FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended September 30, 2002

 

OR

 

o	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)

 

 

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  ý     No  o

 

The number of shares of the registrant’s $.01 par value common stock outstanding on September 30, 2002 was 39,248,774.

 

 

J.B. HUNT TRANSPORT SERVICES, INC.

 

Form 10-Q

For The Quarter Ended September 30, 2002

Index

 

Part I.   Financial Information
Item. 1.	Consolidated Financial Statements
	Condensed Consolidated Statements of Earnings for the Three And Nine Months Ended September 30, 2002 and 2001
	Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001
	Notes to Condensed Consolidated Financial Statements as of September 30, 2002
	Review Report of KPMG LLP
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II.   Other Information
Item 6.	Exhibits and Reports on Form 8-K
Exhibits
Signatures

 

2

 

J.B. HUNT TRANSPORT SERVICES, INC.

 

Condensed Consolidated Statements of Earnings

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended September 30						Nine Months Ended September 30
		2002			2001			2002			2001
Operating revenues		$	582,671		$	537,156		$	1,650,221		$	1,554,065
Operating expenses
Salaries, wages and employee benefits		213,625			200,647			612,152			594,341
Rents and purchased transportation		181,756			159,839			507,400			436,561
Fuel and fuel taxes		54,828			56,677			152,790			177,790
Depreciation and amortization		36,449			35,717			108,353			106,567
Operating supplies and expenses		32,465			38,671			97,612			108,838
Insurance and claims		13,415			12,878			38,079			37,345
Operating taxes and licenses		8,710			8,660			25,037			25,053
General and administrative expenses, net of gains		7,436			7,093			20,402			13,332
Communication and utilities		5,961			5,024			18,230			18,103
Total operating expenses		554,645			525,206			1,580,055			1,517,930
Operating income		28,026			11,950			70,166			36,135
Interest expense		(5,541		)	(5,827		)	(19,290		)	(18,008		)
Equity in loss of associated companies		(144		)	(771		)	(1,424		)	(759		)
Earnings before income taxes		22,341			5,352			49,452			17,368
Income taxes		5,585			803			12,363			2,605
Net earnings		$	16,756		$	4,549		$	37,089		$	14,763
Average basic shares outstanding		39,227			35,839			37,543			35,477
Basic earnings per share		$	0.43		$	0.13		$	0.99		$	0.42
Average diluted shares outstanding		40,245			36,846			38,616			36,133
Diluted earnings per share		$	0.42		$	0.12		$	0.96		$	0.41

 

See accompanying notes to condensed consolidated financial statements.

 

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J.B. HUNT TRANSPORT SERVICES, INC.

 

Condensed Consolidated Balance Sheets

(in thousands)

 

		September 30, 2002			December 31, 2001
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	85,761		$	49,245
Accounts receivable		253,932			233,246
Prepaid expenses and other		74,733			102,308
Total current assets		414,426			384,799
Property and equipment		1,293,152			1,263,969
Less accumulated depreciation		445,851			432,258
Net property and equipment		847,301			831,711
Other assets		37,189			43,788
		$	1,298,916		$	1,260,298
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt		$	98,010		$	10,000
Current installments of obligations under capital leases		29,132			28,426
Trade accounts payable		119,282			163,291
Claims accruals		7,161			18,003
Accrued payroll		44,131			30,251
Other accrued expenses		15,760			12,713
Deferred income taxes		—			3,150
Total current liabilities		313,476			265,834
Long-term debt, excluding current maturities		114,784			212,950
Obligations under capital leases, excluding current installments		119,444			140,657
Claims accruals and other liabilities		2,180			5,275
Deferred income taxes		174,596			177,265
Stockholders' equity		574,436			458,317
		$	1,298,916		$	1,260,298

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

J.B. Hunt Transport Services, Inc.

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

		Nine Months Ended September 30
		2002			2001
Cash flows from operating activities:
Net earnings		$	37,089		$	14,763
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		108,353			106,567
(Gain) loss on sale of revenue equipment		668			(4,967		)
Deferred income taxes		(8,851		)	(3,164		)
Equity in loss (earnings) of associated companies		1,424			759
Tax benefit of stock options exercised		5,465			2,289
Amortization of discount, net		94			224
Changes in operating assets and liabilities:
Trade accounts receivable		(20,686		)	(21,409		)
Other assets		40,029			38,429
Trade accounts payable		(44,009		)	(17,082		)
Claims accruals		(13,937		)	3,426
Accrued payroll and other accrued expenses		16,927			1,422
Net cash provided by operating activities		122,566			121,257
Cash flows from investing activities:
Additions to property and equipment		(192,790		)	(53,604		)
Proceeds from sale of equipment		69,339			78,143
Increase (decrease) in other assets		1,629			1,033
Net cash provided by (used in) investing activities		(121,822		)	25,572
Cash flows from financing activities:
Net repayments under commercial paper program and revolving credit agreements		—			(74,400		)
Repayments of long-term debt		(10,250		)	—
Principal payments under capital lease obligations		(20,507		)	(17,257		)
Proceeds from sale of common stock		68,096			—
Issuance (acquisition) of treasury stock		(1,567		)	2,621
Net cash provided by (used in) financing activities		35,772			(89,036		)
Net change in cash and cash equivalents		36,516			57,793
Cash and cash equivalents at beginning of period		49,245			5,370
Cash and cash equivalents at end of period		$	85,761		$	63,163
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	21,842		$	20,456
Income taxes		21,213			2,636
Non-cash activities:
Capital lease obligations for revenue equipment		$	—		$	91,038
Non-monetary proceeds from sale of joint venture		1,161			—

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

J.B. HUNT TRANSPORT SERVICES, INC.

