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, 1996 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, 1996 was 38,046,421
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The interim 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, 1996 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1996. The interim consolidated financial statements have been reviewed by KPMG Peat Marwick LLP, independent public accountants. These interim 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, 1995. INDEX Consolidated Statements of Earnings for the Three Months Ended March 31, 1996 and 1995.................................. Page 3 Consolidated Balance Sheets as of March 31, 1996 and December 31,1995................................... Page 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995............................ Page 5 Notes to Consolidated Financial Statements as of March 31, 1996.................................................. Page 6 Review Report of KPMG Peat Marwick LLP....................................Page 8 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................................... Page 9 2
J.B. HUNT TRANSPORT SERVICES, INC. Consolidated Statements of Earnings (in thousands, except per share data) (unaudited) <TABLE> <CAPTION> - - -------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 - - -------------------------------------------------------------------------------- 1996 1995 - - -------------------------------------------------------------------------------- <S> <C> <C> Operating revenues $ 354,014 $ 309,424 Operating expenses Salaries, wages and employee benefits 116,436 105,117 Purchased transportation 97,971 77,452 Fuel and fuel taxes 40,134 35,582 Depreciation 34,144 32,023 Operating supplies and expenses 22,598 20,987 Insurance and claims 13,165 10,541 General and administrative expenses 7,463 6,312 Operating taxes and licenses 7,162 5,879 Communication and utilities 4,509 1,793 - - -------------------------------------------------------------------------------- Total operating expenses 343,582 295,686 - - -------------------------------------------------------------------------------- Operating income 10,432 13,738 Interest expense 5,911 5,976 - - -------------------------------------------------------------------------------- Earnings before income taxes 4,521 7,762 Income taxes 1,718 2,872 - - -------------------------------------------------------------------------------- Net earnings $ 2,803 $ 4,890 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Common shares outstanding 38,074 38,555 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Earnings per share $ 0.07 $ 0.13 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- </TABLE> 3
J.B. HUNT TRANSPORT SERVICES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) <TABLE> <CAPTION> - - -------------------------------------------------------------------------------- MARCH 31, 1996 DECEMBER 31, 1995 - - -------------------------------------------------------------------------------- <S> <C> <C> ASSETS Current assets: Cash and temporary investments $ -- $ 4,260 Accounts receivable 163,001 143,002 Prepaid expenses 22,193 29,645 Deferred income taxes 13,967 10,171 - - -------------------------------------------------------------------------------- Total current assets 199,161 187,078 - - -------------------------------------------------------------------------------- Property and equipment 1,197,091 1,184,808 Less accumulated depreciation 386,801 375,798 - - -------------------------------------------------------------------------------- Net property and equipment 810,290 809,010 - - -------------------------------------------------------------------------------- Other 18,815 20,694 - - -------------------------------------------------------------------------------- $ 1,028,266 $ 1,016,782 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 43,250 $ 30,310 Trade accounts payable 88,001 86,466 Claims accruals 33,654 38,014 Accrued expenses 28,762 25,986 Other current liabilities 4,079 3,823 - - -------------------------------------------------------------------------------- Total current liabilities 197,746 184,599 - - -------------------------------------------------------------------------------- Long-term debt 339,392 339,015 Claims accruals 13,500 13,500 Deferred income taxes 123,377 122,729 Stockholders' equity 354,251 356,939 - - -------------------------------------------------------------------------------- $ 1,028,266 $ 1,016,782 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- </TABLE> 4
J.B. HUNT TRANSPORT SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) <TABLE> <CAPTION> - - -------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 - - -------------------------------------------------------------------------------- 1996 1995 - - -------------------------------------------------------------------------------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 2,803 $ 4,890 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 34,144 32,023 Deferred income taxes (3,148) (2,053) Tax benefit of stock options exercised 162 264 Changes in assets and liabilities: Accounts receivable (19,999) (6,842) Prepaid expenses 7,452 6,355 Trade accounts payable 1,535 20,515 Claims accruals (4,360) 1,246 Accrued expenses and other current liabilities 3,032 (230) - - -------------------------------------------------------------------------------- Net cash provided by operating activities 21,621 56,168 - - -------------------------------------------------------------------------------- Cash flows from investing activities: Additions to property and equipment (50,601) (48,408) Proceeds from sale of equipment 15,177 15,196 Increase in other assets 555 (4,149) - - -------------------------------------------------------------------------------- Net cash used in investing activities (34,869) (37,361) - - -------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings (repayments) of short-term obligations 13,317 (13,471) Proceeds from sale of treasury stock 550 427 Repurchase of treasury stock (2,998) -- Dividends paid (1,881) (1,927) - - -------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 8,988 (14,971) - - -------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary investments (4,260) 3,836 - - -------------------------------------------------------------------------------- Cash and temporary investments at beginning of period 4,260 2,142 - - -------------------------------------------------------------------------------- Cash and temporary investments at end of period $ 0 $ 5,978 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid (refunded) during the period for: Interest $ 5,255 $ 6,833 Income Taxes (1,114) 1,875 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- </TABLE> 5
J.B. HUNT TRANSPORT SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) LONG-TERM DEBT Long-term debt consists of (in thousands): 3/31/96 12/31/95 ------- -------- Commercial paper $158,250 $145,310 Senior notes payable, interest at 6.25% payable semiannually 100,000 100,000 Senior notes payable, interest at 7.75% payable semiannually 5,000 5,000 Senior notes payable, interest at 7.84% payable semiannually 20,000 20,000 Senior subordinated notes, interest at 7.80% payable semiannually 50,000 50,000 Senior notes payable, interest at 6.25% payable semiannually 25,000 25,000 Senior notes payable, interest at 6.00% payable semiannually 25,000 25,000 -------- -------- 383,250 370,310 Less current maturities (43,250) (30,310) Unamortized discount (608) (985) -------- -------- $339,392 $339,015 -------- -------- -------- -------- The Company is authorized to issue up to $250 million in notes under its commercial paper note program. These notes are supported by two credit agreements with a group of banks. One agreement for $125 million expires March 27, 1997 and $125 million expires March 31, 1999. The 6.25% senior notes were issued on September 1, 1993 and are due on September 1, 2003. The 7.75% senior notes were issued on October 1, 1991 and are payable in five equal annual installments beginning October 31, 1992. The 7.84% senior notes were issued on March 31, 1992 and are payable in five equal annual installments beginning March 31, 1995. 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
The 6.25% senior notes were issued on November 17, 1995 and are payable at maturity on November 17, 2000. The 6.00% senior notes were issued on December 12, 1995 and are payable at maturity on December 12, 2000. 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: Number of Number of Option price shares shares per share exercisable ------ --------- ----------- Outstanding at December 31, 1995 2,725,731 $ 9.33 - 24.63 415,606 ------- ------- Granted 75,000 15.63 - 19.25 Exercised (112,581) 6.00 - 13.17 Terminated (110,450) 13.17 - 22.75 -------- ------------- Outstanding at March 31, 1996 2,577,700 $ 9.33 - 24.63 285,375 --------- -------------- ------- --------- -------------- ------- On April 16, 1996, the Company's Board of Directors declared a regular quarterly cash dividend of $.05 per share payable on May 20, 1996 to stockholders of record on May 3, 1996. 7
INDEPENDENT AUDITORS' REPORT The Board of Directors J.B. Hunt Transport Services, Inc.: We have reviewed the condensed consolidated balance sheet of J.B. Hunt Transport Services, Inc. and subsidiaries as of March 31, 1996, and the related condensed consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1996 and 1995, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review 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, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 9, 1996, 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, 1995, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG Peat Marwick LLP ------------------------- Little Rock, Arkansas April 12, 1996 8
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 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, 1995. RESULTS OF OPERATIONS The following table sets forth the change in amounts and percentage change between the first quarter of 1996 and the comparable period in 1995 of certain revenue, expense and operating items. Three Months Ended March 31, 1996 vs. 1995 (in thousands except tractor data) Increase (Decrease) % in amounts Change ---------- ------ Average number of tractors in the fleet 273 4% - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Operating revenues $44,590 14% - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- Operating expenses: Salaries, wages and employee benefits $11,319 11% Purchased transportation 20,519 26% - - -------------------------------------------------------------------------------- Fuel and fuel taxes 4,552 13% Depreciation 2,121 7% - - -------------------------------------------------------------------------------- Operating supplies and expenses 1,611 8% Insurance and claims 2,624 25% - - -------------------------------------------------------------------------------- General and administrative expenses 1,151 18% Operating taxes and licenses 1,283 22% Communication and utilities 2,716 151% - - -------------------------------------------------------------------------------- Total operating expenses $47,896 16% - - -------------------------------------------------------------------------------- Operating Income ($3,306) (24)% - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- The following discussion relates to the table set forth above and the attached interim consolidated financial statements for the quarter ended March 31, 1996 and 1995. 9
