-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gu+4GLgXLRQE5oYRbVHFkLGL7yuaK8j0Qlq7h9MRTNF1t7oYIoDMFqtO9i4H8qty Z4a8+rSu5ILX7Af5IA1mDw== 0000912057-96-005725.txt : 19960402 0000912057-96-005725.hdr.sgml : 19960402 ACCESSION NUMBER: 0000912057-96-005725 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNT J B TRANSPORT SERVICES INC CENTRAL INDEX KEY: 0000728535 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710335111 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11757 FILM NUMBER: 96542541 BUSINESS ADDRESS: STREET 1: 615 JB HUNT CORPORATE DR CITY: LOWELL STATE: AR ZIP: 72745 BUSINESS PHONE: 5018200000 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER DECEMBER 31, 1995 0-11757 J.B. HUNT TRANSPORT SERVICES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ARKANSAS 71-0335111 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 615 J.B. HUNT CORPORATE DRIVE 72745 LOWELL, ARKANSAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (501) 820-0000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.01 PAR VALUE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTIONS 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 ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K (SS229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. THE AGGREGATE MARKET VALUE OF 17,552,075 SHARES OF THE REGISTRANT'S $.01 PAR VALUE COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY 29, 1996 WAS $320,325,369 (BASED UPON $18.25 PER SHARE BEING THE CLOSING SALE PRICE ON THAT DATE, AS REPORTED BY NASDAQ). IN MAKING THIS CALCULATION, THE ISSUER HAS ASSUMED, WITHOUT ADMITTING FOR ANY PURPOSE, THAT ALL EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT, AND NO OTHER PERSONS, ARE AFFILIATES. THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF FEBRUARY 29, 1996: 38,010,296. DOCUMENTS INCORPORATED BY REFERENCE CERTAIN PORTIONS OF THE NOTICE AND PROXY STATEMENT FOR THE 1995 ANNUAL STOCKHOLDERS' MEETING TO BE HELD MAY 9, 1996, PART II. PART I ITEM 1. BUSINESS GENERAL J.B. Hunt Transport Services, Inc., together with its wholly-owned subsidiaries ("JBH" or the "Company") is a diversified transportation services and logistics company operating under the jurisdiction of the U.S. Department of Transportation, formerly the Interstate Commerce Commission ("ICC"), and various state regulatory agencies. JBH is an Arkansas holding company incorporated on August 10, 1961. Through its subsidiaries JBH transports full-load containerizable freight throughout the continental United States and portions of Canada and Mexico. The Company also provides logistics and transportation-related services which may utilize JBH equipment and employees or may employ equipment and services provided by unrelated third parties in the transportation industry. JBH has various operating authorities granted by the ICC and state regulatory agencies. The Company may transport any type of freight (except certain types of explosives) from any point in the continental United States to any other point in another state, over any route selected by the Company. The Company also has certain intrastate authorities, allowing pick-up and delivery within those states. Federal legislation was enacted effective January 1, 1995 which preempted each state's right to limit entry into intrastate operations. A wide range of products are transported including automotive parts, department store merchandise, paper and paper products, plastics, chemicals and manufacturing materials and supplies. JBH was granted certain Canadian authority initially in 1988 and currently transports freight to and from all points in the continental United States to Quebec, British Columbia and Ontario. The Company has authorization to operate directly in all the Canadian provinces, but to date has served additional points in Canada primarily through interchange operations with Canadian motor carriers. The Company has provided transportation services to and from Mexico since 1989 through interchange operations with various Mexican motor carriers. A joint venture agreement with Transportacion Maritima Mexicana, the largest transportation company in Mexico, was signed in 1992. In 1990, JBH initiated intermodal operations with the Atchison, Topeka and Santa Fe Railway Company. In accordance with this agreement, freight may be transported by rail utilizing traditional trailer-on-flatcar (TOFC) or container-on-flatcar (COFC) medium. Since this initial agreement with Santa Fe, intermodal operations have been expanded to include arrangements with ten railroads. A number of these rail routes allow the utilization of a newly-designed container which can be double-stacked to provide improved productivity. Substantially all of the freight carried under these rail arrangements is guaranteed space on trains and receives preferential loading and unloading at rail facilities. The Company also offers related full truckload transportation services. Flatbed and special (hazardous) commodities operations were commenced in 1991. A Texas intrastate operation was also acquired in 1991. A growing number of shippers are interested in logistics and dedicated equipment services, whereby all transportation requirements can be outsourced and provided by one management and services company. JBH commenced offering logistics services in 1992 and dedicated equipment in 1993. A new operation was initiated in late 1994 to provide transportation services to the direct merchandising industry transporting small parcels. MARKETING AND OPERATIONS The truckload ("T/L") market has traditionally been a lower price, lower service market when compared to the less-than-truckload ("LTL") segment. The Company has opted to provide a premium service and charge compensating rates rather than compete primarily on the basis of price. The Company's business is well diversified and no one customer accounted for more than 6% of revenues during 1995 or 1994. Marketing efforts include significant focus on the diversified group of "Fortune 500" customers. A broad geographic dispersion and a good balance in the type of industries served allow JBH some protection from major seasonal fluctuations. However, consistent with the T/L industry in general, freight is typically stronger in the second half of the year with peak 2 months being August, September and October. In addition, demand for services is usually strong at the end of the first two calendar quarters (i.e., March and June). Revenue is also affected by bad weather and holidays, since revenue is directly related to available working days of shippers. The Company markets door-to-door T/L service through its nationwide marketing network. Services involving intermodal transportation mediums are billed by JBH and all inquiries, claims and other customer contact are handled by the Company. In late 1994, the Company reorganized its dry van and intermodal operations into five geographically based regions. PERSONNEL At December 31, 1995, JBH employed 12,020 people, including 9,073 drivers. The transportation industry and the Company have experienced shortages of qualified drivers from time to time. The Company has developed an extensive program to attract, train and retain drivers. Both experienced and non-experienced drivers are trained in all phases of Company policies and operations, as well as defensive driving, safety techniques and fuel efficient operation of equipment. During 1992, three distinct driving designations (local, regional or zone and over-the-road) were identified in order to get drivers home more frequently and provide specific support for intermodal and regional operations. Drivers are compensated based upon miles driven, a specified rate per week, or a combination of both. Additional compensation may be earned based upon fuel economy and other performance criteria. The Company also employed approximately 1,030 mechanics as of December 31, 1995. In the opinion of management, the Company's relationship with all of its employees is excellent. REVENUE EQUIPMENT At December 31, 1995, JBH owned 7,706 tractors, 7,556 trailers and 17,062 specially designed