average common shares outstanding 35,615 35,613
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Basic earnings per share $ 0.30 $ 0.27
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Average diluted shares outstanding 36,555 36,648
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Diluted earnings per share $ 0.29 $ 0.26
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
MARCH 31, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,892 $ 9,227
Accounts receivable 190,366 184,367
Prepaid expenses 26,863 30,402
Deferred income taxes 1,275 1,275
- -----------------------------------------------------------------------------------------
Total current assets 222,396 225,271
- -----------------------------------------------------------------------------------------
Property and equipment 1,447,309 1,418,033
Less accumulated depreciation 529,635 492,633
- -----------------------------------------------------------------------------------------
Net property and equipment 917,674 925,400
- -----------------------------------------------------------------------------------------
Other assets 27,549 20,808
- -----------------------------------------------------------------------------------------
$ 1,167,619 $ 1,171,479
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 21,900 $ 16,350
Trade accounts payable 117,134 147,967
Claims accruals 3,868 6,131
Accrued payroll 34,986 23,684
Other accrued expenses 10,479 11,909
- -----------------------------------------------------------------------------------------
Total current liabilities 188,367 206,041
- -----------------------------------------------------------------------------------------
Long-term debt 417,361 417,045
Claims accruals 6,772 7,166
Deferred income taxes 170,373 165,570
Stockholders' equity 384,746 375,657
- -----------------------------------------------------------------------------------------
$ 1,167,619 $ 1,171,479
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31
- -------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 10,586 $ 9,483
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 37,910 32,430
Provision for noncurrent deferred income taxes 4,803 2,096
Tax benefit of stock options exercised 63 60
Termination of restricted stock (18) (15)
Amortization of discount, net 316 (475)
Changes in assets and liabilities:
Trade accounts receivable (5,999) (6,840)
Other current assets 3,539 4,241
Trade accounts payable (30,833) (19,379)
Claims accruals (2,657) (9,770)
Accrued payroll and other accrued expenses 9,872 8,577
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,582 20,408
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (30,783) (93,307)
Proceeds from sale of equipment 599 15,480
Decrease (increase) in other assets (6,876) 3,207
- -------------------------------------------------------------------------------------------
Net cash used in investing activities (37,060) (74,620)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under commercial paper program 10,550 71,150
Net payments of long-term debt (5,000) (5,000)
Repurchase of treasury stock 0 (5,139)
Proceeds from sale of treasury stock 374 629
Dividends paid (1,781) (1,766)
- -------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,143 59,874
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,335) 5,662
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 9,227 3,701
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,892 $ 9,363
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9,042 $ 6,597
Income taxes 45 1,474
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
J.B. HUNT TRANSPORT SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
3/31/99 12/31/98
------- --------
<S> <C> <C>
Commercial paper $141,900 $131,350
Senior notes payable, interest at 7.84%
payable semiannually -- 5,000
Senior notes payable, interest at 6.25%
payable semiannually, due 11/17/2000 25,000 25,000
Senior notes payable, interest at 6.00%
payable semiannually, due 12/12/2000 25,000 25,000
Senior notes payable, interest at 6.25%
payable semiannually, due 9/1/2003 98,260 98,260
Senior notes payable, interest at 7.00%
payable semiannually, due 9/15/2004 100,000 100,000
Senior subordinated notes, interest at 7.80%
payable semiannually 50,000 50,000
-------- --------
440,160 434,610
Less current maturities (21,900) (16,350)
Unamortized discount (899) (1,215)
-------- --------
$417,361 $417,045
-------- --------
-------- --------
</TABLE>
Under its commercial paper note program, the Company is authorized to
issue up to $240 million in notes. These notes are supported by two credit
agreements, which aggregate $240 million, with a group of banks, of which $120
million expires March 7, 2000 and $120 million expires March 20, 2002.
The 7.80% senior subordinated notes were issued on October 30, 1992 and
are payable in five equal annual installments beginning October 30, 2000.
