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, 1997 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, 1997 WAS 36,456,276 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, 1997 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1997. 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, 1996. INDEX ----- Consolidated Statements of Earnings for the Three Months Ended March 31, 1997 and 1996............................ Page 3 Consolidated Balance Sheets as of March 31, 1997 and December 31,1996............................. Page 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996...................... Page 5 Notes to Consolidated Financial Statements as of March 31, 1997............................................ 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 - --------------------------------------------------------------------------- 1997 1996 - --------------------------------------------------------------------------- Operating revenues $ 365,401 $ 354,014 Operating expenses Salaries, wages and employee benefits 121,444 116,436 Purchased transportation 116,780 97,971 Fuel and fuel taxes 38,057 40,134 Depreciation 33,250 34,144 Operating supplies and expenses 22,146 22,598 Insurance and claims 10,113 13,165 General and administrative expenses 6,042 7,463 Operating taxes and licenses 6,078 7,162 Communication and utilities 4,171 4,509 - --------------------------------------------------------------------------- Total operating expenses 358,081 343,582 - --------------------------------------------------------------------------- Operating income 7,320 10,432 Interest expense 6,404 5,911 - --------------------------------------------------------------------------- Earnings before income taxes 916 4,521 Income taxes 348 1,718 - --------------------------------------------------------------------------- Net earnings $ 568 $ 2,803 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Common shares outstanding 36,750 38,074 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- Earnings per share $ 0.02 $ 0.07 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 3 J.B. HUNT TRANSPORT SERVICES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) - ------------------------------------------------------------------------------ MARCH 31, DECEMBER 31, 1997 1996 - ------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 12,114 $ 3,786 Accounts receivable 162,288 151,357 Prepaid expenses 24,327 35,964 Deferred income taxes 11,000 11,000 - ------------------------------------------------------------------------------ Total current assets 209,729 202,107 - ------------------------------------------------------------------------------ Property and equipment 1,201,622 1,218,245 Less accumulated depreciation 415,322 404,992 - ------------------------------------------------------------------------------ Net property and equipment 786,300 813,253 - ------------------------------------------------------------------------------ Other assets 22,490 25,565 - ------------------------------------------------------------------------------ $1,018,519 $1,040,925 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 67,950 $ 49,750 Trade accounts payable 72,447 83,846 Claims accruals 31,101 33,693 Accrued payroll 15,797 12,852 Other accrued expenses 7,374 15,999 - ------------------------------------------------------------------------------ Total current liabilities 194,669 196,140 - ------------------------------------------------------------------------------ Long-term debt 322,467 332,571 Claims accruals 12,800 12,800 Deferred income taxes 142,358 142,159 Stockholders' equity 346,225 357,255 - ------------------------------------------------------------------------------ $1,018,519 $1,040,925 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements. 4 J.B. HUNT TRANSPORT SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) - ------------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31 - ------------------------------------------------------------------------------ 1997 1996 - ------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings $ 568 $ 2,803 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 33,250 34,144 Deferred income taxes 199 (3,148) Tax benefit (expense) of stock options exercised (27) 162 Changes in assets and liabilities: Accounts receivable (10,931) (19,999) Prepaid expenses 11,637 7,452 Trade accounts payable (11,399) 1,535 Claims accruals (2,592) (4,360) Accrued payroll and other accrued expenses (5,680) 3,032 - ------------------------------------------------------------------------------ Net cash provided by operating activities 15,025 21,621 - ------------------------------------------------------------------------------ Cash flows from investing activities: Additions to property and equipment (32,687) (50,601) Proceeds from sale of equipment 26,390 15,177 Decrease in other assets 3,809 555 - ------------------------------------------------------------------------------ Net cash used in investing activities (2,488) (34,869) - ------------------------------------------------------------------------------ Cash flows from financing activities: Repayment of long-term debt (5,000) -- Net borrowings under commercial paper program 13,096 13,317 Proceeds from sale of treasury stock 34 550 Repurchase of treasury stock (10,479) (2,998) Dividends paid (1,860) (1,881) - ------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (4,209) 8,988 - ------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 8,328 (4,260) - ------------------------------------------------------------------------------ Cash and cash equivalents at beginning of period 3,786 4,260 - ------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 12,114 $ 0 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid (refunded) during the period for: Interest $ 6,551 $ 5,255 Income Taxes 196 (1,114) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements. 