containers. The average age of the tractor and trailing equipment fleet was slightly more than two and one half years. In late 1992, the Company announced the development of a new multi-purpose container which can be placed on a chassis for transportation over the road by truck and also moved by rail or ship. The container and chassis combination may be transported by rail (TOFC) or the container can be separated from the chassis and double-stacked (COFC) on the rail for improved productivity. The Company intends to continue the conversion of a significant portion of its dry van trailer fleet to these containers. A periodic maintenance program is strictly enforced for all revenue equipment based upon the specific type and use of the equipment. JBH believes that modern, late-model, clean equipment differentiates quality service in the marketplace. A professional maintenance program minimizes downtime, increases utilization and enhances the trade-in value of used equipment. COMPETITION JBH is the largest publicly held T/L carrier in the United States. It competes primarily with other irregular route, T/L common carriers. LTL common carriers and private carriers generally provide limited competition. JBH is one of a few carriers offering nationwide logistics management and dedicated revenue equipment services. Although a number of carriers may provide competition on a regional basis, only a limited number of companies represent competition in all markets. The extensive rail network developed in conjunction with the various railroads also allows the Company the opportunity to differentiate its services in the marketplace. REGULATION The Company is a motor common carrier regulated by the United States Department of Transportation (formerly the ICC). The federal government generally governs activities such as authority to engage in interstate motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions and periodic financial reporting. 3 Motor carrier operations are subject to safety requirements prescribed by the United States Department of Transportation (DOT) governing interstate operation. Such matters as weight and dimensions of equipment and commercial driver's licensing are also subject to federal and state regulations. A federal requirement that all drivers obtain a commercial driver's license became effective in April 1992. The federal Motor Carrier Act of 1980 was the start of a program to increase competition among motor carriers and limit the level of regulation in the industry (sometimes referred to as "deregulation"). The Motor Carrier Act of 1980 enabled applicants to obtain ICC operating authority more easily and allows interstate motor carriers, such as the Company, to change their rates by a certain percentage per year without ICC approval. The new law also allowed for the removal of many route and commodity restrictions regarding the transportation of freight. As a result of the Motor Carrier Act of 1980, the Company was able to obtain unlimited authority to carry general commodities throughout the 48 contiguous states. Effective January 1, 1995, the federal government issued guidelines which allow motor carriers more flexibility in intrastate operations. Although this reduced level of state regulation may increase the level of competition in some regions, the Company believes it will ultimately benefit from this legislation. ITEM 2. PROPERTIES The Company's corporate headquarters are in Lowell, Arkansas. A 150,000-square-foot building was constructed and occupied in September 1990. The building is situated on a 127-acre tract of land. In addition to the corporate headquarters, the Company owns a separate 61-acre tract in Lowell, Arkansas with three separate buildings totaling 21,000 square feet of office space and 90,000 square feet of maintenance and warehouse space. These buildings serve as the Lowell operations terminal, tractor and trailer maintenance facilities and additional administrative offices. A new terminal and maintenance facility is being constructed in Chicago, Illinois and will be occupied in mid 1996. A summary of the Company's principal facilities follows:
LOCATION - -------- MAINTENANCE SHOP OFFICE SPACE VAN DIVISION TERMINALS ACREAGE (SQUARE FEET) (SQUARE FEET) - ---------------------- ------- ---------------- ------------- Atlanta, Georgia 30 29,800 10,400 Chicago, Illinois 10 5,800 6,400 Dallas, Texas 14 24,000 7,800 Detroit, Michigan 9 44,300 10,800 East Brunswick, New Jersey 19 3,000 7,800 Houston, Texas 13 24,700 7,200 Little Rock, Arkansas 24 29,200 7,200 Lowell, Arkansas 40 50,200 14,000 Lowell, Arkansas (trailer facilities) 14 29,800 3,700 South Gate, California 12 12,000 5,500 FLATBED DIVISION TERMINAL - ------------------------- Hueytown, Alabama 9 16,000 3,000
In addition to the above facilities, the Company leases several small offices and/or trailer parking yards in various locations throughout the country. 4 ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The Company maintains excess insurance above its self-insured levels which covers extraordinary liability resulting from such claims. Adverse results in one or more of these cases would not have a material adverse effect on the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1995 Annual Stockholders' Meeting was held on May 11, 1995. At that meeting, the following matters were submitted to a vote of security holders: 1. To elect ten (10) directors and to fix the number of directors for the ensuing year at ten (10).
FOR AGAINST ABSTAIN --------- ------- ------- Number of shares voted 34,172,332 0 129,301 Percentage of shares voted 99.62% 0.00% .38%
2. To approve the Amended Management Incentive Plan.
FOR AGAINST ABSTAIN --------- ------- ------- Number of shares voted 27,549,508 1,534,479 231,055 Percentage of shares voted 93.98% 5.23% .79%
3. To ratify the appointment of KPMG Peat Marwick LLP as the Company's independent public accountants for the next fiscal year.
FOR AGAINST ABSTAIN --------- ------- ------- Number of shares voted 34,245,829 17,670 38,134 Percentage of shares voted 99.84% .05% .11%
No matters were submitted during the fourth quarter of 1995 to a vote of security holders. 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's common stock is traded in the over-the-counter market under the symbol "JBHT". The following table sets forth, for the calendar periods indicated, the range of high and low sales prices for the Company's common stock as reported by the National Association of Securities Dealers Automated Quotations National Market System ("NASDAQ").
CALENDAR YEAR 1994 CALENDAR YEAR 1995 PERIOD HIGH LOW HIGH LOW - ------ ------ ------ ------ ------ 1st Quarter $25.75 $21.75 $20.13 $15.25 2nd Quarter 23.38 17.50 19.50 16.13 3rd Quarter 19.25 15.75 19.50 14.88 4th Quarter 17.25 15.00 17.13 12.75
On February 29, 1996, the high and low sales prices for the Company's common stock as reported by the NASDAQ were $18.50 and $18.25, respectively. As of February 29, 1996, the Company had 2,275 stockholders of record. DIVIDEND POLICY On January 24, 1996, the Board of Directors declared a quarterly dividend of $.05 per share, payable on February 16, 1996 to shareholders of record on February 2, 1996. Although it is the present intention of the Board of Directors to continue quarterly dividends, payment of future dividends will depend upon the Company's financial condition, results of operations and other factors deemed relevant by the Board of Directors. The Company declared and paid cash dividends of $.20 per share in 1995 and 1994. 6 ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 - ----------------------- ---------- ---------- ---------- -------- -------- -------- -------- -------- -------- Operating revenues $1,352,225 $1,207,601 $1,020,921 $911,982 $733,288 $579,831 $509,278 $392,553 $286,419 Earnings (loss) before cumulative effect of changes in accounting methods (2,170) 40,392 38,221 36,933 29,459 30,048 30,615 33,045 22,415 Earnings (loss) per share before cumulative effect of changes in accounting methods (.06) 1.05 1.00 1.03 .85 .85 .87 .93 .63 Cash dividends per share .20 .20 .20 .20 .19 .16 .16 .13 .11 Total assets 1,016,782 993,699 862,442 715,741 520,130 452,734 384,684 300,199 250,274 Long-term debt 339,0152 99,243 303,499 216,254 156,930 137,597 104,955 65,358 69,000 Stockholders' equity 356,939 377,898 343,964 308,626 215,761 191,074 175,518 150,126 121,316
