-----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, RJ7LvcF2s9A6n2U+yEZn9i6FVy6SoU4cydIL1tQ5XPDak622uxcFgNdfgZyo9xPA 4qD5N8oWTvCSByOKQW6qwQ== 0000912057-97-006927.txt : 19970227 0000912057-97-006927.hdr.sgml : 19970227 ACCESSION NUMBER: 0000912057-97-006927 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970226 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: 97544155 BUSINESS ADDRESS: STREET 1: 615 JB HUNT CORPORATE DR CITY: LOWELL STATE: AR ZIP: 72745 BUSINESS PHONE: 5018200000 10-K 1 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, 1996 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 17,432,816 SHARES OF THE REGISTRANT'S $.01 PAR VALUE COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY 3, 1997 WAS $250,596,730 (BASED UPON $14.375 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 3, 1997: 36,941,274. DOCUMENTS INCORPORATED BY REFERENCE CERTAIN PORTIONS OF THE NOTICE AND PROXY STATEMENT FOR THE 1997 ANNUAL STOCKHOLDERS' MEETING TO BE HELD APRIL 17, 1997 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 primarily 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. JBH transports a wide range of products 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 that agreement, freight could be transported by rail utilizing traditional trailer-on-flatcar (TOFC) or container-on-flatcar (COFC) medium. Since this initial agreement with Santa Fe (now Burlington Northern Sante Fe), intermodal operations have been expanded to include arrangements with ten railroads. A number of these rail routes allow the utilization of high cube containers which can be double-stacked to provide improved productivity. Substantially all of the freight carried under these rail arrangements is granted priority space on trains and receives preferential loading and unloading at rail facilities. The Company commenced offering transportation logistics services in 1992 in response to shippers' interest in outsourcing their total distribution and transportation processes. JBH Logistics provides a range of comprehensive transportation and management services including experienced professional managers, information and optimization technology and the design or redesign process of system solutions. Dedicated contract services were initiated in 1993, which provide specifically assigned equipment, drivers and management to companies that want to augment or outsource their private fleet. During 1996, the Company successfully exited the hazardous commodity and small package transportation businesses in order to focus on the dry-van, logistics management and dedicated equipment operations. MARKETING AND OPERATIONS The truckload ("T/L") market has historically 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 5% of revenues during 1996 or 1995. 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 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. 2 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. Certain marketing and sales functions are assigned to each of the primary businesses of dry-van, logistics management and dedicated equipment. However, marketing strategy and national account service coordination is managed at the corporate level. PERSONNEL At December 31, 1996, JBH employed 11,575 people, including 8,345 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. In September 1996, a new compensation program was announced for the approximate 4,000 over-the-road van drivers. This comprehensive package, effective February 25, 1997, includes an average 33 percent increase in wages for this group of employees. The expected results of this program include a more stable and experienced work force capable of delivering a high quality of customer service. Drivers are frequently designated as local, regional, assigned/dedicated or over-the-road and typically compensated on the basis of miles driven, a specific rate per week or a combination of factors. The Company also employed approximately 1,100 mechanics at December 31, 1996. Management believes that its relationship with all of its employees is excellent. REVENUE EQUIPMENT At December 31, 1996, JBH owned 7,750 tractors and operated 8,954 trailers and 18,819 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. In early 1996, JBH took delivery of the remaining containers and chassis in its initial equipment orders. This rapid conversion of the van trailing fleet has helped support the significant growth of intermodal volume. Specific customer service requirements are a primary determining factor of the dedicated equipment fleet specifications and mix. 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 for T/L carriers. 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. 