JB Hunt Annual Report 2014

Plain-text annual report

J . B . H U N T T R A N S P O R T S E R V I C E S , I N C . 2014 NOTICE OF ANNUAL MEETING, PROXY STATEMENT AND ANNUAL REPORT TABLE OF CONTENTS LETTER TO OUR STOCKHOLDERS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS PROXY STATEMENT Questions and Answers About the Proxy Materials and the Annual Meeting Proposal Number One – Election of Directors Information About the Board Nominees for Director Director Compensation Executive Ofﬁcers of the Company Security Ownership of Management Corporate Governance Audit Committee Executive Compensation Committee Nominating and Corporate Governance Committee Principal Stockholders of the Company Report of the Executive Compensation Committee Compensation Discussion and Analysis Process of Setting Compensation 2014 Compensation Summary Compensation Grants of Plan-Based Awards Outstanding Equity Awards at Calendar Year-end Options Exercised and Restricted Share Units Vested Nonqualiﬁed Deferred Compensation Potential Post-Employment Beneﬁts Report of the Audit Committee Proposal Number Two – Ratiﬁcation of Independent Registered Public Accounting Firm Proposal Number Three – Stockholder Proposal Regarding Greenhouse Gas Reduction Targets 2 4 5 5 10 10 11 13 14 15 16 20 20 21 22 23 24 25 28 32 33 34 37 38 38 39 40 41 l T a b e o f C o n t e n t s 2014 ANNUAL REPORT PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Performance Graph Item 6. Selected Financial Data 44 45 48 50 50 50 50 51 52 53 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Ofﬁcers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules Signatures Exhibit Index Index to Consolidated Financial Information CORPORATE INFORMATION Directors Ofﬁcers Stockholder Information Revenue by Industry 61 61 61 62 62 62 63 63 63 63 63 64 65 66 84 84 84 85 l s r e d o h k c o t S r u O o T r e t t e L TO THE STOCKHOLDERS OF J.B. HUNT TRANSPORT SERVICES, INC. In 2014, we delivered another exceptional year at J.B. Hunt, continuing our trend of year-over-year improvements. Though winter weather created unpredictable hardships early in the year and the driver shortage produced unprecedented challenges across the industry, we persevered. Through deliberate adjustments during changing conditions, we were able to handle record-setting load and stop volumes in Intermodal (JBI), Dedicated Contract Services (DCS), and Integrated Capacity Solutions (ICS), while Truckload (JBT) made meaningful progress toward recovery. As it is every year, our success in 2014 is the result of the remarkable efforts put forward by every one of our employees, the J.B. Hunt Team. Their execution of the business is the driving force behind the company’s continued prosperity. Furthermore, key customer partnerships drive us toward innovation and inspire us to search for new ways to grow our services as a company. 2014 Financial Results With a 10% increase in topline performance, our total consolidated operating revenue exceeded $6 billion in 2014. Operating income improved to more than $630 million, and earnings per share rose to $3.16. We generated over $926 million in EBITDA, invested a net $660 million in capital equipment and assets, and returned more than $218 million to our stockholders in the form of dividends and the repurchase of our common stock. Our debt levels at the end of 2014 were approximately $934 million, which is well within our targeted ratios. As noted, our net capital expenditures for 2014 approximated $660 million, as compared to $443 million in 2013. The increase in capital expenditures resulted primarily from the purchase of additional containers and chassis for JBI, as well as the purchase of additional and replacement tractors and trailers across all asset business segments. As of December 31, 2014, our tractor and truck ﬂeet consisted of 12,085 units, total trailer ﬂeet count was 27,731, and the container ﬂeet at year-end was 73,298. In addition, we engaged more than 1,350 independent contractors, operating their own tractors while utilizing our trailing equipment. It is our belief that operating with newer revenue equipment improves customer service, attracts higher-quality drivers, and lowers equipment-operating expense. Intermodal (JBI) 2014 was a challenging year for rail service. Despite these difﬁculties, JBI achieved a 7% increase in overall load volume and increased revenues to $3.7 billion in 2014 while maintaining acceptable margins. Throughout the year, we dealt with severe weather and lingering overall network congestion. Service recovery remained stalled for extended periods as railroads coped with higher volumes in several commodities along with growth in intermodal. This ultimately resulted in a reduction in box turns and increased cost in the drayage system. With improvements to rail infrastructure, power systems, crews and scheduling, we anticipate rail service will stabilize and improve steadily throughout 2015. Dedicated Contract Services (DCS) DCS revenue increased 13% to $1.4 billion in 2014. The year presented headwinds across many geographical regions, from winter weather to driver shortages. We also experienced some speciﬁc contract challenges involving several larger accounts. These issues contributed to the segment’s shortfall in delivering the margins we had expected. Progress made during 2014 in key areas, including driver recruiting and retention, pricing and other contract enhancements, position us to deliver improved performance for both our customers and our owners going forward. Integrated Capacity Solutions (ICS) ICS continues to grow, with revenues increasing 34% to $718 million. ICS opened six new ﬁeld branches in 2014, expanding our reach for customers and partner carriers. The segment grew headcount by 16%, extending our investment to meet the needs of our customers. Our strategy is to target new customers and develop expanding revenue streams to strengthen ICS and simultaneously generate growth for our other segments. Truck (JBT) Under new management in 2014 and operating with a reduced ﬂeet, our legacy truckload division is returning to a more sustainable business model. In the ﬁrst phase of our ﬁnancial recovery plan, JBT increased operating income to $24 million in 2014, primarily driven by increased rates per loaded mile, lower personnel costs, a smaller trailer ﬂeet, and gains on equipment sales. We remain committed to providing a relevant, asset-based truckload model, rounding out our single-source service offerings and providing a “best ﬁt” solution for our customers. 2 L e t t e r T o O u r S t o c k h o d e r s l Strategic Initiatives Infrastructure: We continually evaluate all real estate properties to ensure optimal customer service, driver support, equipment positioning, fueling, and maintenance. In 2014, we opened new operating centers in Alliance, Texas, and Edgerton, Kansas. We will open another operating center in San Bernardino, California, during 2015. These facilities are particularly strategic for Intermodal. Ofﬁces on the Lowell campus have expanded into newly leased space, and plans are underway to begin construction on a new ofﬁce tower adjacent to our current headquarters. During 2014, we closed or sold facilities in Mississippi and Georgia, as they are no longer supported by the business. We will continue to evaluate property requirements for all business segments. Cultural Development: We continue to grow and develop our more than 20,000 employees, both at corporate and in the ﬁeld, and have launched several initiatives to bolster companywide engagement and improve employee lifestyle. This year we created our ﬁrst Employee Resource Group (ERG) known as G.R.O.W. (Growing and Retaining Outstanding Women), and committed to hiring more than 10,000 U.S. military veterans by the year 2020. The functionality in Workday HR increases our ability to identify and manage opportunities in our talent development programs, enabling better preparation for future growth. Our partnership with the University of Arkansas to expand employee development programs created sales-force training modules on how to improve efﬁciency and provide greater value to our customers. During 2014, we launched the J.B. Hunt Experience, a long-term cultural enhancement initiative to build an even better working environment and service culture. Technology: We see expanding potential in our technology strategies, including mobile, cloud-based systems, purchased services and software, and internal development of proprietary operating systems. A breakthrough system for us in 2014 was J.B. Hunt 360. This Web-based, mobile-friendly service allows customers to obtain rate quotes, book loads, trace load progress, and pay using credit cards. We believe there is a growing market for self-service platforms, and J.B. Hunt 360 moves us closer to these customers. We completed preparation needed to begin implementing MercuryGate to support load management in ICS. We are in the midst of a mainframe modernization project, creating a fully Web-enabled, intuitive internal system as part of our long-term roadmap. Customer Development and Expansion: Customer retention and growth have long been a key focus at J.B. Hunt, involving extensive cross-selling. A customer utilization scorecard is now in full use, guiding an objective ranking system that reveals the quality of each customer’s business across all JBHT segments. Characteristics examined in customer rankings include growth trends, buying behaviors, automation, equipment efﬁciencies, and other important terms and conditions. This information will soon be available to our customers on J.B. Hunt 360 with the goal of maintaining and growing our existing accounts while also adding new clients and generating revenue across a broader base. A key theme for us moving into 2015 and beyond is to “Think Big.” Inspired by a recent look back on our over 50-year history, “Think Big” is an expression of our ongoing commitment to seek out new and different ways to serve our growing customer base. Freight demand has potential to continue improving given positive economic forecasts. We also see a clear shift in customer buying trends toward online purchasing. As we contemplate the effects of an improving U.S. economy, we are working toward building a bigger, stronger, and better business model. We again thank our employees for their extraordinary diligence and dedication to exceptional service. We thank our customers for their continued patronage and trust. In addition, we thank our stockholders for their investment and ongoing conﬁdence. John N. Roberts, III President & Chief Executive Ofﬁcer Kirk Thompson Chairman of the Board 3 g n i t e e M l a u n n A f o e c i t o N J.B. HUNT TRANSPORT SERVICES, INC. 615 J.B. Hunt Corporate Drive Lowell, Arkansas 72745 479-820-0000 Internet Site: www.jbhunt.com _____________________________________________________________________________ NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held April 23, 2015 ____________________________________________________________________________ The Annual Meeting of Stockholders of J.B. Hunt Transport Services, Inc. (the “Company”) will be held April 23, 2015, at 10 a.m. (CDT) at the Company’s headquarters, located at 615 J.B. Hunt Corporate Drive in Lowell, Arkansas, for the following purposes: (1) To elect Directors for a term of one (1) year (2) To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting ﬁrm for the 2015 calendar year (3) To consider a stockholder proposal regarding greenhouse gas reduction targets (4) To transact such other business as may properly come before the Annual Meeting or any adjournments thereof Only stockholders of record on February 17, 2015, will be entitled to vote at the meeting or any adjournments thereof. The stock transfer books will not be closed. The 2014 Annual Report to Stockholders is included in this publication. By Order of the Board of Directors DAVID G. MEE Corporate Secretary Lowell, Arkansas March 13, 2015 4 YOUR VOTE IS IMPORTANT PLEASE EXECUTE YOUR PROXY WITHOUT DELAY J.B. HUNT TRANSPORT SERVICES, INC. 615 J.B. Hunt Corporate Drive Lowell, Arkansas 72745 479-820-0000 Internet Site: www.jbhunt.com _____________________________________________________________________________ PROXY STATEMENT _____________________________________________________________________________ This Proxy Statement is furnished in connection with the solicitation of proxies by J.B. Hunt Transport Services, Inc. (the “Company”), on behalf of its Board of Directors (the “Board”), for the 2015 Annual Meeting of Stockholders (the “Annual Meeting”). The Proxy Statement and the related proxy card are being distributed on or about March 13, 2015. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDERS MEETING TO BE HELD APRIL 23, 2015 This Proxy Statement and our 2014 Annual Report to Stockholders, which includes our Annual Report on Form 10-K, are available at www.jbhunt.com. QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING P r o x y S t a t e m e n t When And Where Is The Annual Meeting? Date: Time: Location: Thursday, April 23, 2015 10 a.m. Central Daylight Time J.B. Hunt Transport Services, Inc. Corporate Ofﬁces First-Floor Auditorium 615 J.B. Hunt Corporate Drive Lowell, Arkansas 72745 What Matters Will Be Voted Upon At The Annual Meeting? At the Annual Meeting, you will be asked to: • Consider and vote upon a proposal to elect nominees Douglas G. Duncan, Francesca M. Edwardson, Wayne Garrison, Sharilyn S. Gasaway, Gary C. George, Bryan Hunt, Coleman H. Peterson, John N. Roberts, III, James L. Robo, Kirk Thompson, and John A. White as directors to hold ofﬁce for a term of one year, expiring at the close of the Annual Meeting of Stockholders in 2016. • Consider and vote upon a proposal to ratify the appointment of Ernst & Young LLP (“E&Y”) as the Company’s independent registered public accounting ﬁrm for the 2015 calendar year. • Consider and vote upon a stockholder proposal to adopt quantitative companywide goals for reducing greenhouse gas emissions and to report on the Company’s plans to achieve these goals by September 2015. • Transact such other business as may properly come before the Annual Meeting or any adjournments thereof. 5 What Constitutes A Quorum? The presence, either in person or by proxy, of the holders of at least a majority of our issued and outstanding shares of common stock entitled to vote is required to constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and broker non-votes, which are described in more detail below, are counted as shares present at the Annual Meeting for purposes of determining whether a quorum exists. Who Is Entitled To Vote? Only stockholders of record of the Company’s common stock at the close of business on Tuesday, February 17, 2015, which is the “record date,” are entitled to notice of, and to vote at, the Annual Meeting. Shares that may be voted include shares that are held: (1) directly by the stockholder of record, and (2) beneﬁcially through a broker, bank or other nominee. Each share of our common stock will be entitled to one vote on all matters submitted for a vote at the Annual Meeting. As of the record date, there were 116,515,423 shares of our common stock issued and outstanding and entitled to be voted at the Annual Meeting. What Is The Difference Between Holding Shares As A “Registered Owner” And A “Beneﬁcial Owner”? Most of the Company’s stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between registered shares and those owned beneﬁcially: • Registered Owners – If your shares are registered directly in your name with our transfer agent, Computershare Trust Company N.A., you are, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to grant your voting proxy directly to the Company or to vote in person at the Annual Meeting. • Beneﬁcial Owners – If your shares are held in a brokerage account, bank or by another nominee, you are, with respect to those shares, the “beneﬁcial owner” of shares held in “street name.” As the beneﬁcial owner, you have the right to direct your broker, bank or other nominee on how to vote or to vote in person at the Annual Meeting. However, since you are not a stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a “legal proxy” from your broker, bank or other nominee (who is the stockholder of record) giving you the right to vote the shares. t n e m e t a t S y x o r P What Stockholder Approval Is Necessary For Approval Of The Proposals? • Election of Directors Each director shall be elected by a vote of the majority of votes cast with respect to that director. This means that a director must receive “for” votes from more than 50% of the number of shares voted with respect to that director. However, if the number of nominees is greater than the number of directors to be elected, the directors will be elected by the vote of a plurality of the shares represented in person or by proxy at any stockholder meeting. • Ratiﬁcation of the appointment of E&Y as the Company’s independent registered public accounting ﬁrm (cid:3) Ratiﬁcation of the Audit Committee’s appointment of E&Y as the Company’s independent registered public accounting ﬁrm requires the afﬁrmative vote of a majority of the votes cast at the Annual Meeting. For purposes of this vote, a failure to vote, a vote to abstain or withholding your vote (or direction to your broker to do so) is not counted as a vote cast and, therefore, will have no effect on the outcome of this vote. Stockholder ratiﬁcation is not required for the appointment of the Company’s independent registered public accounting ﬁrm. However, we (cid:3) are submitting the proposal to solicit the opinion of our stockholders. • Vote on a stockholder proposal to adopt quantitative companywide goals for reducing greenhouse gas emissions and to report on the Company’s plans to achieve these goals by September 2015. Approval of this resolution requires the afﬁrmative vote of a majority of the votes cast at the Annual Meeting. For purposes of this vote, a failure to vote, a vote to abstain or withholding your vote (or direction to your broker to do so) is not counted as a vote cast and, therefore, will have no effect on the outcome of this vote. As of the record date, directors and executive ofﬁcers of the Company beneﬁcially owned an aggregate 5,214,766 shares of common stock representing 4.5% of our common stock issued and outstanding and, therefore, 4.5% of the voting power entitled to vote at the Annual Meeting. The Company believes that its directors and executive ofﬁcers currently intend to vote their shares as follows: • FOR the election of directors for one (1) year • FOR ratiﬁcation of the appointment of E&Y as the Company’s independent registered public accounting ﬁrm for the 2015 calendar year • AGAINST the stockholder proposal to adopt quantitative companywide goals for reducing greenhouse gas emissions and to report on the Company’s plans to achieve these goals by September 2015 6 May I Vote My Shares In Person At The Annual Meeting? If you are the registered owner of shares of the Company’s common stock on the record date, you have the right to vote your shares in person at the Annual Meeting. If you are the beneﬁcial owner of shares of the Company’s common stock on the record date, you may vote these shares in person at the Annual Meeting if you request and obtain a legal proxy from your broker, bank or other nominee (the stockholder of record) giving you the right to vote the shares at the Annual Meeting, complete such legal proxy and present it to the Company at the Annual Meeting. Even if you plan to attend the Annual Meeting, we recommend that you submit your proxy card or voting instructions so that your vote will be counted if you later decide not to attend the Annual Meeting. How Can I Vote My Shares Without Attending The Annual Meeting? If you are a registered owner, you may instruct the named proxy holders on how to vote your shares by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided with this Proxy Statement, or by using the Internet voting site or the toll- free telephone number listed on the proxy card. Speciﬁc instructions for using the Internet and telephone voting systems are provided on the proxy card. The Internet and telephone voting systems will be available until 11:59 p.m. Central Daylight Time on Wednesday, April 22, 2015 (the day before the Annual Meeting). If you are the beneﬁcial owner of shares held in “street name,” you should instruct your broker, bank or other nominee on how to vote your shares. Your broker, bank or other nominee has enclosed with this Proxy Statement a voting instruction card for you to use in directing your nominee on how to vote your shares. The instructions from your nominee will indicate whether Internet or telephone voting is available and, if so, will provide details regarding how to use those systems. If My Shares Are Held In “Street Name,” Will My Broker, Bank Or Other Nominee Vote My Shares For Me? If you hold shares in street name through a broker, bank or other nominee, your broker, bank or nominee may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon at the Annual Meeting. Under current stock exchange rules, brokers who do not have instructions from their customers may not use their discretion in voting their customers’ shares on certain speciﬁc matters that are not considered to be “routine” matters, including the election of directors, executive compensation and other signiﬁcant matters. The proposals in this Proxy Statement regarding the election of directors and greenhouse gas reduction targets are not considered to be routine matters. Therefore, without your speciﬁc instructions, your shares will not be voted on these matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such “broker non-votes,” however, will be counted in determining whether there is a quorum. You should follow the directions provided by your nominee regarding instructions on how to vote your shares. P r o x y S t a t e m e n t Ratiﬁcation of the appointment of E&Y as the Company’s independent registered public accounting ﬁrm is considered a routine matter and, therefore, if beneﬁcial owners fail to give voting instructions, brokers, banks and other nominees will have the discretionary authority to vote shares of our common stock with respect to this proposal. What Is A Broker Non-Vote? Generally, a “broker non-vote” occurs when a broker, bank or other nominee that holds shares in “street name” for a customer is precluded from exercising voting discretion on a particular proposal because: (1) the beneﬁcial owner has not instructed the nominee on how to vote, and (2) the nominee lacks discretionary voting power to vote such issues. Under NASDAQ rules, a nominee does not have discretionary voting power with respect to the approval of “nonroutine” matters absent speciﬁc voting instructions from the beneﬁcial owners of such shares. How Will My Proxy Be Voted? Shares represented by a properly executed proxy (in paper form, by Internet or by telephone) that is received in a timely manner, and not subsequently revoked, will be voted at the Annual Meeting or any adjournment or postponement thereof in the manner directed on the proxy. Kirk Thompson and John N. Roberts, III are named as proxies in the proxy form and have been designated by the Board as the directors’ proxies to represent you and vote your shares at the Annual Meeting. All shares represented by a properly executed proxy on which no choice is speciﬁed will be voted: (1) FOR the election of the nominees for director named in this Proxy Statement, (2) FOR ratiﬁcation of the appointment of E&Y as the Company’s independent registered public accounting ﬁrm for the 2015 calendar year, (3) AGAINST the stockholder proposal to adopt quantitative companywide goals for reducing greenhouse gas emissions and to report on the Company’s plans to achieve these goals by September 2015, and (4) in accordance with the proxy holders’ best judgment as to any other business that properly comes before the Annual Meeting. This Proxy Statement is considered to be voting instructions for the trustees of the J.B. Hunt Transport Services, Inc. Employee Retirement Plan for our common stock allocated to individual accounts under this plan. If account information is the same, participants in the plan (who are 7 t n e m e t a t S y x o r P stockholders of record) will receive a single proxy representing all of their shares. If a plan participant does not submit a proxy to us, the trustees of the plan in which shares are allocated to his or her individual account will vote such shares in the same proportion as the total shares in such plan for which directions have been received. May I Revoke My Proxy And Change My Vote? Yes. You may revoke your proxy and change your vote at any time prior to the vote at the Annual Meeting. If you are the registered owner, you may revoke your proxy and change your vote by: (1) submitting a new proxy bearing a later date (which automatically revokes the earlier proxy), (2) giving notice of your changed vote to us in writing mailed to the attention of David G. Mee, Corporate Secretary, at our executive ofﬁces, or (3) attending the Annual Meeting and giving oral notice of your intention to vote in person. You should be aware that simply attending the Annual Meeting will not in and of itself constitute a revocation of your proxy. Who Will Pay The Costs Of Soliciting Proxies? Proxies will be solicited initially by mail. Further solicitation may be made in person or by telephone, electronic mail or facsimile. The Company will bear the expense of preparing, printing and mailing this Proxy Statement and accompanying materials to our stockholders. Upon request, the Company will reimburse brokers, banks and other nominees for reasonable expenses incurred in forwarding copies of the proxy materials relating to the Annual Meeting to the beneﬁcial owners of our common stock. In 2014, the Company retained Broadridge, an independent proxy solicitation ﬁrm, to assist in soliciting proxies from stockholders. Broadridge received a fee of approximately $48,000 as compensation for its services and was reimbursed for its out-of-pocket expenses. The fee amount was not contingent on the number of stockholder votes cast in favor of any proposal, and Broadridge is prohibited from making any recommendation to our stockholders to either accept or reject any proposal or otherwise express an opinion concerning a proposal. Proxy solicitation fees in 2015 are expected to be comparable to those paid in 2014. What Other Business Will Be Presented At The Annual Meeting? As of the date of this Proxy Statement, the Board knows of no other business that may properly be, or is likely to be, brought before the Annual Meeting. If any other matters should arise at the Annual Meeting, the persons named as proxy holders, Kirk Thompson and John N. Roberts, III, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If, for any unforeseen reason, any of the director nominees are not available to serve as a director, the named proxy holders will vote your proxy for such other director candidate or candidates as may be nominated by the Board. What Is The Deadline For Stockholder Proposals For The 2016 Annual Meeting? In order for a stockholder proposal to be eligible to be included in the Company’s Proxy Statement and proxy card for the 2016 Annual Meeting of Stockholders, the proposal: (1) must be received by the Company at its executive ofﬁces, 615 J.B. Hunt Corporate Drive, Lowell, Arkansas 72745, Attention: Corporate Secretary, on or before November 13, 2015, and (2) must concern a matter that may be properly considered and acted upon at the Annual Meeting in accordance with applicable laws, regulations and the Company’s Bylaws and policies, and must otherwise comply with Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Where Can I Find The Voting Results Of The Annual Meeting? The Company will publish ﬁnal voting results of the Annual Meeting on a Form 8-K within four days after the annual stockholders meeting on April 23, 2015. What Should I Do If I Receive More Than One Set Of Voting Materials? You may receive more than one set of voting materials, including multiple copies of this Proxy Statement and multiple proxies or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card for each brokerage account. If you are a registered owner and your shares are registered in more than one name, you will receive more than one proxy card. Please vote each proxy and instruction card that you receive. What Is Householding? In an effort to reduce printing costs and postage fees, the Company has adopted a practice approved by the Securities and Exchange Commission (the “SEC”) called “householding.” Under this practice, certain stockholders who have the same address and last name will receive only one copy of this Proxy Statement and the Company’s Annual Report, unless one or more of these stockholders notiﬁes the Company that he or she wishes to continue receiving individual copies. Stockholders who participate in householding will continue to receive separate proxy cards. 8 If you share an address with another stockholder and received only one copy of this Proxy Statement and the Company’s Annual Report and would like to request a separate copy of these materials, or if you do not wish to participate in householding in the future, please: (1) mail such request to J.B. Hunt Transport Services, Inc., Attention: Corporate Secretary, 615 J.B. Hunt Corporate Drive, Lowell, Arkansas 72745, or (2) call the Corporate Secretary toll-free at 800-643-3622. Similarly, you may also contact the Company if you received multiple copies of the Company’s proxy materials and would prefer to receive a single copy in the future. What Do I Need To Do Now? First, read this Proxy Statement carefully. Then, if you are a registered owner, you should, as soon as possible, submit your proxy by executing and returning the proxy card or by voting electronically via the Internet or by telephone. If you are the beneﬁcial owner of shares held in “street name,” then you should follow the voting instructions of your broker, bank or other nominee. Your shares will be voted in accordance with the directions you specify. If you submit an executed proxy card to the Company, but fail to specify voting directions, your shares will be voted: (1) FOR the election of the director nominees, (2) FOR ratiﬁcation of the appointment of E&Y as the Company’s independent registered public accounting ﬁrm for the 2015 calendar year, and (3) AGAINST the Stockholder proposal to adopt quantitative companywide goals for reducing greenhouse gas emissions and to report on the Company’s plans to achieve these goals by September 2015. Who Can Help Answer My Questions? If you have questions concerning a proposal or the Annual Meeting, if you would like additional copies of this Proxy Statement, or if you need directions to or special assistance at the Annual Meeting, please call the Corporate Secretary toll-free at 800-643-3622. In addition, information regarding the Annual Meeting is available via the Internet at our website, www.jbhunt.com. YOU SHOULD CAREFULLY READ THIS PROXY STATEMENT IN ITS ENTIRETY The summary information provided above in the question-and-answer format is for your convenience only and is merely a brief description of material information contained in this Proxy Statement. P r o x y S t a t e m e n t YOUR VOTE IS IMPORTANT IF YOU ARE A REGISTERED OWNER, YOU MAY VOTE BY INTERNET, TELEPHONE, OR BY COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT TO US IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE IF YOU ARE A BENEFICIAL OWNER, PLEASE FOLLOW THE VOTING INSTRUCTIONS OF YOUR BROKER, BANK OR OTHER NOMINEE AS PROVIDED WITH THIS PROXY STATEMENT AS PROMPTLY AS POSSIBLE 9 t n e m e t a t S y x o r P PROPOSALS TO BE VOTED AT THE ANNUAL MEETING PROPOSAL NUMBER ONE ELECTION OF DIRECTORS Our Board nominates Douglas G. Duncan, Francesca M. Edwardson, Wayne Garrison, Sharilyn S. Gasaway, Gary C. George, Bryan Hunt, Coleman H. Peterson, John N. Roberts, III, James L. Robo, Kirk Thompson, and John A. White as directors to hold ofﬁce for a term of one year, expiring at the close of the 2016 Annual Meeting of Stockholders or until their successors are elected and qualiﬁed or until their earlier resignation or removal. The Board believes that these incumbent directors standing for re-election are well-qualiﬁed and experienced to direct and manage the Company’s operations and business affairs and will represent the interests of the stockholders as a whole. Biographical information on each of these nominees is set forth below in “Nominees for Director.” If any director nominee becomes unavailable for election, which is not anticipated, the named proxies will vote for the election of such other person as the Board may nominate, unless the Board resolves to reduce the number of directors to serve on the Board and thereby reduce the number of directors to be elected at the Annual Meeting. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE DIRECTOR NOMINEES LISTED HEREIN INFORMATION ABOUT THE BOARD The Board’s directors hold ofﬁce for a term of one year. OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Number of Directors and Term of Directors and Executive Ofﬁcers The Company’s Bylaws provide that the number of directors shall not be less than three or more than 12, with the exact number to be ﬁxed by the Board. Directors serve a term of one year from their election date to the Annual Meeting of Stockholders. Directors are elected by a majority of votes cast with respect to each director, provided that the number of nominees does not exceed the number of directors to be elected. The stockholders of the Company elect at the Company’s Annual Meeting successors for directors whose terms have expired. The Board elects members to ﬁll new membership positions and vacancies in unexpired terms on the Board. No director will be eligible to stand for re-election or be elected to a vacancy once he or she has reached 72 years of age. However, our Board of Directors has granted a waiver of this mandatory retirement age to John A. White until the Company’s 2016 Annual Meeting of Stockholders. Executive ofﬁcers are elected by the Board and hold ofﬁce until their successors are elected and qualiﬁed or until their earlier death, retirement, resignation or removal. 10 NOMINEES FOR DIRECTOR TERMS EXPIRE 2016 Douglas G. Duncan Mr. Duncan, 64, was elected to the Board in 2010. He is a member of the Audit Committee and the Nominating and Corporate Governance Committee. In February 2010, he retired as President and Chief Executive Ofﬁcer of FedEx Freight Corporation, a wholly owned subsidiary of FedEx Corporation. FedEx Freight Corporation is a leading provider of regional and national less-than-truckload (LTL) freight services. Mr. Duncan was the founding chief executive ofﬁcer of FedEx Freight. He also served on the Strategic Management Committee of FedEx Corporation. Before the formation of FedEx Freight, he served for two years as President and Chief Executive Ofﬁcer of Viking Freight. With 30 years of transportation experience, Mr. Duncan has held management positions in operations, sales and marketing with Caliber System and Roadway Express. He served on the Executive Committee of the American Trucking Associations and as Chairman of the American Transportation Research Institute. A graduate of Christopher Newport University, Mr. Duncan served on the university’s Board of Visitors. He currently serves on the Board of Directors of Brambles LTD and Benchmark Electronics, Inc. Francesca M. Edwardson Ms. Edwardson, 57, was elected to the Board in 2011. She serves on the Company’s Executive Compensation Committee and the Nominating and Corporate Governance Committee. She is the Chief Executive Ofﬁcer of the American Red Cross of Chicago and Northern Illinois, a business unit of the American Red Cross. She previously served as Senior Vice President and General Counsel for UAL Corporation, a predecessor company to United Continental Holdings, Inc. She has also been a partner in the law ﬁrm of Mayer Brown and the Executive Director of the Illinois Securities Department. Ms. Edwardson is a graduate of Loyola University in Chicago, Illinois, with degrees in economics and law, and serves on the Boards of Trustees for Rush University Medical Center and the Lincoln Park Zoo. Wayne Garrison Mr. Garrison, 62, was elected to the Board in 1981. He served as Chairman of the Board of the Company from 1995 to December 31, 2010, and continues to serve as a member of the Board of Directors. Joining the Company in 1976 as Plant Manager, Mr. Garrison has also served as Vice President of Finance in 1978, Executive Vice President of Finance in 1979, President in 1982, Chief Executive Ofﬁcer in 1987 and Vice Chairman of the Board from January 1986 until May 1991. P r o x y S t a t e m e n t Sharilyn S. Gasaway Mrs. Gasaway, 46, was elected to the Board in 2009. She is a member of the Audit Committee and the Nominating and Corporate Governance Committee. She served as Executive Vice President and Chief Financial Ofﬁcer of Alltel Corp., the Little Rock, Arkansas-based Fortune 500 wireless carrier, from 2006 to 2009. She was part of the executive team that spearheaded publicly traded Alltel’s transition through the largest private equity buyout in the telecom sector and was an integral part of the successful combination of Alltel and Verizon. She also served as Alltel’s Corporate Controller and Principal Accounting Ofﬁcer from 2002 to 2006. Joining Alltel in 1999, she served as Director of General Accounting, Controller, and Vice President of Accounting and Finance. Prior to joining Alltel, she worked for eight years at Arthur Andersen LLC. Mrs. Gasaway has a degree in accounting from Louisiana Tech University and is a Certiﬁed Public Accountant. She currently serves on the Board of Directors, chairs the Audit Committee and serves on the Governance, Compensation and Business Development Committee of Genesis Energy, LP. She also serves on the Board of Directors and the Audit, Investment, and Nominating and Corporate Governance Committees of Waddell & Reed Financial, Inc., as well as on the Louisiana Tech University College of Business Advisory Board and the Board of Directors of Arkansas Children’s Hospital. Gary C. George Mr. George, 64, was elected to the Board in 2006. He is Chairman of the Nominating and Corporate Governance Committee and a member of the Executive Compensation Committee. Mr. George is Chairman of George’s, Inc., a private, fully integrated poultry company in northwest Arkansas. He is a graduate of the University of Arkansas with a degree in business administration. He served on the Board of Trustees for the University of Arkansas from 1995 through 2005 and was Chairman of the Board of Trustees in 2005. He also serves as Chairman of the Board of Legacy National Bank in Springdale, Ark. Bryan Hunt Mr. Hunt, 56, was elected to the Board in 1991. He is the Managing Member of Hunt Auto Group, a private company with operations in motor vehicle sales and service in Arkansas and Missouri; Best Buy Here Pay Here of Arkansas, a private company with used-car operations in Arkansas, Missouri and Oklahoma; Progressive Car Finance, a private company that provides subprime ﬁnancing for automobile dealers; and 71B Auto Auction and I-135 Auto Auction, both private companies engaged in the auction of automobiles, trucks, boats and other motor vehicles to dealers and the general public in Arkansas and Kansas. A graduate of the University of Arkansas, he has a degree in marketing and transportation. He is the son of co- founders J.B. and Johnelle Hunt. 11 t n e m e t a t S y x o r P Coleman H. Peterson Mr. Peterson, 66, was elected to the Board in 2004. He is Chairman of the Executive Compensation Committee and a member of the Nominating and Corporate Governance Committee. Mr. Peterson is the President and CEO of Hollis Enterprises LLC, a human resources consulting ﬁrm founded in 2004. He is retired from Wal-Mart Stores, Inc. as Executive Vice President of its People Division. During his tenure, Mr. Peterson was responsible for recruitment, retention and development of the world’s largest corporate work force. Prior to his experience with Wal-Mart, Mr. Peterson spent 16 years with Venture Stores, with his last position being Senior Vice President of Human Resources. He holds bachelor’s and master’s degrees from Loyola University of Chicago. Mr. Peterson serves on the Board of Directors, chairs the Compensation Committee, and serves on the Nominating and Corporate Governance Committee of Build-A-Bear Workshop. He also serves on the Board of Directors, chairs the Compensation Committee, and serves on the Nominating and Corporate Governance Committee of Cracker Barrel Old Country Store, Inc. Locally, he served as Chairman of the Board of Trustees for Northwest Arkansas Community College until December 31, 2010. Mr. Peterson served as a member of the Board of Directors and chaired the Compensation Committee of The ServiceMaster Company. He also sat on the Executive Committee of the NAACP and served as Treasurer for the NAACP’s Special Contribution Fund. John N. Roberts, III Mr. Roberts, 50, was elected to the Board in 2010, and was elected to serve as the Company’s President and Chief Executive Ofﬁcer effective January 1, 2011. A graduate of the University of Arkansas, he served as Executive Vice President and President of Dedicated Contract Services from 1997 to December 31, 2010. Joining the Company in 1989, he began his career as a Management Trainee and subsequently served as an EDI Services Coordinator, Regional Marketing Manager for the Intermodal and Truckload business units, Business Development Executive for DCS and Vice President of Marketing Strategy for the Company. In 2014, Mr. Roberts was elected as a Class B Director to the Federal Reserve Bank of St. Louis. James L. Robo Mr. Robo, 52, was elected to the Board in 2002. He is Lead Independent Director, Chairman of the Audit Committee and a member of the Nominating and Corporate Governance Committee. Mr. Robo is Chairman and Chief Executive Ofﬁcer of NextEra Energy, Inc. He served as President and Chief Operating Ofﬁcer of NextEra Energy until June 2012, as President of NextEra Energy Resources until December 2006 and as Vice President of Corporate Development and Strategy until July 2002. NextEra Energy is a leading clean energy company whose two main subsidiaries are Florida Power & Light Company and NextEra Energy Resources, LLC. Prior to joining NextEra Energy in 2002, Mr. Robo spent 10 years at General Electric Company. He served as President and Chief Executive Ofﬁcer of GE Mexico from 1997 until 1999 and as President and Chief Executive Ofﬁcer of the GE Capital TIP/Modular Space division from 1999 until February 2002. From 1984 through 1992, Mr. Robo worked for Mercer Management Consulting. He received a BA summa cum laude from Harvard College and an MBA from Harvard Business School, where he was a Baker Scholar. Kirk Thompson Mr. Thompson, 61, was elected to the Board in 1985. He was elected Chairman of the Board in 2010, assuming that ofﬁce on January 1, 2011. He served as President and Chief Executive Ofﬁcer from 1987 to December 31, 2010. A graduate of the University of Arkansas and a Certiﬁed Public Accountant, Mr. Thompson joined the Company in 1973. He served as Vice President of Finance from 1979 until 1984, Executive Vice President and Chief Financial Ofﬁcer until 1985, and President and Chief Operating Ofﬁcer from 1986 until 1987, when he was elected President and Chief Executive Ofﬁcer. In 2014, Mr. Thompson joined the Board of Directors of Rand Logistics, Inc., a leading provider of bulk freight shipping services in marine vessels throughout the Great Lakes region. John A. White Dr. White, 75, was elected to the Board in 1998. He is a member of the Audit Committee, the Executive Compensation Committee, and the Nominating and Corporate Governance Committee. Dr. White is Chancellor Emeritus and Distinguished Professor of the University of Arkansas. Previous to this appointment, he served as Chancellor of the University of Arkansas, a position he held for 11 years, beginning July 1, 1997. A graduate of the University of Arkansas (BSIE), Virginia Tech (MSIE) and The Ohio State University (Ph.D.), he also holds honorary doctorates from the Katholieke Universiteit of Leuven in Belgium and from George Washington University. Dr. White is a member of the National Academy of Engineering. He has served on the Boards of Directors and the Audit Committees of Eastman Chemical, Logility, Motorola (Motorola Solutions), and Russell Corporation. 12 DIRECTOR COMPENSATION The Company pays only nonemployee directors for their services as directors. Directors who are also ofﬁcers or employees of the Company are not eligible to receive any of the compensation described below. In calendar year 2014, compensation for nonemployee directors serving on the Board, was as follows: • an annual retainer of $140,000 paid in Company stock, cash or any combination thereof • an annual retainer of $15,000, paid in cash, to the Audit Committee Chairman • an annual retainer of $10,000, paid in cash, to the Executive Compensation Committee Chairman • an annual retainer of $5,000, paid in cash, to the Nominating and Corporate Governance Committee Chairman • $4,500 for each Board meeting attended • $2,500 for each Audit Committee meeting attended • $2,000 for each Executive Compensation Committee meeting attended • $1,500 for each Nominating and Corporate Governance Committee meeting attended • reimbursement of expenses to attend Board and Committee meetings At the Executive Compensation Committee’s (the “Committee”) meeting on October 28, 2014, the Committee reviewed a summary of various compensation packages awarded to directors of the Company’s peer group compiled by Meridian Compensation Partners, LLC. The Committee determined that the Board’s compensation would be changed to the following, effective January 1, 2015. • an annual retainer of $155,000 paid in Company stock, cash or any combination thereof • an annual retainer of $20,000, paid in cash, to the Audit Committee Chairman • an annual retainer of $13,500, paid in cash, to the Executive Compensation Committee Chairman • an annual retainer of $7,500, paid in cash, to the Nominating and Corporate Governance Committee Chairman • $4,500 for each Board meeting attended • $2,500 for each Audit Committee meeting attended • $2,000 for each Executive Compensation Committee meeting attended • $1,500 for each Nominating and Corporate Governance Committee meeting attended • reimbursement of expenses to attend Board and Committee meetings Nonemployee Board of Director Compensation Paid in Calendar Year 2014 Fees Paid in Cash ($) 182,500 32,500 158,000 77,500 37,500 18,000 42,500 57,500 50,000 Fees Paid in Stock ($) – 140,000 – 105,000 140,000 140,000 140,000 140,000 140,000 Restricted Share or Stock Option Awards ($) – – – – – – – – – Non-Equity Incentive Plan Compensation ($) – – – – – – – – – Board Member Douglas G. Duncan Francesca M. Edwardson Wayne Garrison Sharilyn S. Gasaway Gary C. George Bryan Hunt Coleman H. Peterson James L. Robo John A. White (1) Reimbursement of expenses to attend Board and Committee meetings Change in Pension Value and Nonqualiﬁed Deferred All Other Compensation Compensation Earnings ($) – – – – – – – – – ($) (1) 3,439 4,508 – – – – 4,648 6,400 – Total ($) 185,939 177,008 158,000 182,500 177,500 158,000 187,148 203,900 190,000 Each nonemployee member of the Board had the choice of receiving his or her annual retainer of $140,000 in Company stock, cash or any combination thereof. Those directors choosing to receive their full retainer in Company stock received 1,773 shares based on the $78.98 closing market price on July 22, 2014. Sharilyn S. Gasaway elected to receive a portion of her retainer in stock, totaling 1,329 shares, based on the closing market price shown above. Douglas G. Duncan and Wayne Garrison elected to receive their annual retainer in cash. To more closely align his or her interests with those of the stockholders, each Board member is required to own three times his/her estimated annual compensation in Company stock within ﬁve years of his/her initial stockholder election to the Board. All Board members are in compliance with this requirement. Nonemployee members of the Board did not participate in either a company-sponsored pension or deferred compensation plan in calendar year 2014. P r o x y S t a t e m e n t 13 EXECUTIVE OFFICERS OF THE COMPANY Craig Harper, 57, joined the Company in 1992 as Vice President of Marketing and currently serves as Executive Vice President. Prior to joining the Company, he worked for Rineco Chemical Industries as its Chief Executive Ofﬁcer. Nicholas Hobbs, 52, joined the Company in 1984 as a Management Trainee and currently serves as Executive Vice President and President of Dedicated Contract Services. John Kuhlow, 44, joined the Company in 2006 as Assistant Corporate Controller. He currently serves as Senior Vice President Finance, Controller and Chief Accounting Ofﬁcer. Prior to joining the Company, he was a Senior Audit Manager for KPMG LLP. Mr. Kuhlow is a Certiﬁed Public Accountant. Terrence D. Matthews, 56, joined the Company in 1986 as a National Accounts Manager and currently serves as Executive Vice President and President of Intermodal. Prior to joining the Company, he worked as a National Accounts Manager for North American Van Lines. David G. Mee, 54, joined the Company in 1992 as Vice President Tax and currently serves as Executive Vice President of Finance and Administration and Chief Financial Ofﬁcer. He also serves as the Company’s Corporate Secretary. Prior to joining the Company, he was a Senior Tax Manager for KPMG LLP. Mr. Mee is a Certiﬁed Public Accountant. Kay Lewis, 51, joined the Company in 1988 as a Program Analyst of Finance and currently serves as Executive Vice President and Chief Information Ofﬁcer. Prior to joining the Company, she worked at EDS as a Systems Engineer Manager. Shelley Simpson, 43, joined the Company in 1994 as a Management Trainee and currently serves as Executive Vice President, Chief Marketing Ofﬁcer, and President of Integrated Capacity Solutions and Truckload. t n e m e t a t S y x o r P 14 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth the beneﬁcial ownership of the Company’s common stock as of February 17, 2015, by each of its current directors (including all nominees for director), the Named Executive Ofﬁcers (the “NEOs”), and all other executive ofﬁcers and directors as a group. Unless otherwise indicated in the footnotes below, “beneﬁcially owned” means the sole or shared power to vote or direct the voting of a security or the sole or shared power to dispose or direct the disposition of a security. Owner Douglas G. Duncan Francesca M. Edwardson Wayne Garrison Sharilyn S. Gasaway Gary C. George Bryan Hunt Terrence D. Matthews David G. Mee Coleman H. Peterson John N. Roberts, III James L. Robo Shelley Simpson Kirk Thompson John A. White Number of Shares Beneﬁcially Owned Directly (1) 8,500 10,167 2,520,705 15,839 41,483 70,242 62,998 112,907 29,948 269,790 70,420 59,509 80,242 44,549 Number of Shares Beneﬁcially Owned Indirectly (2) 2,600 – – 275 1,454,310 (4) – 44,327 – – 70,000 (5) – 38,545 – – Percent of Class (%) (3) * * 2.2 * 1.3 * * * * * * * * * All executive ofﬁcers and directors as a group (18) 3,604,541 1,610,225 4.5 *Less than 1 percent (1) Includes shares owned by the director or executive ofﬁcer that are: (a) held in a 401(k) or deferred compensation account (b) held in trusts for the beneﬁt of an immediate family member whereby the director or executive ofﬁcer is the trustee but does not have any beneﬁcial ownership (c) options that are currently exercisable or will become exercisable within 60 days from February 17, 2015 (d) pledged shares as shown below: Bryan Hunt David G. Mee John N. Roberts, III Kirk Thompson All other executive ofﬁcers and directors as a group 66,797 80,530 191,208 70,000 8,500 (2) Indirect beneﬁcial ownership includes shares owned by the director or executive ofﬁcer: (a) as beneﬁciary or trustee of a personal trust (b) by a spouse or as trustee or beneﬁciary of a spouse’s trust (c) held in trusts for the beneﬁt of an immediate family member whereby the director or executive ofﬁcer’s spouse is the trustee but does not have any beneﬁcial ownership (d) in a spouse’s retirement account (3) Calculated on the basis of 116,515,423 shares of common stock outstanding of the Company on February 17, 2015. (4) The reporting person disclaims beneﬁcial ownership of these shares, which are held in limited partnerships or trusts. This report shall not be deemed an admission that the reporting person is the beneﬁcial owner of such securities for the purposes of Section 16 or for any other purposes. Includes 38,400 shares currently pledged by the reporting person. (5) The reporting person disclaims beneﬁcial ownership of these shares, which are held in an irrevocable trust for the beneﬁt of immediate family members and managed by a third-party trustee. This report shall not be deemed an admission that the reporting person is the beneﬁcial owner of such securities for the purposes of Section 16 or for any other purposes. P r o x y S t a t e m e n t 15 CORPORATE GOVERNANCE We believe that good corporate governance helps to ensure that the Company is managed for the long-term beneﬁt of our stockholders. We continually review and consider our corporate governance policies and practices, the SEC’s corporate governance rules and regulations, and the corporate governance listing standards of NASDAQ, the stock exchange on which our common stock is traded. You can access and print the Charters of our Audit Committee, Executive Compensation Committee (“Compensation Committee”), and Nominating and Corporate Governance Committee (“Corporate Governance Committee”), as well as our Corporate Governance Guidelines, Corporate Code of Ethical and Professional Standards for Directors, Ofﬁcers and Employees, Whistleblower Policy, and other Company policies and procedures required by applicable law, regulation or NASDAQ corporate governance listing standards on the “Corporate Governance” page of the “Investors” section of our website at www.jbhunt.com. Additionally, you can request copies of any of these documents by writing to our Corporate Secretary at the following address: J.B. Hunt Transport Services, Inc. Attention: Corporate Secretary 615 J.B. Hunt Corporate Drive Lowell, Arkansas 72745 Director Independence The Board is composed of a majority of directors who satisfy the criteria for independence under the NASDAQ corporate governance listing standards. In determining independence, each year the Board afﬁrmatively determines, among other items, whether the directors have no material relationship with the Company or any of its subsidiaries pursuant to the NASDAQ corporate governance listing standards. When assessing the “materiality” of a director’s relationship with the Company, if any, the Board considers all relevant facts and circumstances, not merely from the director’s standpoint, but from that of the persons or organizations with which the director has an afﬁliation and the frequency or regularity of the services, whether the services are being carried out at arm’s length in the ordinary course of business, and whether the services are being provided substantially on the same terms to the Company as those prevailing at the time from unrelated parties for comparable transactions. Material relationships can include commercial, banking, industrial, consulting, legal, accounting, charitable and familial relationships. The Board also considers any other relationship that could interfere with the exercise of independence or judgment in carrying out the duties of a director. t n e m e t a t S y x o r P Applying these independence standards, the Board has determined that Douglas G. Duncan, Francesca M. Edwardson, Sharilyn S. Gasaway, Gary C. George, Coleman H. Peterson, James L. Robo and John A. White are all independent directors. After due consideration, the Board has determined that none of these nonemployee directors has a material relationship with the Company or any of its subsidiaries (either directly or indirectly as a partner, stockholder or ofﬁcer of any organization that has a relationship with the Company or any of its subsidiaries) and that they all meet the criteria for independence under the NASDAQ corporate governance listing standards. Risk Management and Oversight As previously described in their biographies, current members of our Board represent diverse backgrounds of business and academic experience. The Board, as a whole, performs the risk oversight of the Company and does not assign the task or responsibility to any one member or a committee. Therefore, the Board believes that the members each possess unique yet complementary experiences and backgrounds that create diverse points of view, opinions, personalities and management styles that allow for the proper risk management and oversight of the Company. Lead Director The Board has established the position of Lead Director, to which James L. Robo was appointed. The Lead Director directs the executive sessions of independent directors at the Board meetings at which the Chairman is not present and has authority to call meetings of independent directors. The Lead Director facilitates communication between the Chairman and CEO and the independent directors, as appropriate, and performs such other functions as the Board directs. Independent Director Meetings Independent directors generally meet in executive session as part of each regularly scheduled Board meeting, with discussion led by the Lead Director. 16 Director Recommendations by Stockholders In addition to recommendations from Board members, management or professional search ﬁrms, the Corporate Governance Committee will consider director candidates properly submitted by stockholders who individually or as a group have beneﬁcially owned at least 2% of the outstanding shares of the Company’s common stock for at least one year from the date the recommendation is submitted. Stockholders must submit director candidate recommendations in writing by Certiﬁed Mail to the Company’s Corporate Secretary not less than 120 days prior to the ﬁrst anniversary of the date of the Proxy Statement relating to the Company’s previous Annual Meeting. Accordingly, for the 2016 Annual Meeting of Stockholders, director candidates must be submitted to the Company’s Corporate Secretary by November 13, 2015. Director candidates submitted by stockholders must contain at least the following information: • the name and address of the recommending stockholder, • the number of shares of the Company’s common stock beneﬁcially owned by the recommending stockholder and the dates such shares were purchased, • the name, age, business address and residence of the candidate, • the principal occupation or employment of the candidate for the past ﬁve years, • a description of the candidate’s qualiﬁcations to serve as a director, including ﬁnancial expertise and why the candidate does or does not qualify as “independent” under the NASDAQ corporate governance listing standards, • the number of shares of the Company’s common stock beneﬁcially owned by the candidate, if any, and • a description of the arrangements or understandings between the recommending stockholder and the candidate, if any, or any other person pursuant to which the recommending stockholder is making the recommendation. In addition, the recommending stockholder and the candidate must submit, with the recommendation, a signed statement agreeing and acknowledging that: • the candidate consents to being a director candidate and, if nominated and elected, he or she will serve as a director representing all of the Company’s stockholders in accordance with applicable laws and the Company’s Articles of Incorporation and Bylaws, • the candidate, if elected, will comply with the Company’s Corporate Governance Guidelines and any other applicable rule, regulation, policy or standard of conduct applicable to the Board and its individual members, • the recommending stockholder will maintain beneﬁcial ownership of at least 2% of the Company’s issued and outstanding common stock through the date of the Annual Meeting for which the candidate is being recommended for nomination and that, upon the candidate’s nomination and election to the Board, the recommending stockholder intends to maintain such ownership throughout the candidate’s term as director, and • the recommending stockholder and the candidate will promptly provide any additional information requested by the Corporate Governance Committee and/or the Board to assist in the consideration of the candidate, including a completed and signed Questionnaire for Directors and Ofﬁcers on the Company’s standard form and an interview with the Corporate Governance Committee or its representative. For a complete list of the information that must be included in director recommendations submitted by stockholders, please see the “Director Recommendations by Stockholders Policy” on the “Corporate Governance” page of the “Investors” section of our website at www.jbhunt.com. The Corporate Governance Committee will consider all director candidates submitted through its established processes and will evaluate each of them, including incumbents, based on the same criteria. However, the Corporate Governance Committee may prefer incumbent directors and director candidates whom they know personally or who have relevant industry experience and in-depth knowledge of the Company’s business and operations. The policies and procedures as set forth above are intended to provide ﬂexible guidelines for the effective functioning of the Company’s director nomination process. The Board intends to review these policies and procedures periodically and anticipates that modiﬁcations may be necessary from time to time as the Company’s needs and circumstances change. Board Composition and Director Qualiﬁcations The Corporate Governance Committee periodically assesses the appropriate size and composition of the Board and whether any vacancies on the Board are expected. In the event that vacancies are anticipated or otherwise arise, the Corporate Governance Committee will review and assess potential director candidates. The Corporate Governance Committee utilizes various methods for identifying and evaluating candidates for director. Candidates may come to the attention of the Corporate Governance Committee through recommendations of Board members, management, stockholders or professional search ﬁrms. Generally, director candidates should, at a minimum: • possess relevant business and ﬁnancial expertise and experience, including a basic understanding of fundamental ﬁnancial statements, • have exemplary character and integrity and be willing to work constructively with others, • have sufﬁcient time to devote to Board meetings and consultation on Board matters, and • be free from conﬂicts of interest that violate applicable law or interfere with director performance. P r o x y S t a t e m e n t 17 t n e m e t a t S y x o r P In addition, the Corporate Governance Committee seeks director candidates who possess the following qualities and skills: • the capacity and desire to represent the interests of the Company’s stockholders as a whole, • occupational experience and perspective that, together with other directors, enhances the quality of the Board, • leadership experience and sound business judgment, • accomplishments in their respective ﬁeld, with superior credentials and recognition, • knowledge of the critical aspects of the Company’s business and operations, and • the ability to contribute to the mix of skills, core competencies and qualiﬁcations of the Board through expertise in one or more of the following areas: – accounting and ﬁnance – mergers and acquisitions – investment management – law – academia – strategic planning – investor relations – executive leadership development – executive compensation – service as a senior ofﬁcer of, or a trusted adviser to senior management of, a publicly held company. The independent members of the Board each possess the general skills, experience, attributes and qualiﬁcations that make them a proper ﬁt for the Company’s Board as described above. Speciﬁc strengths and qualities possessed by each member that makes him or her eligible to serve on the Company’s Board include: Douglas G. Duncan – 30 years of experience in the transportation industry Francesca M. Edwardson – business experience in the transportation industry, law, human resources, and corporate governance Sharilyn S. Gasaway – accounting, ﬁnance, mergers and acquisitions, and regulatory experience Gary C. George – business experience related to managing a diversiﬁed business located in northwest Arkansas Coleman H. Peterson – human resource experience with a large international workforce, corporate governance, and retail experience James L. Robo – ﬁnancial expertise, leadership experience, and business experience related to equipment and the transportation industry John A. White – business and academic experience related to general business practices and extensive service on the boards of other publicly traded companies Messrs. Garrison, Hunt, Roberts and Thompson, as nonindependent directors, have extensive work experience and history with the Company from its origins, which the Board believes are critical to its composition. Board Diversity As indicated by the criteria above, the Board prefers a mix of background and experience among its members. Furthermore, the Board is diverse both in gender and ethnic representation, with more than 25% of our current members reﬂecting demographic minorities. The Board does not follow any ratio or formula to determine the appropriate mix. Rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of Board service to the Company. The effectiveness of this approach is evidenced by the directors’ participation in insightful and robust yet mutually respectful deliberation that occurs at Board and Committee meetings. Board Leadership Structure The Company split the titles, roles and responsibilities of the Chairman of the Board and Chief Executive Ofﬁcer in 1985. The Company and the Board believe that, while the duties may be performed by the same person without consequence to either Company operations or stockholders’ interest, separation of duties allows the Chairman to focus more on active participation by the Board and oversight of management, while the Chief Executive Ofﬁcer is better able to focus on day-to-day operations of the Company. 