Percentage of Operating Revenue
YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 - ----------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- Operating revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and employee benefits 33.8 33.5 36.4 38.2 40.0 41.4 42.1 41.4 39.6 Purchased transportation 26.8 23.9 18.4 12.2 7.0 0.7 0.7 0.6 0.4 Fuel and fuel taxes 10.6 10.9 12.4 14.2 16.3 17.3 15.7 14.3 15.8 Depreciation 9.6 9.2 8.2 9.5 9.4 9.7 9.5 9.7 10.3 Operating supplies and expenses 7.0 6.9 7.2 7.4 8.0 8.8 8.5 7.8 7.1 Insurance and claims 3.8 3.1 4.0 4.8 4.7 5.4 4.5 4.3 4.4 General and administrative 2.4 2.2 1.9 2.0 2.1 2.3 1.7 1.3 1.3 Operating taxes and licenses 2.0 2.2 2.8 2.8 3.0 3.2 3.5 3.4 3.7 Special charges 1.3 - - - - - - - - Communication and utilities 1.1 1.1 1.0 1.3 1.4 1.4 1.7 2.0 2.4 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total operating expenses 98.4 93.0 92.3 92.4 91.9 90.2 87.9 84.8 85.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Operating income 1.6 7.0 7.7 7.6 8.1 9.8 12.1 15.2 15.0 Interest expense 1.8 1.6 1.4 1.2 1.5 1.2 1.8 1.7 1.4 Income taxes - 2.1 2.6 2.3 2.6 3.4 4.3 5.1 5.7 Cumulative effect of changes in accounting methods - - - 0.2 (0.2) - - - (1.2) ----- ----- ----- ----- ----- ----- ----- ----- ----- Net earnings (loss) (0.2%) 3.3% 3.7% 4.3% 3.8% 5.2% 6.0% 8.4% 9.1% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following should be read in conjunction with the Selected Financial Data and the Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements which appear elsewhere in this report. RESULTS OF OPERATIONS The following table sets forth the change in amounts and percentage change between years of certain revenue, expense and operating items. (Dollars in thousands, except tractor data)
1995 COMPARED TO 1994 1994 COMPARED TO 1993 --------------------- --------------------- INCREASE INCREASE (DECREASE) (DECREASE) IN AMOUNTS % CHANGE IN AMOUNTS % CHANGE ---------- -------- ---------- -------- Average number of tractors in the fleet 465 7% 204 3% -------- --- -------- -- -------- --- -------- -- Operating revenues $144,624 12% $186,680 18% Operating expenses: Salaries, wages and employee benefits 52,431 13 33,287 9 Purchased transportation 74,836 26 100,427 53 Fuel and fuel taxes 12,213 9 4,060 3 Depreciation 19,603 18 27,452 33 Operating supplies and expenses 11,653 14 9428 13 Insurance and claims 12,756 34 (2,473) (6) General and administrative expenses 6,022 22 7,927 42 Operating taxes and licenses (594) (2) (1,889) (7) Special charges 17,296 -- Communication and utilities 1,959 15 2,191 21 -------- --- -------- -- Total operating expenses 208,175 19% 180,410 19% -------- --- -------- -- Operating income after special charges $(63,551) (75%) $ 6,270 8% -------- --- -------- -- -------- --- -------- -- Operating income before special charges $(46,255) (54%) $ 6,270 8% -------- --- -------- -- -------- --- -------- --
The following table sets forth certain industry operating data of the Company.
YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991 1990 1989 - ----------------------- --------- --------- --------- ------- ------- ------- ------- Total loads 1,361,251 1,187,815 1,081,013 960,031 796,929 596,574 536,448 Average number of tractors in the fleet during the year 7,559 7,094 6,890 6,424 5,286 4,413 3,616 Tractors operated (at year end) 7,706 7,412 6,775 7,004 5,843 4,729 4,096 Trailers/containers (at year end) 24,618 22,687 19,089 17,391 12,389 10,563 9,339 Tractor miles (in thousands) 772,199 740,626 718,767 733,700 638,926 551,175 495,377
8 OPERATING REVENUES Operating revenues increased $144.6 million (12%) from 1994 to 1995 and $186.7 million (18%) from 1993 to 1994. These increases in revenue were primarily due to expansion of specialized carrier operations and continued growth of intermodal volume. The increase in revenue between years includes the following by type of freight: Increase in Revenue (millions of dollars)
1995 COMPARED 1994 COMPARED TO 1994 TO 1993 ------------- ------------- Intermodal $ 76.8 $110.5 Dedicated Contract 58.5 41.2 Logistics Management 17.8 48.3 Flatbed 10.0 12.5 Other (including conversion of dry van truck freight to intermodal) (18.5) (25.8) ------ ------ $144.6 $186.7 ------ ------ ------ ------
The average number of tractors in the fleet increased 7% from 1994 to 1995 and 3% from 1993 to 1994. The strategy of providing diversified transportation services which utilize intermodal, and full-service logistics management, which utilizes third party revenue equipment, results in revenue growth that does not require a comparable increase in the tractor fleet. Dry van truck freight rates decreased approximately 1% from 1994 to 1995, but increased 4% from 1993 to 1994. Intermodal freight rates declined approximately 3% from 1994 to 1995 and were essentially flat from 1993 to 1994. These decreases negatively impacted earnings in 1995. Revenue growth during 1995 and 1994 primarily reflects a focus on the following: * The Company made a commitment in 1990 to utilize intermodal as an integral part of dry service. Intermodal operations include arrangements with ten different railroads across the United States and portions of Canada and Mexico. Intermodal revenue increased by 19% during 1995 and 37% during 1994. * The dedicated contract services unit which commenced operations in 1993 continued to contribute to revenue growth. Dedicated revenue increased approximately 110% in 1995 and more than 300% in 1994 over a partial year of operation in 1993. * Logistics services, which commenced operations in 1992, also continued to grow rapidly. Revenue increased 22% in 1995 and in excess of 150% in 1994. The Company expects that revenue growth is sustainable in the near term. Management expects to continue its focus on intermodal, dedicated contract services, logistics management and other special service offerings related to truckload freight. 9 OPERATING EXPENSES Operating expenses as a percentage of operating revenue (operating ratio) were 98.4% in 1995 and 93.0% in 1994. The operating ratio excluding special charges recorded in 1995 was 97.1%. The primary reasons for the increase in operating ratio and the decrease in operating income from 1994 to 1995 were: * Special charges were recorded to reduce the carrying value of idle and under-performing assets primarily related to the Company's decision to exit the auto hauling business. These special charges, which were recorded during the fourth quarter of 1995, increased operating expenses and reduced operating income by $17.3 million. * Gains on dispositions of revenue equipment, which are offset against depreciation expense, were $8.1 million in 1995 and $12.3 in 1994. These lower gains in 1995 increased operating expenses and reduced operating income by $4.2 million. Management expects gains on future equipment dispositions to be lower due to a softer used equipment market and changes of salvage values and useful lives made during 1993 and 1994 for certain revenue and service equipment. See Note 1(d) of the Notes to Consolidated Financial Statements. * Salaries, wages and employee benefits increased 13% from 1994 to 1995. This increase was due in part to a driver pay increase implemented in April 1995 for the Company's least experienced drivers. * Fuel and fuel taxes increased 9% from 1994 to 1995, primarily due to a decrease in miles per gallon and a slight increase in cost per gallon. Insurance and claims expense increased 34% from 1994 to 1995. While the number of accidents did not increase significantly during 1995, a small number of severe accidents occurred during late 1995 which fell within the Company's self-insured limits. Purchased transportation expense increased 26% from 1994 to 1995. This increase reflects payments to railroads and third-party companies for intermodal and transportation services provided to the Company. Management believes the increase in intermodal volume has not contributed to the overall increase in operating ratio and decrease in operating income, and should ultimately improve earnings. Interest expense increased approximately $5.0 million during 1995 and $5.9 million during 1994. These increases were primarily due to higher levels of debt associated with the acquisition of new containers and chassis, and slightly higher interest rates. 