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 3 1980 enabled applicants to obtain ICC operating authority more easily and allowed 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 40- 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 was constructed and occupied in Chicago, Illinois during 1996. A summary of the Company's principal facilities follows: Maintenance Shop Office Space Location Acreage (Square feet) (Square feet) - ------------------------------------------------------------------------ Atlanta, Georgia 30 29,800 10,400 Chicago, Illinois 27 50,000 14,000 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 Louisville, Kentucky 14 40,000 10,000 Lowell, Arkansas 40 50,200 14,000 Lowell, Arkansas (trailer facilities) 14 29,800 3,700 South Gate, California 12 12,000 5,500 In addition to the above facilities, the Company leases several small offices and 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 No matters were submitted during the fourth quarter of 1996 to a vote of security holders. 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 years 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 1996 Calendar Year 1995 Period High Low High Low - ------------------------------------------------------------- 1st Quarter $22.13 $15.13 $20.13 $15.25 2nd Quarter 22.13 18.75 19.50 16.13 3rd Quarter 21.88 15.06 19.50 14.88 4th Quarter 16.00 13.75 17.13 12.75 On February 3, 1997, the high and low sales prices for the Company's common stock as reported by the NASDAQ were $14.375 and $14.00, respectively. As of February 3, 1997, the Company had 1,980 stockholders of record. DIVIDEND POLICY On January 23, 1997, the Board of Directors declared a quarterly dividend of $.05 per share, payable on February 17, 1997 to shareholders of record on February 3, 1997. 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 1996 and 1995. 5 ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts) Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------- Operating revenues $1,486,748 $1,352,225 $1,207,601 $1,020,921 $911,982 $733,288 $579,831 $509,278 Earnings (loss) before cumulative effect of changes in accounting methods 22,115 (2,170) 40,392 38,221 36,933 29,459 30,048 30,615 Earnings (loss) per share before cumulative effect of changes in accounting methods .58 (.06) 1.05 1.00 1.03 .85 .85 .87 Cash dividends per share .20 .20 .20 .20 .20 .19 .16 .16 Total assets 1,040,925 1,016,782 993,699 862,442 715,741 520,130 452,734 384,684 Long-term debt 332,571 339,015 299,243 303,499 216,254 156,930 137,597 104,955 Stockholders' equity 357,255 356,939 377,898 343,964 308,626 215,761 191,074 175,518 Years Ended December 31 1988 1987 - ---------------------------------------------------- Operating revenues $392,553 $286,419 Earnings (loss) before cumulative effect of changes in accounting methods 33,045 22,415 Earnings (loss) per share before cumulative effect of changes in accounting methods .93 .63 Cash dividends per share .13 .11 Total assets 300,199 250,274 Long-term debt 65,358 69,000 Stockholders' equity 150,126 121,316
Percentage of Operating Revenue Years Ended December 31 1996 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% 100.0 % Operating expenses: Salaries, wages and employee benefits 32.6 33.8 33.5 36.4 38.2 40.0 41.4 42.1 41.4 39.6 Purchased transportation 29.0 26.8 23.9 18.4 12.2 7.0 0.7 0.7 0.6 0.4 Fuel and fuel taxes 10.8 10.6 10.9 12.4 14.2 16.3 17.3 15.7 14.3 15.8 Depreciation 8.4 9.6 9.2 8.2 9.5 9.4 9.7 9.5 9.7 10.3 Operating supplies and expenses 6.2 7.0 6.9 7.2 7.4 8.0 8.8 8.5 7.8 7.1 Insurance and claims 3.9 3.8 3.1 4.0 4.8 4.7 5.4 4.5 4.3 4.4 General and administrative expenses 1.9 2.4 2.2 1.9 2.0 2.1 2.3 1.7 1.3 1.3 Operating taxes and licenses 1.9 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 1.2 1.1 1.1 1.0 1.3 1.4 1.4 1.7 2.0 2.4 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total operating expenses 95.9 98.4 93.0 92.3 92.4 91.9 90.2 87.9 84.8 85.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Operating income 4.1 1.6 7.0 7.7 7.6 8.1 9.8 12.1 15.2 15.0 Interest expense 1.7 1.8 1.6 1.4 1.2 1.5 1.2 1.8 1.7 1.4 Income taxes .9 - 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) 1.5% (0.2)% 3.3% 3.7% 4.3% 3.8 % 5.2% 6.0% 8.4% 9.1 % ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis of the Company's operations, financial condition and financial performance, as well as material contained elsewhere herein, includes statements that are not historical facts. Such statements are forward-looking statements based on the Company's expectations and as such, are subject to uncertainty and risk. For additional information, 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) 1996 Compared To 1995 1995 Compared To 1994 - ------------------------------------------------------------------------------------------------------ Increase (Decrease) Increase (Decrease) in Amounts % Change in Amounts % Change - ------------------------------------------------------------------------------------------------------ Average number of tractors in the fleet 169 2 % 465 7 % -------- ---- -------- --- Operating revenues $134,523 10 % $144,624 12 % Operating expenses: Salaries, wages and employee benefits 27,135 6 52,431 13 Purchased transportation 68,306 19 74,836 26 Fuel and fuel taxes 17,026 12 12,213 9 Depreciation (5,334) (4) 19,603 18 Operating supplies and expenses (2,166) (2) 11,653 14 Insurance and claims 7,680 15 12,756 34 General and administrative expenses (4,480) (14) 6,022 22 Operating taxes and licenses 1,000 4 (594) (2) Special charges (17,296) (100) 17,296 -- Communication and utilities 3,634 25 1,959 15 -------- ---- -------- --- Total operating expenses 95,505 7 % 208,175 19 % -------- ---- -------- --- Operating income after special charges $ 39,018 183% $(63,551) (75)% -------- ---- -------- --- Operating income before special charges $ 21,722 56 % $(46,255) (54)% -------- ---- -------- --- -------- ---- -------- ---