6
<PAGE>
2) CAPITAL STOCK
The Company maintains a Management Incentive Plan that provides various
vehicles to compensate key employees with Company common stock. A summary of the
restricted and non-statutory options to purchase Company common stock follows:
<TABLE>
<CAPTION>
Weighted average Number of
Number of exercise price shares
shares per share exercisable
------ --------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1998 3,349,890 $16.98 323,390
Granted 22,000 23.66 -------
Exercised (16,100) 12.32 -------
Terminated (7,700) 13.20
--------- ------
Outstanding at March 31, 1999 3,348,090 $17.06 307,290
--------- ------ -------
--------- ------ -------
</TABLE>
On April 15, 1999, the Company's Board of Directors declared a regular
quarterly cash dividend of $.05 per share payable on May 19, 1999 to
stockholders of record on May 3, 1999.
3) EARNINGS PER SHARE
A reconciliation of the numerator and denominator of basic and diluted
earnings per share is shown below:
<TABLE>
<CAPTION>
Three Months Ended March 31
(in thousands, except per share data)
-------------------------------------
1999 1998
---- ----
<S> <C> <C>
Numerator (net earnings) $10,586 $ 9,483
Denominator - Basic earnings per share
Weighted average shares outstanding 35,615 35,613
------- -------
------- -------
Basic earnings per share $ .30 $ .27
------- -------
------- -------
Denominator - Diluted earnings per share
Weighted average share outstanding 35,615 35,613
Effect of common stock options 940 1,035
------- -------
Weighted average shares assuming dilution 36,555 36,648
------- -------
------- -------
Diluted earnings per share $ .29 $ .26
------- -------
------- -------
</TABLE>
Options which were outstanding to purchase shares of common stock
during the first quarter of 1999 and 1998, but were excluded from the
computation of diluted earnings per share because the option price was greater
than the average market price of the common shares were:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Number of shares under option 238,500 3,100
Range of exercise price $23.00-$37.50 $24.63
</TABLE>
7
<PAGE>
4) 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. Comprehensive income
consists of net earnings and foreign currency translation adjustments. During
the first quarter of 1999, comprehensive income was equal to (in thousands):
<TABLE>
<CAPTION>
<C> <C>
Net earnings $10,586
Foreign currency
translation loss (135)
-------
Comprehensive income $10,451
-------
-------
</TABLE>
During 1998, comprehensive income and net earnings were the same.
5) SEGMENTS
A summary of segment information is presented below (in millions):
<TABLE>
<CAPTION>
Revenues
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Van/Intermodal $337 $317
Logistics 80 66
Dedicated Contract Services 70 42
Other -- 4
---- ----
Subtotal 487 429
Inter-segment eliminations (17) (16)
---- ----
Total $470 $413
---- ----
---- ----
<CAPTION>
Operating Income
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Van/Intermodal $15 $16
Logistics 3 1
Dedicated Contract Services 5 3
Other 1 2
---- ----
Total $24 $22
---- ----
---- ----
<CAPTION>
Net Depreciation Expense
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Van/Intermodal $32 $28
Dedicated Contract Services 6 4
---- ----
Total $38 $32
---- ----
---- ----
</TABLE>
8
<PAGE>
6) PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement requires the
recognition of all derivatives in the statement of financial position as either
assets or liabilities and their measurement at fair value. Statement No. 133 is
effective for fiscal years beginning after June 15, 1999. The Company has not
determined what impact, if any, Statement No. 133 will have on its financial
statements.
7) RECLASSIFICATIONS
Certain amounts for 1998 have been reclassified to conform to the 1999
classifications.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
J.B. Hunt Transport Services, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of J.B.
Hunt Transport Services, Inc. and subsidiaries as of March 31, 1999, and the
related condensed consolidated statements of earnings and cash flows for the
three-month periods ended March 31, 1999 and 1998. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of J.B. Hunt Transport Services, Inc.
and subsidiaries as of December 31, 1998, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated February 5, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly presented, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ KPMG LLP
Little Rock, Arkansas
April 15, 1999
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the attached
interim condensed consolidated financial statements and notes thereto, and with
the Company's audited consolidated financial statements and notes thereto for
the calendar year ended December 31, 1998.