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. The Company generates significant cash from operating activities and has substantial borrowing capacity to meet its operating, committed and contemplated cash expenditures. Net cash provided by operating activities was $175 million in 1995, $172 million in 1994 and $122 million in 1993. Net cash provided in 1993 was reduced by approximately $29 million of accounts receivable at December 31, 1993 related to the sale of revenue equipment which was received in early 1994. Trade accounts payable at December 31, 1995 includes approximately $24 million due to revenue equipment suppliers for service equipment received in 1995, which funds were disbursed in early 1996. A commitment was made in 1992 to increase levels of capital spending and convert the majority of the dry van trailing equipment fleet to newly designed multi-purpose containers and chassis. As of December 31, 1995 more than 80% of the dry van trailer fleet had been converted. Net capital expenditures declined to $155 million in 1995 from $219 million in 1994 and $197 million in 1993. These expenditures were funded with proceeds from long-term debt and cash generated from operations. 10 SELECTED BALANCE SHEET DATA
AS OF DECEMBER 31 1995 1994 1993 - ------------------------------------------------------------------------------ Working capital ratio 1.01 1.02 1.76 Current maturities of long-term debt (millions) 30.3 68.1 -- Total debt (millions) 369.3 367.3 303.5 Total debt to equity 1.03 .97 .88 Total debt as a percentage of total capital .51 .49 .47
While total debt levels have increased during 1994 and 1995, primarily due to capital expenditures, the 1993 working capital ratio was unusually high because no debt was classified as current at December 31, 1993. The Company's liquidity has essentially remained the same during 1994 and 1995. The Company is authorized to issue up to $250 million in notes under a commercial paper note program, of which $145 million was outstanding at December 31, 1995. The Company filed a prospectus supplement with the Securities and Exchange Commission in June 1995 to issue up to $150 million of medium-term notes, of which $50 million of senior notes were outstanding at December 31, 1995. In addition, the Company had approximately $166 million of uncommitted lines of credit, none of which were outstanding at December 31, 1995. As of December 31, 1995, the Company had committed to purchase approximately $203 million of revenue and service equipment (net cost, after expected proceeds from sale or trade-in allowances of $51 million). In October 1995 the Board of Directors authorized the repurchase of up to 1.0 million shares of the Company's common stock, from time-to-time in the open market or through privately negotiated transactions at prevailing market prices. This was in addition to an authorization in October 1994 to repurchase up to .5 million shares. During 1995, the Company repurchased 513,742 shares at market prices ranging from $13.125 per share to $15.625 per share. During 1994, the Company repurchased 134,500 shares at market prices ranging from $15.125 per share to $15.75 per share. The Company intends to hold these shares in treasury for general corporate purposes, which may include employee stock options and restricted stock awards. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE ---- Management's and Independent Auditors' Report 13 Consolidated Balance Sheets at December 31, 1995 and 1994 14 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 15 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993 16 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 17 Notes to Consolidated Financial Statements 18 12 MANAGEMENT'S REPORT Management is responsible for the financial statements and other information contained in its annual report. The financial statements have been prepared in accordance with appropriate, generally accepted accounting principles, and the other information presented is consistent with the financial statements. In preparing these financial statements, it is necessary to make informed judgments and estimates regarding the expected effects of certain events and transactions that are currently being reported. To meet its financial reporting responsibilities, management depends upon systems of internal controls which are intended to provide reasonable assurance, in relationship to reasonable cost, that assets are safeguarded, that transactions are executed in accordance with management's authorization and that the transactions are properly recorded so as to permit preparation of financial statements in accordance with generally accepted accounting principles. Management seeks to provide reasonable assurance that the objectives of internal accounting control are met by prudent selection of personnel, adoption of appropriate policies, effective communication to personnel and establishment of an effective system of authorization. The Board of Directors performs an oversight role with respect to management's financial reporting responsibilities. To ensure effective discharge of its responsibilities, the Board of Directors has established an audit committee. The majority of the committee members are nonemployees of the Company and its subsidiaries. The audit committee has met and reviewed accounting issues, financial reporting and audit matters, including those pertaining to the effectiveness of the Company's systems of internal control. The consolidated financial statements have been audited by KPMG Peat Marwick LLP. As part of their audit of the Company's consolidated financial statements, our independent accountants considered the Company's system of internal control structure to the extent they deemed necessary to determine the nature, timing and extent of their audit tests. These auditing procedures are intended to provide a reasonable level of assurance that the consolidated financial statements are fairly stated in all material respects. Kirk Thompson Jerry W. Walton President and Chief Executive Officer Executive Vice President, Finance and Chief Financial Officer March 15, 1996 INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Little Rock, Arkansas KPMG Peat Marwick LLP February 9, 1996 13 CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994, (Dollars in thousands)
ASSETS 1995 1994 ---------- ---------- Current assets: Cash and cash equivalents $ 4,260 2,142 Accounts receivable 143,002 138,295 Prepaid expenses: Taxes, licenses and permits 13,280 11,987 Repair parts and supplies 6,447 16,277 Other (note 4) 9,918 4,449 ----------- ---------- Total prepaid expenses 29,645 32,713 ----------- ---------- Deferred income taxes (note 4) 10,171 8,083 ----------- ---------- Total current assets 187,078 181,233 ----------- ---------- Property and equipment, at cost: Revenue and service equipment 1,050,986 966,878 Land 17,313 12,268 Structures and improvements 50,962 44,799 Furniture and office equipment 65,547 65,290 ----------- ---------- Total property and equipment 1,184,808 1,089,235 Less accumulated depreciation 375,798 299,539 ----------- ---------- Net property and equipment 809,010 789,696 ----------- ---------- Other assets (note 7) 20,694 22,770 ----------- ---------- $ 1,016,782 993,699 ----------- ---------- ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 2) $ 30,310 68,075 Trade accounts payable 90,127 48,847 Claims accruals 38,014 34,248 Accrued payroll 11,083 9,626 Other accrued expenses 15,065 17,125 ----------- ---------- Total current liabilities 184,599 177,921 ----------- ---------- Long-term debt (notes 2 and 9) 339,015 299,243 Claims accruals 13,500 16,750 Deferred income taxes (note 4) 122,729 121,887 ----------- ---------- Total liabilities 659,843 615,801 ----------- ---------- Stockholders' equity (notes 2 and 3): Preferred stock, par value $100. Authorized 10,000,000 shares; none outstanding - - Common stock, par value $.01 per share. Authorized 100,000,000 shares; issued 39,009,858 shares 390 390 Additional paid-in capital 105,577 104,723 Retained earnings 267,823 277,718 Foreign currency translation adjustment (6,739) - ----------- ---------- 367,051 382,831 Less common stock in treasury at cost (820,703 shares in 1995 and 504,732 shares in 1994 10,112 4,933 ----------- ---------- Total stockholders' equity 356,939 377,898 ----------- ---------- Commitments and contingencies (notes 2, 3, 5, 8 and 9) $ 1,016,782 993,699 ----------- ---------- ----------- ----------