The following table sets forth certain industry operating data of the Company. Years Ended December 31 1996 1995 1994 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- Total loads 1,605,546 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 7,728 7,559 7,094 6,890 6,424 5,286 4,413 3,616 Tractors operated (at year end) 7,750 7,706 7,412 6,775 7,004 5,843 4,729 4,096 Trailers/containers (at year end) 27,773 24,618 22,687 19,089 17,391 12,389 10,563 9,339 Tractor miles (in thousands) 810,450 772,199 740,626 718,767 733,700 638,926 551,175 495,377
7 OPERATING REVENUES Operating revenues increased $134.5 million, or 10%, from 1995 to 1996 and $144.6 million, or 12%, from 1994 to 1995. The increase in revenue between years includes the following by type of freight: Increase (Decrease) in Revenue (millions of dollars) Type of Freight 1996 Compared To 1995 1995 Compared To 1994 -------------------------------------------------------------------------- Dry-Van* $79.0 $26.0 Logistics Management 75.9 17.8 Dedicated Contract 16.3 58.5 Other** (36.7) 42.3 ------ ------ $134.5 $144.6 ------ ------ ------ ------ * Includes intermodal ** Reflects $32.2 million impact from sale of special commodities and parcel management operations. The Company continued its strategy during 1996 and 1995 of providing diversified transportation and logistics management services, which utilize intermodal, professional management expertise and third-party revenue equipment. This growth strategy allowed consolidated revenue to increase at double-digit rates, while the tractor fleet increased only 2% during 1996 and 7% during 1995. Dry van revenue, which includes intermodal operations, increased $79 million, or 8%, during 1996 and $26 million, or 3% during 1995. The relatively new service offerings of logistics management and dedicated contract significantly contributed to revenue growth in 1996 and 1995. Dry van truck rates, excluding fuel surcharges, decreased approximately 2% during 1996 and declined approximately 1% from 1994 to 1995. Intermodal freight rates declined approximately 1% during 1996 and decreased approximately 3% from 1994 to 1995. These rate decreases negatively impacted revenues and earnings in 1996 and 1995. OPERATING EXPENSES Total operating expenses increased $95.5 million, or 7% from 1995 to 1996. Total operating expenses, including special charges of $17.3 million, increased $208.2 million, or 19% in 1995. Operating expenses as a percentage of operating revenues (operating ratio) were 95.9% in 1996 and 98.4% in 1995. The operating ratio for 1995 was 97.1% excluding special charges. The following operating expense categories increased or decreased at percentage rates significantly different than the rate of revenue increase during the period indicated: 1996 Compared to 1995 --------------------- * Revenue increased 10%. * The 19% increase in purchased transportation was primarily due to the growth of logistics and dedicated contract business, which results in additional payments to railroads and third-party companies for transportation service. * Fuel and fuel taxes increased 12%, primarily due to significant increases in fuel cost per gallon. This cost increase was partly offset by fuel surcharge revenue billed to customers. 8 * The $5.3 million, or 4%, reduction in depreciation expense was due, in part, to gains on the sale of the special commodities and parcel management businesses. Gains of $7.9 million before income taxes were recognized on the sale of these businesses and other assets and were offset against depreciation expense. Gains on the sale of revenue equipment were $7.2 million in 1995. Lower depreciation expense on certain revenue equipment and on-board tractor communication devices also reduced 1996 depreciation expense. * Significantly higher accident rates during the first half of 1996 contributed to the 15% increase in insurance and claims costs. A decision was announced in July 1996 to limit the speed of over-the-road tractors to 59 miles per hour. Accident rates declined during late 1996, partly due to lower speeds and additional management focus. * The significant decline in general and administrative expenses was primarily due to lower advertising costs. * Special charges of $17.3 million were recorded in 1995 to reduce the carrying value of idle and under-performing assets. No special charges were recorded in 1996. * The 25% increase in communication and utilities was primarily due to certain rate reductions and one-time credits recognized in early 1995. 