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.                                      Basis of Presentation

Our condensed consolidated financial statements included in this Form 10-Q have been prepared without audit (except that the balance sheet information as of December 31, 2001 has been derived from consolidated financial statements which were audited) in accordance with the  rules and regulations of the Securities and Exchange Commission.  Although certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United Sates of America have been condensed or omitted, we believe that the disclosures are adequate to make the information presented not misleading.  You should read the accompanying condensed consolidated financial statements in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2001.

 

We believe that all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented have been made.  The results of operations for the interim periods presented in this report are not necessarily indicative of the results to be expected for the full calendar year ending December 31, 2002.

 

2.                                      Long-Term Debt

Long-term debt consists of (in thousands):

 

 

6

 

3.                                      Capital Stock

We have a stock option plan (Management Incentive Plan) that provides for the awarding of our common stock and stock options to key employees.  A summary of the restricted and non-statutory options to purchase our common stock follows:

 

 

We revised our Management Incentive Plan in January of 2002.  The amendments included changes in vesting provisions and changes in the process of granting options to certain employees.

 

We closed on an offering of approximately 5.9 million shares of common stock in late May and June of 2002.  We issued and sold approximately 2.8 million shares and 3.1 million shares were sold by a shareholder.  The selling price of the stock was $26 per share before underwriters’ discounts and other expenses.

 

4.                                      Earnings Per Share

We compute basic earnings per share by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the reporting period.  Diluted earnings per share reflects the potential dilution that could occur if holders of options or other contracts to issue common stock options exercised or converted their holdings into common stock.  Outstanding stock options represent the only dilutive effects on weighted average shares.  The chart below presents a reconciliation between basic and diluted weighted average shares outstanding and the related earnings per share.  All amounts in the chart, except per share amounts, are expressed in thousands.

 

		Three Months Ended September 30						Nine Months Ended September 30
		2002			2001			2002			2001
Net earnings		$	16,756		$	4,549		$	37,089		$	14,763
Basic weighted average shares outstanding		39,227			35,839			37,543			35,477
Dilutive effect of stock options		1,018			1,007			1,073			656
Diluted weighted average shares outstanding		40,245			36,846			38,616			36,133
Basic earnings per share		$	0.43		$	0.13		$	0.99		$	0.42
Diluted earnings per share		$	0.42		$	0.12		$	0.96		$	0.41

 

We had some options to purchase shares of common stock which were outstanding during the periods shown, 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.  A summary of those options follows:

 

		Three Months Ended September 30				Nine Months Ended September 30
		2002		2001		2002		2001
Number of shares under option		77,250		134,750		65,250		329,250
Range of exercise price		$ 25.10 – $ 37.50		$ 22.75 – $ 37.50		$ 26.13 – $ 37.50		$ 19.13 – $ 37.50

 

7

 

5.                                      Comprehensive Income

Comprehensive income consists of net earnings and foreign currency translation adjustments.  During the three and nine months ended September 30, 2002 and 2001, comprehensive income was equal to:  (in thousands):

 

		Three Months Ended September 30						Nine Months Ended September 30
		2002			2001			2002			2001
Net earnings		$	16,756		$	4,549		$	37,089		$	14,763
Foreign currency translation gain		—			—			7,037			2,465
Comprehensive income		$	16,756		$	4,549		$	44,126		$	17,228

 

6.                                      Income Taxes

The effective income tax rates for the three and nine months ended September 30, 2002 and 2001, were based on estimated annual combined effective rates of 25.0% and 15.0%, respectively.

 

In 1999, we entered into a series of transactions effecting a sale and leaseback of a portion of our intermodal container and chassis fleet for a selling price of approximately $175 million.  These transactions used a structure that the Internal Revenue Service (IRS) has recently indicated it intends to examine.  We have voluntarily disclosed these transactions to the IRS and in October of 2002, the IRS began their examination of the specific facts of these transactions.  If the IRS challenges our transactions, we intend to vigorously defend them.  However, if the IRS successfully challenges these transactions, and disallows some or all of the tax benefits that we realized, these actions could have a material adverse effect on our financial condition and operating results.