18 Communications With The Board Stockholders and other interested parties may communicate with the Board, Board Committees, the independent or the nonmanagement directors, each as a group or any director individually by submitting their communications in writing to the attention of the Company’s Corporate Secretary. All communications must identify the recipient and author, state whether the author is a stockholder of the Company and be forwarded to the following address via Certiﬁed Mail: J.B. Hunt Transport Services, Inc. Attention: Corporate Secretary 615 J.B. Hunt Corporate Drive Lowell, Arkansas 72745 The directors of the Company have instructed the Corporate Secretary not to forward to the intended recipient any communications that are reasonably determined in good faith by the Corporate Secretary to relate to improper or irrelevant topics or that are substantially incomplete. Board Meetings The Board held four scheduled meetings during the 2014 calendar year. All directors attended all of the Board meetings and committee meetings on which each served during 2014, with the exception of one member not attending one scheduled committee meeting. All members of the Board attended the 2014 Annual Meeting of Stockholders. The Company has adopted a Director Attendance Policy to stress the importance of attendance, director preparedness, and active and effective participation at Board and Board Committee meetings. Board Committees Standing committees of the Board include the Audit, Executive Compensation, and Nominating and Corporate Governance committees. Committee members are elected annually by the Board and serve until their successors are elected and qualiﬁed or until their earlier death, retirement, resignation or removal. The following table summarizes the membership of the Board and each of its committees and the number of times each met during calendar year 2014: Director Douglas G. Duncan Francesca M. Edwardson Sharilyn S. Gasaway Gary C. George Coleman H. Peterson James L. Robo John A. White Number of Meetings in 2014 Audit X X Chair X 8 Compensation X X Chair X 5 Corporate Governance X X X Chair X X X 4 On January 29, 2015, the Corporate Governance Committee recommended, and the Board approved, the same committee assignments as 2014 for the 2015 calendar year. P r o x y S t a t e m e n t 19 t n e m e t a t S y x o r P AUDIT COMMITTEE Under the terms of its charter, the Audit Committee represents and assists the Board in fulﬁlling its oversight responsibility relating to the integrity of the Company’s ﬁnancial statements and the ﬁnancial reporting process, the systems of internal accounting and ﬁnancial controls, the internal audit function, the annual independent audit of the Company’s ﬁnancial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualiﬁcations and independence, the performance of the Company’s internal audit function and the performance of its independent auditors. In fulﬁlling its duties, the Audit Committee, among other things, shall: • appoint, terminate, retain, compensate and oversee the work of the independent registered public accounting ﬁrm, • preapprove all services provided by the independent registered public accounting ﬁrm, • oversee the performance of the Company’s internal audit function, • review the qualiﬁcations, performance and independence of the independent registered public accounting ﬁrm, • review external and internal audit reports and management’s responses thereto, • monitor the integrity of the ﬁnancial reporting process, system of internal accounting controls, and ﬁnancial statements and reports of the Company, • oversee the Company’s compliance with legal and regulatory requirements, • review the Company’s annual and quarterly ﬁnancial statements, including disclosures made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in periodic reports ﬁled with the SEC, • discuss with management earnings news releases, • meet with management, the internal auditors, the independent auditors and the Board, • provide the Board with information and materials as it deems necessary to make the Board aware of signiﬁcant ﬁnancial accounting and internal control matters of the Company, • oversee the receipt, investigation, resolution and retention of all complaints of a ﬁnancial nature submitted under the Company’s Whistleblower Policy, and • otherwise comply with its responsibilities and duties as set forth in the Company’s Audit Committee Charter. The Board has determined that each member of the Audit Committee satisﬁes the independence and other requirements for audit committee membership of the NASDAQ corporate governance listing standards and SEC requirements. The Board has also determined that all members of the Audit Committee have the attributes of an audit committee ﬁnancial expert as deﬁned by the SEC. The Board determined that these members acquired such attributes through their experience in preparing, auditing, analyzing or evaluating ﬁnancial statements, or actively supervising one or more persons engaged in such activities, and their experience of overseeing or assessing the performance of companies and public accountants with respect to preparation, auditing or evaluation of ﬁnancial statements. In 2014, the Audit Committee met eight times. All members attended each of the Audit Committee meetings, with the exception of one member not attending a scheduled committee meeting in July 2014. For additional information concerning the Audit Committee, see “Report of the Audit Committee” set forth below. EXECUTIVE COMPENSATION COMMITTEE The Executive Compensation Committee (the “Compensation Committee”) shall: • determine and approve base salary compensation of the Company’s senior executive ofﬁcers, • determine and approve annual equity-based awards for the Company’s “insiders” as deﬁned in Section 16 of the Securities Exchange Act of 1934, with the exception of the Chairman of the Board and the Chief Executive Ofﬁcer, • evaluate and recommend to the independent members of the Board for their approval base salary and annual equity-based awards for the Chairman of the Board and the Chief Executive Ofﬁcer, • review and approve the annual performance goals and objectives of the Company’s senior executive ofﬁcers, including the Chief Executive Ofﬁcer, • establish and certify the achievement of performance goals, • oversee the Company’s incentive compensation and equity-based compensation plans, • assess the adequacy and competitiveness of the Company’s executive and director compensation programs, • review and discuss with management the Compensation Discussion and Analysis (“CD&A”) and recommend whether such analysis should be included in the Proxy Statement ﬁled with the SEC, • produce an Annual Report on executive compensation for inclusion in the Company’s Proxy Statement, • review and approve any employment agreements, severance agreements or arrangements, retirement arrangements, change in control agreements/provisions, and any special or supplemental beneﬁts for each ofﬁcer of the Company, • approve, disapprove, modify or amend any non-equity compensation plans designed and intended to provide compensation primarily for ofﬁcers, • make recommendations to the Board regarding adoption of equity-based compensation plans, • administer, modify or amend equity-based compensation plans, • review the Company’s plan for succession of management, • monitor the diversity of the Company’s workforce, and • otherwise comply with its responsibilities and duties as set forth in the Company’s Compensation Committee Charter. 20 P r o x y S t a t e m e n t None of the individuals serving on the Compensation Committee has ever been an ofﬁcer or employee of the Company. The Board has determined that all members of the Compensation Committee satisfy the independence requirements of the NASDAQ corporate governance listing standards. All members of the Compensation Committee qualify as “nonemployee directors” for purposes of Rule 16b-3 of the Exchange Act and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code, as amended. The Compensation Committee met ﬁve times in 2014. All members attended each of the Compensation Committee meetings. NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The Nominating and Corporate Governance Committee (the “Corporate Governance Committee”) shall: • annually review the Company’s Corporate Governance Guidelines, • assist the Board in identifying, screening and recruiting qualiﬁed individuals to become Board members, • propose nominations for Board membership and committee membership, • assess the composition of the Board and its committees, • oversee the performance of the Board and committees thereof, and • otherwise comply with its responsibilities and duties as set forth in the Company’s Corporate Governance Committee Charter. The Board has determined that all members of the Corporate Governance Committee satisfy the independence requirements of the NASDAQ corporate governance listing standards. The Corporate Governance Committee met four times during 2014. All members attended each of the Corporate Governance Committee meetings. Code of Business Conduct and Ethics The Board has adopted a Corporate Code of Ethical and Professional Standards for Directors, Ofﬁcers and Employees (the “Code of Ethics”) that applies to all of the Company’s directors, ofﬁcers and employees. The purpose and role of this Code of Ethics is to focus our directors, ofﬁcers and employees on areas of ethical risk, provide guidance to help them recognize and deal with ethical issues, provide mechanisms to report unethical or unlawful conduct, and help enhance and formalize our culture of integrity, honesty and accountability. As required by applicable law, the Company will post on the “Corporate Governance” page of the “Investors” section of its website at www.jbhunt.com any amendments or waivers of any provision of this Code of Ethics made for the beneﬁt of executive ofﬁcers or directors of the Company. Corporate Governance Guidelines The Board has adopted Corporate Governance Guidelines to assist it in exercising its responsibilities to the Company and its stockholders. These guidelines address, among other items, director responsibilities, Board Committees and nonemployee director compensation. Section 16(a) Beneﬁcial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires each director, ofﬁcer and any individual beneﬁcially owning more than 10% of the Company’s common stock to ﬁle with the SEC reports of security ownership and reports on subsequent changes in ownership. These reports are generally due within two business days of the transaction giving rise to the reporting obligation. To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, all Section 16(a) ﬁlings were made in a timely manner, with the exception of one ofﬁcer, John Kuhlow, who had one late ﬁling to report an acquisition of shares upon the vesting of restricted stock units and a corresponding disposition of shares to pay the resulting withholding tax obligation. Certain Relationships and Related Transactions The Corporate Governance Committee is charged with the responsibility of reviewing and preapproving all related-party transactions (as deﬁned in SEC regulations) and periodically reassessing any related-party transaction entered into by the Company in accordance with the Company’s Code of Ethics. Bryan Hunt is the son of Johnelle Hunt, a principal stockholder of the Company. There are no other family relationships among the foregoing directors. Two sons-in-law of Kirk Thompson, Chairman of the Board of the Company, were employed by the Company in calendar year 2014. The ﬁrst earned $370,155, and the second earned $140,531 in 2014 compensation. Shelley Simpson’s husband and brother-in-law were employed by the Company in calendar year 2014. Her husband earned $608,772 and her brother-in-law earned less than $120,000 in 2014 compensation. In the ordinary course of business, the Company has entered into contractual service agreements with two customers considered related parties. The ﬁrst agreement is with George’s, Inc. and consists of a ﬂeet of tractors and specialty trailers delivering feed and live poultry to and from processing plants located in Cassville, Missouri. Gary C. George is Chairman of George’s, Inc. The second agreement is with Mountain Valley Spring Water and consists of a ﬂeet of tractors delivering bottled water and supplies from Hot Springs, Arkansas, to distribution centers throughout the continental United States. During the ﬁrst quarter of 2014, Kirk Thompson was a member of the Board of Directors of Mountain Valley Spring Water, and Johnelle Hunt was the majority stockholder of this private company. In March 2014, Mrs. Hunt divested all ownership of Mountain Valley Spring Water and Mr. Thompson resigned from its board. None of the aforementioned individuals were involved in the establishment of these service agreements, nor did they solicit the Company’s services on behalf of George’s, Inc. or Mountain Valley Spring Water. Total revenue 21 t n e m e t a t S y x o r P earned in calendar year 2014 under these service agreements was $2.6 million for George’s, Inc, and $2.3 million for Mountain Valley Spring Water. Services provided under both of these contracts are and will be carried out at arm’s length in the ordinary course of business and are being provided substantially on the same terms as those of unrelated parties for comparable transactions. In August 2010, the Company made a gift of $5,000,000 to Arkansas Children’s Hospital. The gift is payable in equal increments over a 10- year period beginning in calendar year 2011. Sharilyn S. Gasaway is currently a member of the Board of Directors of Arkansas Children’s Hospital. However, at the time of the gift, Mrs. Gasaway was not associated with this organization, nor was she instrumental in the Company’s decision to support the medical facility. In December 2008, the Company made a gift of $250,000 to Northwest Arkansas Community College. The gift is payable in equal increments over a 10-year period beginning in calendar year 2009. At the time of the gift, Coleman H. Peterson served as Chairman of the Board of Trustees of this organization. Mr. Peterson did not solicit the contribution on behalf of the organization, nor was he instrumental in the Company’s decision to support the local junior college. Compensation Committee Interlocks and Insider Participation During the 2014 calendar year, none of the Company’s executive ofﬁcers served on the Board of Directors or Compensation Committees of any entity whose directors or ofﬁcers served on the Company’s Board or Compensation Committee. No current or past executive ofﬁcers or employees of the Company served on the Compensation Committee. PRINCIPAL STOCKHOLDERS OF THE COMPANY The following table sets forth all persons known to be the beneﬁcial owner of more than 5% of the Company’s common stock as of December 31, 2014. Unless otherwise indicated in the footnotes below, “beneﬁcially owned” means the sole or shared power to vote or direct the voting of a security or the sole or shared power to dispose or direct the disposition of a security. Name and Address Johnelle Hunt 3333 Pinnacle Hills Parkway Rogers, AR 72756 FMR LLC 82 Devonshire Street Boston, MA 02109 T. Rowe Price Associates, Inc. 100 East Pratt Street Baltimore, MD 21202 BlackRock, Inc. 40 East 52nd Street New York, NY 10022 Number of Shares 19,353,565 Percent of Class 16.6% 15,156,783 12.9% 14,725,720 12.5% 9,441,522 8.1% Information relating to Johnelle Hunt is based on the stockholder’s Form 4, ﬁled with the SEC on December 5, 2014. Information pertaining to the ownership of FMR LLC and T. Rowe Price Associates, Inc. (Price Associates) is based on the organization’s Schedule 13G ﬁled with the SEC on February 13, 2015. Information pertaining to the ownership of BlackRock, Inc. is based on the organization’s Schedule 13G ﬁled with the SEC on January 23, 2015. The shares reported for Price Associates are owned by various individual and institutional investors which Price Associates serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be the beneﬁcial owner of these securities; however, Price Associates expressly disclaims that it is, in fact, the beneﬁcial owner of these shares. 22 REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE The Executive Compensation Committee (the “Compensation Committee”) is composed of Coleman H. Peterson, Chairman, Francesca M. Edwardson, Gary C. George and John A. White, none of whom is an ofﬁcer or employee of the Company and all of whom have been determined by the Board of Directors of the Company (the “Board”) to be independent. Additionally, all members of the Compensation Committee qualify as “nonemployee directors” for purposes of Rule 16b-3 of the Exchange Act and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code, as amended (the “Code”). The Compensation Committee operates under a written charter adopted by the Board, a copy of which is available on the “Corporate Governance” page of the “Investors” section of the Company’s website at www.jbhunt.com. In carrying out its responsibilities, the Compensation Committee, among other things: • evaluates and recommends to the independent Board members, for their approval, the annual salaries and bonuses of the Chairman of the Board and the Chief Executive Ofﬁcer, • reviews and approves annual corporate goals and objectives of the Chairman of the Board and the Chief Executive Ofﬁcer and other Section 16 reporting ofﬁcers, • recommends for approval to the independent Board members equity-based compensation awards under the Company’s Management Incentive Plan (the “MIP”), as amended and restated, for the Chairman of the Board and the Chief Executive Ofﬁcer, • reviews and approves equity-based compensation awards under the Company’s MIP, as amended and restated, for the Section 16 reporting ofﬁcers, • establishes and certiﬁes the achievement of performance goals under the Company’s incentive and performance-based compensation plans, • reviews and approves compensation recommendations for the Company’s directors, • reviews other Company executive compensation programs, and • reviews and approves the Compensation Committee report to the stockholders and the Compensation Discussion and Analysis (the “CD&A”) report included in the Proxy. The Chairman of the Board recommends to the Compensation Committee the form and amount of compensation to be paid to the Chief Executive Ofﬁcer. The Chief Executive Ofﬁcer provides recommendations to the Compensation Committee regarding the form and amount of compensation to be paid to executive ofﬁcers who report directly to him. Additionally, the Chairman of the Board, the Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer regularly attend Compensation Committee meetings, except for executive sessions. Upon request, management has provided to the Compensation Committee historical and prospective breakdowns of primary compensation components for each executive ofﬁcer, as well as tally sheets, wealth accumulation analyses and internal pay equity analyses as described in more detail below. At our 2014 Annual Meeting, the stockholders approved, on an advisory basis, the compensation of the named executive ofﬁcers (99.5% of votes cast). Previously, at our 2011 Annual Meeting, the stockholders voted for approval of a frequency of holding advisory votes every three years with respect to named executive ofﬁcer compensation (51% of votes cast). The Compensation Committee believes this level of stockholder support reﬂects a strong endorsement of the Company’s compensation policies and decisions. The Compensation Committee has considered the results of the last advisory vote on executive compensation in determining the Company’s compensation policies and decisions for 2015, and has determined that these policies and decisions are appropriate and in the best interests of the Company and its stockholders at this time. In 2014, the Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) to review the Company’s executive compensation policies and practices. Meridian was also directed to determine a comparable peer group for executive compensation purposes and to report considerations regarding changes in compensation levels for the NEOs to bring them into the 50th percentile of total direct compensation of the peer group. Meridian is retained by, and reports to, the Compensation Committee to provide compensation analyses and consultation at the Committee’s request. Meridian was paid approximately $66,000 for the consulting engagement and provides no other services to the Company. The Compensation Committee met ﬁve times in 2014 to discuss, among other items, the salaries, bonuses and other compensation of the senior executive ofﬁcers and other key employees of the Company, including the Chairman of the Board and the Chief Executive Ofﬁcer. The Compensation Committee did not act by unanimous consent at any time in 2014. Historically, the Compensation Committee meets each February to ﬁnalize discussion regarding the Company’s performance goals for the previous and current year with respect to performance-based compensation to be paid to executive ofﬁcers and to approve its letter for the Proxy Statement. These goals are approved within 90 days of the beginning of the year, pursuant to the Code. During the third quarter of each year, the Compensation Committee generally discusses any new compensation issues, the base compensation, bonus and MIP award analyses, and the engagement of the compensation consultant for annual executive and director compensation surveys. The Compensation Committee also meets during the fourth quarter to: • review and discuss information provided by the compensation consultant and the recommendations made by the Chairman of the Board and the Chief Executive Ofﬁcer, • review the performance of the Company and the individual ofﬁcers, • review the extent to which the Company’s performance goals were attained and approve short-term cash bonus and long-term incentive awards, and • determine executives’ base salaries for the following year. P r o x y S t a t e m e n t 23 Management also advises the full Board, including the Compensation Committee members, throughout the year of any new issues and developments regarding executive compensation. The Compensation Committee has reviewed and discussed the following CD&A with management, and based upon such review and discussions, the Compensation Committee recommended to the Board that the CD&A be included in the Company’s Proxy Statement. J.B. Hunt Transport Services, Inc. 2014 Executive Compensation Committee Coleman H. Peterson, Chairman Francesca M. Edwardson Gary C. George John A. White t n e m e t a t S y x o r P COMPENSATION DISCUSSION AND ANALYSIS Introduction The Compensation Discussion and Analysis provides information regarding the compensation paid to our President and Chief Executive Ofﬁcer, Chief Financial Ofﬁcer and certain other executive ofﬁcers who were the most highly compensated in calendar year 2014. These individuals, referred to collectively as “named executive ofﬁcers” or NEOs, are identiﬁed below: • John N. Roberts, III – President and Chief Executive Ofﬁcer • David G. Mee – Executive Vice President, Finance/Administration, Chief Financial Ofﬁcer and Corporate Secretary • Kirk Thompson – Chairman of the Board • Terrence D. Matthews – Executive Vice President and President of Intermodal • Shelley Simpson – Executive Vice President, Chief Marketing Ofﬁcer and President of Integrated Capacity Solutions and Truckload Compensation Philosophy and Principles The Compensation Committee acknowledges that the transportation industry is highly competitive and that experienced professionals have career mobility. The Company believes that it competes for executive talent with a large number of companies, some of which have signiﬁcantly larger market capitalizations and others of which are privately owned. Retention of key talent remains critical to our success. The Company’s need to focus on retention is compounded by its size and geographic location. The Company’s compensation program is structured to attract, retain and develop executive talent with the ability to assume a broad span of responsibilities and successfully lead complex business units to market- leading positions in the industry. The Compensation Committee believes that the ability to attract, retain and provide appropriate incentives for professional personnel, including the senior executive ofﬁcers and other key employees of the Company, is essential to maintaining the Company’s leading competitive position, thereby providing for the long-term success of the Company. The Compensation Committee’s goal is to maintain compensation programs that are competitive within the transportation industry. Each year, the Compensation Committee reviews the executive compensation program with respect to external competitiveness and linkage between executive compensation and creation of stockholder value and determines what changes, if any, are appropriate. The overall compensation philosophy of the Compensation Committee and management is guided by the following principles: • Compensation levels should be sufﬁciently competitive to attract and retain key talent. The Company aims to attract, motivate and retain high- performance talent to achieve and maintain a leading position in its industry. Our total compensation package should be strongly competitive with other transportation companies. • Compensation should relate directly to performance and responsibility. Total compensation should be tied to and vary with performance and responsibility, both at the Company and individual level, in achieving ﬁnancial, operational and strategic objectives. Differentiated pay for high-performing individuals should be proportional to their contributions to the Company’s success. • Short-term incentive compensation should constitute a signiﬁcant portion of total executive compensation. A large portion of total compensation should be tied to performance, and therefore at risk, as position and responsibility increase. Individuals with greater roles and the ability to directly impact strategic direction and long-term results should bear a greater proportion of the risk. • Long-term incentive compensation, the Company’s Management Incentive Plan (the “MIP”), should be closely aligned with stockholders’ interests. Awards of long-term compensation encourage executive ofﬁcers to focus on the Company’s long-range growth and development and incent them to manage from the perspective of stockholders with a meaningful stake in the Company, as well as to focus on long-term career orientation. Participants in the MIP are required to own Company stock. The requirements are discussed in this CD&A under the caption “Stock Ownership Guidelines.” The Company’s executive compensation program is designed to reward the achievement of initiatives regarding growth, productivity and people, including: • setting, implementing and communicating strategies, goals and objectives to ensure that the Company grows revenue and earnings at rates that are comparable to or greater than those of our peers and that create value for our stockholders, • motivating and exhibiting leadership that aligns the interests of our employees with those of our stockholders, • developing a grasp of the competitive environment and taking steps to position the Company for growth and as a competitive force in the industry, • constantly renewing the Company’s business model and seeking strategic opportunities that beneﬁt the Company and its stockholders, and • implementing a discipline of compliance and focusing on the highest standards of professional conduct. 