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, 1995 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, 1995 was 38,572,964. 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 the 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, 1995 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1995. 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, 1994. INDEX Consolidated Statements of Earnings for the Three Months Ended March 31, 1995 and 1994............................Page 3 Consolidated Balance Sheets as of March 31, 1995 and December 31,1994.........................................Page 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994............................Page 5 Notes to Consolidated Financial Statements as of March 31, 1995...........................................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) - ------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31 - ------------------------------------------------------------------------ 1995 1994 - ------------------------------------------------------------------------ Operating revenues $309,424 $264,663 Operating expenses Salaries, wages and employee benefits 105,117 92,565 Purchased transportation 77,452 60,364 Fuel and fuel taxes 35,582 32,393 Depreciation 32,023 24,492 Operating supplies and expenses 20,987 18,562 Insurance and claims 10,541 9,192 Operating taxes and licenses 5,879 5,184 General and administrative expenses 6,312 6,009 Communication and utilities 1,793 2,883 - ------------------------------------------------------------------------ Total operating expenses 295,686 251,644 - ------------------------------------------------------------------------ Operating income 13,738 13,019 Interest expense 5,976 4,487 - ------------------------------------------------------------------------ Earnings before income taxes 7,762 8,532 Income taxes 2,872 2,806 - ------------------------------------------------------------------------ Net earnings $ 4,890 $ 5,726 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Common shares outstanding 38,555 38,503 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Earnings per share $ 0.13 $ 0.15 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ 3 J.B. HUNT TRANSPORT SERVICES, INC. CONSOLIDATED BALANCE SHEETS (unaudited) - ------------------------------------------------------------------------- MARCH 31, 1995 DECEMBER 31, 1994 - ------------------------------------------------------------------------- ASSETS Current assets: Cash and temporary investments $ 5,978 $ 2,142 Accounts receivable 145,137 138,295 Prepaid expenses 26,358 32,713 Deferred income taxes 8,083 8,083 - ------------------------------------------------------------------------ Total current assets 185,556 181,233 - ------------------------------------------------------------------------ Property and equipment 1,113,627 1,089,235 Less accumulated depreciation 322,742 299,539 - ------------------------------------------------------------------------ Net property and equipment 790,885 789,696 - ------------------------------------------------------------------------ Other 26,919 22,770 - ------------------------------------------------------------------------ $1,003,360 $ 993,699 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 60,650 $ 68,075 Trade accounts payable 69,362 48,847 Claims accruals 35,494 34,248 Accrued expenses 24,580 24,031 Other current liabilities 1,941 2,720 - ------------------------------------------------------------------------ Total current liabilities 192,027 177,921 - ------------------------------------------------------------------------ Long-term debt 293,197 299,243 Claims accruals 16,750 16,750 Deferred income taxes 119,834 121,887 Stockholders' equity 381,552 377,898 - ------------------------------------------------------------------------ $1,003,360 $ 993,699 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ 4 J.B. HUNT TRANSPORT SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 (In thousands) (Unaudited) - ------------------------------------------------------------------------------- 1995 1994 - ------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 4,890 $ 5,726 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, net of gain on disposition of equipment 32,023 24,492 Provision (credit) for noncurrent deferred income taxes (2,053) 15 Tax benefit of stock options exercised 264 567 Changes in assets and liabilities: Accounts receivable (6,842) 8,220 Prepaid expenses 6,355 (2,910) Trade accounts payable 20,515 21,947 Claims accruals 1,246 1,207 Other current liabilities (230) 1,532 - ------------------------------------------------------------------------------- Net cash provided by operating activities 56,168 60,796 - ------------------------------------------------------------------------------- Cash flows from investing activities: Additions to property and equipment (48,408) (73,869) Proceeds from sale of equipment 15,196 19,132 Increase in other assets (4,149) (5,123) - ------------------------------------------------------------------------------- Net cash used in investing activities (37,361) (59,860) - ------------------------------------------------------------------------------- Cash flows from financing activities: Net repayments of long-term debt (13,471) (1,072) Proceeds from sale of treasury stock 427 1,432 Dividends paid (1,927) (1,923) - ------------------------------------------------------------------------------- Net cash provided by financing activities (14,971) (1,563) - ------------------------------------------------------------------------------- Net increase (decrease) in cash 3,836 (627) - ------------------------------------------------------------------------------- Cash - beginning of period 2,142 3,390 - ------------------------------------------------------------------------------- Cash - end of period $ 5,978 $ 2,763 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 6,833 $ 5,383 Income Taxes 1,875 2,490 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 5 J.B. HUNT TRANSPORT SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) LONG-TERM DEBT Long-term debt consists of (in thousands): 3/31/95 12/31/94 ------- -------- Commercial paper $174,116 $182,595 Senior notes payable, interest at 6.25% payable semiannually 99,731 99,723 Senior notes payable, interest at 7.75% payable semiannually 10,000 10,000 Senior notes payable, interest at 7.84% payable semiannually 20,000 25,000 Senior subordinated notes, interest at 7.80% payable semiannually 50,000 50,000 -------- -------- 353,847 367,318 Less current maturities (60,650) (68,075) -------- -------- 293,197 299,243 -------- -------- -------- -------- The Company is authorized to issue up to $250 million in notes under its commercial paper note program. The notes are supported by two credit agreements with a group of banks. One agreement for $125 million expires March 31, 1996 and $125 million expires March 31, 1997. 