 

7.                                      Business Segments

We operated three distinct business segments during the nine months ended September 30, 2002.  These segments included:  Truck (JBT), Intermodal (JBI) and Dedicated Contract Services (DCS).  The operation of each of these businesses is described in footnote (10) of our annual report (Form 10-K) for the year ended December 31, 2001.  A summary of certain segment information is presented below (in millions):

 

		Assets As of September 30
		2002			2001
JBT		$	846		$	914
JBI		216			160
DCS		219			167
Other (includes corporate)		18			(3		)
Total		$	1,299		$	1,238

 

		Revenues
		Three Months Ended September 30						Nine Months Ended September 30
		2002			2001			2002			2001
JBT		$	215		$	210		$	614		$	625
JBI		207			194			591			542
DCS		164			138			458			400
Subtotal		586			542			1,663			1,567
Inter-segment eliminations		(3		)	(5		)	(13		)	(13		)
Total		$	583		$	537		$	1,650		$	1,554

 

8

 

		Operating Income (Loss)
		Three Months Ended September 30						Nine Months Ended September 30
		2002			2001			2002			2001
JBT		$	10.1		$	4.8		$	18.8		$	4.4
JBI		13.2			11.4			35.0			28.8
DCS		4.1			1.7			16.2			10.9
Other (includes corporate)		.6			(5.9		)	.2			(8.0		)
Total		$	28.0		$	12.0		$	70.2		$	36.1

 

 

		Depreciation Expense
		Three Months Ended September 30						Nine Months Ended September 30
		2002			2001			2002			2001
JBT		$	16.7		$	17.3		$	51.6		$	52.5
JBI		4.7			5.2			14.3			16.4
DCS		12.5			11.3			35.6			31.9
Other (includes corporate)		2.5			2.0			6.9			5.8
Total		$	36.4		$	35.8		$	108.4		$	106.6

 

8.                                      Reclassifications

We have reclassified certain amounts from our 2001 financial statements so they will be consistent with the way we have classified amounts in 2002.

 

9

 

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

 

 

The Board of Directors

J.B. Hunt Transport Services, Inc.:

 

We have reviewed the accompanying condensed consolidated balance sheet of J.B. Hunt Transport Services, Inc. and subsidiaries as of September 30, 2002, and the related condensed consolidated statements of earnings for the three and nine month periods ended September 30, 2002 and 2001, and the condensed consolidated statements of cash flows for the nine month periods ended September 30, 2002 and 2001.  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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 2001, 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 1, 2002, 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, 2001, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.  Our report dated February 1, 2002, contains an explanatory paragraph that refers to a restatement of retained earnings to reflect an increase in insurance claims payable.

 

 

/s/ KPMG LLP

 

 

Tulsa, Oklahoma

October 15, 2002

 

10

 

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

You should refer to the attached interim condensed consolidated financial statements and related notes and also to our annual report (Form 10-K) for the year ended December 31, 2001 as you read the following discussion.  We may make statements in this report and in documents we incorporate by reference that reflect our current expectation regarding future results of operations, performance and achievements.  These “forward-looking” statements are based on our belief or interpretation of information currently available.  You should realize there are many risks and uncertainties that could cause actual results to differ materially from those described.  Some of the factors and events that are not within our control and could have a significant impact on future operating results are general economic conditions, cost and availability of diesel fuel, adverse weather conditions, competitive rate fluctuations, availability of drivers, and audits or tax assessments of various federal, state or local taxing authorities, including the Internal Revenue Service.  Current and future changes in fuel prices could result in significant fluctuations of quarterly earnings.  Our future financial and operating results may fluctuate as a result of these and other risk factors as described from time to time in our filings with the Securities and Exchange Commission.

 

General

We are one of the largest full-load transportation companies in North America.  We operate three distinct, but complementary, business segments and provide a wide range of general and specifically tailored freight and logistics services to our customers.  We generate revenues primarily from the actual movement of freight from shippers to consignees and from serving as a logistics provider by offering or arranging for others to provide the transportation service.  We account for our business on a calendar year basis with our full year ending on December 31 and our quarterly reporting periods ending on March 31, June 30 and September 30.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect:

 

•                  the amounts reported for assets and liabilities;

•                  the disclosure of contingent assets and liabilities at the date of the financial statements; and

•                  the amounts reported for revenues and expenses during the reporting period.

 

Therefore, the reported amounts of assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates.  We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances.  Nevertheless, actual results may differ significantly from estimates.  Any effects on business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

 

In preparing financial statements and related disclosures, we also must use estimates in determining the economic useful lives of assets, provisions for uncollectible accounts receivable, exposures under self-insurance plans and various other recorded or disclosed amounts.  However, we believe that certain accounting policies are of more significance in the financial statement preparation process than others and are discussed below.  To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise estimates, earnings will be affected.

 

11

 

Workers’ Compensation and Accident Costs

We purchase insurance coverage for a portion of expenses related to employee injuries (workers’ compensation), vehicular collisions and accidents and cargo claims.  Most insurance arrangements include a level of self insurance (deductible) coverage applicable to each claim, but provide an umbrella policy to limit our exposure to catastrophic claim costs that are completely insured.  The amounts of self insurance change from time to time based on certain measurement dates and policy expiration dates.  Our current insurance coverage specifies that the first $5,000 of any claim is self insured and the self insured limit on certain claims is $1.5 million, which is prefunded with our insurance carrier.  We are substantially self insured for loss of and damage to our owned and leased revenue equipment.  Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated ultimate cost of each claim.  At September 30, 2002, we had approximately $7 million of estimated net claims payable.  In addition, we are required to pay certain advanced deposits and monthly premiums.  At September 30, 2002, we had a prepaid insurance asset of approximately $18 million.