1995 COMPARED TO 1994 --------------------- * Revenue increased 12%. * Salaries, wages and employee benefits increased 13%. This increase was due in part to a driver pay increase implemented in April 1995 for the Company's least experienced drivers. * Purchased transportation increased 26%, primarily due to the growth of logistics and dedicated contract business and resulting payments to railroads and third-party transportation companies. * The 18% increase in depreciation expense was primarily due to significant increases in the size of and upgrading the trailing equipment fleet, the addition of on-board tractor communication devices and lower equipment gains in 1995. Gains on the disposition of revenue equipment, which are offset against depreciation expense, were $8.1 million in 1995 and $12.3 million in 1994. * While the number of accidents did not increase significantly during 1995, a small number of severe accidents which fell within the Company's self- insured limits contributed to the significant increase in insurance and claims. * The significant increase in general and administrative expenses was due primarily to higher levels of spending for driver advertising and recruiting and recognition of certain uncollectible accounts receivable amounts. * Special charges of $17.3 million were recorded during the fourth quarter of 1995 to reduce the carrying value of idle and under-performing assets. * The 15% increase in communications and utilities was primarily due to higher satellite usage charges in 1995 related to on-board tractor communication devices. * Interest expense increased by $5.0 million, primarily related to higher levels of debt associated with the acquisition of new containers and chassis. In September 1996, the Company announced a historic compensation package for its approximate 4,000 over-the-road van drivers. This comprehensive plan, effective February 25, 1997, includes an average 33 percent increase in wages for this group of drivers. The expected results of this program include a more stable and experienced work force capable of delivering a high quality of customer service. Funding of this increased level of expense, estimated to approximate $50.0 million per year, is expected to result from shifting costs out of driver recruiting and training, safety, and from improved equipment utilization. Both company-owned driver training centers were closed in October 1996, as an initial step to generate a portion of the planned cost savings. 9 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 $143 million in 1996, $175 million in 1995, and $172 million in 1994. Trade accounts payable at December 31, 1995 included 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. With nearly 19,000 of the new high cube containers in the fleet, the Company has taken delivery of all the units initially ordered. Net capital expenditures declined to $129 million in 1996, from $155 million in 1995 and $219 million in 1994. These exenditures were funded with proceeds from long-term debt and cash generated from operations. SELECTED BALANCE SHEET DATA - --------------------------- As of December 31 1996 1995 1994 - ------------------------------------------------------------------------- Working capital ratio 1.03 1.01 1.02 Current maturities of long-term debt (millions) $ 49.8 $ 30.3 $ 68.1 Total debt (millions) 382.3 369.3 367.3 Total debt to equity 1.07 1.03 .97 Total debt as a percentage of total capital .52 .51 .49 The Company is authorized to issue up to $250 million in notes under a commercial paper note program, of which $170 million was outstanding at December 31, 1996. The Company filed a prospectus supplement with the Securities and Exchange Commission in June 1995 to issue up to $150 million of senior or subordinated medium-term notes, of which $50 million of senior notes were outstanding at December 31, 1996. In addition, the Company had approximately $128 million of uncommitted lines of credit, none of which were outstanding at December 31, 1996. As of December 31, 1996, the Company had committed to purchase approximately $69 million of revenue and service equipment (net cost, after expected proceeds from sale or trade-in allowances of $21 million). In October 1996 the Board of Directors authorized the repurchase of up to 2.0 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 1995 to repurchase up to 1.0 million shares. During 1996, the Company purchased 1,159,100 shares at market prices ranging from $14.13 per share to $16.63 per share. 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. 