24 PROCESS OF SETTING COMPENSATION Benchmarking Against a Peer Group The Compensation Committee engaged Meridian to perform a competitive market assessment for the NEOs to evaluate base salary, target annual incentives, target total cash compensation, long-term incentives and total direct compensation. The assessment involved the use of a peer group, as noted below, consisting of 16 transportation and logistics companies in the national marketplace. This peer group was updated in 2014 to more closely align the Company’s peer group with peers suggested by Institutional Shareholder Services. These companies represent both business competition and the most relevant labor market for our executives. Amerco CH Robinson Worldwide, Inc. Expeditors Int’l of Washington, Inc. Kansas City Southern Old Dominion Freight Line, Inc. UTI Worldwide, Inc. ArcBest Corporation CON-Way, Inc. Hertz Global Holdings, Inc. Landstar System, Inc. Ryder System, Inc. Avis Budget Group, Inc. CSX Corporation Hub Group, Inc. Norfolk Southern Corporation Swift Transportation Company The Compensation Committee utilized a different peer group of 11 companies for the Executive Chairman/Non-CEO position. This peer group was also updated in 2014, primarily due to changes in the leadership structure among peers of the Company. These companies are similar to the Company in size, revenue or market capitalization, and have a comparable chairman role. Barnes & Noble, Inc. Constellation Brands, Inc. Host Hotels & Resorts, Inc. O’Reilly Automotive, Inc. Bed Bath & Beyond, Inc. D.R. Horton, Inc. Hyatt Hotels Corp. Old Dominion Freight Line, Inc. Cablevision Systems Corporation GameStop Corp. Jarden Corporation The Compensation Committee has decided that the appropriate comparative total compensation target should be at the 50th percentile of the respective peer groups. Compensation Analysis Tools In addition to the competitive compensation survey information for each ofﬁcer that was compiled, the Compensation Committee also reviewed a three-year history of executive compensation tally sheets. The Compensation Committee anticipates that pertinent compensation information will continue to be developed and enhanced to allow the Committee to perform the most relevant analyses practicable. Our objective for total executive compensation is to provide compensation in the 50th percentile of the respective peer groups. We believe that a sizeable portion of overall compensation should be at risk and tied to stockholder value. Our bonuses are tied to earnings per share (“EPS”); as EPS increases, so do executive bonuses. Long-term incentives are used as tools to reward executives for current and future performance, to encourage an executive to remain with the Company and to align the executive’s interests with those of our stockholders. As part of our long-term incentive strategy, executives are expected to maintain stock ownership values as a multiple of their base salaries. Long-term incentives for NEOs are performance-based. While certain components of compensation are directly tied to the Company’s reported ﬁnancial performance, sufﬁcient accounting and operational controls are in place and tested effectively to ensure that the Company’s compensation practices and policies, including those for nonexecutives, are not reasonably likely to have a material adverse effect on the Company. Our Company has a 401(k) plan that assists participants in providing for retirement. The Company contributes to each NEO’s account per year based on the NEO’s voluntary contribution amount. The equity buildup in unvested equity-based awards and stock owned currently is critical to each executive’s ability to adequately provide for his or her retirement. As previously mentioned and explained in detail later, we have a Company stock ownership policy for our executives, but we do not have a “hold until retirement” restriction. We do not believe that such a restriction is prudent for the employee or necessary to protect our Company. Tally Sheets A compensation tally sheet for each NEO was prepared and reviewed by the Compensation Committee in 2014. These tally sheets detail a three-year history of dollar amounts for components of the NEO’s total compensation, including current salary and estimated cash bonus, equity- based awards, change in control severance payments, if any, personal beneﬁts, if any, and other perquisites. Long-Term Compensation Analyses and Policies With respect to long-term, equity-based awards, the Company maintains the MIP. The MIP was originally adopted and approved by the Board on March 17, 1989, and an amended and restated MIP was subsequently approved by the stockholders on May 11, 1995. The MIP has been amended and restated since the time of its adoption, and all amendments requiring approval of the stockholders have been approved, with the last approval occurring at our Annual Meeting of Stockholders held in 2012. Currently, there are 44 million shares of common stock authorized for issuance under the MIP, of which approximately 8.0 million shares are available for future options and other awards. P r o x y S t a t e m e n t 25 Performance-based restricted share units, time-vested restricted share units and stock options of the Company are granted under the MIP in an effort to link future compensation to the long-term ﬁnancial success of the Company. These equity-based awards are granted to executive ofﬁcers, including the NEOs, and other key employees (approximately 370 individuals) and are intended to attract and retain employees, to provide incentives to enhance job performance, and to enable those persons to participate in the long-term success and growth of the Company through an equity interest in the Company. The Compensation Committee typically grants time-vested restricted share units under the MIP to non-NEO employees of the Company, while granting performance-based restricted share units to the NEOs of the Company. The future vesting of performance-based awards is contingent on the Company’s attainment of predetermined performance metrics established by the Compensation Committee. The Compensation Committee believes that restricted share units, both time-vested and performance-based, are currently more effective than stock options in achieving the Company’s compensation objectives, as these grants are subject to less market volatility and are less dilutive to stockholders. Employees realize immediate value as restricted share units vest, with such value increasing as the Company’s stock performance increases. Cash dividends are not paid and there are no voting rights on unvested restricted share units. The Company does not have a formal policy, but has an established practice described below, with respect to the granting of any form of equity compensation. The Company does not have a policy or practice of either timing equity-based compensation grants to current or new executive ofﬁcers, or timing the release of material, nonpublic information to affect the value of executive compensation. Recommendations for all Section 16 ﬁlers, except for the Chairman of the Board and the Chief Executive Ofﬁcer, are presented to the Compensation Committee by the Chief Executive Ofﬁcer. The Chairman of the Board recommends to the Compensation Committee the award for the Chief Executive Ofﬁcer. The Compensation Committee approves or adjusts the award using the above tools for all Section 16 ﬁlers, except for the Chairman of the Board and the Chief Executive Ofﬁcer. The awards for the Chairman of the Board and Chief Executive Ofﬁcer are recommended by the Compensation Committee and submitted for ﬁnal approval to the Company’s independent Board members. This process occurs in late October or early November of each year to coincide with our third-quarter Board meeting. We consider this our annual award date. The Compensation Committee does not expect to delegate approval authority to grant awards to management or any subcommittee at this time or in the near future. The grant date is typically set by the Compensation Committee. Historically, annual awards of equity compensation have been granted to all awardees, including the NEOs, in October. In 2014, 352,120 grants were made on October 28, and 136,945 grants were made on October 29, the date of the third-quarter Board meeting. Grants have been made in months other than the annual award date on a very limited basis. The limited exceptions to this grant- date practice have included, for example, the hiring of a key employee or the promotion of an employee to an executive ofﬁce. t n e m e t a t S y x o r P The Compensation Committee anticipates that it will continue adhering to these general grant dates for the foreseeable future for administrative ease and consistency. Awards are made in the fourth quarter because the Compensation Committee has a good view as to the Company’s ﬁnancial performance and the executive’s individual performance for the current year and has the most recently available competitive market data. Pursuant to the provisions of the MIP, all stock options are granted with an exercise price equal to 100% of the fair market value of the Company’s common stock on the grant date. Stock options are generally exercisable over ﬁve to 10 years from the grant date. The exercise price of stock options may be satisﬁed with payment of cash or previously owned Company stock or through a cashless simultaneous exercise and sale. In response to emerging changes in the area of accounting for equity-based compensation and to position ourselves competitively with our peers, the Compensation Committee began granting restricted share units in lieu of stock options under the MIP in 2005. The Compensation Committee anticipates granting restricted share units in lieu of stock options for the foreseeable future, but in the event stock options are granted, such stock options will be granted under the terms discussed above. Similar to stock options, the total number of restricted share units that may be awarded to an individual is within the discretion of the Compensation Committee but also limited by the MIP and is generally based on the Company’s performance and the individual’s current level of compensation, individual performance, potential for promotion and marketability outside the Company. The number of restricted share units or stock options previously granted to an individual may be, but is not always, a consideration in determining the amount of awards granted to that individual in the future. Generally, restricted share units vest over three to 10 years. As stated above, the Company does not have a policy or practice of timing the grant of equity-based awards and the release of material, nonpublic information in a manner that would affect compensation for new or current executive ofﬁcers, nor has it deliberately or knowingly done so. In the event that material, nonpublic information becomes known to the Compensation Committee, the Company or its employees at a time when such information could affect or otherwise impact the imminent grant of equity-based compensation, management and the Compensation Committee will take the existence of such information under advisement and determine whether to delay the grant of such equity- based compensation to a later date to avoid the appearance of any impropriety. Deductibility of Compensation and Other Regulatory Considerations The Code places a limit of $1 million on the amount of compensation the Company may deduct for federal income tax purposes in any one year with respect to the Company’s Chief Executive Ofﬁcer and the next three most highly compensated executive ofﬁcers whose compensation is required to be disclosed in the Company’s annual Proxy Statement, other than the Chief Financial Ofﬁcer (the “Covered Employees”). There is an exception to this $1 million limitation for performance-based compensation that meets certain requirements. In reviewing the effectiveness of the Company’s compensation program, the Compensation Committee considers the anticipated tax treatment to the Company and to its executives of various payments and beneﬁts. Additionally, the deductibility of certain compensation payments depends upon the timing of an executive’s vesting or exercise of previously granted awards, as well as interpretations and changes in the tax laws and other factors beyond the Compensation Committee’s control. For these and other reasons, including the need to maintain ﬂexibility in compensating executive ofﬁcers in a manner designed to promote varying corporate goals, the Compensation Committee will not necessarily, nor in all circumstances, limit executive compensation to that which is deductible under the Code. The Company has not adopted a policy requiring all compensation to be deductible. 26 The MIP contains speciﬁc language and requirements regarding performance-based awards granted to a Covered Employee intended to be “qualiﬁed performance-based compensation” as deﬁned by the Code. These awards shall be based on the attainment of one or more objective performance goals established in writing by the Committee. Performance goals must be based on one or more criteria approved by the MIP (e.g., revenue, operating income, return on assets) and be based on an objective formula or standard. Prior to any vesting of an award, the Committee must certify in writing that all of the necessary performance goals have been met. Material terms of the performance goals must be disclosed to and reapproved by the stockholders every ﬁve years. In October 2014, 106,945 grants of “qualiﬁed performance-based compensation” restricted share units were made to Covered Employees and vest, under the provisions of the MIP, upon the Company’s attainment of predetermined performance metrics established and approved by the Compensation Committee. The Compensation Committee will continue to consider various alternatives to preserving the deductibility of compensation payments and beneﬁts to the extent reasonably practicable and to the extent consistent with its other compensation objectives. Base salary, bonuses or the vesting of non-performance-based restricted share units do not qualify as performance-based compensation under the Code. In 2014, the following NEO compensation paid was not deductible by the Company: John N. Roberts, III Kirk Thompson Terrence D. Matthews $ 3,126,544 4,972,814 222,526 Derivative Trading It is the Company’s policy that ofﬁcers and directors not engage in any put or call transactions on Company stock. Such transactions create a signiﬁcant enticement for abusive trading and, in many instances, give the unwelcome appearance of the ofﬁcer or director betting against the Company. There is no Company policy, other than required by law, that would prohibit the Company’s executive ofﬁcers from entering into a forward-sale or forward-purchase contract. Stock Ownership Guidelines To motivate the Company’s ofﬁcers and senior management to emulate its stockholders, the Company expects its management to own Company stock at levels described in the table shown below. P r o x y S t a t e m e n t Stock ownership is deﬁned as stock owned: • directly or indirectly, and/or • through the Company’s 401(k) Employee Retirement Plan. Position Chief Executive Ofﬁcer Executive Vice Presidents Senior Vice Presidents Vice Presidents Ownership Multiple of Base Salary 6 times 3.5 times 2.75 times 2.5 times The Compensation Committee has determined that as of the annual award dates, October 28 and October 29, 2014, all of the Company’s ofﬁcers and members of senior management covered by these guidelines had met their ownership goals. Stock Retention Policy Other than indicated above, the Company does not have any other stock retention policy. Recovery of Awards The Company does not have a policy, other than required by law, requiring replacement of awards or payments as a result of an ofﬁcer’s illegal transactions or restatements. However, the Compensation Committee has formally adopted and explicitly communicated the “clawback” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act with regard to annual cash bonus awards paid to the Company’s executive ofﬁcers. Since becoming a public company in 1983, the Company has had no illegal actions by its ofﬁcers or restatements of ﬁnancial information. 27 Summary The Company intends to continue its practice of compensating its executives through programs that emphasize performance. To that end, executive compensation is tied directly to the performance of the Company and is structured to ensure that, due to the nature of the business and the degree of competitiveness for executive talent, there is an appropriate balance between: • base salary and incentive compensation, • short-term and long-term compensation, and • cash and noncash compensation. Each is determined and measured by: • competitive compensation data, • ﬁnancial, operational and strategic goals, • long-term and short-term performance of the Company compared with its peer group, and • individual contribution to the success of the Company. 2014 COMPENSATION Elements of Compensation The Company’s primary compensation components are summarized below. Generally, the Company’s compensation program consists of an annual base salary, a short-term cash incentive award, and an annual long-term, equity-based award. Primary beneﬁts for executives include participation in the Company’s 401(k) plan, health, dental and vision plans, and various insurance plans, including disability and life insurance, all of which are available to all employees on a nondiscriminatory basis. The Company provides limited perquisites to executive ofﬁcers and other key employees as described in more detail on page 31 under the section titled “Other Perquisites.” Total direct compensation for executive ofﬁcers, including the NEOs, consists of one or more of the following components: • base salary, • annual performance-based incentive cash bonus awards, • long-term incentive/equity-based compensation, • health and welfare beneﬁts, and • other beneﬁts. t n e m e t a t S y x o r P The Compensation Committee, with recommendations from management, works to create what it believes is the best mix of these components in delivering total direct compensation. In determining annual compensation, the Compensation Committee reviews all elements of compensation separately and in the aggregate. These compensation components are comparable to those of the Company’s competitors and peer group. In its review of executive compensation, and, in particular, in determining the amount and form of incentive awards discussed below, the Compensation Committee generally considers several factors. Among these factors are: • market information with respect to cash and long-term compensation for its peer group, • amounts paid to the executive ofﬁcer in prior years as salary, • annual bonus and other compensation, • the ofﬁcer’s responsibilities and performance during the calendar year, and • the Company’s overall performance during prior calendar years and its future objectives and challenges. At transportation companies, generally the largest elements of compensation are paid in the form of annual short-term incentives and long- term compensation. Compensation mix and industry proﬁtability vary as the industry faces many risk factors, such as the economy and fuel prices. Cash compensation for our NEOs varies as the EPS of the Company changes, due to the nature of our bonus plan described below. Grants of performance-based restricted share units or stock options are made annually. Performance-based restricted share units and stock options are based on each employee’s level of responsibility and are generally computed as a multiple of base salary. It has been the policy of the Company to put a signiﬁcant portion of the executive’s compensation at risk. This is accomplished by our cash bonus plan, which is directly tied to EPS, and the issuance of performance-based restricted share units. Equity-based awards from the MIP may also vary in vesting from three to 10 years. These awards are subject to forfeiture if the employee leaves the Company. Furthermore, the future vesting of performance-based equity awards is contingent on the Company’s attainment of predetermined performance metrics established by the Committee. The Committee and management believe that the proportion of compensation at risk should rise as the employee’s level of responsibility increases. The Compensation Committee has retained Meridian as its compensation consultant. Meridian reports directly to the Compensation Committee and has no other engagements with the Company. In 2014, Meridian prepared a study providing information and an independent analysis of the Company’s executive compensation program and practices. The results of this study included observations about the Company’s target 2014 executive compensation. 28 The Compensation Committee does not rely solely on predetermined formulas or a limited set of criteria when it evaluates the individual performances of the NEOs. The Compensation Committee considers actual results against deliverables and also bases its compensation decisions for the NEOs on: • leadership, • the execution of business plans, • strategic results, • operating results, • growth in EPS, • size and complexity of the business, • experience, • strengthening of competitive position, • analysis of competitive compensation practices, and • assessment of the Company’s performance. Where possible, the above criteria were compared with the peer group selected as well as the Chief Executive Ofﬁcer’s input for his direct reports and the Chairman of the Board’s input for the Chief Executive Ofﬁcer. Base Salary The Compensation Committee believes that competitive levels of cash compensation, together with equity-based and other incentive programs, are necessary for motivating and retaining the Company’s executives. Salaries provide executives with a base level of monthly income and help achieve the objectives outlined above by attracting and retaining strong talent. Base salaries are evaluated annually for all executive ofﬁcers, including the Chairman of the Board and the Chief Executive Ofﬁcer. Generally, base salaries are not directly related to speciﬁc measures of corporate performance, but are determined by the relevance of experience, the scope and complexity of the position, current job responsibilities, retention and relative salaries of the peer group members. The Compensation Committee may elect not to increase an executive ofﬁcer’s annual salary, and has so elected in prior years. However, if warranted, the Compensation Committee may increase base salary where an executive ofﬁcer takes on added responsibilities or is promoted. Annual Bonus Award As previously mentioned, the Company has had in place for several years a bonus plan that is tied to EPS. At its fall meeting when management presents its budget for the following year, the Compensation Committee establishes a matrix of EPS results with bonus payout levels. These forecasted earnings results are based on customer freight trends, strategies for growth and controlling costs, and corporate strategies to maximize stockholder return. Once presented to the Board, the EPS budget and bonus plan matrix remain ﬁxed, though management continually reforecasts expectations based on actual results and on changing facts and assumptions. Changes in uncontrollable factors such as general economic conditions, railroad or port authority service issues, or rapidly ﬂuctuating fuel costs can have a signiﬁcant impact on the Company’s actual EPS. Therefore, as the Company performs against the original budget, the executive’s bonus performs against the pre-established matrix. The bonus plan is based on annual EPS; however, quarterly EPS targets are established. If the Company meets a quarterly EPS target, the executive is eligible to receive a “progress payment” equal to approximately 12.5% of his or her projected annual bonus payout. The annual bonus earned is reduced by the progress payments received during the year. We consider a single quarterly progress payment, computed at approximately 12.5% of the executive’s lowest possible annual bonus amount, to be the threshold bonus amounts described below. The Company’s bonus plan has no reimbursement or “clawback” feature if a progress payment is made in a plan year where an annual bonus is not earned. However, the Compensation Committee has formally adopted and explicitly communicated the “clawback” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act with regard to annual cash bonus awards paid to the Company’s executive ofﬁcers. P r o x y S t a t e m e n t 29 For 2014, the established matrix consisted of EPS ranging from $2.85 to $4.05, translating to annual bonus payout percentages ranging from 5% to 170% of an executive’s base salary. The 2014 quarterly and annual bonus payout targets compared with actual reported EPS and actual payout percentages were as follows: Period 1Q 14 2Q 14 3Q 14 Annual Minimum 0.56 0.71 0.77 2.85 EPS Target 0.66 0.83 0.89 3.30 Reported EPS 0.58 0.79 0.87 3.16 Actual earned bonus amounts by quarter for each NEO: Bonus Payout % of Salary Target 3.8 3.8 3.8 30.0 Minimum 0.6 0.6 0.6 5.0 Actual 1.1 2.9 3.1 23.0 t n e m e t a t S y x o r P John N. Roberts, III David G. Mee Kirk Thompson (1) Terrence D. Matthews Shelley Simpson 1Q 14 $7,706 4,888 – 4,950 3,938 2Q 14 $19,694 12,492 – 12,650 10,063 3Q 14 $21,406 13,578 – 13,750 10,938 4Q 14 $108,744 68,977 – 69,850 55,561 Total Annual $157,550 99,935 – 101,200 80,500 (1) Currently, the position of Chairman of the Board is not eligible to participate in the Company’s EPS bonus plan. Long-Term, Equity-Based Award Each executive is eligible to receive a long-term incentive award of performance-based restricted share units. Performance-based restricted share units are intended to help achieve the objectives of the compensation program, including the retention of high-performing and experienced talent, a career orientation and strong alignment with stockholders’ interests. The performance-based restricted share units are awarded and settled from shares reserved for issuance under the MIP. The Compensation Committee approves or adjusts the award based on the above criteria for all Section 16 ﬁlers who are employees of the Company. The awards for the Company’s Chairman of the Board and Chief Executive Ofﬁcer are presented for ﬁnal approval to the Company’s independent Board members. The Compensation Committee believes that performance-based restricted share units must be sufﬁcient in size to provide a strong, long-term performance and retention incentive for executives and to increase their vested interest in the Company. Performance-based restricted share units are used as long-term incentives because they are less dilutive to shares outstanding and to proﬁts. Performance-based restricted share units generally vest from three to 10 years. In administering the MIP and awarding long-term incentive awards, we are sensitive to the potential for dilution of future EPS. The MIP is a broad-based equity compensation program. We focus the program on employees who will have the greatest impact on strategic direction and long- term results of the Company by virtue of their senior roles and responsibilities. A total of 554,725 performance-based and time-vested restricted share units were granted in 2014. Approximately 19% of the total share units granted were performance-based restricted share units to the NEOs, and approximately 27% of the total share units granted were to the executive ofﬁcer group as a whole. As described above, MIP participants who hold the title of director and above have an ownership requirement in Company stock. In determining the number of performance-based restricted share unit grants for each NEO, the Compensation Committee reviewed peer market data provided by Meridian and a detailed analysis of each NEO’s vested and unvested stock holdings. In considering unvested stock holdings, the Committee reviewed a forecast of the timing of potential future restricted stock unit vesting for each NEO over the next 10 years. The Compensation Committee subjectively considered the following objectives (without any particular weighting) when determining the form and amount of performance-based restricted share units granted to NEOs in 2014: • align NEOs’ long-term interests with those of the Company’s stockholders, • strengthen retention hooks for NEOs over the long term, • ensure competitiveness of NEOs’ total compensation opportunity through an emphasis on performance-based long-term stock compensation, • reinforce share holdings of NEOs, • align NEOs’ compensation with the Company’s long-term leadership succession planning initiatives, and • bolster the continuity of the entire management team through an upcoming period of critical strategic goals and milestones for the Company. For 2014, the Compensation Committee and/or independent directors approved the following performance-based restricted share unit grants to the NEOs: John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson 45,472 15,000 21,473 10,000 15,000 30 The 2014 NEO awards shown above are performance-based restricted share units. These grants vest from three to ﬁve years annually, beginning July 15, 2015, upon the Company’s attainment of predetermined operating metrics established and approved by the Compensation Committee, and are deemed “qualiﬁed performance-based compensation” awards under Section 162(m) of the Code. The Compensation Committee acknowledges that the separate components of total direct compensation are not always in the 50th percentile of their respective peer groups, as determined earlier, but it believes that its mix of current and long-term compensation is more appropriate to align the NEO’s compensation with the stockholders’ interests in both the near and longer term. The Committee also reviewed its compensation strategy in general and speciﬁc components of total direct compensation and determined that none of the Company’s compensation programs, individually or as a whole, would create risks that are reasonably likely to have a material adverse effect on the Company. The Committee presented its review and conclusion to the entire Board. Deferred Compensation The Company administers a Deferred Compensation Plan for certain of its ofﬁcers. The employee participant may elect on an annual basis to defer part of his or her salary and/or bonus. This plan assists key employees in planning for retirement. The Company contributes nothing to the plan, and participants are not permitted to defer shares of Company stock. Health and Welfare Beneﬁts The Company provides beneﬁts such as medical, vision, life insurance, long-term disability coverage, and 401(k) plan opportunities to all eligible employees, including the NEOs. The Company provides up to $750,000 in life insurance coverage and up to $10,000 per month in long- term disability coverage. The value of these beneﬁts is not required to be included in the Summary Compensation Table since they are available to all employees on a nondiscriminatory basis. The Company matches certain employee contributions to the 401(k) plan. The Company provides no postretirement medical or supplemental retirement beneﬁts to its employees. The Company also provides vacation, sick leave and other paid holidays to employees, including the NEOs, that are comparable to those provided at other transportation companies. The Company’s commitment to provide employee beneﬁts is due to our recognition that the health and well-being of our employees contributes directly to a productive and successful work life that produces better results for the Company and for its employees. Personal Beneﬁts The Company provides certain perquisites to management employees, including the NEOs, as summarized below. Company Aircraft The Company actively participates in shared ownership of aircraft services with NetJets and CitationAir. With the approval of the Chief Executive Ofﬁcer, the NEOs and other management employees use Company aircraft services for business purposes. Personal use of Company aircraft services is provided to executive ofﬁcers on a very limited basis and to other management employees in the event of emergency or other urgent situations. Company Vehicles The Company does not provide Company-owned cars to executives. Other Perquisites The Company provides executive ofﬁcers a taxable allowance of up to $10,000 a year for ﬁnancial counseling services, which may include legal, ﬁnancial, estate and/or tax planning, and tax return preparation. This beneﬁt is based on actual cost to the Company. The Company also provides country club memberships to certain of its executive ofﬁcers. These memberships are valued based on the actual costs of the membership, including dues, regardless of whether use was personal or business. The Company believes that these clubs provide a quiet venue for negotiations and entertainment of clients, bankers, investment bankers, stockholders, etc. Severance Agreements The Company does not have employment contracts or predetermined personal severance agreements with any of its executives. However, according to the terms of the awards granted under the previously mentioned MIP, all outstanding non-incentive-based options and restricted share units immediately vest upon a “change in control.” Generally, a “change in control” is deemed to occur when more than 30% of the outstanding shares of common stock of the Company change ownership in a transaction that is a merger, reorganization or consolidation, when the persons who constitute the Company’s incumbent board of directors cease to constitute a majority of the board, or when the stockholders approve a transaction that is a merger, reorganization or consolidation where more than 50% of the outstanding shares change ownership or a complete liquidation or dissolution of the Company or the sale or disposition of all or substantially all of the assets of the Company. P r o x y S t a t e m e n t 31 SUMMARY COMPENSATION The following table summarizes the total compensation earned by or paid to the Chief Executive Ofﬁcer, Chief Financial Ofﬁcer and the next three most highly compensated executive ofﬁcers of the Company who served in such capacities as of December 31, 2014, for services rendered to the Company. These ﬁve ofﬁcers are referred to as the NEOs in this Proxy Statement. Non-Equity Incentive Plan Compensation ($) (1) 157,550 146,050 267,750 Deferred Compensation ($) – – – All Other Compensation ($) 28,044 25,001 14,742 Name and Principal Position John N. Roberts, III President and CEO Year 2014 2013 2012 Salary ($) (1) 695,000 642,692 601,954 Share Units ($) (2) 3,465,876 3,244,500 2,505,420 Option Awards ($) (2) – – – 2014 David G. Mee EVP, Finance 2013 & Administration 2012 and CFO 437,845 401,077 369,615 1,143,300 2,152,800 691,575 Kirk Thompson Chairman