5 J.B. HUNT TRANSPORT SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) LONG-TERM DEBT Long-term debt consists of (in thousands): 3/31/97 12/31/96 -------- -------- Commercial paper $182,950 $169,750 Senior notes payable, interest at 6.25% payable semiannually, due 9/1/03 98,260 98,260 Senior notes payable, interest at 7.84% payable semiannually 10,000 15,000 Senior subordinated notes, interest at 7.80% payable semiannually 50,000 50,000 Senior notes payable, interest at 6.25% payable semiannually, due 11/17/00 25,000 25,000 Senior notes payable, interest at 6.00% payable semiannually 25,000 25,000 -------- -------- 391,210 383,010 Less current maturities (67,950) (49,750) Unamortized discount (793) (689) -------- -------- $322,467 $332,571 -------- -------- -------- -------- The Company is authorized to issue up to $240 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 $120 million expires March 19, 1998 and $120 million expires March 20, 2002. The 6.25% senior notes were issued on September 1, 1993 and are due on September 1, 2003. The 7.84% senior notes were issued on March 31, 1992 and are payable in five equal annual installments on March 31. The 7.80% senior subordinated notes were issued on October 30, 1992 and are payable in five equal annual installments beginning October 30, 2000. 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. 6 (2) CAPITAL STOCK The Company maintains a Management Incentive Plan that provides various vehicles to compensate key employees with Company common stock. A summary of the restricted and non-statutory options to purchase Company common stock follows: Number of Number of Option price shares shares per share exercisable --------- ------------ ----------- Outstanding at December 31, 1996 2,740,925 $11.58-24.63 294,950 ------- Granted 5,000 14.25 Exercised (3,000) 11.58 Terminated (32,750) 12.83-23.00 --------- ------------ ------- Outstanding at March 31, 1997 2,710,175 $11.58-24.63 313,150 --------- ------------ ------- --------- ------------ ------- On April 17, 1997, the Company's Board of Directors declared a regular quarterly cash dividend of $.05 per share payable on May 19, 1997 to stockholders of record on May 2, 1997. (3) NEW ACCOUNTING STATEMENT The Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, in February of 1997, which the Company is required to adopt as of December 31, 1997. At that time the method of computing earnings per share will change and all prior periods which are presented will be restated to conform with Statement 128. Under the new requirements "basic earnings per share" will replace the current term of "primary earnings per share" and "diluted earnings per share" will replace the current term of "fully diluted earnings per share". The Company expects basic earnings per share for the quarters ended March 31, 1997 and March 31, 1996 to be unchanged when compared to primary earnings per share for those same periods. 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, 1997, and the related condensed consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1997 and 1996, 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, 1996, 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 7, 1997, 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, 1996, 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 11, 1997 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, 1996. RESULTS OF OPERATIONS The following table sets forth the percentage relationship of certain items to operating revenues for the periods indicated: Three Months Ended March 31 --------------------- 1997 1996 ------ ------ Operating revenues 100.0% 100.0% Operating expenses Salaries, wages and employee benefits 33.2 32.9 Purchased transportation 32.0 27.7 Fuel and fuel taxes 10.4 11.3 Depreciation 9.1 9.7 Operating supplies and expenses 6.1 6.4 Insurance and claims 2.8 3.7 General and administrative expenses 1.6 2.1 Operating taxes and licenses 1.7 2.0 Communication and utilities 1.1 1.3 ----- ----- Total operating expenses 98.0 97.1 ----- ----- Operating income 2.0 2.9 Interest expense 1.7 1.6 ----- ----- Earnings before income taxes 0.3 1.3 Income taxes 0.1 0.5 ----- ----- Net earnings 0.2% 0.8% ----- ----- ----- ----- The following discussion relates to the table set forth above and the attached interim consolidated financial statements for the quarters ended March 31, 1997 and 1996. OPERATING REVENUES Operating revenues for the first quarter of 1997 increased approximately $11 million, or 3 percent, to $365 million, from $354 million in the first quarter of 1996. This comparison of revenue was negatively affected by approximately $17.8 million of revenue generated during the first quarter of 1996 by the special commodities and parcel management businesses which were disposed of later in 1996. This comparison was also negatively impacted by approximately $8.8 million due to fewer workdays during the first quarter of 1997. 9 The average number of total tractors in the fleet decreased during the current quarter by 1 percent from 1996. In addition, approximately 150 tractors were without drivers during the first quarter of 1997. Failing to fill those tractors negatively impacted revenue, utilization and operating income during the first quarter. Load volume in the van division increased 8 percent, but was partly offset by a decrease in length of haul. Truck only freight rates increased .2 percent from 1996, while intermodal rates were down .8 percent. The change in revenue between quarters includes the following by type of freight: Change in Revenue First Quarter 1997 vs. First Quarter 1996 (millions of dollars) Logistics management $ 26 Van/intermodal 7 Dedicated contract 5 Businesses disposed of and fewer workdays (27) ---- $ 11 ---- ---- Operating revenues increased 91% in logistics management, 3 percent in Van/intermodal and 16% in dedicated contract. OPERATING EXPENSES Total operating expenses expressed as a percentage of operating revenues increased from 97.1% in the first quarter of 1996 to 98.0% in the first quarter of 1997. Operating income declined to $7.3 million, or 2.0 percent of revenue in 1997 from $10.4 million, or 2.9 percent of revenue in 1996. The increase in operating expenses and decline in operating income was due to a number of factors. Salaries, wages and employee benefits increased as a percentage of revenue from 32.9% in 1996 to 33.2%. This percentage had declined in recent periods, primarily due to the growth of