 

Revenue Equipment

We operate a significant number of tractors, trailers and containers in connection with our business.  This equipment may be purchased or acquired under capital or operating leases.  In addition, we may rent revenue equipment from third parties and various railroads under short-term rental arrangements.  Revenue equipment which is purchased is depreciated on the straight-line method over the estimated useful life down to an estimated salvage or trade-in value.  Equipment acquired under capital leases is initially recorded at the net present value of the minimum lease payments and amortized on the straight-line method over the lease term or the estimated useful life, which ever is shorter.

 

We have an arrangement with our primary tractor supplier for fixed residual or trade-in values for certain new equipment acquired since 1999.  We have utilized these values in accounting for purchased and leased tractors.  If the supplier is unable to perform under the terms of such agreements, it could have a material negative impact on our financial results.

 

Revenue Recognition

We recognize revenue based on the relative transit time of the freight transported.  Accordingly, a portion of the total revenue which will be billed to our customer once a load is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period.

 

SEGMENTS

We operated three segments during the nine months ended September 30, 2002.  These segments included:  Truck (JBT), Intermodal (JBI) and Dedicated Contract Services (DCS).  The operation of each of these businesses is described in footnote (10) of our annual report (Form 10-K) for the year ended December 31, 2001.

 

12

 

RESULTS OF OPERATIONS

 

Comparison of Third Quarter 2002 to Third Quarter 2001

 

Summary of Operating Segments Results

 

For The Three Months Ended September 30

(dollars in millions)

 

		Operating Revenue								Operating Income (loss)
		2002			2001			% Change		2002				2001
JBT		$	215		$	210		2	%	$	10.1			$	4.8
JBI		207			194			7		13.2				11.4
DCS		164			138			19		4.1				1.7
Other		—			—			—		0.6				(5.9		)
Subtotal		586			542			8		28.0				12.0
Inter-segment eliminations		(3		)	(5		)	—		—				—
Total		$	583		$	537		8	%	$		28.0		$	12.0

 

Overview

Our total consolidated operating revenue for the third quarter of 2002 was $583 million, an increase of approximately 8% over the $537 million in the third quarter of 2001.  Fuel surcharge revenue has an impact on this comparison.  The amount of fuel surcharge revenue billed in the current quarter was $5.3 million less than the amount billed in the third quarter of 2001.  Excluding fuel surcharges, total operating revenue during the current quarter increased 10% over the comparable period of 2001.

 

JBT segment revenue totaled $215 million for the third quarter of 2002, an increase of 2% over the $210 million in the third quarter of 2001.  If the amount of fuel surcharge revenue was excluded from both the 2002 and 2001 periods, segment revenue would have increased approximately 4% in 2002.  This 4% increase in revenue was primarily a result of an approximate 5% increase in revenue per loaded mile, exclusive of fuel surcharges, offset by a decline in miles per tractor and a decline in the size of the tractor fleet.  The average number of total tractors operated in the JBT fleet declined 216 (4%) during the third quarter of 2002, compared with the third quarter of 2001.  However, this net decrease included a net increase of 320 independent contractors offset by a decrease of 536 company tractors.  Part of the decline in miles per tractor was due to the reduction of empty miles to 9% in the current quarter from 12% in the comparable period of 2001.  The increase in revenue per loaded mile, excluding fuel surcharges, and the decrease in empty miles helped contribute to the significant improvement in earnings of the JBT segment.  Operating income for the third quarter of 2002 was $10.1 million, compared with $4.8 million in 2001.  The operating ratio of the JBT segment was 95.3% in 2002 and 97.7% in 2001.  The higher revenue per mile and lower empty miles were a result of our yield management initiatives launched in late 2001.  A decline in driver pay as a cost per mile in 2002 also enhanced operating income.

 

JBI segment revenue increased 7%, to $207 million during the third quarter of 2002, compared with $194 in 2001.  If the amount of fuel surcharge revenue was excluded from both the 2002 and 2001 periods, the increase in JBI revenue would have been 8%.  The increase in revenue was primarily due to an approximate 7% increase in load volume and a nearly 2% increase in revenue per load including fuel surcharge.  The higher revenue per load was a result of changes in freight mix which generated a longer

 

13

 

average length of haul, partly offset by a 0.5% decrease in revenue per loaded mile, excluding fuel surcharges.  Operating income of the JBI segment was $13.2 million in the third quarter of 2002, compared with $11.4 million in 2001.  The operating ratio of the JBI segment was 93.6% in 2002 and 94.1% in 2001.  In addition to higher revenue per load, operating income was enhanced by lower dray cost per load.

 

DCS segment revenue rose 19%, to $164 million in 2002, from $138 million in 2001.  If fuel surcharge revenue was excluded from both of the 2002 and 2001 periods, the increase in DCS revenue would have been 20%.  This increase in DCS segment revenue was driven by an approximate 9% increase in the average size of the tractor fleet and a 9% increase in net revenue per tractor, excluding fuel surcharge.  Primarily a result of new project start-ups, idle tractors declined from 70 at June 30, 2002 to essentially zero at September 30, 2002.  Operating income rose to $4.1 million in the third quarter of 2002 from $1.7 million in 2001.  The operating ratio of the DCS segment was 97.5% in 2002 and 98.8% in 2001.  The improvement in 2002 operating income was primarily due to better utilization of tractors in service and efforts to reduce costs, including driver wages.