of the Board 2014 2013 2012 450,000 492,308 542,308 1,636,672 1,658,300 2,115,688 Terrence D. Matthews 2014 2013 EVP and 2012 President of Intermodal 442,589 408,436 379,931 762,200 3,229,200 691,575 2014 371,635 1,143,300 Shelley Simpson EVP, CMO and President of ICS & Truckload – – – – – – – – – – t n e m e t a t S y x o r P 99,935 90,850 164,250 – – 247,500 101,200 92,000 167,625 80,500 – – – – – – – – – – Total ($) 4,346,470 4,058,243 3,389,866 1,698,734 2,662,788 1,242,740 2,091,675 2,160,061 2,915,848 1,325,427 3,755,951 1,271,159 17,654 18,061 17,300 5,003 9,453 10,352 19,438 26,315 32,028 24,391 1,619,826 (1) Non-equity incentive plan compensation (paid as a bonus) and salary amounts shown above are reported as gross earnings. Totals may include amounts transferred into the deferred compensation plan and/or into the Company’s 401(k) plan. All non-equity awards are reported in the year in which they are earned. Effective January 1, 2013, the position of Chairman of the Board is not eligible to participate in the Company’s non-equity incentive plan. (2) Amounts reﬂect grant date fair value of each individual’s speciﬁc award, which will be earned over the vesting period (3 to 8 years) and the achievement of future performance metrics established by the Compensation Committee at the time of grant. No stock options were granted during 2014, 2013 or 2012. Components of All Other Compensation for Calendar Year 2014 Name John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson Perquisites and Other Personal Beneﬁts ($) 16,961 9,612 2,355 10,598 15,625 Company Contributions to 401(k) Plan ($) 11,083 8,042 2,648 8,840 8,766 Total ($) 28,044 17,654 5,003 19,438 24,391 32 Components of Perquisites for Calendar Year 2014 Name John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson Personal Use of Company Plane ($) (1) – – – – – Legal and Accounting Fees ($) 7,610 – 2,355 2,197 7,725 Club Dues ($) 9,351 9,612 – 8,401 7,900 Total Perquisites and Other Personal Beneﬁts ($) 16,961 9,612 2,355 10,598 15,625 (1) The value of personal aircraft usage reported above is based on the Company’s actual invoiced amount from NetJets or CitationAir for the variable costs incurred on each trip. Since the Company’s aircraft is used primarily for business travel, this methodology excludes ﬁxed costs that do not change based on usage, such as depreciation and management fees. On certain occasions, an executive’s spouse or other family member may accompany the executive on a ﬂight when such person is invited to attend the event for appropriate business purposes. No additional direct operating cost is incurred in such situations under the foregoing methodology; however, the value of personal use of Company aircraft is imputed for federal income tax purposes as income to the NEO. Mr. Mee and Mr. Matthews had such imputed income in 2014. This value is calculated pursuant to Internal Revenue Service guidelines using Standard Industry Fare Level rates, which are determined by the U.S. Department of Transportation, and included in the NEO’s base salary in the Summary Compensation Table shown on page 32 of this Proxy Statement. Grants of Plan-Based Awards The following table reﬂects estimated possible payouts under equity and non-equity incentive plans to the NEOs during 2014. The Company’s equity-based and non-equity incentive-based awards are granted to the NEOs based upon pre-established performance goals set annually by the Compensation Committee with a performance period equal to the calendar year for which the performance goals are set. The MIP is an annual plan consisting of equity-based awards only. The number of performance-based restricted share units awarded is measured based on the executive’s level of responsibility and other matters described on page 30 under “Long-Term, Equity-Based Award.” Dividends are not paid on awards of performance-based or time-vested restricted share units. NEOs are eligible to earn cash bonuses under the non-equity incentive award plan based on the Company’s EPS for the calendar year. Please refer to page 29 under “Annual Bonus Award” for further detail. P r o x y S t a t e m e n t Estimated Possible Payouts Under Non-Equity Incentive Awards Estimated Possible Payouts Under Equity Incentive Plan Awards Grant Threshold Target Maximum Threshold Target Maximum ($) (1) Date (#) (2) (#) (#) ($) ($) 10/29/2014 4,281 205,500 1,164,500 9,094 45,472 45,472 10/29/2014 2,716 130,350 738,650 3,000 15,000 15,000 Name John. N. Roberts, III David G. Mee Kirk Thompson (4) 10/29/2014 – – – 4,294 21,473 21,473 Terrence D. Matthews Shelley Simpson 10/29/2014 2,750 132,000 748,000 3,333 10,000 10,000 10/29/2014 2,188 105,000 595,000 3,000 15,000 15,000 Option Stock Awards: Awards: Exercise Number Number or Base of of Shares Price of Securities of Stock Underlying Option Options or Units (#) (#) Grant Date Fair Value of Stock and Option Awards Awards ($) (3) ($/Sh) – – – – – – – – – – – – – – – 76.22 76.22 76.22 76.22 76.22 (1) This column reﬂects the maximum non-equity incentive award each NEO was eligible to receive for 2014 under the percentage assigned to each NEO for the cash bonus pool. The actual awards earned are reported in the Summary Compensation Table shown on page 32 of this Proxy Statement. (2) This column reﬂects the number of performance-based restricted share units that were granted to the NEOs in 2014. (3) The fair value of the awards was based on a 3.73% discount from the Company’s closing stock price of $78.86 on October 28, 2014, or $79.17 on October 29, 2014. The discount represents the present value of expected dividends to be paid on the Company’s common stock, using the current dividend rate and the risk-free interest rate, over the vesting period. The Company believes that this discount is appropriate to value the performance-based restricted share units, as the units do not collect or accrue dividends until the awards vest and are settled with Company stock. (4) Currently, the position of Chairman of the Board is not eligible to participate in the Company’s EPS bonus plan. 33 Outstanding Equity Awards at Calendar Year-end As of December 31, 2014, there were no outstanding stock options held by the NEOs. The following table sets forth information concerning restricted share units held by the NEOs as of December 31, 2014. t n e m e t a t S y x o r P Name John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (1) Equity Incentive Plan Awards: Market Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (2) Number of Shares or Units of Stock That Have Not Vested (#) (1) 5,100 990 15,000 Market Value of Shares or Units of Stock That Have Not Vested ($) (2) 429,675 83,408 1,263,750 60,000 27,000 36,000 45,472 6,000 6,250 8,000 20,000 15,000 24,000 22,800 18,400 21,473 21,000 6,250 8,000 35,000 10,000 5,055,000 2,274,750 3,033,000 3,831,016 505,500 526,563 674,000 1,685,000 1,263,750 2,022,000 1,920,900 1,550,200 1,809,100 1,769,250 526,563 674,000 2,948,750 842,500 15,000 1,263,750 3,300 990 17,000 20,000 7,000 17,500 20,000 23,000 12,000 4,200 990 17,000 3,600 1,800 2,400 3,400 21,000 6,250 8,000 20,000 278,025 83,408 1,432,250 1,685,000 589,750 1,474,375 1,685,000 1,937,750 1,011,000 353,850 83,408 1,432,250 303,300 151,650 202,200 286,450 1,769,250 526,563 674,000 1,685,000 34 (1) Restricted share units are time-vested or performance-based awards. Effective vesting dates, pending achievement of required performance goals set for performance-based awards, are noted below. Time-Based Awards John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson Shares Vesting Vesting Date Shares Vesting Vesting Date 5,100 990 3,300 990 17,000 17,500 10,000 10,000 4,200 990 1,800 1,200 1,200 3,400 3,000 3,000 3,000 3,000 3,000 3,000 7/15/15 7/15/15 7/15/15 7/15/15 7/15/15 7/15/15 7/15/15 7/15/16 7/15/15 7/15/15 7/15/15 7/15/15 7/15/16 7/15/15 7/15/15 7/15/16 7/15/17 7/15/18 7/15/19 7/15/20 15,000 7/15/15 10,000 10,000 7,000 23,000 12,000 17,000 3,600 3,000 3,125 3,125 2,000 2,000 2,000 2,000 6,666 6,667 6,667 7/15/15 7/15/16 7/15/15 7/15/15 7/15/15 7/15/15 7/15/15 7/15/21 7/15/15 7/15/16 7/15/15 7/15/16 7/15/17 7/15/18 7/15/21 7/15/22 7/15/23 P r o x y S t a t e m e n t 35 Performance-Based Awards John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson Shares Vesting Vesting Date Shares Vesting Vesting Date 15,000 15,000 15,000 15,000 9,000 9,000 9,000 9,000 3,000 3,000 3,125 3,125 2,000 2,000 2,000 2,000 12,000 12,000 7,600 7,600 7,600 4,600 4,600 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,125 3,125 3,000 3,000 3,000 7/15/15 7/15/16 7/15/17 7/15/18 7/15/15 7/15/16 7/15/17 7/15/15 7/15/15 7/15/16 7/15/15 7/15/16 7/15/15 7/15/16 7/15/17 7/15/18 7/15/15 7/15/16 7/15/15 7/15/16 7/15/17 7/15/15 7/15/16 7/15/15 7/15/16 7/15/17 7/15/18 7/15/19 7/15/20 7/15/21 7/15/15 7/15/16 7/15/15 7/15/16 7/15/17 9,000 9,000 9,000 9,094 9,094 9,094 9,095 9,095 10,000 10,000 3,000 3,000 3,000 3,000 3,000 4,600 4,600 4,294 4,294 4,295 4,295 4,295 2,000 2,000 2,000 2,000 17,500 17,500 3,333 3,333 3,334 3,000 3,000 7/15/16 7/15/17 7/15/18 7/15/15 7/15/16 7/15/17 7/15/18 7/15/19 7/15/20 7/15/21 7/15/15 7/15/16 7/15/17 7/15/18 7/15/19 7/15/17 7/15/18 7/15/15 7/15/16 7/15/17 7/15/18 7/15/19 7/15/15 7/15/16 7/15/17 7/15/18 7/15/16 7/15/17 7/15/15 7/15/16 7/15/17 7/15/18 7/15/19 (2) Values are based on the last closing market price of $84.25 on December 31, 2014. t n e m e t a t S y x o r P 36 Options Exercised and Restricted Share Units Vested __________________________________ ___________________________________ Restricted Share Units Option Awards Name John N. Roberts, III Number of Shares Acquired on Exercise (#) 16,000 Value Realized on Exercise ($) (1) (2) 906,752 Total David G. Mee 16,000 10,667 906,752 610,225 Total Kirk Thompson 10,667 40,000 610,225 2,274,750 Total Terrence D. Matthews 40,000 20,000 2,274,750 1,139,300 Total Shelley Simpson 20,000 2,000 1,139,300 113,280 Total 2,000 113,280 P r o x y S t a t e m e n t Number of Shares Acquired on Vesting (#) 4,250 2,010 17,000 5,000 15,000 15,000 9,000 9,000 76,260 2,750 2,010 10,000 7,000 3,000 3,125 2,000 29,885 8,750 5,000 30,000 16,640 12,000 12,000 7,600 4,600 96,590 3,500 2,010 3,200 3,600 3,000 3,125 2,000 20,435 1,500 1,200 8,500 3,400 3,400 3,000 3,125 2,000 26,125 Value Realized on Vesting ($) (1) (2) 326,995 154,649 1,307,980 384,700 1,154,100 1,154,100 692,460 692,460 5,867,444 211,585 154,649 769,400 538,580 230,820 240,438 153,880 2,299,352 673,225 384,700 2,308,200 1,280,282 923,280 923,280 584,744 353,924 7,431,635 269,290 154,649 246,208 276,984 230,820 240,438 153,880 1,572,269 115,410 92,328 653,990 261,596 261,596 230,820 240,438 153,880 2,010,058 (1) Value realized on the acquired shares shown above is gross earnings. Values are earned over multiple years. Election to exercise an option or the receipt of vested shares in calendar year 2014 should not be interpreted to mean that all value was earned in the year the option was exercised or shares received. Each executive exercised and purchased or retained a portion of the available vested shares as shown below: John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson 40,147 15,134 60,750 11,777 13,491 (2) Values are calculated by subtracting the exercise price from the fair market value of the underlying common stock on the date of exercise or vesting. 37 Components of Nonqualiﬁed Deferred Compensation for Calendar Year 2014 We have a nonqualiﬁed deferred compensation plan that allows eligible employees to defer a portion of their compensation. Participants can elect to defer up to a maximum of 50% of their base salary as well as up to 85% of their bonus for the year. The compensation deferred under this plan is credited with earnings or losses of investments elected by plan participants. Each participant is fully vested in all deferred compensation and earnings; however, these amounts are subject to general creditor claims until actually distributed to the employee. A participant may elect to receive deferred amounts in one payment or in quarterly installments payable over a period of two to 25 years upon reaching the age of 55, having 15 years of service, or becoming disabled. Our total liability under this plan was $13,515,042 as of December 31, 2014, and $12,650,590 as of December 31, 2013. These amounts are included in other long-term liabilities in our Consolidated Balance Sheets. Participant withholdings are held by a trustee and invested as directed by participants. These investments are included in “other assets” in our Consolidated Balance Sheets and totaled $13,515,042 as of December 31, 2014, and $12,650,590 as of December 31, 2013. Name John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson Executive Contributions in 2014 ($) (1) – – 45,000 219,077 – Registrant Contributions in 2014 ($) – – – – – Aggregate Earnings in 2014 ($) – – 77,690 54,657 – Aggregate Withdrawals and Distributions ($) – – – – – Aggregate Balance at 2014 ($) (1) – – 1,041,552 2,904,103 – (1) Amounts of executive contributions are included as part of the NEO’s salary in the Summary Compensation Table detailed above. Total executive contributions for the three-year period ending December 31, 2014, were $92,308 for Mr. Thompson and $627,072 for Mr. Matthews. Potential Post-Employment Beneﬁts The Company does not have employment contracts or predetermined personal severance agreements with any of its executives. However, according to the terms of the awards granted under the previously mentioned MIP, all outstanding options and restricted share units would immediately vest upon a “change in control.” Generally, a “change in control” is deemed to occur when more than 30% of the outstanding shares of common stock of the Company change ownership in a transaction that is a merger, reorganization or consolidation, when the persons who constitute the Company’s incumbent board of directors cease to constitute a majority of the board, or when the stockholders approve a transaction that is a merger, reorganization or consolidation where more than 50% of the outstanding shares change ownership or a complete liquidation or dissolution of the Company or the sale or disposition of all or substantially all of the assets of the Company. Potential beneﬁts of the NEOs due to a “change in control” are shown below. The amounts represent the immediate vesting of all outstanding options and restricted share units and are valued using the last closing market price of $84.25 on December 31, 2014. t n e m e t a t S y x o r P John N. Roberts, III David G. Mee Kirk Thompson Terrence D. Matthews Shelley Simpson $ 15,970,599 8,723,246 13,410,325 8,933,871 6,558,863 38 REPORT OF THE AUDIT COMMITTEE The Audit Committee The Audit Committee is composed of James L. Robo, Chairman, Douglas G. Duncan, Sharilyn S. Gasaway, and John A. White. Each served as a member of the Audit Committee during calendar year 2014. The Company’s Board has determined that all members of the Audit Committee satisfy the independence and other requirements for audit committee membership pursuant to the NASDAQ corporate governance listing standards and has also determined that Messrs. Robo, Duncan, and White and Mrs. Gasaway each has the attributes of an audit committee ﬁnancial expert as deﬁned by SEC requirements. The Audit Committee operates under a written charter adopted by the Board. A copy of the Audit Committee Charter is available on the “Corporate Governance” page of the “Investors” section of the Company’s website at www.jbhunt.com. In carrying out its responsibilities, the Audit Committee, among other things: • monitors the integrity of the ﬁnancial reporting process, systems of internal accounting controls, and ﬁnancial statements and reports of the Company, • appoints, retains, compensates and oversees the Company’s independent auditors, including reviewing the qualiﬁcations, performance and independence of the independent auditors, • reviews and preapproves all audit, attest and review services and permitted nonaudit services, • oversees the performance of the Company’s internal audit function, and • oversees the Company’s compliance with legal and regulatory requirements. In 2014, the Audit Committee met eight times. The Audit Committee schedules its meetings with a view to ensure that it devotes appropriate attention to all of its responsibilities and duties. The Audit Committee’s meetings include, whenever appropriate, executive sessions with the Company’s independent auditors and the Company’s internal auditors, in each case outside the presence of the Company’s management. In performing its oversight role, the Audit Committee reviewed the audited consolidated ﬁnancial statements for the 2014 calendar year and met and held discussions with management, the Company’s internal auditors and E&Y, the Company’s independent registered public accounting ﬁrm, to discuss those ﬁnancial statements and the audit related thereto. Management has represented to the Audit Committee that the Company’s consolidated ﬁnancial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee discussed with the independent auditors matters required to be discussed by Auditing Standard No. 16 of the Public Company Accounting Oversight Board, as may be modiﬁed, supplemented or amended, which includes, among other items, matters related to the conduct of the audit of the Company’s consolidated ﬁnancial statements. The independent auditors also provided the Audit Committee with written disclosures and the letter required by Rule 3526 of the Public Company Accounting Oversight Board, as may be modiﬁed, supplemented or amended, which relates to the auditors’ independence from the Company and its related entities, and the Audit Committee discussed with the independent auditors their independence. Based on the Audit Committee’s discussions with management, the internal auditors and the independent auditors as described above, and upon its review of the representation of management and the independent auditors and the reports of the independent auditors, the Audit Committee recommended to the Board that the Company’s audited consolidated ﬁnancial statements be included in the Company’s Annual Report on Form 10-K for the calendar year ended December 31, 2014, as ﬁled with the SEC. P r o x y S t a t e m e n t J.B. Hunt Transport Services, Inc. 2014 Audit Committee Members James L. Robo, Chairman Douglas G. Duncan Sharilyn S. Gasaway John A. White 39 t n e m e t a t S y x o r P PROPOSAL NUMBER TWO RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee has selected E&Y as the Company’s independent registered public accounting ﬁrm to examine the consolidated ﬁnancial statements of the Company for the 2015 calendar year. The Board seeks an indication from our stockholders of their approval or disapproval of the Audit Committee’s selection of E&Y as the Company’s independent registered public accounting ﬁrm for the 2015 calendar year. E&Y has been our independent auditor since 2005. No relationships exist other than the usual relationships between auditor and client. Representatives of E&Y are expected to be present at the Annual Meeting to respond to appropriate questions and will have the opportunity to make a statement if they desire to do so. If our stockholders do not ratify the appointment of E&Y at the Annual Meeting, the Audit Committee will consider such event in its selection of the Company’s independent registered public accounting ﬁrm for the 2015 calendar year. Additionally, even if the appointment is ratiﬁed, the Audit Committee, at its discretion, may direct the appointment of a different independent registered public accounting ﬁrm at any time during the 2015 calendar year if it determines that such a change would be in the best interests of the Company and its stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2015 CALENDAR YEAR AUDIT AND NONAUDIT FEES The Audit Committee preapproves the audit and nonaudit services to be rendered to the Company, as well as the fees associated with such services. Generally, management will submit to the Audit Committee a detailed list of services that it recommends the Audit Committee engage the independent auditors to provide for the calendar year. The Audit Committee preapproves certain audit and nonaudit services and establishes a dollar limit on the amount of fees the Company will pay for each category of services. The Audit Committee is informed from time to time regarding the nonaudit services actually provided pursuant to the preapproval process. During the year, the Audit Committee periodically reviews the types of services and dollar amounts approved and adjusts such amounts, as it deems appropriate. Unless a service to be provided by the independent auditors has received general preapproval, it will require speciﬁc preapproval by the Audit Committee. The Audit Committee also periodically reviews all nonaudit services to ensure that such services do not impair the independence of the Company’s independent registered public accounting ﬁrm. The Audit Committee approved all services provided by E&Y for the 2014, 2013, and 2012 calendar years. These services included the audit of the Company’s annual ﬁnancial statements, audit of the Company’s internal control over ﬁnancial reporting, review of the Company’s quarterly ﬁnancial statements, audit of the Company’s employee beneﬁt plan, due diligence, consent for and review of registration statements ﬁled by the Company with the SEC, and tax consultation services. See “Report of Audit Committee” set forth earlier for a discussion of auditor independence. The following table shows the fees billed by E&Y for audit and other services provided to the Company for the 2014, 2013, and 2012 calendar years, respectively: Audit fees (1) Audit-related fees (2) Tax fees (3) All other fees 2014 ($) 1,035,000 288,275 10,677 – 2013 ($) 975,000 32,000 48,766 – 2012 ($) 973,170 25,000 226,619 – (1) Audit fees consisted of the audit of the Company’s annual ﬁnancial statements, including the audit of the effectiveness of internal control over ﬁnancial reporting, the review of the Company’s quarterly reports on Form 10-Q, and consent for and review of registration statements ﬁled by the Company with the SEC. (2) Audit-related fees consisted of due diligence and an audit of the Employee Beneﬁt Plan. (3) Tax fees consisted principally of federal and state income tax consulting. The Audit Committee has considered whether the nonaudit services provided by E&Y, including the services rendered in connection with income tax consultation, were compatible with maintaining E&Y’s independence and has determined that the nature and substance of the limited nonaudit services did not impair the status of E&Y as the Company’s independent registered public accounting ﬁrm. E&Y did not bill the Company for any other services during calendar years 2014, 2013, and 2012. 40 P r o x y S t a t e m e n t Policy on Audit Committee Preapproval of Audit and Permissible Nonaudit Services of Independent Auditor The Audit Committee has the responsibility of appointing, setting compensation for and overseeing the work of the independent auditor and has established a policy to preapprove all audit and permissible nonaudit services provided by the independent auditor. Prior to the engagement of the independent auditor for next year’s audit, management will submit to the Audit Committee for approval an aggregate of services expected to be rendered during that year for each of four categories of services: • Audit services include audit work performed related to the ﬁnancial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, attestation services, and consultation regarding ﬁnancial accounting and/or reporting standards. • Audit-related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee beneﬁt plan audits, and special procedures required to meet certain regulatory requirements. • Tax services include all services performed by the independent auditor’s tax personnel except those services speciﬁcally related to the audit of the ﬁnancial statements, including fees in the areas of tax compliance, tax planning and tax advice. • Other services are those not captured in the other categories. The Company generally doesn’t request such services from the independent auditor. Prior to the engagement, the Audit Committee preapproves these services by category of service. The fees are budgeted and the Audit Committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original preapproval. In those instances, the Audit Committee requires speciﬁc preapproval before engaging the independent auditor. The Audit Committee may delegate preapproval authority to one or more of its members. The member(s) to whom such authority is delegated must report, for informational purposes only, the preapproval decisions to the Audit Committee at its next scheduled meeting. PROPOSAL NUMBER THREE STOCKHOLDER PROPOSAL REGARDING GREENHOUSE GAS (GHG) REDUCTION TARGETS In accordance with SEC rules, we have set forth below a stockholder proposal, along with the supporting statement of the stockholder proponents, for which we and the Board accept no responsibility. The Calvert Social Index Fund and Calvert VP S&P MidCap 400 Index Portfolio, 4550 Montgomery Avenue, Bethesda, Maryland 20814, are the proponents of the following stockholder proposal and have advised us that each holds shares of the Company’s common stock with a market value in excess of $2,000 and they intend to present the following proposal for a vote at the Annual Meeting. RESOLVED: Stockholders request that J.B. Hunt adopt quantitative companywide goals for reducing GHG emissions from operations and products and report on its plans to achieve these goals by September 2015. Supporting Statement In 2014, the Intergovernmental Panel on Climate Change (IPCC), the world’s leading scientiﬁc authority on climate change, released its ﬁfth assessment report concluding that human-caused “warming of the climate system is unequivocal,” with many of the impacts of warming already “unprecedented over decades to millennia.” In 2012, the U.S. experienced 11 extreme weather events resulting in an estimated $110 billion in total damages and 377 fatalities. Drought in the U.S. Midwest in 2012 affected 80 percent of agricultural land, particularly corn and soybean production, costing approximately $30 billion. PWC states that to mitigate climate change, the G20 needs to reduce its carbon intensity 6 percent per year and the global economy needs to decarbonize 6 percent per dollar GDP. Analysis by McKinsey & Co., Deloitte Consulting, and Point380 found that U.S. companies could reduce emissions 3 percent annually between now and 2020 and realize savings up to $780 billion. Further analysis by Calvert, Ceres, WWF, and David Gardiner and Associates demonstrated that 53 Fortune 100 companies in 2012 alone reported that they are conservatively saving $1.1 billion annually by decreasing their GHG emissions. 41 t n e m e t a t S y x o r P In Climate Action and Proﬁtability: CDP S&P 500 Climate Change Report 2014, industry leaders in the S&P 500 that are actively managing and planning for climate change report: • An about 18 percent higher return-on-equity than peers and 67 percent higher return-on-equity than companies that do not disclose on climate change. • A 50 percent lower earnings volatility over past decade than low-ranking peers. • A 21 percent stronger dividend growth than low-ranking peers. Over 600 businesses, including General Motors, Microsoft, and Nike, signed the Climate Declaration that states, “Tackling climate change is one of America’s greatest economic opportunities of the 21st century.” The economic, business and societal impacts of climate change are of paramount importance to investors. 767 institutional investors with $92 trillion in assets under management have supported CDP’s request to over 6,000 companies for disclosure of carbon emissions, reduction goals and climate change strategies to address these risks. We recommend J.B. Hunt take into consideration the IPCC analysis and identiﬁed emission reduction targets as it sets its own scientiﬁc-based goal. We also recommend that the company consider renewable energy procurement as a strategy to achieve its emission reduction goals. Board of Directors Statement in Opposition to the Stockholder Proposal The Company recognizes that reducing GHG emissions in our business is of signiﬁcant importance to our stockholders, our customers, the communities we serve, the global environment and ultimately the future success of our Company. Increasingly, our customers are making environmental responsibility a priority in their business decision-making, and the same is true for the Company. We strive to offer transportation solutions that help the Company and our customers reduce both costs and carbon emissions while meeting or exceeding our customers’ operational needs. As such, environmental considerations like those identiﬁed in the above proposal are built into the Company’s core modeling as it relates to our mission to provide customized freight movement, revenue equipment, labor and systems services tailored to meet the customer’s speciﬁc requirements. The Company has stood at the forefront of environmentally friendly transportation services and has undertaken a variety of green initiatives throughout the business. The following are several ways the Company has worked to be an industry leader in reducing the environmental impact of our business: • The Company’s Intermodal segment, which accounted for approximately 60% of our total revenue in 2014, owns and operates the world’s largest ﬂeet of 53-foot stackable containers, through which freight that would ordinarily be transported by truck can be carried largely by rail. During 2014, the Company moved approximately 1.7 million intermodal loads, effectively preventing nearly 2.4 million tons of carbon dioxide equivalent from entering the atmosphere. • The Company already engineers and designs customer solutions with an emphasis on energy efﬁciency, including following a ﬁve (5) step customer solution that (1) measures baseline energy use/carbon emissions, (2) minimizes total miles traveled, (3) maximizes payload, (4) optimizes mode of transport, and (5) selects the most efﬁcient carriers. • The Company deploys sophisticated optimization-based planning tools to minimize daily energy consumption when transporting customer shipments. • In each of past three years, as well as 2008 and 2009, the Company has received a SmartWaySM Excellence Award in recognition of our dedication to energy efﬁciency and decreased overall carbon dioxide emissions. The SmartWay Program is a public-private initiative between the U.S. Environmental Protection Agency (“EPA”), the freight transportation industry, and other federal and state agencies which seeks to reduce transportation-related emissions by improving supply-chain efﬁciency. The Company has been a partner in the SmartWay Program since the program’s inception in 2004. • Since 2008, the Company has offered our customers a proprietary CLEAN TransportTM carbon calculator that allows customers to measure and track their carbon footprints and identify opportunities for intermodal conversion to reduce emissions. • The Company regularly participates in industry working groups focused on reducing GHG emissions and improving environmental impacts, including the Sustainability Consortium, the Sustainability Accounting Standards Board, the Global Logistics Emissions Council and the Environmental Defense Fund. • The Company also regularly works with government agencies, including the U.S. Department of Energy and the EPA, as those agencies engage in a process that will determine the applicable rules, regulations and guidelines that govern the transportation industry. • The Company has a strong record of ensuring that its revenue equipment complies with required emission standards. For instance, as an integral component of the Company’s operations, the Company undergoes ongoing evaluation to monitor the efﬁcacy of new technologies to reduce energy use and carbon emissions. Based on these current and continued initiatives to reduce the Company’s impact on the environment, the Board of Directors believes that adopting this proposal would be duplicative of the Company’s existing efforts. Even before receiving this proposal, the Company was and is committed to being an industry leader in lessening its environmental impact and reducing GHG emissions. The Board of Directors does not think it is prudent to make speciﬁc commitments or to be informally regulated by individual stockholders on speciﬁc issues, particularly with respect to fuel efﬁciency given the inherent signiﬁcance of fuel costs and equipment utilization and replacement 42 costs to the management of a large transportation company. Instead, we believe that the interests of our stockholders will be best served by us continuing to build a proﬁtable business while continuing our current environmental initiatives and efforts, many of which are governed by federal, state and local regulatory requirements, without introducing stockholder requirements to publicly disclose our strategic goals and plans. We believe the above proposal could undermine the Company’s ability to compete in the transportation marketplace, reducing our proﬁtability and harming the ﬁnancial interests of our stockholders. The proposal’s requests would in essence commit the Company to publicly disclosing our strategies and solutions for reducing GHG emissions. Publicly disclosing speciﬁc GHG reduction goals and reporting on the Company’s plans to achieve those goals, as required by this proposal, would give the Company’s competitors insight into management’s strategic business plans and operational goals and, ultimately, could impair the Company’s ability to achieve GHG emission reductions. To ensure that the Company can best pursue the common goal of reducing GHG emissions while maintaining our competitive advantages and proﬁtability for our stockholders, the Board of Directors recommends that you vote against this proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST PROPOSAL NUMBER THREE STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE URGED TO VOTE BY TELEPHONE, MAIL OR INTERNET IF YOU VOTE BY TELEPHONE OR THE INTERNET, DO NOT RETURN YOUR PROXY CARD By Order of the Board of Directors DAVID G. MEE Corporate Secretary P r o x y S t a t e m e n t 43 UNITED STATES 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 December 31, 2014 Commission ﬁle number 0-11757 J.B. HUNT TRANSPORT SERVICES, INC. (Exact name of registrant as speciﬁed in its charter) Arkansas (State or other jurisdiction of incorporation or organization) 615 J.B. Hunt Corporate Drive Lowell, Arkansas (Address of principal executive ofﬁces) 71-0335111 (I.R.S. Employer Identiﬁcation No.) 72745-0130 (ZIP Code) Registrant’s telephone number, including area code: 479-820-0000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par Value t r o p e R l a u n n A 4 1 0 2 Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities Act. Yes __X__ No _____ Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or 15(d) of the Act. Yes _____ No __X__ Indicate by check mark whether the registrant (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle such reports), and (2) has been subject to such ﬁling requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). Yes __X__ No _____ Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the 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. [ ] Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler, or a smaller reporting company. See the deﬁnitions of “large accelerated ﬁler,” “accelerated ﬁler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated ﬁler __X__ Accelerated ﬁler _____ Non-accelerated ﬁler _____ Smaller reporting company _____ Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Exchange Act). Yes _____ No __X__ The aggregate market value of 91,621,042 shares of the registrant’s $0.01 par value common stock held by non-afﬁliates as of June 30, 2014, was $6.8 billion (based upon $73.78 per share). As of February 17, 2015, the number of outstanding shares of the registrant’s common stock was 116,515,423. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Notice and Proxy Statement for the Annual Meeting of Stockholders, to be held April 23, 2015, are incorporated by reference in Part III of this Form 10-K. 44 FORWARD-LOOKING STATEMENTS This report, including documents which are incorporated by reference and other documents which we ﬁle periodically with the Securities and Exchange Commission (SEC), contains statements that may be considered to be “forward-looking statements.” Such statements relate to our predictions concerning future events or operations and are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are inherently uncertain, subject to risks, and should be viewed with caution. These statements are based on our belief or interpretation of information currently available. Stockholders and prospective investors are cautioned that actual results and future events may differ materially from these forward-looking statements as a result of many factors. Some of the factors and events that are not within our control and that could have a material impact on future operating results include: general economic and business conditions, competition and competitive rate ﬂuctuations, cost and availability of diesel fuel, ability to attract and retain qualiﬁed drivers and delivery personnel, a loss of one or more major customers, interference with or termination of our relationships with certain railroads, insurance costs and availability, claims expense, retention of key employees, terrorist attacks or actions, acts of war, adverse weather conditions, disruption or failure of information systems, new or different environmental or other laws and regulations, increased costs for new revenue equipment or decreases in the value of used equipment, and the ability of revenue equipment manufacturers to perform in accordance with agreements for guaranteed equipment trade-in values. You should understand that many important factors, in addition to those listed above, could impact us ﬁnancially. Our operating results may ﬂuctuate as a result of these and other risk factors or events as described in our ﬁlings with the SEC. Some important factors that could cause our actual results to differ from estimates or projections contained in the forward-looking statements are described under “Risk Factors” in Item 1A. We assume no obligation to update any forward-looking statement to the extent we become aware that it will not be achieved for any reason. PART I ITEM 1. BUSINESS OVERVIEW We are one of the largest surface transportation, delivery, and logistics companies in North America. J.B. Hunt Transport Services, Inc. is a publicly held holding company that, together with our wholly owned subsidiaries, provides safe and reliable transportation and delivery services to a diverse group of customers and consumers throughout the continental United States, Canada, and Mexico. Unless otherwise indicated by the context, “we,” “us,” “our,” and “JBHT” refer to J.B. Hunt Transport Services, Inc. and its consolidated subsidiaries. We were incorporated in Arkansas on August 10, 1961, and have been a publicly held company since our initial public offering in 1983. Our service offerings include transportation of full-truckload containerized freight, which we directly transport utilizing our company-controlled revenue equipment and company drivers or independent contractors. We have arrangements with most of the major North American rail carriers to transport freight in containers or trailers. We also provide customized freight movement, revenue equipment, labor, systems, and delivery services that are tailored to meet individual customers’ requirements and typically involve long-term contracts. These arrangements are generally referred to as dedicated services and may include multiple pickups and drops, local and home deliveries, freight handling, specialized equipment, and freight network design. Our local and home delivery services typically are provided through a network of cross-dock service centers throughout the continental United States. Utilizing a network of thousands of reliable third-party carriers, we also provide comprehensive transportation and logistics services. In addition to full-load, dry-van operations, these unrelated outside carriers also provide ﬂatbed, refrigerated, less-than-truckload (LTL), and other specialized equipment, drivers, and services. Our customers’ business activities are extremely diverse, and our customer base includes a large number of Fortune 500 companies. We believe our ability to offer multiple services, utilizing our four business segments and a full complement of logistics services through third parties, represents a competitive advantage. These segments include Intermodal (JBI), Dedicated Contract Services® (DCS), Integrated Capacity Solutions (ICS), and Truck (JBT). Our business is somewhat seasonal, with slightly higher freight volumes typically experienced during August through early November. Our DCS segment is subject to somewhat less seasonal variation than our other segments. For the calendar year ended December 31, 2014, our consolidated revenue totaled $6.2 billion, after the elimination of intersegment business. Of this total, 60% was generated by our JBI business segment, 22% by DCS, 12% by ICS, and 6% by JBT. For the year ended December 31, 2013, JBI represented 62%, DCS 22%, ICS 9%, and JBT 7% of our consolidated revenue. For the year ended December 31, 2012, JBI represented 61%, DCS 21%, ICS 9%, and JBT 9% of our consolidated revenue. Additional general information about us is available at www.jbhunt.com. We make a number of reports and other information available free of charge on our website, including our annual report on Form 10-K, our proxy statement, and our earnings releases. Our website also contains corporate governance guidelines, our code of ethics, our whistleblower policy, Board committee charters, and other corporate policies. The information on our website is not, and shall not be deemed to be a part of this annual report on Form 10-K or incorporated into any other ﬁlings we make with the SEC. OUR MISSION AND STRATEGY We forge long-term partnerships with key customers that include supply-chain management as an integral part of their strategies. Working in concert, we strive to drive out excess cost, add value and function as an extension of their enterprises. Our strategy is based on utilizing an integrated, multimodal approach to provide capacity-oriented solutions centered on delivering customer value and industry-leading service. We believe our unique operating strategy can add value to customers and increase our proﬁts and returns to stockholders. 2 0 1 4 A n n u a l R e p o r t 45 We continually analyze where we believe additional capital should be invested and management’s resources should be focused to provide added beneﬁts to our customers. These actions should, in turn, yield increasing returns to our stockholders. Increasingly, our customers are seeking energy-efﬁcient transportation solutions to reduce both cost and greenhouse-gas emissions. Our intermodal service addresses both demands. Further, we are customizing dedicated solutions aimed at minimizing transportation-related carbon emissions. Efforts to improve ﬂeet fuel efﬁciency are ongoing, and we are an Environmental Protection Agency (EPA) SmartWaySM Transport Partner. As always, we continue to ingrain safety into our corporate culture and strive to conduct all of our operations as safely as possible. OPERATING SEGMENTS Segment information is also included in Note 11 to our Consolidated Financial Statements. JBI Segment The transportation service offerings of our JBI segment utilize arrangements with most major North American rail carriers to provide intermodal freight solutions for our customers throughout the continental United States, Canada, and Mexico. Our JBI segment began operations in 1989, forming a unique partnership with what is now the BNSF Railway Company; this was a watershed event in the industry and the ﬁrst agreement that linked major rail and truckload carriers in a joint service environment. JBI draws on the intermodal services of rail carriers for the underlying linehaul movement of its equipment between rail ramps. The origin and destination pickup and delivery services (“drayage”) are handled by our company-owned tractors for the majority of our intermodal loads, while third-party dray carriers are used where economical. By performing our own drayage services, we are able to provide a cost-competitive, seamless coordination of the combined rail and dray movements for our customers. JBI operates 73,298 pieces of company-owned trailing equipment systemwide. The ﬂeet primarily consists of 53-foot, high-cube containers and is designed to take advantage of intermodal double-stack economics and superior ride quality. We own and maintain our own chassis ﬂeet, consisting of 65,455 units. The containers and chassis are uniquely designed so that they may only be paired together, which we feel creates an operational competitive advantage. JBI also manages a ﬂeet of 3,916 company-owned tractors, 761 independent contractor trucks, and 4,756 company drivers. At December 31, 2014, the total JBI employee count was 5,340. Revenue for the JBI segment in 2014 was $3.7 billion. DCS Segment DCS focuses on private ﬂeet conversion and creation in replenishment, specialized equipment, and ﬁnal-mile delivery services. We specialize in the design, development, and execution of supply-chain solutions that support a variety of transportation networks. Our ﬁnal-mile delivery services are supported with a network of approximately 89 cross-dock locations nationwide, with 98% of the continental U.S. population living within 150 miles of a cross-dock location. Contracts with our customers are long-term, ranging from three to ten years, with the average being approximately ﬁve years. Pricing of our contracts typically involves cost-plus arrangements, with our ﬁxed costs being recovered regardless of equipment utilization, but is customized based on invested capital and duration. At December 31, 2014, this segment operated 6,425 company-owned trucks, 448 customer-owned trucks, and 7 independent contractor trucks. DCS also operates 13,852 owned pieces of trailing equipment and 6,664 customer-owned trailers. The DCS segment employed 9,466 people, including 7,833 drivers, at December 31, 2014. DCS revenue for 2014 was $1.4 billion. ICS Segment ICS provides traditional freight brokerage and transportation logistics solutions to customers through relationships with thousands of third- party carriers and integration with our owned equipment. By leveraging the J.B. Hunt brand, systems, and network, we provide a broader service offering to customers by providing ﬂatbed, refrigerated, expedited, and LTL, as well as a variety of dry-van and intermodal solutions. ICS provides single-source logistics management for customers desiring to outsource their transportation functions and utilize our proven supply-chain technology and design expertise to improve efﬁciency. ICS operates 29 remote sales ofﬁces or branches, as well as on-site logistics personnel working in direct contact with customers. At December 31, 2014, the ICS segment employed 582 people, with a carrier base of approximately 39,100. ICS revenue for 2014 was $718 million. JBT Segment The service offering in this segment is full-load, dry-van freight, utilizing tractors operating over roads and highways. We typically pick up freight at the dock or speciﬁed location of the shipper and transport the load directly to the location of the consignee. We use our company-owned tractors and employee drivers or independent contractors who agree to transport freight in our trailers. At December 31, 2014, the JBT segment operated 1,296 company-owned tractors and employed 1,604 people, 1,378 of whom were drivers. At December 31, 2014, we had 590 independent contractors operating in the JBT segment. JBT revenue for 2014 was $386 million. t r o p e R l a u n n A 4 1 0 2 46 Marketing and Operations We transport, or arrange for the transportation of, a wide range of freight, including general merchandise, specialty consumer items, appliances, forest and paper products, food and beverages, building materials, soaps and cosmetics, automotive parts, agricultural products, electronics, and chemicals. Our customers’ business activities are extremely diverse, and our customer base includes a large number of Fortune 500 companies. We provide a broad range of transportation services to shippers seeking to use a variety of transportation options to optimize their supply-chain logistics needs. We generally market all of our service offerings through a nationwide sales and marketing network. We use a speciﬁc sales force in DCS due to the length, complexity, and specialization of the sales cycle. In addition, ICS utilizes its own local branch salespeople. In accordance with our typical arrangements, we bill the customer for all services, and we, in turn, pay all third parties for their portion of transportation services provided. People We believe that one of the factors differentiating us from our competitors is our service-oriented people. As of December 31, 2014, we had 20,158 employees, which consisted of 13,967 company drivers, 5,059 ofﬁce personnel, and 1,132 maintenance technicians. We also had arrangements with approximately 1,358 independent contractors to transport freight in our trailing equipment. None of our employees are represented by unions or covered by collective bargaining agreements. Revenue Equipment Our JBI segment utilizes uniquely designed high-cube containers and chassis, which can only be paired with each other and can be separated to allow the containers to be double-stacked on rail cars. The composition of our DCS trailing ﬂeet varies with speciﬁc customer requirements and may include dry-vans, ﬂatbeds, temperature-controlled, curtain-side vans, straight trucks, and dump trailers. We primarily utilize third-party carriers’ tractor and trailing equipment for our ICS segment. Our JBT segment operates primarily with 53-foot dry-van trailers. As of December 31, 2014, our company-owned tractor and truck ﬂeet consisted of 11,637 units. In addition, we had 1,358 independent contractors who operate their own tractors but transport freight in our trailing equipment. We operate with standardized tractors in as many ﬂeets as possible, particularly in our JBI and JBT ﬂeets. Due to our customers’ preferences and the actual business application, our DCS ﬂeet is extremely diversiﬁed. We believe operating with relatively newer revenue equipment provides better customer service, attracts quality drivers, and lowers maintenance expense. At December 31, 2014, the average age of our combined tractor ﬂeet was 2.3 years, while our containers averaged 5.2 years of age and our trailers averaged 9.5 years. We perform routine servicing and preventive maintenance on our equipment at our regional terminal facilities. Competition and the Industry The freight transportation markets in which we operate are frequently referred to as highly fragmented and competitive. Our JBI segment competes with other intermodal marketing companies; other full-load carriers that utilize railroads for a portion of the transportation service; and, to a certain extent, some railroads directly. The diversiﬁed nature of the services provided by our DCS segment attracts competition from customers’ private ﬂeets, other private ﬂeet outsourcing companies, equipment leasing companies, local and regional delivery service providers, and some truckload carriers. Our ICS segment utilizes the fragmented nature of the truck industry and competes with other non-asset-based logistics companies and freight brokers, as well as full-load carriers. The full-load freight competition of our JBT segment includes thousands of carriers, many of which are very small. While we compete with a number of smaller carriers on a regional basis, only a limited number of companies represent competition in all markets across the country. We compete with other transportation service companies primarily in terms of price, on-time pickup and delivery service, availability and type of equipment capacity, and availability of carriers for logistics services. Regulation Our operations as a for-hire motor carrier are subject to regulation by the U.S. Department of Transportation (DOT) and the Federal Motor Carrier Safety Administration (FMCSA), and certain business is also subject to state rules and regulations. The DOT periodically conducts reviews and audits to ensure our compliance with federal safety requirements, and we report certain accident and other information to the DOT. Our operations into and out of Canada and Mexico are subject to regulation by those countries. In 2011, the FMCSA amended the hours-of-service (HOS) safety requirements for commercial truck drivers. The remaining provisions of the amended HOS rules became effective July 1, 2013, and we experienced some negative impact on our productivity as a result. However, in December 2014, as a result of the Consolidated and Further Continuing Appropriations Act of 2015, the FMCSA was required to rescind the 34-hour restart provision of the amended HOS rules to the pre-July 1, 2013, requirements. Furthermore, the FMCSA was required to conduct a ﬁeld study measuring the safety beneﬁt of the amended HOS rules before and after this rule change. This rule rescission is considered temporary pending the outcome of the study. We continue to evaluate and adjust the various segments of our operations toward the ultimate impact of these changes in HOS safety requirements. In 2011, the FMCSA published a Notice of Proposed Rulemaking to require currently logging drivers to complete their logs using an Electronic Logging Device (ELD). The ﬁnal rule regarding this proposal is expected to be published in the third quarter of 2015. Since the issuance of this proposal, we have successfully implemented a plan to replace any legacy on-board recording equipment within our ﬂeets. At December 31, 2014, we had replaced approximately 90% of this equipment. We do not anticipate a negative impact on our operations or productivity. 47 2 0 1 4 A n n u a l R e p o r t In 2013, the FMCSA, in conjunction with the National Highway Trafﬁc Safety Administration, submitted a Notice of Proposed Rulemaking to require the installation of speed-limiting devices on heavy trucks. The ﬁnal rule regarding this proposal is expected to be published in the third quarter of 2015. We believe this rule will have minimal implementation cost, as all of our heavy trucks subject to this rule already have these devices installed. We do not anticipate a negative impact on our operations or productivity. We continue to monitor the actions of the FMCSA and other regulatory agencies and evaluate all proposed rules to determine their impact on our operations. ITEM 1A. RISK FACTORS In addition to the forward-looking statements outlined previously in this Form 10-K and other comments regarding risks and uncertainties, the following risk factors should be carefully considered when evaluating our business. Our business, ﬁnancial condition or ﬁnancial results could be materially and adversely affected by any of these risks. Our business is subject to general economic and business factors, any of which could have a material adverse effect on our results of operations. Economic trends and the tightening of credit in ﬁnancial markets could adversely affect our ability, and the ability of our customers and suppliers, to obtain ﬁnancing for operations and capital expenditures. Our business is dependent upon a number of factors that may have a material adverse effect on the results of our operations, many of which are beyond our control. These factors include interference with or termination of our relationships with certain railroads; disruptions to U.S. port- of-call activity; signiﬁcant increases or rapid ﬂuctuations in fuel prices, fuel taxes, interest rates, insurance premiums, self-insurance levels, excess capacity in the intermodal or trucking industries, or license and registration fees; terrorist attacks or actions; acts of war; adverse weather conditions; disruption or failure of information technology systems; increased costs for new revenue equipment or decreases in the value of used equipment; increased tariffs assessed on or disruptions in the procurement of imported revenue equipment; and difﬁculty in attracting and retaining qualiﬁed drivers, independent contractors, and third-party carriers. We are also affected by recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries such as retail and manufacturing, where we have a signiﬁcant concentration of customers. Economic conditions represent a greater potential for loss, and we may be required to increase our reserve for bad debt losses. In addition, our results of operations may be affected by seasonal factors. Customers tend to reduce shipments after the winter holiday season, and our operating expenses tend to be higher in the winter months, primarily due to colder weather, which causes higher fuel consumption from increased idle time and higher maintenance costs. We depend on third parties in the operation of our business. Our JBI business segment utilizes railroads in the performance of its transportation services. The majority of these services are provided pursuant to contractual relationships with the railroads. While we have agreements with a number of Class I railroads, the majority of our business travels on the Burlington Northern Santa Fe and the Norfolk Southern railways. A material change in the relationship with or the inability to utilize one or more of these railroads or the overall service levels provided by these railroads could have a material adverse effect on our business and operating results. In addition, a portion of the freight we deliver is imported to the United States through ports of call that are subject to labor union contracts. Work stoppages or other disruptions at any of these ports could have a material adverse effect on our business. We also utilize independent contractors and third-party carriers to complete our services. These third parties are subject to similar regulation requirements, which may have a more signiﬁcant impact on their operations, causing them to exit the transportation industry. Aside from when these third parties may use our trailing equipment to fulﬁll loads, we do not own the revenue equipment or control the drivers delivering these loads. The inability to obtain reliable third-party carriers and independent contractors could have a material adverse effect on our operating results and business growth. Rapid changes in fuel costs could impact our periodic ﬁnancial results. Fuel costs can be very volatile. We have a fuel surcharge revenue program in place with the majority of our customers, which has historically enabled us to recover the majority of higher fuel costs. Most of these programs automatically adjust weekly depending on the cost of fuel. However, there can be timing differences between a change in our fuel cost and the timing of the fuel surcharges billed to our customers. In addition, we incur additional costs when fuel price increases cannot be fully recovered due to our engines being idled during cold or warm weather and empty or out-of-route miles that cannot be billed to customers. Rapid increases in fuel costs or shortages of fuel could have a material adverse effect on our operations or future proﬁtability. As of December 31, 2014, we had no derivative ﬁnancial instruments to reduce our exposure to fuel-price ﬂuctuations. Insurance and claims expenses could signiﬁcantly reduce our earnings. Our future insurance and claims expenses might exceed historical levels, which could reduce our earnings. If the number or severity of claims for which we are self-insured increases, our operating results could be adversely affected. We have policies in place for 2015 with substantially the same terms as our 2014 policies for personal injury, property damage, workers’ compensation, and cargo loss or damage. We purchase insurance coverage for the amounts above which we are self-insured. If these expenses increase and we are unable to offset the increase with higher freight rates, our earnings could be materially and adversely affected. t r o p e R l a u n n A 4 1 0 2 48 We derive a signiﬁcant portion of our revenue from a few major customers, the loss of one or more of which could have a material adverse effect on our business. For the calendar year ended December 31, 2014, our top 10 customers, based on revenue, accounted for approximately 28% of our revenue. Our JBI, ICS, and JBT segments typically do not have long-term contracts with their customers. While our DCS segment business may involve a long-term written contract, those contracts may contain cancellation clauses, and there is no assurance that our current customers will continue to utilize our services or continue at the same levels. A reduction in or termination of our services by one or more of our major customers could have a material adverse effect on our business and operating results. We operate in a regulated industry, and increased direct and indirect costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business. The DOT and various state agencies exercise broad powers over our business, generally governing matters including authorization to engage in motor carrier service, equipment operation, safety, and ﬁnancial reporting. We are audited periodically by the DOT to ensure that we are in compliance with various safety, hours-of-service, and other rules and regulations. If we were found to be out of compliance, the DOT could restrict or otherwise impact our operations. Difﬁculty in attracting and retaining drivers and delivery personnel could affect our proﬁtability and ability to grow. If we are unable to attract and retain the necessary quality and number of employees, we could be required to signiﬁcantly increase our employee compensation package, let revenue equipment sit idle, dispose of the equipment altogether, or rely more on higher-cost third-party carriers, which could adversely affect our growth and proﬁtability. In addition, our growth could be limited by an inability to attract third-party carriers upon whom we rely to provide transportation services. We rely signiﬁcantly on our information technology systems, a disruption, failure or security breach of which could have a material adverse effect on our business. We rely on information technology throughout all areas of our business to initiate, track, and complete customer orders; process ﬁnancial and nonﬁnancial data; compile results of operations for internal and external reporting; and achieve operating efﬁciencies and growth. Our information technology systems may be susceptible to various interruptions, including equipment or network failures, failed upgrades or replacement of software, user error, power outages, natural disasters, cyber-attacks, terrorist attacks, computer viruses, hackers, or other security breaches. We have mitigated our exposure to these risks through the establishment and maintenance of technology security programs and disaster recovery plans, but these mitigating activities may not be sufﬁcient. A signiﬁcant disruption, failure or security breach in our information technology systems could have a material adverse effect on our business, which could include operational disruptions, loss of conﬁdential information, external reporting delays or errors, legal claims, or damage to our business reputation. We operate in a competitive and highly fragmented industry. Numerous factors could impair our ability to maintain our current proﬁtability and to compete with other carriers and private ﬂeets. We compete with many other transportation service providers of varying sizes and, to a lesser extent, with LTL carriers and railroads, some of which have more equipment and greater capital resources than we do. Additionally, some of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or to maintain our proﬁt margins. In an effort to reduce the number of carriers it uses, a customer often selects so-called “core carriers” as approved transportation service providers, and in some instances, we may not be selected. Many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in the loss of some business to competitors. Also, certain customers that operate private ﬂeets to transport their own freight could decide to expand their operations, thereby reducing their need for our services. Extreme or unusual weather conditions can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results. Certain weather conditions such as ice and snow can disrupt our operations. Increases in the cost of our operations, such as towing and other maintenance activities, frequently occur during the winter months. Natural disasters such as hurricanes and ﬂooding can also impact freight volumes and increase our costs. Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial ﬁnes or penalties. We are subject to various environmental laws and regulations dealing with the handling of hazardous materials, underground fuel storage tanks, and discharge and retention of storm water. We operate in industrial areas, where truck terminals and other industrial activities are located and where groundwater or other forms of environmental contamination have occurred. Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. We also maintain bulk fuel storage and fuel islands at several of our facilities. If a spill or other accident involving hazardous substances occurs, or if we are found to be in violation of applicable laws or regulations, it could have a material adverse effect on our business and operating results. If we should fail to comply with applicable environmental regulations, we could be subject to substantial ﬁnes or penalties and to civil and criminal liability. 2 0 1 4 A n n u a l R e p o r t 49 ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our corporate headquarters are in Lowell, Arkansas. We occupy a number of buildings in Lowell that we utilize for administrative support, customer service, freight dispatch, data processing and warehousing, and data backup and disaster recovery. We also own or lease approximately 41 other signiﬁcant facilities across the United States where we perform maintenance on our equipment, provide bulk fuel, and employ personnel to support operations. These facilities vary in size from 1 to 35 acres. Each of our business segments utilizes these facilities for various services, including bulk fueling, maintenance, and driver support activities. In addition, we have approximately 89 leased facilities in our DCS cross-dock and delivery system network and 29 leased or owned remote sales ofﬁces or branches in our ICS segment. Excluded from the following table are leases for small ofﬁces and parking yards throughout the country that support our customers’ business needs. A summary of our principal facilities in locations throughout the U.S. follows: Type Maintenance and support facilities Cross-dock and delivery system facilities Corporate headquarters, Lowell, Arkansas Ofﬁces and data center, Lowell, Arkansas Branch sales ofﬁces Acreage 472 – 130 8 – Maintenance Shop/ Cross-dock Facility (square feet) 795,000 1,348,000 – – – Ofﬁce Space (square feet) 212,000 120,000 262,000 40,000 50,000 ITEM 3. LEGAL PROCEEDINGS We are involved in certain claims and pending litigation arising from the normal conduct of business. Based on present knowledge of the facts and, in certain cases, opinions of outside counsel, we believe the resolution of claims and pending litigation will not have a material adverse effect on our ﬁnancial condition, results of operations, or liquidity. We are a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the ﬁrst half of 2014, the Court in the lead class-action granted Judgment in our favor with regard to all claims. The plaintiffs have appealed the case to the Ninth Circuit Court of Appeals and we are currently awaiting the appointment of a panel of judges. The overlapping claims in the remaining two actions have been stayed pending a decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. t r o p e R l a u n n A 4 1 0 2 50 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded in the over-the-counter market under the symbol “JBHT.” At December 31, 2014, we were authorized to issue up to 1 billion shares of our common stock, and 167.1 million shares were issued. We had 116.6 million and 117.2 million shares outstanding as of December 31, 2014 and 2013, respectively. The high and low sales prices of our common stock as reported by the National Association of Securities Dealers Automated Quotations National Market system (NASDAQ) and the quarterly dividends paid per share on our common shares were: 2014 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter Dividends Paid $ 0.20 0.20 0.20 0.20 Dividends Paid $ – 0.15 0.15 0.15 High $ 79.89 78.07 79.79 85.54 High $ 75.73 77.20 78.39 78.65 Low $ 69.33 71.45 71.73 71.00 Low $ 60.05 67.97 71.26 70.60 On February 17, 2015, the high and low sales prices for our common stock as reported by NASDAQ were $83.52 and $82.71, respectively, and we had 1,056 stockholders of record. DIVIDEND POLICY Our dividend policy is subject to review and revision by the Board of Directors, and payments are dependent upon our ﬁnancial condition, liquidity, earnings, capital requirements, and any other factors the Board of Directors may deem relevant. In 2012, we pulled forward and paid our previously planned ﬁrst quarter 2013 dividend in the fourth quarter of 2012. Accordingly, we did not declare or pay a quarterly dividend in the ﬁrst quarter of 2013. On January 29, 2015, we announced an increase in our quarterly cash dividend from $0.20 to $0.21 per share, which will be paid February 26, 2015, to stockholders of record on February 12, 2015. We currently intend to continue paying cash dividends on a quarterly basis. However, no assurance can be given that future dividends will be paid. PURCHASES OF EQUITY SECURITIES The following table summarizes purchases of our common stock during the three months ended December 31, 2014: Period October 1 through October 31, 2014 November 1 through November 30, 2014 December 1 through December 31, 2014 Total Number of Common Shares Purchased – 500,438 114,903 615,341 Average Price Paid Per Common Share Purchased $ – 79.93(2) 87.03(2) $ 81.26 Total Number of Shares Purchased as Part of a Publicly Announced Plan (1) – 500,438 114,903 615,341 Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Plan (in millions) $ 263 223 213 $ 213 (1) On October 27, 2011, our Board of Directors authorized the purchase of up to $500 million of our common stock. (2) Number of common shares and average price paid per common share reﬂect the effective total purchases upon completion of our $50 million accelerated repurchase program, which commenced in November 2014. Terms of the program included a deferment of 114,903 shares until program completion in December 2014. 2 0 1 4 A n n u a l R e p o r t 51 STOCK PERFORMANCE GRAPH The following graph compares the cumulative 5-year total return of stockholders of our common stock with the cumulative total returns of the S&P 500 index and two customized peer groups. The peer group labeled “Prior Peer Group” consists of 16 companies: ArcBest Corp., Avis Budget Group Inc., C.H. Robinson Worldwide Inc., Con-Way Inc., CSX Corp., Expeditors International Of Washington Inc., Hertz Global Holdings Inc., Hub Group Inc., Kansas City Southern, Landstar System Inc., Norfolk Southern Corp., Old Dominion Freight Line Inc., Ryder System Inc., Swift Transportation Co., UTI Worldwide Inc., and Werner Enterprises Inc. The peer group labeled “Current Peer Group” consists of 16 companies: Amerco, ArcBest Corp., Avis Budget Group Inc., C.H. Robinson Worldwide Inc., Con-Way Inc., CSX Corp., Expeditors International Of Washington Inc., Hertz Global Holdings Inc., Hub Group Inc., Kansas City Southern, Landstar System Inc., Norfolk Southern Corp., Old Dominion Freight Line Inc., Ryder System Inc., Swift Transportation Co., and UTI Worldwide Inc. The graph assumes the value of the investment in our common stock, in the index, and in each of the peer groups (including reinvestment of dividends) was $100 on December 31, 2009, and tracks it through December 31, 2014. The stock price performance included in this graph is not necessarily indicative of future stock price performance. $300 $250 $200 $150 $100 $50 $0 COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN Among J.B. Hunt Transport Services, Inc., the S&P 500 Index, Prior Peer Group and Current Peer Group 2009 2010 2011 2012 2013 2014 J.B. Hunt Transport Services, Inc. S&P 500 Prior Peer Group Current Peer Group J.B. Hunt Transport Services, Inc. S&P 500 Prior Peer Group Current Peer Group Years Ended December 31, 2009 $ 100.00 100.00 100.00 100.00 2010 $ 128.22 115.06 132.52 133.45 2011 $ 143.28 117.49 131.99 132.52 2012 $ 192.26 136.30 132.26 134.09 2013 $ 250.42 180.44 189.76 194.62 2014 $ 275.77 205.14 224.71 230.34 SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS Plan Category(1) Equity compensation plans approved by security holders Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (A) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (B) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reﬂected in Column (A)) (C) 2,472,793 $ 20.40(2) 8,036,101 (1) We have no equity compensation plans that are not approved by security holders. (2) Upon vesting, restricted share units are settled with shares of our common stock on a one-for-one basis. Accordingly, the restricted share units have been excluded for purposes of computing the weighted-average exercise price. 52 t r o p e R l a u n n A 4 1 0 2 ITEM 6. SELECTED FINANCIAL DATA (Dollars in millions, except per share amounts) Earnings data for the years ended December 31, Operating revenues Operating income Net earnings Basic earnings per share Diluted earnings per share Cash dividends per share Operating expenses as a percentage of operating revenues: Rents and purchased transportation Salaries, wages and employee beneﬁts Fuel and fuel taxes Depreciation and amortization Operating supplies and expenses Insurance and claims General and administrative expenses, net of asset dispositions Operating taxes and licenses Communication and utilities Total operating expenses Operating income Net interest expense Earnings before income taxes Income taxes Net earnings Balance sheet data as of December 31, Working capital ratio Total assets (millions) Stockholders’ equity (millions) Current portion of long-term debt (millions) Total debt (millions) Total debt to equity Total debt as a percentage of total capital 2014 $ 6,165 632 375 3.20 3.16 0.80 2013 $ 5,585 577 342 2.92 2.87 0.45 2012 $ 5,055 530 310 2.64 2.59 0.71 2011 $ 4,527 444 257 2.16 2.11 0.52 2010 $ 3,793 348 200 1.60 1.56 0.48 50.0% 20.9 7.4 4.8 3.5 1.3 0.8 0.7 0.4 89.8 10.2 0.4 9.8 3.7 6.1% 50.2% 20.4 8.2 4.5 3.6 1.0 0.8 0.7 0.3 89.7 10.3 0.4 9.9 3.8 6.1% 49.2% 20.5 9.2 4.5 3.5 1.1 0.6 0.6 0.3 89.5 10.5 0.5 10.0 3.9 6.1% 46.9% 22.1 10.2 4.7 3.6 1.0 0.7 0.6 0.4 90.2 9.8 0.6 9.2 3.5 5.7% 45.1% 24.0 9.1 5.2 4.0 1.3 1.0 0.7 0.4 90.8 9.2 0.8 8.4 3.1 5.3% 2014 1.14 $ 3,397 $ 1,205 $ 250 $ 934 0.78 2013 0.95 $ 2,819 $ 1,012 $ 250 $ 708 0.70 2012 1.10 $ 2,465 $ 792 $ 100 $ 685 0.87 2011 1.17 $ 2,267 $ 568 $ 50 $ 749 1.32 2010 0.91 $ 1,962 $ 573 $ 200 $ 654 1.14 44% 41% 46% 57% 53% 2 0 1 4 A n n u a l R e p o r t 53 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our results of operations and ﬁnancial condition should be read in conjunction with our ﬁnancial statements and related notes in Item 8. This discussion contains forward-looking statements. Please see “Forward-looking Statements” and “Risk Factors” for a discussion of items, uncertainties, assumptions and risks associated with these statements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our ﬁnancial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that impact the amounts reported in our Consolidated Financial Statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenues, expenses and associated disclosures of contingent liabilities are affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with third parties and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ signiﬁcantly from our estimates. Any effects on our business, ﬁnancial position or results of operations resulting from revisions to these estimates are recognized in the accounting period in which the facts that give rise to the revision become known. We consider our critical accounting policies and estimates to be those that require us to make more signiﬁcant judgments and estimates when we prepare our ﬁnancial statements and include the following: Workers’ Compensation and Accident Costs We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents, and cargo damage. Certain insurance arrangements include a level of self-insurance (deductible) coverage applicable to each claim. We have umbrella policies to limit our exposure to catastrophic claim costs. We are substantially self-insured for loss of and damage to our owned and leased revenue equipment. The amounts of self-insurance change from time to time based on measurement dates, policy expiration dates, and claim type. We have policies in place for 2015 with substantially the same terms as our 2014 policies for personal injury, property damage, workers’ compensation, and cargo loss or damage. Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and severity of the claims and analyses provided by third-party claims administrators, as well as legal, economic, and regulatory factors. Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated cost of each claim. The ultimate cost of a claim develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available. Accordingly, we use an actuarial method to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the use of loss-development factors based on our historical claims experience and includes a contractual premium adjustment factor, if applicable. In doing so, the recorded liability considers future claims growth and, if applicable, conversion to fully insured status and provides a reserve for incurred-but-not-reported claims. We do not discount our estimated losses. At December 31, 2014, we had an accrual of approximately $88 million for estimated claims. In addition, we are required to pay certain advanced deposits and monthly premiums. At December 31, 2014, we had an aggregate prepaid insurance asset of approximately $68 million, which represented prefunded premiums and deposits. Revenue Equipment We operate a signiﬁcant number of tractors, trucks, containers, chassis, and trailers in connection with our business. This equipment may be purchased or acquired under lease agreements. In addition, we may rent revenue equipment from various third parties under short-term rental arrangements. Purchased revenue equipment is depreciated on the straight-line method over the estimated useful life to an estimated salvage or trade-in value. We periodically review the useful lives and salvage values of our revenue equipment and evaluate our long-lived assets for impairment. We have not identiﬁed any impairment to our assets at December 31, 2014. We have agreements with our primary tractor suppliers for residual or trade-in values for certain new equipment. We have utilized these trade- in values, as well as other operational information such as anticipated annual miles, in accounting for depreciation expense. If our suppliers were unable to perform under the terms of our agreements for trade-in values, it could have a material adverse effect on our ﬁnancial results. Revenue Recognition We recognize revenue based on the relative transit time of the freight transported and as other services are provided. Accordingly, a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period. We record revenues on the gross basis at amounts charged to our customers because we are the primary obligor, we are a principal in the transaction, we invoice our customers and retain all credit risks, and we maintain discretion over pricing. Additionally, we are responsible for the selection of third-party transportation providers. Our trade accounts receivable includes amounts due from customers that have been reduced by an allowance for uncollectible accounts and revenue adjustments. The allowance for uncollectible accounts and revenue adjustments is based on historical experience, as well as any known trends or uncertainties related to customer billing and account collectability. The adequacy of our allowance is reviewed quarterly. t r o p e R l a u n n A 4 1 0 2 54 Income Taxes We account for income taxes under the liability method. Our deferred tax assets and liabilities represent items that will result in a tax deduction or taxable income in future years for which we have already recorded the related tax expense or beneﬁt in our statement of earnings. Deferred tax accounts arise as a result of timing differences between when items are recognized in our Consolidated Financial Statements and when they are recognized in our tax returns. We assess the likelihood that deferred tax assets will be recovered from future taxable income or the reversal of temporary timing differences. To the extent we believe recovery does not meet the more-likely-than-not threshold, a valuation allowance is established. To the extent we establish a valuation allowance, we include an expense as part of our income tax provision. Signiﬁcant judgment is required in determining and assessing the impact of complex tax laws and certain tax-related contingencies on our provision for income taxes. As part of our calculation of the provision for income taxes, we assess whether the beneﬁts of our tax positions are at least more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are not more likely than not of being sustained upon audit, we accrue the largest amount of the beneﬁt that is not more likely than not of being sustained in our Consolidated Financial Statements. Such accruals require us to make estimates and judgments, whereby actual results could vary materially from these estimates. Further, a number of years may elapse before a particular matter for which we have established an accrual is audited and resolved. See Note 7, Income Taxes, in our Consolidated Financial Statements for a discussion of our current tax contingencies. RESULTS OF OPERATIONS The following table sets forth items in our Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior year. Operating revenues Operating expenses: Rents and purchased transportation Salaries, wages and employee beneﬁts Fuel and fuel taxes Depreciation and amortization Operating supplies and expenses Insurance and claims General and administrative expenses, net of asset dispositions Operating taxes and licenses Communication and utilities Total operating expenses Operating income Net interest expense Earnings before income taxes Income taxes Net earnings 2014 COMPARED WITH 2013 Consolidated Operating Revenues Percentage of Operating Revenues 2013 100.0% 2014 100.0% 2012 100.0% Percentage Change Between Years 2014 vs. 2013 10.4% 2013 vs. 2012 10.5% 50.0 20.9 7.4 4.8 3.5 1.3 0.8 0.7 0.4 89.8 10.2 0.4 9.8 3.7 6.1% 50.2 20.4 8.2 4.5 3.6 1.0 0.8 0.7 0.3 89.7 10.3 0.4 9.9 3.8 6.1% 49.2 20.5 9.2 4.5 3.5 1.1 0.6 0.6 0.3 89.5 10.5 0.5 10.0 3.9 6.1% 10.0 13.4 (0.4) 16.2 7.8 47.0 11.3 20.1 8.7 10.5 9.5 16.4 9.2 8.8 9.5% 12.9 9.7 (2.1) 10.6 13.5 2.5 67.0 9.7 9.7 10.7 8.8 (9.5) 9.7 8.7 10.3% 2 0 1 4 A n n u a l R e p o r t Our total consolidated operating revenues were $6.2 billion in 2014, a 10.4% increase over 2013, primarily due to increased load volume and rate increases. Fuel surcharge (FSC) revenues remained ﬂat at $1.1 billion in 2014 when compared to 2013, due to decreases in the price of fuel during the second half of 2014. If FSC revenues were excluded from both years, our 2014 revenue increased 12.3% over 2013. Consolidated Operating Expenses Our 2014 consolidated operating expenses increased 10.5% from 2013, compared to the 10.4% increase in revenue year over year, resulting in a 2014 operating ratio of 89.8% compared to 89.7% in 2013. Rents and purchased transportation costs increased 10.0% in 2014, primarily due to the increase in load volume that increased services from third-party rail and truck carriers within our JBI, DCS and ICS segments. Salaries, wages and employee beneﬁt costs increased 13.4% in 2014 from 2013. This increase was primarily related to increases in driver pay and ofﬁce personnel compensation due to an increase in the number of employees and a tighter supply of qualiﬁed drivers. In addition, workers’ compensation claims expense increased due to increases in both incident volume and severity, as well as increased insurance premium costs. Fuel and fuel taxes expense decreased 0.4% in 2014 compared with 2013, due to decreases in the price of fuel and improved fuel efﬁciency during 2014, partially offset by increased road miles. We have fuel surcharge programs in place with the majority of our customers. These programs typically involve a speciﬁed computation based on the change in national, regional or local fuel prices. While these programs may address fuel cost changes as frequently as weekly, most also reﬂect a speciﬁed miles-per-gallon factor and require a certain minimum change in fuel costs to trigger 55 a change in fuel surcharge revenue. As a result, some of these programs have a time lag between when fuel costs change and when this change is reﬂected in revenues. Due to these programs, this lag negatively impacts operating income in times of rapidly increasing fuel costs and positively impacts operating income when fuel costs decrease rapidly. It is not meaningful to compare the amount of fuel surcharge revenue or the change in fuel surcharge revenue between reporting periods to fuel and fuel taxes expense, or the change of fuel expense between periods, as a signiﬁcant portion of fuel cost is included in our payments to railroads, dray carriers and other third parties. These payments are classiﬁed as purchased transportation expense. Depreciation and amortization expense increased 16.2% in 2014, primarily due to additions to our JBI segment tractor, container and chassis ﬂeets to support additional business demand, equipment purchased related to new DCS long-term customer contracts, and new replacement tractors and trailers in JBT. Operating supplies and expenses increased 7.8%, driven primarily by increased general maintenance costs resulting from growth in equipment ﬂeets and increased toll activity. Insurance and claims expense increased 47.0% for 2014, primarily due to higher incident volume and increased accident severity. General and administrative expenses increased 11.3%, due primarily to an increase in driver advertising, higher building and facility rental expenses, and increased professional fees, partially offset by an increase in net gains from asset sales and disposals. Net gains from the disposal of assets were $6 million in 2014, compared with $5 million in 2013. Net interest expense for 2014 increased by 16.4% compared with 2013, primarily due to increased average debt levels. Our effective income tax rate was 38.01% in 2014 and 38.15% in 2013. The decrease in 2014 was primarily related to a decrease in the provision for uncertain tax positions taken in prior years. Segments We operated four business segments during calendar year 2014. The operation of each of these businesses is described in our Notes to Consolidated Financial Statements. The following tables summarize ﬁnancial and operating data by segment: Operating Revenue by Segment JBI DCS ICS JBT Total segment revenues Intersegment eliminations Total JBI DCS ICS JBT Total t r o p e R l a u n n A 4 1 0 2 Operating Income by Segment Years Ended December 31, (in millions) 2014 $ 3,687 1,394 718 386 6,185 (20) $ 6,165 2013 $ 3,456 1,231 537 391 5,615 (30) $ 5,585 2012 $ 3,071 1,080 456 484 5,091 (36) $ 5,055 Years Ended December 31, (in millions) 2014 $ 461 117 30 24 $ 632 2013 $ 447 110 16 4 $ 577 2012 $ 375 116 16 23 $ 530 56 Operating Data by Segment JBI Loads Average length of haul (miles) Revenue per load Average tractors during the period(1) Tractors (end of period) Company-owned Independent contractor Total tractors Trailing equipment (end of period) Average effective trailing equipment usage DCS Loads Average length of haul (miles) Revenue per truck per week(2) Average trucks during the period(3) Trucks (end of period) Company-owned Independent contractor Customer-owned (Dedicated-operated) Total trucks Trailing equipment (end of period) Average effective trailing equipment usage ICS Loads Revenue per load Gross proﬁt margin Employee count (end of period) Approximate number of third-party carriers (end of period) JBT Loads Average length of haul (miles) Loaded miles (000) Total miles (000) Average nonpaid empty miles per load Revenue per tractor per week(2) Average tractors during the period(1) Tractors (end of period) Company-owned Independent contractor Total tractors Trailing equipment (end of period) Average effective trailing equipment usage (1) Includes company-owned and independent contractor tractors (2) Using weighted workdays (3) Includes company-owned, independent contractor, and customer-owned trucks Years Ended December 31, 2014 2013 2012 1,700,374 1,656 $ 2,169 4,502 1,593,511 1,694 $ 2,169 3,916 1,415,663 1,702 $ 2,169 3,417 3,916 761 4,677 73,298 68,683 3,448 646 4,094 65,979 60,612 3,124 472 3,596 58,962 54,302 2,101,707 177 $ 4,098 6,641 1,835,872 190 $ 4,109 5,865 1,522,740 201 $ 4,164 5,057 6,425 7 448 6,880 20,516 20,927 5,805 10 592 6,407 19,062 19,229 4,844 15 394 5,253 13,448 13,932 453,410 $ 1,584 388,987 $ 1,380 326,574 $ 1,397 13.0% 582 39,100 11.8% 503 34,600 13.0% 453 32,300 370,555 411 151,725 179,036 71.8 $ 4,068 1,868 386,875 431 165,543 194,046 73.3 $ 3,828 2,007 449,366 467 207,677 242,311 75.7 $ 3,891 2,435 1,296 590 1,886 7,215 5,891 1,200 657 1,857 6,828 6,877 1,192 901 2,093 8,954 7,985 2 0 1 4 A n n u a l R e p o r t 57 JBI Segment JBI segment experienced an environment of challenging rail service and limited dray ﬂeet capacity throughout 2014. JBI segment revenue increased 6.7% to $3.69 billion in 2014, from $3.46 billion in 2013, primarily due to a 6.7% increase in overall load volume, with both our eastern and transcontinental networks reporting increased volumes. Excluding fuel surcharge, revenues increased 8.0% in 2014 over the prior year. The combination of trafﬁc mix, customer rate increases, and FSC revenue resulted in revenue per load remaining unchanged compared to a year ago. Average length of haul decreased 2.3% in 2014 when compared to 2013. Operating income in our JBI segment increased to $461 million in 2014, from $447 million in 2013. This increase was primarily due to increased revenue, partially offset by slow train speeds and reductions in dray ﬂeet capacity throughout 2014, which negatively impacted the network ﬂuidity, resulting in a reduction in box turns and dray power utilization. In addition, JBI experienced higher driver procurement and retention expenses, increased rail and dray purchased transportation costs, higher insurance and claims costs, and increased equipment costs during 2014 when compared to 2013. DCS Segment DCS segment revenue increased 13.2% to $1.39 billion in 2014, from $1.23 billion in 2013. Revenue, excluding fuel surcharges, increased 14.1% in 2014 compared to 2013, primarily attributable to large existing accounts becoming fully implemented in the current year, new customer contracts, and rate increases established in the latter half of 2014. DCS ended 2014 with a net additional 473 revenue-producing trucks when compared to 2013. Productivity for 2014, deﬁned as revenue per truck per week, was virtually ﬂat when compared to 2013, due to the large number of customer accounts affected by severe winter weather conditions during the ﬁrst quarter of 2014 and continued driver shortages throughout the current year. Operating income increased to $117 million in 2014, compared with $110 million in 2013. The increase in operating income was primarily due to increased revenue, partially offset by higher driver recruiting and retention costs, increased insurance and workers’ compensation costs, higher purchased transportation costs, increased equipment and maintenance expenses, and fewer gains on the sale of equipment compared to 2013. ICS Segment ICS segment revenue grew 33.8% to $718 million in 2014, from $537 million in 2013. This increase in revenue was primarily due to a 16.6% increase in load volume and a 14.8% increase in revenue per load in 2014 when compared to 2013. Both transactional and contractual business experienced increased load volumes. Contractual business was approximately 63% of the total load volume but only 55% of the total revenue in the 2014, compared to 64% of the total load volume and 61% of the total revenue in 2013. Operating income increased to $30 million in 2014, compared to $16 million in 2013. ICS gross proﬁt margin increased to 13.0% for 2014 from 11.8% for 2013, primarily due to customer rate increases in contractual business and maintaining margin discipline in transactional business. ICS incurred increased personnel and branch network expansion costs during 2014 resulting from the continued expansion of the segment’s branch location network. JBT Segment JBT segment revenue decreased 1.4% to $386 million in 2014, from $391 million in 2013, primarily due to operating a reduced ﬂeet size for the majority of 2014, partially offset by increased pricing. Excluding fuel surcharges, revenue for 2014 increased 0.9% compared to 2013. JBT segment had operating income of $24 million in 2014 compared with $4 million in 2013. This increase in operating income was primarily due to increased rate per loaded mile, lower personnel costs, a smaller trailer ﬂeet and gains on equipment sales, offset by increased driver hiring costs, increases in driver and independent contractor costs per mile, higher maintenance and equipment costs per unit, and increased insurance and safety costs. t r o p e R l a u n n A 4 1 0 2 2013 COMPARED WITH 2012 Consolidated Operating Revenues Our total consolidated operating revenues were $5.6 billion in 2013, a 10.5% increase over 2012, primarily due to increased load volume. Fuel surcharge (FSC) revenues increased to $1.1 billion in 2013, compared with $997 million in 2012, due to overall increased load volumes. If FSC revenues were excluded from both years, our 2013 revenue increased 11.6% over 2012. Consolidated Operating Expenses Our 2013 consolidated operating expenses increased 10.7% from 2012, compared to the 10.5% increase in revenue year over year. This combination resulted in our 2013 operating ratio of 89.7% compared to 89.5% in 2012. Rents and purchased transportation costs increased 12.9% in 2013, primarily due to the increase in load volume that increased services from third-party rail and truck carriers. In addition, our JBI segment increased the use of outsourced dray carriers resulting from a challenging driver market, while our ICS segment incurred higher rates paid to third- party carriers in 2013, due to a tighter third-party carrier environment. The total cost of salaries, wages and employee beneﬁts increased 9.7% in 2013 from 2012. This increase was primarily related to increases in driver and other labor pay due to increased business demand, a tighter supply of qualiﬁed drivers, and new long-term customer contracts, partially offset by lower overall ofﬁce personnel compensation and a reduction in driver pay within our JBT segment due to ﬂeet reduction. 