See accompanying notes to consolidated financial statements. 14 CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1995, 1994 and 1993 (Dollars in thousands, except per share amounts)
1995 1994 1995 ------------ ---------- ---------- Operating revenues $ 1,352,225 1,207,601 1,020,921 Operating expenses: Salaries, wages and employee benefits (note 5) 457,567 405,136 371,849 Purchased transportation 362,989 288,153 187,726 Fuel and fuel taxes (note 9) 143,239 131,026 126,966 Depreciation 130,265 110,662 83,210 Operating supplies and expenses 94,592 82,939 73,511 Insurance and claims 50,707 37,951 40,424 General and administrative expenses 32,981 26,959 19,032 Operating taxes and licenses 26,422 27,016 28,905 Special charges (note 10) 17,296 - - Communication and utilities 14,822 12,863 10,672 ------------ ---------- ---------- Total operating expenses 1,330,880 1,122,705 942,295 ------------ ---------- ---------- Operating income 21,345 84,896 78,626 Interest expense 24,790 19,748 13,800 ------------ ---------- ---------- Earnings (loss) before income taxes (3,445) 65,148 64,826 Income taxes (note 4) (1,275) 24,756 26,605 ------------ ---------- ---------- Net earnings (loss) (note 1(d)) $ (2,170) 40,392 38,221 ------------ ---------- ---------- Earnings (loss) per share $ .(06) 1.05 1.00 ---- ---- ---- ---- ---- ----
See accompanying notes to consolidated financial statements. 15 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1995, 1994 and 1993 (Dollars in thousands, except per share amounts)
FOREIGN TOTAL ADDITIONAL RETAINED CURRENCY STOCKHOLDERS' COMMON PAID-IN EARNINGS TRANSLATION TREASURY EQUITY STOCK CAPITAL (NOTE 2) ADJUSTMENT STOCK (NOTE 3) ------ ------- ------- ---------- -------- ------- Balances at December 31, 1992 $ 390 99,521 214,503 - (5,788) 308,626 Tax benefit of stock options exercised - 890 - - - 890 Sale of treasury stock to employees - 1,951 - - 1,927 3,878 Cash dividends paid ($.20 per share) - - (7,651) - - (7,651) Net earnings - - 38,221 - - 38,221 ------ ------- ------- ------ ------ ------- Balances at December 31, 1993 390 102,362 245,073 - (3,861) 343,964 Tax benefit of stock options exercised - 735 - - - 735 Sale of treasury stock to employees - 1,626 - - 1,008 2,634 Repurchase of treasury stock - - - - (2,080) (2,080) Cash dividends paid ($.20 per share) - - (7,747) - - (7,747) Net earnings - - 40,392 - - 40,392 ------ ------- ------- ------ ------ ------- Balances at December 31, 1994 390 104,723 277,718 - (4,933) 377,898 Tax benefit of stock options exercised - 301 - - - 301 Sale of treasury stock to employees - 553 - - 1,878 2,431 Repurchase of treasury stock - - - - (7,057) (7,057) Cash dividends paid ($.20 per share) - - (7,725) - - (7,725) Foreign currency translation adjustment - - - (6,739) - (6,739) Net loss - - (2,170) - - (2,170) ------ ------- ------- ------ ------ ------- Balances at December 31, 1995 $ 390 105,577 267,823 (6,739) (10,112) 356,939 ------ ------- ------- ------ ------ ------- ------ ------- ------- ------ ------ -------
See accompanying notes to consolidated financial statements. 16 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993 (Dollars in thousands)
1995 1994 1993 - ---------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings (loss) $ (2,170) 40,392 38,221 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation 130,265 110,662 83,210 Provision for noncurrent deferred income taxes 842 14,598 17,396 Tax benefit of stock options exercised 301 735 890 Special charges 17,296 - - Amortization of discount, net 22 287 307 Changes in assets and liabilities: Accounts receivable (4,707) (1,011) (31,375) Prepaid expenses (4,637) (9,503) 1,092 Deferred income taxes (2,088) (3,490) 5,271 Trade accounts payable 41,280 11,269 5,583 Claims accruals 516 3,874 (2,114) Other accrued expenses (1,603) 3,763 3,253 ---------- -------- -------- Net cash provided by operating activities 175,317 171,576 121,734 ---------- -------- -------- Cash flows from investing activities: Additions to property and equipment (206,570) (282,581) (285,687) Proceeds from sale of equipment 51,350 63,862 88,651 Increase in other assets (7,613) (10,444) (6,306) ---------- -------- -------- Net cash used in investing activities (162,833) (229,163) (203,342) ---------- -------- -------- Cash flows from financing activities: Net borrowings (repayments) on short-term obligations (37,765) 75,848 (1,075) Proceeds from long-term debt 49,750 - 99,680 Repayments of long-term debt (10,000) (12,316) (11,667) Proceeds from sale of treasury stock 2,431 2,634 3,878 Repurchase of treasury stock (7,057) (2,080) - Dividends paid (7,725) (7,747) (7,651) ---------- -------- -------- Net cash provided by (used in) financing activities (10,366) 56,339 83,165 ---------- -------- -------- Net increase (decrease) in cash and temporary investments 2,118 (1,248) 1,557 Cash and temporary investments at beginning of year 2,142 3,390 1,833 ---------- -------- -------- Cash and temporary investments at end of year $ 4,260 2,142 3,390 ---------- -------- -------- ---------- -------- -------- Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 25,019 20,366 12,014 Income taxes 3,431 13,606 3,743 ---------- -------- -------- ---------- -------- --------
See accompanying notes to consolidated financial statements. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994 and 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES J. B. Hunt Transport Services, Inc., together with its wholly-owned subsidiaries ("Company"), is a diversified transportation services and logistics company operating under the jurisdiction of the U.S. Department of Transportation and various state regulatory agencies. (a) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (b) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (c) TIRES IN SERVICE The Company capitalizes tires placed in service on new revenue equipment as a part of the equipment cost. Replacement tires and costs for recapping tires are expensed at the time the tires are placed in service. (d) PROPERTY AND EQUIPMENT Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives of 5 - 10 years for revenue and service equipment, 10 to 40 years for structures and improvements, and 3 to 10 years for furniture and office equipment. Gains on dispositions of revenue equipment, which are offset against depreciation expense, were $8,088,000, $12,251,000 and $20,092,000 for the years ended December 31, 1995, 1994 and 1993, respectively. On April 1, 1993, the Company changed the estimated salvage value for some of its revenue and service equipment. The effect upon 1993 net earnings was an increase of approximately $2,639,000 ($.07 per share). (e) REVENUE RECOGNITION The Company recognizes revenue based on relative transit time in each reporting period with expenses recognized as incurred. (f) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (g) EARNINGS PER SHARE Earnings per share have been computed based on the weighted average number of shares outstanding during each year (38,520,323 in 1995; 38,559,528 in 1994; and 38,276,109 in 1993). Shares issuable under employee stock options are excluded from the weighted average number of shares as their dilutive effect is less than 3%. (h) CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the Company's large number of customers and the diverse range of industries which they represent. As of December 31, 1995, the Company had no significant concentrations of credit risk. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (i) DERIVATIVES The differential paid or received on interest rate swap agreements is accrued as interest rates change and is charged or credited to interest expense over the life of the agreements. Any gains or losses realized upon the termination of an interest rate swap agreement are deferred and amortized over the remaining life of the original term as a charge or credit to interest expense. The differential paid or received on fuel swap agreements is accrued as fuel prices change and is charged or credited to fuel expense on a monthly basis. (j) FOREIGN CURRENCY TRANSLATION Local currencies are generally considered the functional currencies outside the United States. Assets and liabilities are translated at year-end exchange rates for operations in local currency environments. Income and expense items are translated at average rates of exchange prevailing during the year. Cumulative translation adjustments, which reflect foreign currency exchange rate changes applicable to Mexican operations, are recorded as a component of stockholders' equity and reduced stockholders' equity by approximately $6,739,000 at December 31, 1995. (k) SPECIAL CHARGES The Company continually reevaluates the carrying value of its assets for events or changes in circumstances which indicate that the carrying value may not be recoverable. As part of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized through a charge to earnings. (l) RECLASSIFICATIONS Certain 1994 and 1993 amounts have been reclassified to conform to 1995 presentation. These reclassifications have no effect on prior years' net earnings. (2) LONG-TERM DEBT
- -------------------------------------------------------------------------------------- Long-term debt consists of (in thousands): 1995 1994 -------- ------- Commercial paper $145,310 183,075 Senior notes payable, interest at 6.25% payable semiannually 100,000 100,000 Senior notes payable, interest at 7.75% payable semiannually 5,000 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 Senior notes payable, interest at 6.25% payable semiannually 25,000 - Senior notes payable, interest at 6.00% payable semiannually 25,000 - -------- ------- 370,310 368,075 Less: current maturities (30,310) (68,075) Unamortized discount (985) (757) -------- ------- $339,015 299,243 -------- ------- -------- -------
Under its commercial paper note program, the Company is authorized to issue up to $250 million in notes. These notes are supported by two credit agreements, which aggregate $250 million, with a group of banks, of which $125 million expires March 28, 1996 and $125 million expires March 31, 1999. The effective rate on the commercial note program was 6.11% and 5.90% for the years ended December 31, 1995 and 1994, respectively. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 6.25% senior notes (face amount $100,000,000) are payable at maturity on September 1, 2003; the 7.75% senior notes are payable in annual installments of $5,000,000 on October 31; the 7.84% senior notes are payable in annual installments of $5,000,000 on March 31; the 7.80% senior subordinated notes are payable in five equal annual installments beginning October 30, 2000; the 6.25% senior notes (face amount $25,000,000) are payable at maturity on November 17, 2000; and the 6.00% senior notes are payable at maturity on December 12, 2000. Under the terms of the credit agreements and the note agreements, the Company is required to maintain certain financial covenants including leverage tests, minimum tangible net worth levels and other financial ratios. During January 1996, the Company and its creditors amended certain terms of these agreements in consideration of the special charges described in note 10. As a result of these amendments, the Company is in compliance with all financial covenants. The Company has approximately $166 million of uncommitted lines of credit, none of which were outstanding at December 31, 1995. These lines are with various domestic and international banks and are due on demand. Interest on borrowings is generally tied to the banks' prevailing base rates or other alternative market rates. No commitment or facility fees are paid on these lines of credit and the obligations are typically evidenced by unsecured demand notes. Current maturities of long-term debt at December 31, 1995 consist of outstanding commercial paper associated with the revolving credit agreement which expires March 28, 1996 and two installments of the senior notes. The aggregate annual maturities of long-term debt for each of the five years ending December 31 are as follows (in thousands): 1996, $30,310; 1997, $5,000; 1998, $5,000; 1999, $130,000; and 2000, $60,000. (3) CAPITAL STOCK The Company maintains a Management Incentive Plan ("Plan") that provides various vehicles to compensate key employees with Company common stock. Under the Plan, the Company is authorized to award, in aggregate, not more than 5,000,000 shares. At December 31, 1995 there were approximately 474,000 shares available for granting under the Plan. The Company has utilized three such vehicles to award stock or grant options to purchase the Company's common stock: restricted stock awards, restricted options and nonstatutory stock options. Restricted stock awards are granted to key employees subject to restrictions regarding transferability and assignment. Shares of Company common stock are issued to the key employees and held by the Company until each employee becomes vested in the award. Vesting of the awards generally occurs over a four year period of time from the award date. Termination of the employee for any reason other than death, disability or certain cases of retirement causes the unvested portion of the award to be forfeited. Key employees have been granted restricted options to purchase stock. The option price is 50% of the fair market value of the stock at the date of grant. Vesting of the award generally occurs over a four year period beginning on the grant date. Failure to exercise a vested option within 210 days after vesting or termination of the employee for any reason other than death or disability will cause unexercised and nonvested options to be forfeited. The Plan provides that nonstatutory stock options may be granted to key employees for the purchase of Company common stock for 100% of the fair market value at the grant date. The options generally vest over a ten year period and are forfeited if the employee terminates for any reason. Compensation expense under the Plan is charged to earnings over the vesting period and amounted to approximately $1,100,000, $1,600,000 and $1,600,000 for the years ended December 31, 1995, 1994 and 1993, respectively. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the restricted and nonstatutory options to purchase Company common stock follows:
NUMBER NUMBER OPTION PRICE OF SHARES OF SHARES PER SHARE EXERCISABLE ---------- ------------- ----------- Outstanding at December 31, 1992 $1,332,095 6.00 - 24.63 369,706 Granted 148,500 18.25 - 23.50 Exercised (219,809) 6.00 - 20.25 Terminated (71,430) 6.00 - 20.25 ---------- Outstanding at December 31, 1993 1,189,356 6.00 - 24.63 369,663 Granted 391,750 17.00 - 23.00 Exercised (194,270) 6.00 - 19.50 Terminated (52,375) 11.58 - 18.25 ---------- Outstanding at December 31, 1994 1,334,461 6.00 - 24.63 399,536 Granted 1,626,000 13.38 - 19.25 Exercised (116,980) 6.00 - 15.93 Terminated (117,750) 10.83 - 23.00 ---------- Outstanding at December 31, 1995 2,725,731 9.33 - 24.63 415,606 ---------- ------------- ------- ---------- -------