 

The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.

 

		Three Months Ended September 30
		Percentage of Operating Revenues				Percentage Change Between Quarters
		2002		2001		2002 vs. 2001
Operating revenues		100.0	%	100.0	%	8.5	%
Operating expenses
Salaries, wages and employee benefits		36.7	%	37.4	%	6.5	%
Rents and purchased transportation		31.2		29.8		13.7
Fuel and fuel taxes		9.4		10.6		(3.3	)
Depreciation and amortization		6.2		6.6		2.0
Operating supplies and expenses		5.6		7.2		(16.0	)
Insurance and claims		2.3		2.4		4.2
Operating taxes and licenses		1.5		1.6		0.6
General and administrative expenses, net of gains		1.3		1.3		4.8
Communication and utilities		1.0		0.9		18.7
Total operating expenses		95.2		97.8		5.6
Operating income		4.8		2.2		134.5
Interest expense		(1.0	)	(1.1	)	(4.9	)
Equity in loss of associated companies		—		(0.1	)	(81.3	)
Earnings before income taxes		3.8		1.0		317.4
Income taxes		.9		0.2		595.5
Net earnings		2.9	%	0.8	%	268.3	%

 

Consolidated Operating Expenses

Total operating expenses during the third quarter of 2002 increased 5.6% over the comparable period in 2001.  Salaries, wages and employee benefits expense increased 6.5%, slightly less than the 8.5% rate of revenue growth.  This expense category declined to 36.7% of revenue in 2002, from 37.4% in 2001.  This change was due, in part, to lower pay scales applicable to newly-hired drivers, partly offset by higher workers’ compensation and health insurance costs.  Rents and purchased transportation increased 13.7%, primarily due to additional funds paid to railroads and drayage companies, related to JBI business growth, and payments to independent contractors, as we grow that fleet.  The 3.3% decline in fuel and fuel taxes was due to lower fuel cost per gallon in 2002.  As we noted earlier, this lower fuel cost resulted in corresponding decreases in fuel surcharge revenue.  The 16.0% decline in operating supplies and expenses was primarily

 

14

 

due to lower levels of spending for outside vendor maintenance services.  We are moving more of our maintenance and revenue equipment repair work to our own facilities.  Insurance and claims costs increased 4.2%, due to slightly higher accident frequency and incurred costs and increased insurance premium expense incurred when we renewed our umbrella insurance coverage on July 31, 2002.  General and administrative expenses increased 4.8%, partly due to higher spending in 2002 for driver advertising.  Interest expense decreased 4.9%, partly due to lower debt levels and higher interest income.

 

Equity in loss of associated companies reflects our share of the operating results for Transplace, Inc. (TPI).  Equity in loss amounts were $144,000 for the three months ended September 30, 2002, compared with $771,000 in 2001.

 

Comparison of Nine Months Ended September 30, 2002 to Nine Months Ended September 30, 2001

 

Summary of Operating Segments Results

 

For The Nine Months Ended September 30

(dollars in millions)

 

		Operating Revenue								Operating Income (loss)
		2002			2001			% Change		2002			2001
JBT		$	614		$	625		(2	)%	$	18.8		$	4.4
JBI		591			542			9		35.0			28.8
DCS		458			400			15		16.2			10.9
Other		—			—			—		.2			(8.0		)
Subtotal		1,663			1,567			6		70.2			36.1
Inter-segment eliminations		(13		)	(13		)	—		—			—
Total		$	1,650		$	1,554		6	%	$	70.2		$	36.1

 

Overview

Our total consolidated operating revenue for the first nine months of 2002 totaled $1.650 billion, an increase of approximately 6% over the $1.554 billion for the comparable period of 2001.  Fuel surcharge revenue has an impact on this comparison.  The amount of fuel surcharge revenue billed in the current nine month period was $32.9 million less than the amount billed in 2001.  Excluding fuel surcharges, total operating revenue during the current nine month period increased 9% over 2001.

 

JBT segment revenue declined 2%, to $614 million for the first nine months of 2002, compared with $625 million in 2001.  If the amount of fuel surcharge revenue was excluded from both the 2002 and 2001 periods, JBT revenue would have increased approximately 1%.  This 1% increase in revenue was primarily a result of a 4.2% increase in revenue per loaded mile, exclusive of fuel surcharges, partly offset by a nearly 3% decline in the average tractor count during 2002.  The increase in revenue per loaded mile, excluding fuel surcharges, combined with reduced empty miles and a lower pay rate for newly hired drivers contributed to the significant improvement in operating income of the JBT segment.  Operating income for the first nine months of 2002 was $18.8 million, compared with $4.4 million in 2001.  The operating ratio of the JBT segment was 96.9% for the first nine months of 2002 and 99.3% for the first nine months of 2001.  JBT segment  operating income in 2001 also included a $4.1 million gain on the sale of trailers, which closed in March.