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------- PAGE - ------------------------------------------------------------------------------- Management's and Independent Auditors' Report 12 Consolidated Balance Sheets at December 31, 1996 and 1995 13 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 15 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 16 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 17 Notes to Consolidated Financial Statements 18 11 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 February 19, 1997 INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Little Rock, Arkansas KPMG Peat Marwick LLP February 7, 1997 12 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1996 and 1995 (Dollars in thousands) Assets 1996 1995 ------ ---- ---- Current assets: Cash and cash equivalents $ 3,786 4,260 Accounts receivable 151,357 143,002 Refundable income taxes (note 4) 8,426 5,981 Inventories 6,772 6,447 Prepaid expenses 20,766 17,217 Deferred income taxes (note 4) 11,000 10,171 ---------- --------- Total current assets 202,107 187,078 ---------- --------- Property and equipment, at cost: Revenue and service equipment 1,069,285 1,050,986 Land 19,354 17,313 Structures and improvements 56,884 50,962 Furniture and office equipment 72,722 65,547 ---------- --------- Total property and equipment 1,218,245 1,184,808 Less accumulated depreciation 404,992 375,798 ---------- --------- Net property and equipment 813,253 809,010 ---------- --------- Other assets (note 7) 25,565 20,694 ---------- --------- $1,040,925 1,016,782 ---------- --------- ---------- --------- (Continued) 13 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued December 31, 1996 and 1995 (Dollars in thousands) Liabilities and Stockholders' Equity 1996 1995 ------------------------------------ ---- ---- Current liabilities: Current maturities of long-term debt (note 2) $ 49,750 30,310 Trade accounts payable 83,846 90,127 Claims accruals 33,693 38,014 Accrued payroll 12,852 11,083 Other accrued expenses 15,999 15,065 ---------- --------- Total current liabilities 196,140 184,599 ---------- --------- Long-term debt (note 2) 332,571 339,015 Claims accruals 12,800 13,500 Deferred income taxes (note 4) 142,159 122,729 ---------- --------- Total liabilities 683,670 659,843 ---------- --------- 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 105,897 105,577 Retained earnings 282,364 267,823 Foreign currency translation adjustment (5,621) (6,739) ---------- --------- 383,030 367,051 Less common stock in treasury at cost (1,814,084 shares in 1996 and 820,703 shares in 1995) 25,775 10,112 ---------- --------- Total stockholders' equity 357,255 356,939 Commitments and contingencies (notes 2, 3, 5 and 8) ---------- --------- $1,040,925 1,016,782 ---------- --------- ---------- --------- See accompanying notes to consolidated financial statements. 14 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 1996, 1995 and 1994 (Dollars in thousands, except per share amounts) 1996 1995 1994 ---------- --------- --------- Operating revenues $1,486,748 1,352,225 1,207,601 Operating expenses: Salaries, wages and employee benefits (note 5) 484,702 457,567 405,136 Purchased transportation 431,295 362,989 288,153 Fuel and fuel taxes 160,265 143,239 131,026 Depreciation 124,931 130,265 110,662 Operating supplies and expenses 92,426 94,592 82,939 Insurance and claims 58,387 50,707 37,951 General and administrative expenses 28,501 32,981 26,959 Operating taxes and licenses 27,422 26,422 27,016 Special charges (note 9) - 17,296 - Communication and utilities 18,456 14,822 12,863 ---------- --------- --------- Total operating expenses 1,426,385 1,330,880 1,122,705 ---------- --------- --------- Operating income 60,363 21,345 84,896 Interest expense 24,694 24,790 19,748 ---------- --------- --------- Earnings (loss) before income taxes 35,669 (3,445) 65,148 Income taxes (note 4) 13,554 (1,275) 24,756 ---------- --------- --------- Net earnings (loss) $ 22,115 (2,170) 40,392 ---------- --------- --------- ---------- --------- --------- Earnings (loss) per share $ .58 .(06) 1.05 ---------- --------- --------- ---------- --------- ---------
See accompanying notes to consolidated financial statements. 15 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 1996, 1995 and 1994 (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, 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 Tax benefit of stock options exercised - 325 - - - 325 Sale of treasury stock to employees - (5) - - 2,114 2,109 Repurchase of treasury stock - - - - (17,777) (17,777) Cash dividends paid ($.20 per share) - - (7,574) - - (7,574) Foreign currency translation adjustment - - - 1,118 - 1,118 Net earnings - - 22,115 - - 22,115 ------ ------- ------- ------ ------- ------- Balances at December 31, 1996 $ 390 105,897 282,364 (5,621) (25,775) 357,255 ------ ------- ------- ------ ------- ------- ------ ------- ------- ------ ------- -------
See accompanying notes to consolidated financial statements. 