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER 1999 TO FIRST QUARTER 1998
SUMMARY
Operating revenues for the first quarter of 1999 increased nearly 14%,
to $470.2 million, from $413.5 in the comparable period of 1998. Revenue in
the Van segment grew 6%, with truck business up 8% and intermodal increasing
5%. The Logistics segment revenue increased 20% and Dedicated segment revenues
rose 66%. The increase in Van revenue was primarily due to 3% growth of the
road truck fleet and intermodal load count advancing 5%. Overall truck freight
rates in Van were essentially flat compared with the first quarter of 1998,
while intermodal rates declined 1.3%. The increase in Logistics revenue was
due to the addition of new account relationships and growth with existing
customers. The significant increase in Dedicated revenue was driven by a 64%
increase in the tractor fleet, a portion of which were transferred from Van,
new contractual arrangements and growth with existing customers. Other
revenue in 1998 was generated by a small subsidiary, Lake City Express, which
was sold in June of 1998.
Operating income in the Van segment declined slightly during the first
quarter of 1999 to $15.3 million, from $16.5 million in the first quarter of
1998. This decline was due, in part, to increased costs for office salaries
and wages, driver compensation and tractor and trailer maintenance. Lower
fuel expense in 1999 enhanced Van operating income. The increase in 1999
Logistics operating income was due primarily to the 20% growth of revenue and
improved margins on new and existing business. The higher level of Dedicated
operating income during 1999 was primarily due to the significant growth of
segment revenue.
<TABLE>
<CAPTION>
Operating Segments
For Three Months Ended March 31
(dollars in millions)
Gross Revenue Operating Income
---------------------------------- -------------------
1999 1998 % Change 1999 1998
---- ---- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Van/Intermodal $337.0 $316.7 6% $15.3 $16.5
Logistics 80.2 66.6 20% 2.8 .9
Dedicated Contract Services 70.2 42.2 66% 4.6 3.0
Other -- 3.9 -- 1.5 1.3
------ ------ ---- ----- -----
Subtotal 487.4 429.4 14% 24.2 21.7
Inter-segment eliminations (17.2) (15.9) -- -- --
------ ------ ---- ----- -----
Total $470.2 $413.5 14% $24.2 $21.7
------ ------ ---- ----- -----
------ ------ ---- ----- -----
</TABLE>
10
<PAGE>
The following table sets forth items in the Condensed Consolidated
Statements of Earnings as a percentage of operating revenues and the percentage
increase or decrease of those items as compared with the prior period.
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------------------------
Percentage of Percentage Change
Operating Revenues Between Quarters
------------------- -----------------
1999 1998 1999 vs. 1998
------- -------- -----------------
<S> <C> <C> <C>
Operating revenues 100.0% 100.0% 13.7%
Operating expenses
Salaries, wages and employee benefits 36.7% 35.3% 18.3%
Purchased transportation 30.7% 33.2% 5.1%
Fuel and fuel taxes 7.8% 8.1% 9.9%
Depreciation 8.1% 7.8% 16.9%
Operating supplies and expenses 5.9% 5.2% 29.1%
Insurance and claims 2.1% 1.9% 22.7%
Operating taxes and licenses 1.4% 1.3% 20.9%
General and administrative expenses 1.1% 0.9% 35.8%
Communication and utilities 1.1% 1.0% 30.0%
---------------------- -----------------
Total operating expenses 94.9% 94.8% 13.8%
---------------------- -----------------
Operating income 5.1% 5.2% 11.6%
Interest expense 1.6% 1.6% 13.6%
---------------------- -----------------
Earnings before income taxes 3.5% 3.6% 10.7%
Income taxes 1.2% 1.3% 9.3%
---------------------- -----------------
Net earnings 2.3% 2.3% 11.6%
---------------------- -----------------
---------------------- -----------------
</TABLE>
Total operating expenses for the first quarter of 1999 increased
nearly 14% over the comparable period of 1998. Total operating expenses
expressed as a percentage of operating revenues (operating ratio) were 94.9%
for the first quarter of 1999, compared with 94.8% in 1998. Salaries, wages
and employee benefits expense increased 18%, primarily due to higher driver
compensation and office salary and wage costs. Purchased transportation
expense increased 5% from 1998 and declined as a percentage of revenue
primarily due to improved margins in Logistics, lower trailer rental and
drayage expense and the 1998 sale of Lake City Express, which compensated its
drivers as independent contractors. Fuel and fuel tax expense declined
slightly as a percentage of revenue, reflecting an approximate 10% lower fuel
cost per gallon in 1999, partly offset by lower miles per gallon. However,
fuel cost per gallon began increasing in March of 1999.