 

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JBI segment revenue increased 9%, to $591 million during the first nine months of 2002, compared with $542 million in 2001.  The increase in segment revenue would have been 11% if fuel surcharge revenue was excluded from both periods.  The increase in revenue was primarily due to an approximate 6% increase in load volume and a 2% increase in revenue per load.  The higher revenue per load resulted from changes in freight mix which generated a longer average length of haul and a .5% increase in revenue per loaded mile, exclusive of fuel surcharges.  Operating income in the JBI segment totaled $35.0 million in 2002, compared with $28.8 million in 2001.  This increase was primarily due to higher revenue levels and reduced dray cost per load.  The JBI operating ratio was 94.1% for the first nine months of 2002 and 94.7% for the comparable period of 2001.

 

Revenue rose 15% in the DCS segment to $458 million during the first nine months of 2002, compared with $400 million in 2001.  This increase in DCS segment revenue would have been 17% if fuel surcharge revenue was excluded from both periods.  This increase in DCS revenue was driven by a 9% increase in the size of the average tractor fleet and a 7% increase in net revenue per tractor, excluding fuel surcharge.  Operating income rose to $16.2 million in 2002, from $10.9 million in 2001.  The DCS segment operating ratio for the first nine months of 2002 was 96.5%, compared to 97.3% for the first nine months of 2001.  This improvement in 2002 operating income was primarily due to better utilization of tractors in service and efforts to reduce costs, including driver wages.

 

The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.

 

		Nine Months Ended September 30
		Percentage of Operating Revenues				Percentage Change Between Quarters
		2002		2001		2002 vs. 2001
Operating revenues		100.0	%	100.0	%	6.2	%
Operating expenses
Salaries, wages and employee benefits		37.1	%	38.2	%	3.0	%
Rents and purchased transportation		30.7		28.1		16.2
Fuel and fuel taxes		9.3		11.4		(14.1	)
Depreciation and amortization		6.6		6.9		1.7
Operating supplies and expenses		5.9		7.0		(10.3	)
Insurance and claims		2.3		2.4		2.0
Operating taxes and licenses		1.5		1.6		(0.1	)
General and administrative expenses, net of gains		1.2		0.9		53.0
Communication and utilities		1.1		1.2		0.7
Total operating expenses		95.7		97.7		4.1
Operating income		4.3		2.3		94.2
Interest expense		(1.2	)	(1.2	)	7.1
Equity in loss of associated companies		(0.1	)	—		87.6
Earnings before income taxes		1.1				184.7
Income taxes		0.8		0.2		374.6
Net earnings		2.2	%	0.9	%	151.2	%

 

16

 

Consolidated Operating Expenses

Total operating expenses for the first nine months of 2002 were up 4.1% over the comparable period of 2001.  Sala                  ries, wages and employee benefits expense increased 3.0%, significantly less than the 6.2% rate of revenue growth.  This expense category declined to 37.1% of revenue in 2002, from 38.2% in 2001.  This change was due, in part, to lower pay scales applicable to newly hired drivers, partly offset by higher workers’ compensation and health insurance costs.  Rents and purchased transportation increased 16.2%, primarily due to additional funds paid to railroads and drayage companies, related to JBI business growth, and payments to independent contractors, as we grow that fleet.  The 14.1% decrease in fuel and fuel taxes was due to significantly lower fuel cost per gallon in 2002.  As we mentioned above, this lower fuel expense resulted in related decreases in fuel surcharge revenue.  The 10.3% decline in operating supplies and expenses was primarily due to lower equipment maintenance costs at outside vendor repair locations.  We are moving more of our maintenance and revenue equipment repair work to our own shops.  The significant increase in general and administrative expenses was due, in part, to a $5.5 million gain on the sale of a group of trailers which was closed during March of 2001.  This expense category also increased in 2002 reflecting higher driver advertising expenses.  Interest expense increased 7.1%, partly due to changes we made in our short-term financing programs and higher interest expense on our capitalized leases.

 

Equity in loss of associated companies reflects our share of the operating results for Transplace, Inc. (TPI) and for our Mexican joint venture.  Equity in earnings (loss) amounts include the following:

 

		Nine Months Ended September 30 (000)
		2002			2001
TPI		$	(1,424	)	$	(1,509	)
Mexican joint venture		—			750
Total		$	(1,424	)	$	(759	)

 

As we had previously announced, we signed an agreement during the fourth quarter of 2001 to sell our joint venture interest in Mexico to the majority owner.  This sale was closed during the first quarter of 2002 under the expected terms and conditions.  In accordance with the terms of the sale, we recorded an $18.1 million dollar note receivable.  The note carries an interest rate of 5%, requires annual principal payments and matures on June 30, 2005.  We do not expect any future significant impact on earnings related to this sale.