16 16 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 (Dollars in thousands) 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $ 22,115 (2,170) 40,392 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation 124,931 130,265 110,662 Provision for noncurrent deferred income taxes 19,430 842 14,598 Tax benefit of stock options exercised 325 301 735 Special charges - 17,296 - Amortization of discount, net 296 22 287 Changes in assets and liabilities: Accounts receivable (8,355) (4,707) (1,011) Other current assets (6,319) (4,637) (9,503) Deferred income taxes (829) (2,088) (3,490) Trade accounts payable (6,281) 41,280 11,269 Claims accruals (5,021) 516 3,874 Other accrued expenses 2,703 (1,603) 3,763 -------- -------- -------- Net cash provided by operating activities 142,995 175,317 171,576 -------- -------- -------- Cash flows from investing activities: Additions to property and equipment (192,434) (206,570) (282,581) Proceeds from sale of equipment 63,260 51,350 63,862 Increase in other assets (3,753) (7,613) (10,444) -------- -------- -------- Net cash used in investing activities (132,927) (162,833) (229,163) -------- -------- -------- Cash flows from financing activities: Net borrowings (repayments) on short-term obligations 24,440 (37,765) 75,848 Proceeds from long-term debt - 49,750 - Repayments of long-term debt (11,740) (10,000) (12,316) Proceeds from sale of treasury stock 2,109 2,431 2,634 Repurchase of treasury stock (17,777) (7,057) (2,080) Dividends paid (7,574) (7,725) (7,747) -------- -------- -------- Net cash provided by (used in) financing activities (10,542) (10,366) 56,339 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (474) 2,118 (1,248) Cash and cash equivalents at beginning of year 4,260 2,142 3,390 -------- -------- -------- Cash and cash equivalents at end of year $ 3,786 4,260 2,142 -------- -------- -------- Supplemental disclosure of cash flow information: Cash paid (received) during the year for: Interest $ 25,258 25,019 20,366 Income taxes (2,602) 3,431 13,606 -------- -------- --------
See accompanying notes to consolidated financial statements. 17 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 (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) CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. (d) 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. (e) 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 and other equipment, which are offset against depreciation expense, were approximately $7,949,000, $7,181,000 and $12,251,000 for the years ended December 31, 1996, 1995 and 1994, respectively. (f) REVENUE RECOGNITION The Company recognizes revenue based on relative transit time in each reporting period with expenses recognized as incurred. (Continued) 18 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (g) 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. (h) EARNINGS PER SHARE Earnings per share have been computed based on the weighted average number of shares outstanding during each year (37,913,331 in 1996; 38,520,323 in 1995; and 38,559,528 in 1994). Shares issuable under employee stock options are excluded from the weighted average number of shares as their dilutive effect is less than 3%. (i) 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, 1996, the Company had no significant concentrations of credit risk. (j) 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. (k) 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 $5,621,000 and $6,739,000 at December 31, 1996 and 1995, respectively. (Continued) 19 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (l) MANAGEMENT INCENTIVE PLAN Prior to January 1, 1996, the Company accounted for its management incentive plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standard ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant or alternatively to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (m) 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. (2) LONG-TERM DEBT Long-term debt consists of (in thousands): December 31, --------------------- 1996 1995 ---- ---- Commercial paper $ 169,750 145,310 Senior notes payable, interest at 6.25% payable semiannually 98,260 100,000 Senior notes payable, interest at 7.75% payable semiannually - 5,000 Senior notes payable, interest at 7.84% payable semiannually 15,000 20,000 Senior subordinated notes, interest at 7.80% payable semiannually 50,000 50,000 Senior notes payable, interest at 6.25% payable semiannually 25,000 25,000 Senior notes payable, interest at 6.00% payable semiannually 25,000 25,000 --------- ------- 383,010 370,310 Less: current maturities (49,750) (30,310) Unamortized discount (689) (985) --------- ------- $ 332,571 339,015 --------- ------- --------- ------- (Continued) 20 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 27, 1997 and $125 million expires March 31, 1999. The effective rate on the commercial note program was 6.18% and 6.11% for the years ended December 31, 1996 and 1995, respectively. The 6.25% senior notes 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 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. The Company has approximately $128 million of uncommitted lines of credit, none of which were outstanding at December 31, 1996. 