OPERATING REVENUES Operating revenues for the first quarter of 1996 increased approximately $45 million, or 14 percent, to $354 million, from $309 million in the first quarter of 1995. The average number of total tractors in the fleet increased 4 percent during the same period. The increase in revenue between quarters includes the following by type of freight: Increase in Revenue First Quarter 1996 vs. First Quarter 1995 (millions of dollars) Intermodal $27 Dedicated Contract 8 Logistics Management 5 Other, net 5 ---- $45 ---- ---- Intermodal volume continued to grow with loads up 26 percent during the first quarter of 1996. The market also continued to respond favorably to the Company's dedicated contract and logistics management service offerings. Dedicated and logistics arrangements typically involve a written contract to provide revenue equipment and/or management services for a period of one year or more. Revenues and earnings were negatively impacted during the first quarter of 1996 by a two to three percent decline in general freight rates, depending upon the type of service. OPERATING EXPENSES Total operating expenses for the first quarter of 1996 increased approximately $48 million, or 16 percent over the comparable period of 1995. Operating income declined $3.3 million to $10.4 million. In addition to the decline in freight rates, operating income was reduced by lower gains on equipment dispositions. Equipment gains were only $125,000 in the first quarter of 1996, compared with $1.6 million in 1995. Although the Company plans to continue trading and disposing of revenue equipment, gains are not expected to be significant during the remainder of 1996. Equipment gains offset depreciation expense in the Consolidated Statements of Earnings. Salaries, wages and employee benefits increased 11 percent during the first quarter of 1996, reflecting a pay increase effective in April, 1995 for the Company's least experienced drivers. Purchased transportation expense increased 26 percent. This increase primarily reflects payments to railroads and third-party companies for intermodal and transportation services provided to the Company. Fuel and fuel taxes increased 13 percent, primarily due to a 9 percent increase in cost per gallon. Fuel cost per gallon continued to increase rapidly in March and April of 1996. The Company initiated a fuel surcharge in April to help offset this cost increase, however, fuel costs will most likely reduce earnings during the second quarter of 1996. 10
Insurance and claims expense increased 25 percent. Management was disappointed with a significant increase in the number of accidents and cargo claims and has focused on preventative measures. General and administrative expense increased 18 percent, primarily due to higher driver recruiting and training expenses. Operating taxes and licenses increased 22 percent, partly due to higher state licensing and use tax expense. The significant increase in communication and utilities was primarily due to certain rate reductions and one-time credits recognized during the first quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES This discussion of corporate liquidity and capital resources should be read in conjunction with information presented in the Consolidated Statements of Cash Flows and the Consolidated Balance Sheets. Net cash provided by operating activities was approximately $22 million during the first quarter of 1996 compared with $56 million in 1995. This decrease in net cash provided was primarily due to an increase in accounts receivable and cash payments made during the first quarter of 1996 for claims accruals and payables for revenue equipment purchases. SELECTED BALANCE SHEET DATA As of ------------------------------------------------- March 31, 1996 December 31, 1995 March 31, 1995 -------------- ----------------- -------------- Working capital ratio 1.01 1.01 .97 Current maturities of long- term debt (millions) $43 $30 $61 Total debt (millions) $383 $369 $354 Total debt to equity 1.08 1.03 .93 Total debt as a percentage of total capital .52 .51 .48 Net additions to property and equipment during the first quarter of 1996 totaled $35.4 million compared with $33.2 million in 1995. While total debt levels have increased during the past year, the Company's liquidity has not changed significantly. The Company generates significant cash from operating activities and has borrowing capacity to meet its committed and contemplated cash expenditures. 11
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 The Company announced on April 22, 1996 the completion of a combination of its Parcel Management Services division into CTC Distribution Services, L.L.C. (CTC) of St. Paul Minnesota. The Company received a 5 percent ownership stake in CTC with warrants that allow an increase in its ownership position in the future. The transaction will be accounted for as a contribution of assets for CTC ownership units. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule 12
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 7, 1996 BY: /s/ Kirk Thompson ----------------------- -------------------------------- Kirk Thompson President and Chief Executive Officer DATE: May 7, 1996 BY: /s/ Jerry W. Walton ----------------------- --------------------------------- Jerry W. Walton Executive Vice President, Finance and Chief Financial Officer 13