Depreciation expense increased nearly 17%, reflecting the growth of Van
and Dedicated tractor and trailing equipment fleets. This increase in
depreciation expense was also due to differences in gain or loss on asset
dispositions. A $34,000 net loss on asset dispositions during the first quarter
of 1999 increased depreciation slightly while a $677,000 net gain reduced the
expense in 1998. Operating supplies and expenses increased significantly during
1999, primarily due to higher levels of spending on tractor and trailer
maintenance and tires. These increased costs are due, in part, to a more than
20% increase in the average age of the Van tractor fleet.
11
<PAGE>
The increased cost of insurance and claims was primarily due to three
serious collisions which occurred during the first quarter of 1999. The nearly
21% increase in operating taxes and license expense was due to the larger size
of the tractor fleet and a higher state base plate cost per tractor which was
effective in 1999. The significant increase in general and administrative
expense was primarily a result of higher levels of spending for computer rental
and maintenance and increased reserves for uncollectible accounts receivable.
The increase of communication and utilities expense was primarily a result of
expanded data and telecommunication networks and higher satellite communication
costs. Interest expense increased nearly 14%, primarily due to higher debt
levels. The effective income tax rate was 36.5% in 1999 and 37% in 1998.
As a result of the above, net earnings for the first quarter of 1999
increased to $10.6 million, or diluted earnings per share of $.29, compared with
$9.5 million in 1998, or $.26 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
This discussion of corporate liquidity and capital resources should be
read in conjunction with information presented in the Condensed Consolidated
Statements of Cash Flows and the Condensed Consolidated Balance Sheets.
Net cash provided by operating activities was $27.6 million for the three
month period ended March 31, 1999, compared with $20.4 million for the first
quarter of 1998. Cash was generated during 1999 primarily from net earnings,
depreciation and increases in accrued payroll and other accrued expenses.
Operating cash was used primarily to fund increases in accounts receivable and
decreases in trade accounts payable. Net cash used in investing activities was
$37.1 million in 1999, down from $74.6 million in the comparable period of 1998.
Purchases of new revenue equipment were significantly lower in 1999 due to
timing of orders and suppliers' production schedules. New tractor purchases
totaled approximately 220 units during the first quarter of 1999, compared with
nearly 1,200 in 1998. In addition, the proceeds from sale of equipment declined
in 1999, due primarily to fewer tractor dispositions. Financing activities
generated $4.1 million in the first quarter of 1999, compared with $59.9 million
in 1998. Approximately $66 million of net borrowing occurred during the first
quarter of 1998, primarily to fund purchases of new revenue equipment and
treasury stock.
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
As of
------------------------------------------------------
March 31, 1999 December 31, 1998 March 31, 1998
-------------- ----------------- --------------
<C> <C> <C> <C>
Working capital ratio 1.18 1.09 .81
Current maturities of long-
term debt (millions) $ 21.9 $ 16.4 $ 88.7
Total debt (millions) $ 439 $ 433 $ 406
Total debt to equity 1.14 1.15 1.19
Total debt as a percentage
of total capital .53 .54 .54
</TABLE>
12
<PAGE>
The Company's debt levels increased slightly during the first three
months of 1999 to $439 million from $433 million at December 31, 1998. Total
debt increased approximately $33 million from March of 1998 to March of 1999,
primarily due to purchases of revenue equipment. However, total debt to equity
and debt as a percentage of total capital declined from 1998 levels. The Company
generates significant cash from operating activities and has borrowing capacity
to meet its committed and contemplated cash requirements.
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 March 31, 1999, 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 detail 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
experience failures in their computer systems or equipment due to Year 2000
non-compliance, it could affect the Company's normal business activities. While
some of these risks are not controllable by the Company, a number of actions and
procedures have been implemented to assess and/or reduce this risk. Formal
communications have been initiated with certain significant customers and
suppliers. Depending upon the circumstances, formal certifications of Year 2000
compliance have been requested and received. The Company
13
<PAGE>
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 $1.4 million on Year 2000
compliance. Estimated future expense to complete testing and related compliance
work is $.2 million for a total cost of $1.6 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. 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. A contingency plan has not
yet been developed for dealing with the most reasonably likely worst case
scenario. A contingency plan will be completed by June 30, 1999.