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, 1996 consist of outstanding commercial paper associated with the revolving credit agreement which expires March 27, 1997 and one installment 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): 1997, $49,750; 1998, $5,000; 1999, $130,000; 2000, $60,000; and 2001, $10,000. (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, 1996 there were approximately 221,000 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. (Continued) 21 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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 $628,000, $1,100,000 and $1,600,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 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, 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 Granted 493,000 14.00 - 21.25 Exercised (192,956) 9.33 - 18.75 Terminated (284,850) 11.58 - 23.00 ---------- Outstanding at December 31, 1996 $2,740,925 11.58 - 24.63 294,950 ---------- ------------- ------- ---------- ------------- ------- 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 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. (Continued) 22 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net earnings (loss) would have been reduced to the pro forma amounts indicated below. 1996 1995 ---- ---- Net earnings (loss) As reported $ 22,115 (2,170) Pro forma 19,180 (2,820) Earnings (loss) per share As reported $ .58 (.06) Pro Forma .51 (.07) Pro forma net earnings (loss) reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation costs for stock options under SFAS No. 123 is not reflected in the pro forma net earnings (loss) amounts presented above because compensation cost is reflected over the options' vesting periods of 5 to 10 years and compensation cost for options granted prior to January 1, 1995 is not considered. The per share weighted-average fair value of stock options granted during 1996 and 1995 was $7.88 and $6.35, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1996 - expected dividend yield 1.4%, risk-free interest rate of 6.2%, and an expected life of 5.6 years; 1995 - expected dividend yield 1.4%, risk-free interest rate of 5.6%, and an expected life of 5.6 years. On January 23, 1997, the Company's Board of Directors declared a cash dividend of $.05 per share payable on February 17, 1997 to shareholders of record on February 3, 1997. (4) INCOME TAXES Total income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 was allocated as follows (in thousands): 1996 1995 1994 ---- ---- ---- Earnings (loss) before income tax $ 13,554 (1,275) 24,756 Stockholders' equity, for tax benefit of stock options exercised (325) (301) (735) --------- ------ ------ $ 13,229 (1,576) 24,021 --------- ------ ------ --------- ------ ------ (Continued) 23 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Income tax expense (benefit) attributable to earnings (loss) before income taxes consists of (in thousands): 1996 1995 1994 -------- ------- ------ Current expense (benefit): Federal $(5,830) (1,193) 12,897 State and local 783 1,164 751 ------- ------ ------ (5,047) (29) 13,648 ------- ------ ------ Deferred expense (benefit): Federal 20,366 (591) 9,929 State and local (1,765) (655) 1,179 ------- ------ ------ 18,601 (1,246) 11,108 ------- ------ ------ Total tax expense (benefit) $13,554 (1,275) 24,756 ------- ------ ------ ------- ------ ------ 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, 1996: 1996 1995 1994 ------ ------- ----- Income tax - statutory rate 35.00% (35.00) 35.00 State tax, net of Federal benefit (1.79) 9.60 1.93 Tax credits (0.87) (9.65) (0.92) Other, net 3.92 (1.95) 1.99 ----- ------ ----- Effective income tax rate 38.00% (37.00) 38.00 ----- ------ ----- ----- ------ ----- The significant components of deferred income tax expense (benefit) attributable to earnings (loss) before income taxes are as follows (in thousands): 1996 1995 1994 ------- ------- ------ Deferred tax expense (benefit) (exclusive of the effects of other components listed below) $18,601 (1,246) 12,788 Adjustments to deferred tax assets and liabilities for negotiated income tax settlements - - (1,680) ------- ------ ------ $18,601 (1,246) 11,108 ------- ------ ------ ------- ------ ------ (Continued) 24 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below (in thousands): 1996 1995 --------- -------- Deferred tax assets: Claims accruals, principally due to accrual for financial reporting purposes $(16,288) (17,834) Tax credit carryforwards (9,193) (17,896) Accounts receivable, principally due to allowance for doubtful accounts (5,410) (4,353) Special charges, principally due to write-off for financial reporting purposes - (5,670) Other (4,489) (4,673) -------- ------- Total gross deferred tax assets (35,380) (50,426) -------- ------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation and capitalized interest 153,303 153,176 Prepaid permits and insurance, principally due to write-offs for income tax purposes 6,709 5,653 Other 6,527 4,155 -------- ------- Total gross deferred tax liabilities 166,539 162,984 -------- ------- Net deferred tax liability $131,159 112,558 -------- ------- -------- ------- 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 $2,621,000 expiring from the year 2007 to 2009, and alternative minimum tax credit carryforwards with no expiration of approximately $6,572,000 at December 31, 1996. (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, 1996, 1995 and 1994, total Company contributions to the plan, including matching 401(k) contributions, were $3,450,000, $3,394,000 and $1,950,000, respectively. (Continued) 25 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (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 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, 1996 At December 31, 1995 ---------------------- --------------------- Carrying Estimated Carrying Estimated amount fair value amount fair value ------ ---------- ------ ---------- Cash and temporary investments $ 3,786 3,786 4,260 4,260 Accounts receivable 151,357 151,357 143,002 143,002 Trade accounts payable 83,846 83,846 90,127 90,127 Long-term debt: Commercial paper 169,750 169,750 145,310 145,310 Fixed rate obligations 212,571 208,966 224,015 229,940 Interest rate swap agreements - - - (140) -------- ------- ------- ------- -------- ------- ------- -------