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 (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 nonstatutory options to purchase Company common stock follows: Number of Number of Option price shares shares per share exercisable --------- ------------ ----------- Outstanding at December 31, 1994 1,334,461 $ 6.00-24.63 399,536 ------- ------- Granted 62,500 15.63-19.25 Exercised (77,580) 6.00-13.17 Terminated (23,250) 13.17-22.75 ---------- ------------ Outstanding at March 31, 1995 1,296,131 6.00 - 24.63 317,081 ---------- ------------ ------- ---------- ------------ ------- On April 13, 1995, the Company's Board of Directors declared a regular quarterly cash dividend of $.05 per share payable on May 19, 1995 to stockholders of record on May 3, 1995. 7 KPMG Peat Marwick LLP 1400 Worthen Bank Building 200 West Capitol Avenue Little Rock, AR 72201-3619 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, 1995, and the related condensed consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1995 and 1994, 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, 1994, 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 7, 1995, 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, 1994, 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, 1995 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, 1994. RESULTS OF OPERATIONS The following table sets forth the change in amounts and percentage change between the first quarter of 1995 and the comparable period in 1994 of certain revenue, expense and operating items. Three Months Ended March 31, 1995 vs. 1994 (In thousands except tractor data) Increase (Decrease) % in amounts change ---------- ------ Operating revenues $44,761 17% ------------------------------------------------------------- ------------------------------------------------------------- Average number of tractors in the fleet 661 10% ------------------------------------------------------------- ------------------------------------------------------------- Operating expenses: Salaries, wages and employee benefits $12,552 14% Purchased transportation 17,088 28% ------------------------------------------------------------- Fuel and fuel taxes 3,189 10% Depreciation 7,531 31% ------------------------------------------------------------- Operating supplies and expenses 2,425 13% Insurance and claims 1,349 15% ------------------------------------------------------------- Operating taxes and licenses 695 13% General and administrative expenses 303 5% Communication and utilities (1,090) (38%) ------------------------------------------------------------- Total operating expenses 44,042 18% ------------------------------------------------------------- Operating income 719 6% ------------------------------------------------------------- ------------------------------------------------------------- The following discussion relates to the table set forth above and the attached interim consolidated financial statements for the quarter ended March 31, 1995 and 1994. Operating revenues for the quarter ended March 31, 1995 increased 17 percent, to $309.4 million, compared to $264.7 million in 1994. The $44.7 million increase in revenue included $17 million of dry van volume, $13 million from Dedicated Contract Services, $6 million from J.B. Hunt Logistics and $8 million from other specialized transportation services. Increases in revenue from J.B. Hunt Logistics and Dedicated Contract Services were brisk and exceeded our expectations while intermodal and truck dry van volume fell significantly below plan. Slowing economic activity began in February and accelerated throughout the remainder of the quarter. Freight movement improved slightly near the end of March but remains sluggish and below expectations. The average number of total tractors in the fleet, including local units increased 10 percent in the first quarter of 1995, compared to the same period in 1994. Due to the 9 diversity of transportation services provided, including intermodal and logistics management, revenue growth cannot be directly related to the size of the tractor fleet. Total operating expenses for the first quarter of 1995 increased $44.0 million, or 18 percent, over the comparable period of 1994. Operating income increased $.7 million to $13.7 million, a 6 percent increase over the first quarter of 1994. Salaries, wages and employee benefits increased 14 percent during the first quarter of 1995, reflecting the increase in fleet size and personnel additions primarily in dedicated and logistics operations. Purchased transportation expense increased 28 percent due to continued growth of intermodal volume and increased payments to third party companies for logistics services. Fuel and fuel taxes increased 10 percent, in line with the increase in the size of the fleet. Savings from a slightly lower fuel cost per gallon was offset by higher state fuel tax expense. Depreciation expense increased 31 percent due to significantly lower gains on the disposition of revenue equipment in 1995 and a 17 percent increase in the size of the trailing fleet. Operating supplies and expenses increased 13 percent, reflecting fleet size and travel expenses of dedicated and logistics personnel. The 15 percent increase in insurance and claims was partly due to some unusually high cargo damage experienced during the first quarter of 1995. Operating taxes and licenses increased 13 percent due to fleet size and slightly higher accrual rates. The significant decrease in communication and utilities was primarily due to certain rate reductions and credits recognized during the first quarter of 1995. General and administrative expense reflects certain equipment rental credits which more than offset increases in driver advertising and recruiting expenses. Interest expense increased by $1.5 million or 33 percent, primarily due to higher levels of debt associated with the acquisition of new containers and chassis during 1994 and slightly higher rates in 1995. The effective income tax rate was 37 percent in 1995 compared to 33 percent for the first quarter of 1994. The 1994 rate was lower reflecting tax credits and favorable state tax audits settled during the quarter. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities for the first quarter of 1995 was $56.2 million, compared to $60.8 million in 1994. Except for a slight increase in accounts receivable, net cash provided by operations during the first quarter of 1995 was in line with normal expectations for such period. Net additions to property and equipment during the first quarter of 1995 totaled $33.2 million compared to $54.7 million in 1994. This decrease primarily reflects lower capital expenditures for containers, chassis and on-board computer equipment. With more than 75 percent of the dry van fleet converted to containers, capital spending during 1995 should remain below 1994 levels. The Company plans to fund future capital expenditures with cash provided by operating activities and additional borrowings, if required. 10 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 27 Financial Data Schedules (b) Reports on Form 8-K None were filed during the period covered by this report. 11 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 10, 1995 BY: /s/ Kirk Thompson --------------------- ------------------------------ Kirk Thompson President and Chief Executive Officer DATE: May 10, 1995 BY: /s/ Jerry W. Walton --------------------- ------------------------------ Jerry W. Walton Executive Vice President, Finance and Chief Financial Officer 12