During 1995, the Board of Directors established a nonqualified stock option plan to provide performance based compensation to the Chairman of the Board. The plan must be approved by the shareholders of the Company at the annual meeting in May of 1996. The plan allows the Chairman the option to purchase up to 2.5 million shares of the Company's common stock at a price of $17.63 per share. These options are exercisable after five years, except for special circumstances in which the options vest earlier. The options must be exercised within one year of vesting and all unexercised options will terminate. On January 24, 1996, the Company's Board of Directors declared a cash dividend of $.05 per share payable on February 16, 1996 to shareholders of record on February 2, 1996. (4) INCOME TAXES Total income tax expense (benefit) for the years ended December 31, 1995, 1994 and 1993 was allocated as follows (in thousands):
1995 1994 1993 -------- ------ ------ Earnings (loss) before income taxes $ (1,275) 24,756 26,605 Stockholders' equity, for tax benefit of stock options exercised (301) (735) (890) -------- ------ ------ $ (1,576) 24,009 25,715 -------- ------ ------ -------- ------ ------
Income tax expense (benefit) attributable to earnings (loss) before income taxes consists of (in thousands):
1995 1994 1993 ------- ------ ------ Current expense (benefit): Federal $(1,193) 12,897 2,596 State and local 1,164 751 1,344 ------- ------ ------ (29) 13,648 3,940 ------- ------ ------ Deferred expense (benefit): Federal (591) 9,929 20,238 State and local (655) 1,179 2,427 ------- ------ ------ (1,246) 11,108 22,665 ------- ------ ------ Total tax expense (benefit) $(1,275) 24,756 26,605 ------- ------ ------ ------- ------ ------
The following is a reconciliation between the effective income tax rate and the applicable statutory Federal income tax rate for each of the three fiscal years in the period ended December 31, 1995:
1995 1994 1993 -------- ------ ------ Income tax - statutory rate (35.00)% 35.00% 35.00% State tax, net of Federal benefit 9.60 1.93 3.78 Tax credits (9.65) (0.92) (2.71) Other, net (1.95) 1.99 4.98 ------ ----- ----- Effective income tax rate (37.00)% 38.00% 41.05% ------ ----- ----- ------ ----- -----
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The significant components of deferred income tax expense (benefit) attributable to earnings (loss) before income taxes are as follows (in thousands):
1995 1994 1993 -------- ------ ------ Deferred tax expense (benefit) (exclusive of the effects of other components listed below) $(1,246) 12,788 22,665 Adjustments to deferred tax assets and liabilities for negotiated income tax settlements - (1,680) - ------- ------ ------ $(1,246) 11,108 22,665 ------- ------ ------ ------- ------ ------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are presented below (in thousands):
1995 1994 --------- ------- Deferred tax assets: Claims accruals, principally due to accrual for financial reporting purposes $(17,834) (17,809) Tax credit carryforwards (17,896) (21,215) Accounts receivable, principally due to allowance for doubtful accounts (4,353) (3,769) Special charges, principally due to write-off for financial reporting purposes (5,670) - Other (4,673) (3,100) -------- ------- Total gross deferred tax assets (50,426) (45,893) -------- ------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation and capitalized interest 153,176 147,653 Prepaid permits and insurance, principally due to write-offs for income tax purposes 5,653 5,373 Other 4,155 6,671 -------- ------- Total gross deferred tax liabilities 162,984 159,697 -------- ------- Net deferred tax liability $112,558 113,804 -------- ------- -------- -------
The Company believes its history of profitability and taxable income, its taxes paid within the three year carryback period and its utilization of tax planning sufficiently supports the value of the deferred tax assets. Accordingly, the Company has not recorded a valuation allowance on its books as all deferred tax assets are more than likely to be recovered. The Company had general business tax credit carryforwards of approximately $3 million expiring from the year 2007 to 2009, and alternative minimum tax credit carryforwards with no expiration of approximately $15 million at December 31, 1995. Included in other prepaid expenses are refundable income taxes of $5,981,000 and $386,000 at December 31, 1995 and 1994, respectively. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution employee retirement plan, which includes a 401(k) option, under which employees are eligible to participate after they complete one year of service. Company contributions to the plan each year are made at the discretionary amount determined by the Company's Board of Directors. For the years ended December 31, 1995, 1994 and 1993, total Company contributions to the plan, including matching 401(k) contributions were $3,400,000, $1,950,000, and $1,900,000, respectively. (6) FAIR VALUE OF FINANCIAL INSTRUMENTS CASH AND TEMPORARY INVESTMENTS, ACCOUNTS RECEIVABLE, AND TRADE ACCOUNTS PAYABLE The carrying amount approximates fair value because of the short maturity of these instruments. LONG-TERM DEBT The carrying amount of the commercial paper debt approximates the fair value because of the short maturity of the commercial paper instruments. The fair value of the fixed rate debt is presented as the present value of future cash flows discounted using the Company's current borrowing rate for notes of comparable maturity. The calculation arrives at a theoretical amount the Company would pay a creditworthy third party to assume its fixed rate obligations and not the termination value of these obligations. Consistent with market practices, such termination values may include various prepayment and termination fees that the Company would contractually be required to pay if it retired the debt early. INTEREST RATE SWAP AGREEMENTS (NOTE 9) The fair values of interest rate swap agreements are obtained from dealer quotes. These values represent the estimated amount the Company would pay to terminate such agreements, taking into consideration current interest rates and the creditworthiness of the counterparties. The estimated fair values of the Company's financial instruments are summarized as follows (in thousands):
AT DECEMBER 31, 1995 AT DECEMBER 31, 1994 --------------------- --------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- Cash and temporary investments $ 4,260 4,260 2,142 2,142 Accounts receivable 143,002 143,002 138,295 138,295 Trade accounts payable 90,127 90,127 48,847 48,847 Long-term debt: Commercial paper 145,310 145,310 182,595 182,595 Fixed rate obligations 224,015 229,940 184,723 166,807 Interest rate swap agreements - (140) - (1,964) -------- ------- ------- -------
(7) RELATED PARTY TRANSACTIONS The Company advances premiums on life insurance policies on the lives of the Company's principal stockholder and his wife. The Company has advanced $3,877,635 on these policies which, along with related accrued interest thereon of approximately $590,000, is included in other assets at December 31, 1995. All premiums paid by the Company, along with accrued interest thereon, are reimbursable from a trust which is the owner and beneficiary of the policy. The Company has a guarantee from the stockholder securing any deficiency in cash surrender value if the policies are terminated before cash surrender value exceeds actual premium advanced. At December 31, 1995 the cash surrender value of such polices was approximately $2,315,000. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) COMMITMENTS AND CONTINGENCIES The Company has committed to purchase approximately $203 million of revenue and service equipment (net cost, after expected proceeds from sale or trade-in allowances of $51 million). The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Based on the present knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a material adverse effect on the financial condition of the Company. (9) DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swap agreements are used to reduce the potential impact of changes in interest rates on the Company's debt portfolio. At December 31, 1995, an interest rate swap agreement with an aggregate notional amount of $20 million was outstanding. The estimated fair value of the swap at December 31, 1995 was a liability of approximately $140,000. This value was determined from a dealer quotation and represents the estimated amount the Company would pay to terminate the agreement. The Company uses fuel swap agreements to hedge anticipated purchases of diesel fuel. Under these agreements, the Company receives or makes payments on the differential between a contractual index price and the actual average index during such period. (10) QUARTERLY FINANCIAL INFORMATION During the fourth quarter of 1995, the Company recorded special charges of approximately $17,296,000 to reduce the carrying value of idle and under-performing assets, primarily property and equipment and inventories associated with the auto hauling operations. The effect of these charges reduced net earnings for the fourth quarter and for the year by approximately $10,896,000 ($.29 per share). Operating results (unaudited) by quarter for the years ended December 31, 1995 and 1994 are as follows (in thousands, except per share data):