(Continued) 26 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) RELATED PARTY TRANSACTIONS The Company advances premiums on life insurance policies on the lives of the Company's principal stockholder and his wife. 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 for the amount of premiums paid by the Company together with interest at the rate of 5% per annum. The amounts reimbursable to the Company amount to approximately $4,630,000 and $4,468,000 at December 31, 1996 and 1995, respectively. These amounts are included in other assets in the accompanying balance sheets. (8) COMMITMENTS AND CONTINGENCIES The Company has committed to purchase approximately $69 million of revenue and service equipment (net cost, after expected proceeds from sale or trade-in allowances of $21 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) 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, 1996 and 1995 are as follows (in thousands, except per share data): Quarter ------------------------------------------------------- First Second Third Fourth Total ----- ------ ------ ------ ----- 1996: Operating revenues $ 354,014 372,573 378,739 381,422 1,486,748 ---------- ------- ------- ------- --------- ---------- ------- ------- ------ --------- Operating income $ 10,432 17,436 17,433 15,062 60,363 ---------- ------- ------- ------ --------- ---------- ------- ------- ------ --------- Net earnings $ 2,803 6,866 7,082 5,364 22,115 ---------- ------- ------- ------ --------- ---------- ------- ------- ------ --------- Earnings per share $ .07 .18 .19 .14 .58 ---------- ------- ------- ------ --------- ---------- ------- ------- ------ ---------
(Continued) 27 J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 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) ---------- ------- ------- ------- --------- ---------- ------- ------- ------- ---------
28 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, 1996 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 of April 17, 1997 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," and "1997 Performance Based Compensation." 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 in Note (4) to the Summary Compensation Table. 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"). 29 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 19th day of February, 1997. 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 February 19, 1997 - ---------------------------- of Directors John A. Cooper, Jr. /s/ Fred K. Darragh, Jr. Member of the Board February 19, 1997 - ---------------------------- of Directors Fred K. Darragh, Jr. /s/ Wayne Garrison Member of the Board February 19, 1997 - ---------------------------- of Directors (Chairman) Wayne Garrison /s/ Gene George Member of the Board February 19, 1997 - ---------------------------- of Directors Gene George /s/ Thomas L. Hardeman Member of the Board February 19, 1997 - ---------------------------- of Directors Thomas L. Hardeman /s/ J. Bryan Hunt, Jr. Member of the Board February 19, 1997 - ---------------------------- of Directors (Vice Chairman) J. Bryan Hunt, Jr. /s/ J.B. Hunt Member of the Board February 19, 1997 - ---------------------------- of Directors (Senior Chairman) J.B. Hunt /s/ Johnelle Hunt Member of the Board February 19, 1997 - ---------------------------- of Directors (Corporate Johnelle Hunt Secretary) /s/ Lloyd E. Peterson Member of the Board February 19, 1997 - ---------------------------- of Directors Lloyd E. Peterson /s/ Kirk Thompson Member of the Board February 19, 1997 - ---------------------------- of Directors (President and Kirk Thompson Chief Executive Officer)
30 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 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 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. - 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, 1996. 31 EX-23 2 EXHIBIT 23 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 7, 1997 relating to the consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1996 and 1995, 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, 1996, which report is included in the December 31, 1996 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 February 17, 1997 32 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 3,786 0 151,357 0 6,772 202,107 1,218,245 404,992 1,040,925 196,140 0 0 0 390 0 1,040,925 1,486,748 1,486,748 0 1,426,385 0 0 24,694 35,669 13,554 22,115 0 0 0 22,115 .58 .58
-----END PRIVACY-ENHANCED MESSAGE-----