FORWARD-LOOKING STATEMENTS
This report contains statements that may be considered as forward-looking
or predictions concerning future operations. Such statements are based on
management's belief or interpretation of information currently available. These
statements and assumptions involve certain risks and uncertainties and
management can give no assurance that such expectations will be realized. Among
all the factors and events that are not within the Company's control and could
have a material impact on future operating results are general economic
conditions, cost and availability of diesel fuel, adverse weather conditions and
competitive rate fluctuations. The ultimate net cost of the new driver
compensation package will be dependent on the mix of experienced drivers
attracted to the Company and on rates and severity of future accidents, cargo
damage and worker's compensation claims, as well as other factors. In addition,
the Year 2000 issue is extremely complex and compliance failures on the part of
customers and/or suppliers that are outside the control of the Company could
have a material negative impact on future operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company's earnings are affected by changes in short-term interest
rates as a result of its issuance of short-term commercial paper. However, due
to its selective utilization of interest rate swaps, 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
March 31, 1999, the Company's interest rate swap agreements had a fair
14
<PAGE>
value of $1.0 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 obligations as all of the Company's long-term debt obligations
have fixed rates. At March 31, 1999, the fair value of the Company's fixed rate
long-term obligations approximated carrying value.
Although the Company conducts business in foreign countries,
international operations are not material to the Company's consolidated
financial position, results of operations or cash flows. Additionally, foreign
currency transaction gains and losses were not material to the Company's results
of operations for the three months ended March 31, 1999. Accordingly, the
Company is not currently subject to material foreign currency exchange rate
risks from the effects that exchange rate movements of foreign currencies would
have on the Company's future costs or on future cash flows it would receive from
its foreign investment. To date, the Company has not entered into any foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuation in foreign currency exchange rates.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None applicable.
ITEM 2. CHANGES IN SECURITIES
None applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of J.B. Hunt Transport Services,
Inc. was held on April 15, 1999. Proxies for the meeting were
solicited pursuant to Regulation 14A of the Securities Exchange Act
of 1934. At the meeting, stockholders voted on the following
resolutions with the vote tabulations so indicated:
<TABLE>
<CAPTION>
Votes
-----------------------------------
For Against Abstained
-----------------------------------
<S> <C> <C> <C> <C>
1. To elect four Class I Directors
for a term of three years each. 32,345,932 0 309,907
2. To ratify the appointment of
KPMG LLP as the Company's
independent public accountants
for the next fiscal year. 32,641,345 9,122 5,372
</TABLE>
There was no solicitation in opposition to management's nominees for
Directors as listed in the proxy statement and each nominee was
elected by greater than ninety-two percent of the shares entitled
to vote. No additional business or other matters came before the
meeting or any adjournment thereof.
ITEM 5. OTHER INFORMATION
None applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J.B. HUNT TRANSPORT SERVICES, INC.
DATE: May 4, 1999 BY: /s/ Kirk Thompson
--------------------- --------------------------------------
Kirk Thompson
President and Chief Executive Officer
DATE: May 4, 1999 BY: /s/ Jerry W. Walton
--------------------- --------------------------------------
Jerry W. Walton
Executive Vice President, Finance
and Chief Financial Officer
DATE: May 4, 1999 BY: /s/ Donald G. Cope
--------------------- --------------------------------------
Donald G. Cope
Vice President, Controller
and Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,892
<SECURITIES> 0
<RECEIVABLES> 190,366
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 222,396
<PP&E> 1,447,309
<DEPRECIATION> 529,635
<TOTAL-ASSETS> 1,167,619
<CURRENT-LIABILITIES> 188,367
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,167,619
<SALES> 470,244
<TOTAL-REVENUES> 470,244
<CGS> 0
<TOTAL-COSTS> 446,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,504
<INCOME-PRETAX> 16,670
<INCOME-TAX> 6,084
<INCOME-CONTINUING> 10,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,586
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