QUARTER ----------------------------------------- FIRST SECOND THIRD FOURTH TOTAL -------- ------- ------- ------- --------- 1995: Operating revenues $309,424 329,219 355,114 358,468 1,352,225 -------- ------- ------- ------- --------- Operating income $ 13,738 3,214 9,716 (5,323) 21,345 -------- ------- ------- ------- --------- Net earnings (loss) $ 4,890 (2,139) 1,840 (6,761) (2,170) -------- ------- ------- ------- --------- Earnings (loss) per share $ .13 (.06) .05 (.18) (.06) -------- ------- ------- ------- --------- 1994: Operating revenues $264,663 297,735 313,911 331,292 1,207,601 -------- ------- ------- ------- --------- Operating income $ 13,019 23,185 25,026 23,666 84,896 -------- ------- ------- ------- --------- Net earnings $ 5,726 11,575 12,260 10,831 40,392 -------- ------- ------- ------- --------- Earnings per share $ .15 .30 .32 .28 1.05 -------- ------- ------- ------- ---------
24 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No reports on Form 8-K have been filed within the twenty-four months prior to December 31, 1995 involving a change of accountants or disagreements on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required for Items 10, 11 and 12 is hereby incorporated by reference from the Notice and Proxy Statement For Annual Stockholders' Meeting set forth under sections entitled "Proposal One Election of Directors," "Board Committees," "Executive Officers," "Voting Securities and Security Ownership of Management and Principal Stockholders," "Executive Compensation and Other Information," "1996 Performance Based Compensation," "Proposal Two Proposal to Approve the Chairman's Stock Option Incentive Plan" and "Proposal Three Ratification of Appointment of Auditors." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required for Item 13 is hereby incorporated by reference from Note (7) Related Party Transactions of the Notes to Consolidated Financial Statements and from the Notice and Proxy Statement For Annual Stockholders' Meeting set forth under the section entitled "Certain Transactions." PART IV ITEM 14. EXHIBITS The following documents are filed as part of this report: (a) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report ("Exhibit Index"). 25 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant had duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lowell, Arkansas, on the 15th day of March, 1996. 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 Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ John A. Cooper, Jr. Member of the Board March 15, 1996 - ---------------------------- of Directors John A. Cooper, Jr. /s/ Fred K. Darragh, Jr. Member of the Board March 15, 1996 - ---------------------------- of Directors Fred K. Darragh, Jr. /s/ Wayne Garrison Member of the Board March 15, 1996 - ---------------------------- of Directors (Chairman) Wayne Garrison /s/ Gene George Member of the Board March 15, 1996 - ---------------------------- of Directors Gene George /s/ Thomas L. Hardeman Member of the Board March 15, 1996 - ---------------------------- of Directors Thomas L. Hardeman /s/ J. Bryan Hunt, Jr. Member of the Board March 15, 1996 - ---------------------------- of Directors (Vice Chairman) J. Bryan Hunt, Jr. /s/ J.B. Hunt Member of the Board March 15, 1996 - ---------------------------- of Directors (Senior Chairman) J.B. Hunt /s/ Johnelle Hunt Member of the Board March 15, 1996 - ---------------------------- of Directors (Corporate Johnelle Hunt Secretary) /s/ Lloyd E. Peterson Member of the Board March 15, 1996 - ---------------------------- of Directors Lloyd E. Peterson /s/ Kirk Thompson Member of the Board March 15, 1996 - ---------------------------- of Directors (President and Kirk Thompson Chief Executive Officer)
26 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3A The Company's Amended and Restated Articles of Incorporation dated May 19, 1988 (incorporated by reference from Exhibit 4A of the Company's S-8 Registration Statement filed April 16, 1991; Registration Statement Number 33-40028). 3B The Company's Bylaws as amended (incorporated by reference from Exhibit 3B of the Company's S-1 Registration Statement filed November 22, 1983; Registration Number 2-86684). 3C The Company's Amended Bylaws dated September 19, 1983 (incorporated by reference from Exhibit 3C of the Company's S-1 Registration Statement filed February 7, 1985; Registration Number 2-95714). 10A Material Contracts of the Company (incorporated by reference from Exhibits 10A-10N of the Company's S-1 Registration Statement filed February 7, 1985; Registration Number 2-95714). 10B The Company has an Employee Stock Purchase Plan filed on Form S-8 on February 3, 1984 (Registration Number 2-93928), and a Management Incentive Plan filed on Form S-8 on April 16, 1991 (Registration Statement Number 33-40028). The Management Incentive Plan is incorporated herein by reference from Exhibit 4B of Registration Statement 33-40028. The Company amended and restated its Employee Retirement Plan on Form S-8 (Registration Statement Number 33-57127) filed December 30, 1994. The Employee Retirement Plan is incorporated herein by reference from Exhibit 99 of Registration Statement Number 33-57127. 21 Subsidiaries of J.B. Hunt Transport Services, Inc. - J.B. Hunt Transport, Inc., a Georgia corporation - L.A., Inc., an Arkansas corporation - J.B. Hunt Corp., a Delaware corporation - J.B. Hunt Special Commodities, Inc., an Arkansas corporation - J.B. Hunt Logistics, Inc., an Arkansas corporation - Comercializadora Internacional de Cargo S.A. De C.V., a Mexican corporation - Hunt Mexicana, S.A. de C.V., a Mexican corporation - Servicios de Logistica de Mexico, S.A. de C.V., a Mexican corporation - Servicios Administratios de Logistica, S.A. de C.V., a Mexican corporation - Asesoria Administrativa de Logistica, S.A. de C.V., a Mexican corporation. - Queen City Express, Inc., a North Carolina corporation - Lake City Express, Inc., an Arkansas Corporation - FIS, Inc., a Nevada corporation 23 Consent of KPMG Peat Marwick LLP 27 A Financial Data Schedule for the year ended December 31, 1995. 27 EX-23 2 EXHIBIT 23 The Board of Directors J.B. Hunt Transport Services, Inc.: We consent to incorporation by reference in the Registration Statements No. 2-93928, No. 33-57127 and No. 33-40028 on Form S-8 and No. 33-64950 on Form S-3 of J.B. Hunt Transport Services, Inc. of our report dated February 9, 1996 relating to the consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, which report is included in the December 31, 1995 annual report on Form 10-K of J.B. Hunt Transport Services, Inc. /s/ KPMG Peat Marwick LLP ----------------------------------- KPMG Peat Marwick LLP Little Rock, Arkansas March 13, 1996 EX-27 3 FDS EXH.27
5 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 4,260 0 143,002 0 0 187,078 1,184,808 375,798 1,016,782 184,599 0 0 0 390 0 1,016,782 1,352,225 1,352,225 0 1,330,880 0 0 24,790 (3,445) (1,275) (2,170) 0 0 0 (2,170) (.06) (.06)
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