-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VOls5mhLzwLix681l5MuACTlre65S+lbSVN7IHuNAejKenixYbjYlk+0hbzY5g5V pV4tgj3tPBWjiHdJY6UL0g== 0001047469-99-018226.txt : 19990506 0001047469-99-018226.hdr.sgml : 19990506 ACCESSION NUMBER: 0001047469-99-018226 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNT J B TRANSPORT SERVICES INC CENTRAL INDEX KEY: 0000728535 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710335111 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11757 FILM NUMBER: 99610882 BUSINESS ADDRESS: STREET 1: 615 JB HUNT CORPORATE DR CITY: LOWELL STATE: AR ZIP: 72745 BUSINESS PHONE: 5018200000 10-Q 1 10-Q 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. 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
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
2 J.B. HUNT TRANSPORT SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data) (unaudited)
- --------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 - --------------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 3 J.B. HUNT TRANSPORT SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)
- ----------------------------------------------------------------------------------------- MARCH 31, 1999 DECEMBER 31, 1998 - ----------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 4 J.B. HUNT TRANSPORT SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
- ------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 - ------------------------------------------------------------------------------------------- 1999 1998 - ------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 5 J.B. HUNT TRANSPORT SERVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) LONG-TERM DEBT Long-term debt consists of (in thousands):
3/31/99 12/31/98 ------- -------- 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 -------- -------- -------- --------
Under its commercial paper note program, the Company is authorized to issue up to $240 million in notes. These notes are supported by two credit agreements, which aggregate $240 million, with a group of banks, of which $120 million expires March 7, 2000 and $120 million expires March 20, 2002. The 7.80% senior subordinated notes were issued on October 30, 1992 and are payable in five equal annual installments beginning October 30, 2000. 6 2) CAPITAL STOCK The Company maintains a Management Incentive Plan that provides various vehicles to compensate key employees with Company common stock. A summary of the restricted and non-statutory options to purchase Company common stock follows:
Weighted average Number of Number of exercise price shares shares per share exercisable ------ --------- ----------- Outstanding at December 31, 1998 3,349,890 $16.98 323,390 Granted 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 --------- ------ ------- --------- ------ -------
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:
Three Months Ended March 31 (in thousands, except per share data) ------------------------------------- 1999 1998 ---- ---- 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 ------- ------- ------- -------
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:
1999 1998 ---- ---- Number of shares under option 238,500 3,100 Range of exercise price $23.00-$37.50 $24.63
7 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):
Net earnings $10,586 Foreign currency translation loss (135) ------- Comprehensive income $10,451 ------- -------
During 1998, comprehensive income and net earnings were the same. 5) SEGMENTS A summary of segment information is presented below (in millions):
Revenues -------------------------------- March 31, 1999 March 31, 1998 -------------- -------------- 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 ---- ---- ---- ---- Operating Income -------------------------------- March 31, 1999 March 31, 1998 -------------- -------------- Van/Intermodal $15 $16 Logistics 3 1 Dedicated Contract Services 5 3 Other 1 2 ---- ---- Total $24 $22 ---- ---- ---- ---- Net Depreciation Expense -------------------------------- March 31, 1999 March 31, 1998 -------------- -------------- Van/Intermodal $32 $28 Dedicated Contract Services 6 4 ---- ---- Total $38 $32 ---- ---- ---- ----
8 6) PROSPECTIVE ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement requires the recognition of all derivatives in the statement of financial position as either assets or liabilities and their measurement at fair value. Statement No. 133 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 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.
Operating Segments For Three Months Ended March 31 (dollars in millions) Gross Revenue Operating Income ---------------------------------- ------------------- 1999 1998 % Change 1999 1998 ---- ---- -------- ---- ---- 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 ------ ------ ---- ----- ----- ------ ------ ---- ----- -----
10 The following table sets forth items in the Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.
Three Months Ended March 31 ----------------------------------------------- Percentage of Percentage Change Operating Revenues Between Quarters ------------------- ----------------- 1999 1998 1999 vs. 1998 ------- -------- ----------------- 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% ---------------------- ----------------- ---------------------- -----------------
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 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
As of ------------------------------------------------------ March 31, 1999 December 31, 1998 March 31, 1998 -------------- ----------------- -------------- 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
12 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 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 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:
Votes ----------------------------------- For Against Abstained ----------------------------------- 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
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 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 EX-27 2 EXHIBIT 27
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 3,892 0 190,366 0 0 222,396 1,447,309 529,635 1,167,619 188,367 0 0 0 390 0 1,167,619 470,244 470,244 0 446,070 0 0 7,504 16,670 6,084 10,586 0 0 0 10,586 .30 .29
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