intermodal and logistics business wherein third parties may transport freight rather than Company tractors and drivers. A new compensation package for van over-the-road drivers, announced in September of 1996, was effective February 25, 1997. This new package increased salaries, wages and employee benefits by approximately $4.5 million during the first quarter of 1997. This compensation change is expected to increase salaries, wages and employee benefits by $45 million to $50 million annually. Funding of this increased cost is planned to come from the reduction of driver turnover and lower associated costs of advertising, recruiting, driver training schools, and accidents. Increased tractor utilization is also expected to help offset the higher wage and benefit costs. Purchased transportation expense increased as a percentage of revenue from 27.7% in 1996 to 32.0% in 1997. This increase is consistent with trends in recent periods and reflects the increase in payments to railroads and third-parties for intermodal and transportation services provided to the Company. Fuel and fuel taxes reflects an increase of approximately 7 cents per gallon, offset by significantly higher fuel miles per gallon and 10 the impact of additional freight moved by railroads and third-party transportation companies. The decline of insurance and claims expense from 3.7 percent in 1996 to 2.8 percent in 1997 was primarily due to a substantial reduction in accident frequency. The total cost of insurance and claims in the first quarter of 1997 decreased approximately $3 million from 1996. This decrease relates to a higher number of experienced drivers in the fleet attracted by the new compensation package. General and administrative expenses decreased approximately $1.4 million due, in part, to decreased driver school and advertising costs. Interest expense increased due to slightly higher debt levels and higher interest rates on commercial paper. 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 $15 million for the first quarter of 1997 compared with $21.6 million in 1996. This decrease in net cash provided was primarily due to lower earnings, a reduced rate of accounts receivable growth and a reduction of accounts payable and accrued expenses related to timing of vendor and other cash disbursements. Net cash used in investing activities was $2.5 million in 1997 compared to $34.9 million in 1996. With the van trailing equipment fleet substantially converted to containers and chassis, the level of net additions to property and equipment was down by nearly $30 million. Net cash used in financing activities was $4.2 million in 1997 compared with net cash provided of $9.0 million in 1996. This change was primarily due to the purchase of treasury stock during the first quarter of 1997. SELECTED BALANCE SHEET DATA As of --------------------------------------------------- March 31, 1997 December 31, 1996 March 31, 1996 -------------- ----------------- -------------- Working capital ratio 1.08 1.03 1.01 Current maturities of long- term debt (millions) $68 $50 $43 Total debt (millions) $390 $382 $383 Total debt to equity 1.13 1.07 1.08 Total debt as a percentage of total capital .53 .52 .52 During the first quarter of 1997, the Company renewed its commercial paper note program and reduced the total amount of authorized borrowing from $250 million to $240 million. The notes are supported by two credit agreements with a group of banks. One agreement for $120 million expires March 19, 1998 and $120 million expires March 20, 2002. 11 While total debt levels have increased slightly 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. FORWARD-LOOKING STATEMENTS This report contains statements that may be considered as forward-looking or predictions concerning future operations. Such statements are based on management's belief or interpretation of information currently available. These statements and assumptions involve certain risks and uncertainties and management can give no assurance that such expectations will be realized. Among all the factors and events that are not within the Company's control and could have a material impact on future operating results are general economic conditions, cost and availability of diesel fuel, adverse weather conditions and competitive rate fluctuations. In addition, the ultimate net cost of the new driver compensation package will be dependent on the mix of experienced drivers attracted to the Company and on future accident, cargo and worker's compensation claims, as well as other factors. 12 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None applicable. ITEM 2. CHANGES IN SECURITIES None applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of J. B. Hunt Transport Services, Inc. was held on April 17, 1997. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. At the meeting, stockholders voted on the following resolutions with the vote tabulations so indicated: VOTES ------------------------------------ FOR AGAINST ABSTAINED ------------------------------------ 1. To elect nine (9) directors and to fix the number of directors for the ensuing year at nine (9). 33,855,423 0 323,799 2. To ratify the appointment of KPMG Peat Marwick LLP as the Company's independent public accountants for the next fiscal year. 34,157,116 12,452 9,654 3. To transact such other business as may properly come before the meeting or any adjournments thereof. 30,560,028 2,683,497 935,697 There was no solicitation in opposition to management's nominees for Directors as listed in the proxy statement and each nominee was elected by greater than ninety-nine percent of the shares entitled to vote. No additional business or other matters came before the meeting or any adjournment thereof. ITEM 5. OTHER INFORMATION None applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule 13 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 9, 1997 BY: /s/ Kirk Thompson --------------------- ------------------------------------ Kirk Thompson President and Chief Executive Officer DATE: May 9, 1997 BY: /s/ Jerry W. Walton --------------------- ------------------------------------ Jerry W. Walton Executive Vice President, Finance and Chief Financial Officer 14