 

Liquidity and Capital Resources

 

Cash Flow

We typically generate significant amounts of cash from operating activities.  Net cash provided by operating activities totaled $122.6 million during the first nine months of 2002, approximating the $121.3 million provided during the same period of 2001.  Higher earnings in 2002 were offset by changes in current liabilities.  Net cash used in investing activities was $121.8 million in 2002, compared with $25.6 million of net cash provided in 2001.  The primary reasons for this category netting to positive cash provided in 2001, were the sale of some older trailers and a decision we made to utilize capital and operating leases to acquire new revenue equipment.  During 2002, we have been, once again, purchasing new tractors and containers, which results in additional cash used in investing activities.  Net cash provided from financing activities totaled nearly $35.8 million in 2002, as compared with a net use of $89.0 million in 2001.  This change was primarily a result of a sale of common stock during the second quarter of 2002.  We closed on an offering of approximately 5.9 million shares of common stock in late May and June of 2002.  We issued and sold approximately 2.8 million shares and 3.1 million shares were sold by a shareholder.  The selling price of the stock was $26 per share, before underwriters’ discounts and other expenses.  We did not receive any of the proceeds from the sale of the shareholder’s stock.  We used a portion of the proceeds from the stock sale to reduce long-term debt.  The remaining proceeds will be utilized to further reduce debt and for future capital expenditures.

 

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Selected Balance Sheet Data

 

		As of
		September 30, 2002			December 31, 2001			September 30, 2001
Working  capital ratio		1.32			1.45			1.48
Current maturities of long-term debt and current installments of obligations under capital leases (millions)		$	127		$	38		$	41
Total debt and obligations under capital leases (millions)		$	361		$	392		$	401
Total debt to equity		.63			.86			.89
Total debt as a percentage of total capital		.39			.46			.47

 

Liquidity

Our need for capital typically has resulted from the acquisition of revenue equipment to support growth and the replacement of older tractors and trailing equipment with new, late model equipment.  We are frequently able to accelerate or postpone some equipment replacements depending on market conditions.  In the past we have obtained capital through public stock offerings, debt financing, revolving lines of credit and cash generated from operations.  We have also utilized capital and operating leases to acquire revenue equipment.

 

Net capital expenditures were $123.5 million during the first nine months of 2002 compared with net cash proceeds of $24.5 million for the same period of 2001.  We made a decision to start purchasing new tractors and containers rather than utilize capital leases effective in October of 2001.  This change resulted in higher levels of capital expenditures in 2002.  We currently expect to spend in the range of $150 to $160 million, net of expected proceeds from sale or  trade-in allowances, on revenue equipment for the full calendar year of 2002.

 

We are authorized to borrow up to $165 million under our current revolving line of credit and had no balances outstanding on this line at September 30, 2002.  This line of credit expires on November 13, 2002.  We have received written commitments from our bank group for a three year, $150 million revolving credit agreement that will replace the existing facility.  We intend to have this new long term facility effective prior to the maturity of the current revolving line of credit.  We believe that our liquid assets, cash generated from our secondary stock offering described above, cash generated from operations and revolving line of credit will provide sufficient funds for our operating and capital requirements for the foreseeable future.

 

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		Contractual Cash Obligations As of September 30, 2002 Amounts Due by Period (dollars in millions)
		Total			Less Than One Year			One To Three Years			Four To Five Years			After Five Years
Operating leases		$	287		$	69		$	102		$	78		$	38
Capital leases		160			62			98			—			—
Senior and subordinated notes payable		213			98			115			—			—
Subtotal		$	660		229			$	315		$	78		$	38
Commitments to acquire revenue equipment		41			41			—			—			—
Total		$	701		$	270		$	315		$	78		$	38

 

 

		Financing Commitments Expiring By Period As of September 30, 2002 (dollars in millions)
		Total			Less Than One Year			One To Three Years		Four To Five Years		After Five Years
Revolving credit arrangements		$	165		$	165		—		—		—
Standby letters of credit		27			27			—		—		—
Total		$	192		$	192		—		—		—

 

Our umbrella policy was renewed on July 31, 2002.  We experienced an approximate 115% increase in premium costs in order to retain our current level of insurance coverage.  If we are unable to increase freight rates sufficiently, these cost increases could have a material impact on our profit margins.

 

In 1999, we entered into a series of transactions effecting a sale and leaseback of a portion of our Intermodal container and chassis fleet for a selling price of approximately $175 million.  These transactions used a structure that the Internal Revenue Service (IRS) has recently indicated it intends to examine.  We have voluntarily disclosed these transactions to the IRS and in October of 2002, the IRS began their examination of the specific facts of these transactions.  If the IRS challenges our transactions, we intend to vigorously defend them.  However, if the IRS successfully challenges these transactions, and is successful in disallowing some or all of the tax benefits that we realized, these actions could have a material adverse effect on our financial condition and operating results.

 

The effective income tax rates for the three and nine months ended September 30, 2002 and 2001, were based on estimated combined effective rates of 25.0% and 15.0%, respectively.  We are currently estimating an effective income tax rate of 30% to 32% for calendar year 2003.  This rate and the effective income tax rate for the fourth quarter and calendar year ended December 31, 2002, may change based on changes in actual earnings before taxes, the outcome of any examinations by the IRS or other matters affecting our federal or state income tax obligations.

 

19

 

In 1997, the Equal Employment Opportunity Commission (EEOC) commenced an action against us in federal District Court alleging that we had violated the Americans With Disabilities Act by refusing to hire as truck drivers certain individuals who were taking certain medications.  The EEOC sought injunctive relief and damages for a group of 540 individuals.  The District Court dismissed the EEOC’s complaint on our motion for summary judgment.  The EEOC has appealed this decision to the Federal Court of Appeals, and a ruling is expected sometime this year.  We continue to vigorously contest this legal action.  However, if the Court of Appeals rules against us, we could be subject to a trial in the District Court.  In addition, in a separate action filed in Michigan in November 2001, by a group of eight former employees, the plaintiffs allege that we violated the Elliott-Larsen Civil Rights Act of Michigan.  We intend to vigorously defend the action and have recently completed the first phase of discovery of evidence.  A future trial in either of these actions could cause us to incur substantial costs in defending ourselves, and a judgment against us in such a trial could have a material adverse effect on our financial condition and operating results.

 

In October 2002, we were assessed a judgment of approximately $7 million for an accident that occurred in August 2001.  We are currently in dispute over the total value of this judgment and plan to file the appropriate appeals.  We believe, based on advise from outside counsel, that it is probable that this award will be substantially reduced by the appellate court.  However, if we are unsuccessful in our appeal to the appellate court, the ultimate payments to the claimant could have a material effect on our financial statements.

 

Impact of Recently Issued Accounting Pronouncements

 

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (Statement 143).  Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset.  Statement 143 is effective for fiscal years beginning after June 15, 2002.  We are currently assessing the impact of Statement 143 on our financial condition and results of operations.

 

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections” (Statement 145).  Statement 145 rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” (Statement 4), and an amendment to that Statement, FASB Statement No. 64 “Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements” (Statement 64).  Statement 145 also rescinds FASB Statement No. 13, “Accounting for Leases” (Statement 13) to eliminate the inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions.  Statement 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions.  The provisions of Statement 145 related to the rescission of Statement 4 are effective for fiscal years beginning after May 15, 2002.  The provisions of Statement 145 related to Statement 13 are effective prospectively for transactions occurring after May 15, 2002.  All other provisions of Statement 145 are effective prospectively for financial statements issued on or after May 15, 2002.

 

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Restructuring Costs” (Statement 146).  Under Statement 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value.  Statement 146 also provides guidance on accounting for specified employee and contract terminations that are part of restructuring activities.  Statement 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002.

 

20

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings are affected by changes in short-term interest rates as a result of  our use of short-term revolving lines of credit.  From time to time we utilize interest rate swaps to mitigate the effects of interest rate changes;  none were outstanding at September 30, 2002.  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 during the next twelve months, there would be no material adverse impact on our results of operations based on variable rate debt outstanding at September 30, 2002.  At September 30, 2002, the fair value of our fixed rate long-term obligations approximated carrying value.

 

Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations or cash flows.  Additionally, foreign currency transaction gains and losses were not material to our results of operations for the three and nine months ended September 30, 2002.  Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencies would have on our future costs or on future cash flows we would receive from its foreign investment.  To date, we have 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.

 

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this quarterly report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed by us in our periodic reports to the Securities and Exchange Commission.  There have been no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls subsequent to the date of their evaluation.

 

PART II

OTHER INFORMATION

 

Item 1.	Legal Proceedings
	None applicable.
Item 2.	Changes in Securities
	None applicable.
Item 3.	Defaults Upon Senior Securities
	None applicable.
Item 4.	Submission of Matters to a Vote of Security Holders
	None applicable.
Item 5.	Other information
	None applicable.
Item 6.	Exhibits and Reports on Form 8-K
	a)   Exhibits
	Exhibit 15 – Awareness letter related to Independent Accountants’ Review Report.
	99.1 – Certification of Cheif Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.2 – Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

21

 

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, in the city of Lowell, Arkansas, on the 8th day of November, 2002.

 

	J.B. HUNT TRANSPORT SERVICES, INC.
	(Registrant)
	BY:	/s/ Kirk Thompson
		Kirk Thompson
		President and Chief Executive Officer
	BY:	/s/ Jerry W. Walton
		Jerry W. Walton
		Executive Vice President, Finance and
		Administration,
		Chief Financial Officer
	BY:	/s/ Donald G. Cope
		Donald G. Cope
		Senior Vice President, Controller,
		Chief Accounting Officer

 

22

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

J.B. Hunt Transport Services, Inc.

 

I, Kirk Thompson, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of J.B. Hunt Transport Services, Inc.;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

 

a)              designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)             evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)              presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)              all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  November 8, 2002		/s/ Kirk Thompson
		Kirk Thompson
		President and Chief Executive Officer

 

23

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

J.B. Hunt Transport Services, Inc.

 

I, Jerry W. Walton, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of J.B. Hunt Transport Services, Inc.;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

 

a)              designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)             evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)              presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a)              all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  November 8, 2002		/s/ Jerry W. Walton
		Jerry W. Walton
		Executive Vice President, Finance and
		Administration,
		Chief Financial Officer

 

24

 

INDEX TO EXHIBITS

 

J.B Hunt Transport Services, Inc.

 

Exhibit Number		Exhibit
15		Awareness letter related to Independent Accounts’ Review Report
99.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

25