58 Fuel and fuel taxes expense decreased 2.1% in 2013 compared with 2012, due to decreases in the price of fuel. Depreciation and amortization expense increased 10.6% in 2013, primarily due to additions to our JBI segment tractor, container, and chassis ﬂeets to support additional business demand, as well as additional equipment purchased related to new DCS long-term customer contracts. These increases were partially offset by the reduction in the JBT tractor ﬂeet. Operating supplies and expenses increased 13.5%, driven primarily by increased general maintenance costs resulting from growth in equipment ﬂeets and a higher cost per unit, increased toll activity and implementation related costs incurred for new DCS long-term customers in 2013. Insurance and claims expense increased 2.5% for 2013, primarily due to an increase in incident volume, offset by a reduction in accident severity. The 67.0% increase in general and administrative expenses was primarily the result of a decrease in net gains from asset sales, higher building and facility rental expense related to new DCS long-term customer contracts, and increased bad debt expense due to two customer bankruptcies. Net gains from the disposal of assets were $5 million in 2013, compared with $17 million in 2012. Net interest expense for 2013 decreased by 9.5% compared with 2012, due to both reduced average debt levels and lower interest rates. Our effective income tax rate was 38.15% in 2013 and 38.50% in 2012. The decrease in 2013 was primarily related to the realization of a deferred tax beneﬁt on the sale of property during the second quarter of 2013. JBI Segment JBI segment revenue increased 12.5% to $3.46 billion in 2013, from $3.07 billion in 2012, primarily due to a 12.6% increase in load volume. Excluding fuel surcharge, revenues increased 13.4% in 2013 over the prior year. Revenue per load was unchanged in 2013 when compared to 2012, and average length of haul remained virtually ﬂat. Operating income in our JBI segment increased to $447 million in 2013, from $375 million in 2012, primarily due to volume growth, improved container utilization and lower ofﬁce personnel compensation costs, partially offset by increased outsourced drayage and rail purchased transportation costs and by higher driver procurement and retention expenses. DCS Segment DCS segment revenue increased 14.1% to $1.23 billion in 2013, from $1.08 billion in 2012. Revenue, excluding fuel surcharges, increased 16.2% in 2013 compared to 2012, primarily from new long-term contracts related to the conversion of customers’ private ﬂeets. DCS ended 2013 with a net additional 1,154 revenue-producing trucks when compared to 2012. Operating income decreased to $110 million in 2013, compared with $116 million in 2012. The decrease in operating income was primarily due to higher driver and other personnel pay, increased equipment and maintenance costs, increased purchased transportation expenses, lower gains on equipment sales, increased insurance and claims costs, and increased bad debt expense. In addition, DCS incurred signiﬁcant implementation costs for new long-term customers during 2013. These implementation costs include, but are not limited to, driver and management hiring and relocation costs, personnel travel costs, equipment repositioning costs, technology design and integration, and telecommunication and operational system infrastructure. ICS Segment ICS segment revenue grew 17.6% to $537 million in 2013, from $456 million in 2012. This increase in revenue was primarily due to a 19.1% increase in load volume in 2013 when compared to 2012, partially offset by a slight reduction in revenue per load. Both transactional and contractual business experienced increased load volumes. Operating income remained ﬂat at $16 million in 2013 when compared to 2012. ICS gross proﬁt margin declined to 11.8% for 2013 from 13.0% for 2012, due to higher purchased transportation costs resulting from a tightening third-party carrier environment. Cost increases for additional headcount and branch network expansion also offset increases in revenues. JBT Segment JBT segment revenue decreased 19.2% to $391 million in 2013, from $484 million in 2012, primarily due to lower equipment utilization, shorter length of haul, and an 11.3% reduction in tractors year-over-year, primarily from a reduction in independent contractor capacity. Excluding fuel surcharges, revenue for 2013 decreased 19.5% compared to 2012. JBT segment had operating income of $4 million in 2013 compared with $23 million in 2012. This decrease in operating income was primarily due to lower revenue, increased driver and independent contractor pay, higher maintenance and equipment cost per unit, and fewer gains on equipment sales, partially offset by reductions in ofﬁce personnel. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $647 million in 2014 and $574 million in 2013. This increase in 2014 was primarily due to increased earnings and the timing of general working capital activities, offset by an increase in cash paid for income taxes during the current year. The increase in taxes paid in 2014 was due to the effect of timing differences caused by the expiration of federal tax bonus depreciation in December 2013. In December 2014, federal tax bonus depreciation was enacted for 2014, but this law change occurred after all estimated tax payments had been made for the current year. 2 0 1 4 A n n u a l R e p o r t 59 Net cash used in investing activities totaled $660 million in 2014, compared with $443 million in 2013. The increase resulted primarily from an increase in equipment purchases in 2014, partially offset by an increase in proceeds from the sale of equipment during the same period. Net cash provided by ﬁnancing activities was $13 million in 2014, compared to net cash used of $132 million in 2013. This change resulted primarily from the proceeds from long-term debt issuances in 2014, partially offset by long-term debt repayments and an increase in dividends paid and treasury stock purchased. Our dividend policy is subject to review and revision by the Board of Directors, and payments are dependent upon our ﬁnancial condition, liquidity, earnings, capital requirements, and other factors the Board of Directors may deem relevant. We paid a $0.14 per share quarterly dividend in 2012, a $0.15 per share quarterly dividend in 2013, with the ﬁrst quarter dividend being pulled forward and paid in fourth quarter 2012, and a $0.20 per share quarterly dividend in 2014. On January 29, 2015, we announced an increase in our quarterly cash dividend from $0.20 to $0.21 per share, which will be paid February 26, 2015, to stockholders of record on February 12, 2015. We currently intend to continue paying cash dividends on a quarterly basis. However, no assurance can be given that future dividends will be paid. Liquidity Our need for capital has typically resulted from the acquisition of containers, chassis, trucks, tractors, and trailers required to support our growth and the replacement of older equipment. We are frequently able to accelerate or postpone a portion of equipment replacements depending on market conditions. We obtain capital through cash generated from operations, revolving lines of credit, and long-term debt issuances. We have also periodically utilized capital and operating leases for revenue equipment. At December 31, 2014, we were authorized to borrow up to $500 million under a senior revolving line of credit, which is supported by a credit agreement with a group of banks and expires in August 2016. This senior credit facility allows us to request an increase in the total commitment by up to $250 million and to request a one-year extension of the maturity date. The applicable interest rate under this agreement is based on the Prime Rate, the Federal Funds Rate, or LIBOR, depending upon the speciﬁc type of borrowing, plus an applicable margin based on our credit rating and other fees. At December 31, 2014, we had $183 million outstanding at an average interest rate of 1.12% under this agreement. Our senior notes consist of three separate issuances. The ﬁrst issuance is $250 million of 3.375% senior notes, which mature in September 2015, with interest payments due semiannually in March and September of each year. The second and third issuances are $250 million of 2.40% senior notes due March 2019 and $250 million of 3.85% senior notes due March 2024, respectively, both of which were issued in March 2014. Interest payments under both notes are due semiannually in March and September of each year, beginning September 2014. We may redeem for cash some or all of the notes based on a redemption price set forth in the note indenture. We currently have an interest rate swap agreement which effectively converts our $250 million of 2.40% ﬁxed-rate senior notes due March 2019 to a variable rate. The applicable interest rate under this agreement is based on LIBOR plus an established margin, resulting in an interest rate of 1.09% at December 31, 2014. Our ﬁnancing arrangements require us to maintain certain covenants and ﬁnancial ratios. We were in compliance with all covenants and ﬁnancial ratios at December 31, 2014. For all debt facilities maturing in 2015, it is our intent to pay the entire outstanding balances in full, on or before the maturity dates, using our existing senior revolving line of credit or other sources of long-term ﬁnancing. We believe our liquid assets, cash generated from operations, and various ﬁnancing arrangements will provide sufﬁcient funds for our operating and capital requirements for the foreseeable future. We are currently committed to spend approximately $555 million, net of proceeds from sales or trade-ins during 2015, which is primarily related to the acquisition of containers, chassis, and tractors. Off-Balance Sheet Arrangements Our only off-balance sheet arrangements are related to operating leases. As of December 31, 2014, we had approximately $27.0 million of obligations, primarily related to facility leases. Contractual Obligations and Commitments The following table summarizes our expected obligations and commitments (in millions) as of December 31, 2014: Operating leases Long-term debt obligations Interest payments on debt (1) Commitments to acquire revenue equipment and facilities Total Total $ 27.0 933.0 110.3 554.9 $ 1,625.2 2015 $ 10.5 250.0 20.7 554.9 $ 836.1 2016-2017 $ 13.6 183.0 26.0 – $ 222.6 2018-2019 $ 2.9 250.0 22.6 – $ 275.5 2020 and thereafter $ – 250.0 41.0 – $ 291.0 (1) Interest payments on debt are based on the debt balance and applicable rate at December 31, 2014. t r o p e R l a u n n A 4 1 0 2 60 We had standby letters of credit outstanding of approximately $4.4 million at December 31, 2014, that expire at various dates in ﬁscal year 2015, which are related to certain operating agreements and our self-insured retention levels for casualty and workers’ compensation claims. We plan to renew these letters of credit in accordance with our third-party agreements. The table above excludes $35.1 million of liabilities related to uncertain tax positions, including interest and penalties, as we are unable to reasonably estimate the ultimate timing of settlement. See Note 7, Income Taxes, in the Notes to Consolidated Financial Statements for further discussion. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk can be quantiﬁed by measuring the ﬁnancial impact of a near-term adverse increase in short-term interest rates on variable- rate debt outstanding. Our total long-term debt consists of both ﬁxed and variable interest rate facilities. Our senior notes have ﬁxed interest rates ranging from 2.40% to 3.85%. These ﬁxed-rate facilities reduce the impact of changes to market interest rates on future interest expense. Our senior revolving line of credit has variable interest rates, which are based on the Prime Rate, the Federal Funds Rate, or LIBOR, depending upon the speciﬁc type of borrowing, plus any applicable margins. We currently have an interest rate swap agreement which effectively converts our $250 million of 2.40% ﬁxed-rate senior notes due March 2019 to a variable rate. The applicable interest rate under this agreement is based on LIBOR plus an established margin. Our earnings would be affected by changes in these short-term variable interest rates. At our current level of borrowing, a one-percentage-point increase in our applicable rate would reduce annual pretax earnings by $4.3 million. Although we conduct business in foreign countries, international operations are not material to our consolidated ﬁnancial position, results of operations, or cash ﬂows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the year ended December 31, 2014. Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencies would have on our future costs or on future cash ﬂows we would receive from our foreign investment. To date, we have not entered into any foreign currency forward exchange contracts or other derivative ﬁnancial instruments to hedge the effects of adverse ﬂuctuations in foreign currency exchange rates. The price and availability of diesel fuel are subject to ﬂuctuations due to changes in the level of global oil production, seasonality, weather, and other market factors. Historically, we have been able to recover a majority of fuel-price increases from our customers in the form of fuel surcharges. We cannot predict the extent to which volatile ﬂuctuations in fuel prices will continue in the future or the extent to which fuel surcharges could be collected to offset fuel-price increases. As of December 31, 2014, we had no derivative ﬁnancial instruments to reduce our exposure to fuel-price ﬂuctuations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our Consolidated Financial Statements, Notes to Consolidated Financial Statements, and reports thereon of our independent registered public accounting ﬁrm as speciﬁed by this Item are presented following Item 15 of this report and include: Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2014 and 2013 Consolidated Statements of Earnings for years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Stockholders’ Equity for years ended December 31, 2014, 2013, and 2012 Consolidated Statements of Cash Flows for years ended December 31, 2014, 2013, and 2012 Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 2 0 1 4 A n n u a l R e p o r t 61 ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we ﬁle with the SEC, and to process, summarize, and disclose this information within the time periods speciﬁed in the SEC rules. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report, conducted by our management and with the participation of our Chief Executive Ofﬁcer and Chief Financial Ofﬁcer, the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer believe these controls and procedures are effective to ensure that we are able to collect, process, and disclose the information we are required to disclose in our reports ﬁled with the SEC within the required time periods. The certiﬁcations of our Chief Executive Ofﬁcer and Chief Financial Ofﬁcer required under Section 302 of the Sarbanes-Oxley Act have been ﬁled as Exhibits 31.1 and 31.2 to this report. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining effective internal control over ﬁnancial reporting as deﬁned in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over ﬁnancial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published ﬁnancial statements. Because of its inherent limitation, internal control over ﬁnancial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to ﬁnancial statement preparation and presentation. Management assessed the effectiveness of our internal control over ﬁnancial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on our assessment, we believe that as of December 31, 2014, our internal control over ﬁnancial reporting is effective based on those criteria. The effectiveness of internal control over ﬁnancial reporting as of December 31, 2014, has been audited by Ernst & Young LLP, an independent registered public accounting ﬁrm that also audited our Consolidated Financial Statements. Ernst & Young LLP’s report on internal control over ﬁnancial reporting is included herein. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over ﬁnancial reporting during the fourth quarter ended December 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over ﬁnancial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors The schedule of directors is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 23, 2015. Executive Ofﬁcers The schedule of executive ofﬁcers is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 23, 2015. Code of Ethics We have adopted a code of ethics that applies to our principal executive ofﬁcer, principal ﬁnancial and accounting ofﬁcer, and all other ofﬁcers, employees, and directors. Our code of ethics is available on our Internet website at www.jbhunt.com. If we make substantive amendments to this code of ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K within four days of such amendment or waiver. Corporate Governance In complying with the rules and regulations required by the Sarbanes-Oxley Act of 2002, NASDAQ, Public Company Accounting Oversight Board (PCAOB), and others, we have attempted to do so in a manner that clearly meets legal requirements but does not create a bureaucracy of forms, checklists, and other inefﬁcient or expensive procedures. We have adopted a code of conduct, code of ethics, whistleblower policy, and charters for all of our Board of Director Committees and other formal policies and procedures. Most of these items are available on our website, www.jbhunt.com. If we make signiﬁcant amendments to our code of ethics or whistleblower policy, or grant any waivers to these items, we will disclose such amendments or waivers on our website or in a report on Form 8-K within four days of such action. 62 t r o p e R l a u n n A 4 1 0 2 Audit Committee The information required by Regulation S-K, Item 407(d) is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 23, 2015. ITEM 11. EXECUTIVE COMPENSATION The information required for Item 11 is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 23, 2015. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required for Item 12 is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 23, 2015. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required for Item 13 is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 23, 2015. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required for Item 14 is hereby incorporated by reference from the Notice and Proxy Statement for Annual Meeting of Stockholders to be held April 23, 2015. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (A) Financial Statements, Financial Statement Schedules and Exhibits: (1) Financial Statements The ﬁnancial statements included in Item 8 above are ﬁled as part of this annual report. (2) Financial Statement Schedules Schedule II – Valuation and Qualifying Accounts (in millions) Allowance for Doubtful Accounts and Revenue Adjustments for the years Ended: December 31, 2012 December 31, 2013 December 31, 2014 Balance at Beginning of Year $ 6.7 6.6 8.1 Charged to Expense / Against Revenue $ 11.4 14.0 19.0 Write-Offs, Net of Recoveries $ (11.5) (12.5) (17.6) Balance at End of Year $ 6.6 8.1 9.5 All other schedules have been omitted either because they are not applicable or because the required information is included in our Consolidated Financial Statements or the notes thereto. (3) Exhibits The response to this portion of Item 15 is submitted as a separate section of this report on Form 10-K (“Exhibit Index”). 2 0 1 4 A n n u a l R e p o r t 63 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Lowell, Arkansas, on the 24th day of February, 2015. J.B. Hunt TRANSPORT SERVICES, INC. (Registrant) By: /s/ John N. Roberts, III John N. Roberts, III President and Chief Executive Ofﬁcer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on the 24th day of February, 2015, on behalf of the registrant and in the capacities indicated. t r o p e R l a u n n A 4 1 0 2 President and Chief Executive Ofﬁcer, Member of the Board of Directors (Principal Executive Ofﬁcer) Executive Vice President, Finance and Administration, Chief Financial Ofﬁcer and Corporate Secretary (Principal Financial Ofﬁcer) Senior Vice President Finance, Controller, Chief Accounting Ofﬁcer Chairman of the Board of Directors Member of the Board of Directors (Lead Director) Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors Member of the Board of Directors /s/ John N. Roberts, III John N. Roberts, III /s/ David G. Mee David G. Mee /s/ John Kuhlow John Kuhlow /s/ Kirk Thompson Kirk Thompson /s/ James L. Robo James L. Robo /s/ Douglas G. Duncan Douglas G. Duncan /s/ Francesca M. Edwardson Francesca M. Edwardson /s/ Wayne Garrison Wayne Garrison /s/ Sharilyn S. Gasaway Sharilyn S. Gasaway /s/ Gary C. George Gary C. George /s/ J. Bryan Hunt, Jr. J. Bryan Hunt, Jr. /s/ Coleman H. Peterson Coleman H. Peterson /s/ John A. White John A. White 64 EXHIBIT INDEX Exhibit Number Description 3.1 Amended and Restated Articles of Incorporation of J.B. Hunt Transport Services, Inc. dated May 19, 1988 (incorporated by reference from Exhibit 3.1 of the Company’s quarterly report on Form 10-Q for the period ended March 31, 2005, ﬁled April 29, 2005) 3.2 Restated Bylaws of J.B. Hunt Transport Services, Inc. dated February 27, 2008 (incorporated by reference from Exhibit 3(ii) of the Company’s quarterly report on Form 10-Q for the period ended March 31, 2008, ﬁled April 30, 2008) 3.3 Amendment No. 1 to the Restated Bylaws of J.B Hunt Transport Services, Inc. dated February 4, 2010 (incorporated by reference from Exhibit 3.0 of the Company’s current report on Form 8-K, ﬁled February 10, 2010) 10.1 Amended and Restated Employee Retirement Plan (incorporated by reference from Exhibit 99 of the Company’s registration statement on Form S-8, ﬁled December 30, 1994) 10.2 Second Amended and Restated Management Incentive Plan (incorporated by reference from Exhibit 10.1 of the Company’s quarterly report on Form 10-Q for the period ended June 30, 2012, ﬁled July 31, 2012) 10.3 Summary of Compensation Arrangements with Named Executive Ofﬁcers 10.4 Credit Agreement (incorporated by reference from Exhibit 10.1 of the Company’s current report on Form 8-K, ﬁled August 18, 2011) 10.5 Amendment No. 1 And Waiver To Credit Agreement (incorporated by reference from Exhibit 10.1 of the Company’s current report on Form 8-K, ﬁled February 27, 2014) 10.6 Indenture (incorporated by reference from Exhibit 4.1 of the Company’s registration statement on Form S-3ASR, ﬁled September 14, 2010) 10.7 First Supplemental Indenture (incorporated by reference from Exhibit 4.2 of the Company’s current report on Form 8-K, ﬁled September 21, 2010) 10.8 Second Supplemental Indenture (incorporated by reference from Exhibit 4.2 of the Company’s current report on Form 8-K, ﬁled March 6, 2014) 10.9 Third Supplemental Indenture (incorporated by reference from Exhibit 4.4 of the Company’s current report on Form 8-K, ﬁled March 6, 2014) 21 Subsidiaries of J.B. Hunt Transport Services, Inc. 23.1 Consent of Ernst & Young LLP 31.1 Rule 13a-14(a)/15d-14(a) Certiﬁcation 31.2 Rule 13a-14(a)/15d-14(a) Certiﬁcation 32 Section 1350 Certiﬁcation 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Deﬁnition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 65 2 0 1 4 A n n u a l R e p o r t INDEX TO CONSOLIDATED FINANCIAL INFORMATION Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Consolidated Balance Sheets as of December 31, 2014 and 2013 Consolidated Statements of Earnings for years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Stockholders’ Equity for years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Cash Flows for years ended December 31, 2014, 2013 and 2012 Notes to Consolidated Financial Statements PAGE 67 68 69 70 71 72 73 74 t r o p e R l a u n n A 4 1 0 2 66 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING We are responsible for the preparation, integrity, and fair presentation of our Consolidated Financial Statements and related information appearing in this report. We take these responsibilities very seriously and are committed to maintaining controls and procedures that are designed to ensure that we collect the information we are required to disclose in our reports to the SEC and to process, summarize, and disclose this information within the time periods speciﬁed by the SEC. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report, conducted by our management and with the participation of our Chief Executive Ofﬁcer and Chief Financial Ofﬁcer, we believe our controls and procedures are effective to ensure that we are able to collect, process, and disclose the information we are required to disclose in our reports ﬁled with the SEC within the required time periods. We are responsible for establishing and maintaining effective internal control over ﬁnancial reporting as deﬁned in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over ﬁnancial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published ﬁnancial statements. Because of its inherent limitation, internal control over ﬁnancial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to ﬁnancial statement preparation and presentation. We assessed the effectiveness of our internal control over ﬁnancial reporting as of December 31, 2014. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on our assessment, we believe that as of December 31, 2014, our internal control over ﬁnancial reporting is effective based on those criteria. The effectiveness of internal control over ﬁnancial reporting as of December 31, 2014, has been audited by Ernst & Young LLP, an independent registered public accounting ﬁrm that also audited our Consolidated Financial Statements. Ernst & Young LLP’s report on internal control over ﬁnancial reporting is included herein. /s/ John N. Roberts, III John N. Roberts, III President and Chief Executive Ofﬁcer (Principal Executive Ofﬁcer) /s/ David G. Mee David G. Mee Executive Vice President, Finance and Administration, Chief Financial Ofﬁcer (Principal Financial Ofﬁcer) 2 0 1 4 A n n u a l R e p o r t 67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of J.B. Hunt Transport Services, Inc. We have audited the accompanying consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of earnings, stockholders’ equity, and cash ﬂows for each of the three years in the period ended December 31, 2014. Our audits also included the ﬁnancial statement schedule listed in the Index at Item 15(a). These ﬁnancial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these ﬁnancial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 ﬁnancial statements referred to above present fairly, in all material respects, the consolidated ﬁnancial position of J.B. Hunt Transport Services, Inc. and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash ﬂows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related ﬁnancial statement schedule, when considered in relation to the basic ﬁnancial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), J.B. Hunt Transport Services, Inc. and subsidiaries’ internal control over ﬁnancial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2015 expressed an unqualiﬁed opinion thereon. /s/ Ernst & Young LLP Rogers, Arkansas February 24, 2015 t r o p e R l a u n n A 4 1 0 2 68 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of J.B. Hunt Transport Services, Inc. We have audited J.B. Hunt Transport Services, Inc. and subsidiaries’ internal control over ﬁnancial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). J.B. Hunt Transport Services, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over ﬁnancial reporting, and for its assessment of the effectiveness of internal control over ﬁnancial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over ﬁnancial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over ﬁnancial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial statements. Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, J.B. Hunt Transport Services, Inc. and subsidiaries maintained, in all material respects, effective internal control over ﬁnancial reporting as of December 31, 2014, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of earnings, stockholders’ equity, and cash ﬂows for each of the three years in the period ended December 31, 2014 of J.B. Hunt Transport Services, Inc. and subsidiaries, and our report dated February 24, 2015 expressed an unqualiﬁed opinion thereon. /s/ Ernst & Young LLP Rogers, Arkansas February 24, 2015 2 0 1 4 A n n u a l R e p o r t 69 J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2014 and 2013 (in thousands, except share data) Assets Current assets: Cash and cash equivalents Trade accounts receivable, net Inventories Prepaid licenses and permits Prepaid insurance Deferred income taxes Other current assets Total current assets Property and equipment, at cost: Revenue and service equipment Land Structures and improvements Furniture and office equipment Total property and equipment Less accumulated depreciation Net property and equipment Other assets Total assets t r o p e R l a u n n A 4 1 0 2 Liabilities and Stockholders’ Equity Current liabilities: Current portion of long-term debt Trade accounts payable Claims accruals Accrued payroll Other accrued expenses Deferred income taxes Total current liabilities Long-term debt Other long-term liabilities Deferred income taxes Total liabilities Commitments and contingencies (Note 10) Stockholders’ equity: Preferred stock, $100 par value. 10 million shares authorized; none outstanding Common stock, $.01 par value. 1 billion shares authorized; (167,099,432 shares issued at December 31, 2014 and 2013, of which 116,575,163 shares and 117,241,438 shares were outstanding at December 31, 2014 and 2013, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (50,524,269 shares at December 31, 2014, and 49,857,994 shares at December 31, 2013) Total stockholders’ equity 2014 2013 $ 5,961 653,795 27,740 22,886 55,660 18,631 95,457 880,130 3,336,529 38,978 153,704 190,546 3,719,757 1,237,225 2,482,532 34,455 $ 3,397,117 $ 250,000 325,838 96,719 80,547 17,966 – 771,070 683,539 59,561 678,424 2,192,594 $ 5,831 568,519 26,248 21,602 42,588 – 15,415 680,203 2,904,289 37,829 144,439 173,257 3,259,814 1,147,610 2,112,204 26,997 $ 2,819,404 $ 250,000 305,465 68,221 72,063 14,062 2,485 712,296 458,417 58,274 577,965 1,806,952 – – 1,671 247,641 2,555,972 1,671 226,595 2,274,784 (1,600,761) 1,204,523 (1,490,598) 1,012,452 Total liabilities and stockholders’ equity $ 3,397,117 $ 2,819,404 See Notes to Consolidated Financial Statements. 70 J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Years Ended December 31, 2014, 2013 and 2012 (in thousands, except per share amounts) Operating revenues, excluding fuel surcharge revenues $ 5,082,827 $ 4,527,238 $ 4,058,165 2014 2013 2012 Fuel surcharge revenues Total operating revenues Operating expenses: Rents and purchased transportation Salaries, wages and employee beneﬁts Fuel and fuel taxes Depreciation and amortization Operating supplies and expenses Insurance and claims General and administrative expenses, net of asset dispositions Operating taxes and licenses Communication and utilities Total operating expenses Operating income Interest income Interest expense Earnings before income taxes Income taxes Net earnings Weighted average basic shares outstanding Basic earnings per share Weighted average diluted shares outstanding Diluted earnings per share Dividends declared per common share See Notes to Consolidated Financial Statements. 1,082,614 6,165,441 3,085,276 1,290,404 453,919 294,496 218,539 81,062 50,596 38,796 20,811 5,533,899 631,542 87 27,028 604,601 229,809 1,057,333 5,584,571 2,805,568 1,138,213 455,926 253,380 202,700 55,158 45,469 32,307 19,142 5,007,863 576,708 69 23,209 553,568 211,186 996,815 5,054,980 2,485,635 1,037,526 465,874 229,166 178,610 53,832 27,231 29,461 17,445 4,524,780 530,200 1 25,560 504,641 194,287 $ 374,792 $ 342,382 $ 310,354 117,000 117,449 117,572 $ 3.20 $ 2.92 $ 2.64 118,445 $ 3.16 $ 0.80 119,404 $ 2.87 $ 0.45 120,022 $ 2.59 $ 0.71 2 0 1 4 A n n u a l R e p o r t 71 J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Years Ended December 31, 2014, 2013 and 2012 (in thousands, except per share amounts) Balances at December 31, 2011 Comprehensive income: Net earnings Cash dividend declared and paid ($0.71 per share) Tax beneﬁt of stock options exercised Purchase of treasury shares Stock compensation Stock option exercises and restricted share issuances, net of stock repurchased for payroll taxes Balances at December 31, 2012 Comprehensive income: Net earnings Cash dividend declared and paid ($0.45 per share) Tax beneﬁt of stock options exercised Purchase of treasury shares Stock compensation Stock option exercises and restricted share issuances, net of stock repurchased for payroll taxes Balances at December 31, 2013 Comprehensive income: Net earnings Cash dividend declared and paid ($0.80 per share) Tax beneﬁt of stock options exercised Purchase of treasury shares Stock compensation Stock option exercises and restricted share issuances, net of stock repurchased for payroll taxes Common Stock $ 1,671 – – – – – – Additional Paid-in Capital $ 192,470 – – 20,090 – 29,715 Retained Earnings $ 1,758,290 Treasury Stock $ (1,384,888) Stockholders’ Equity $ 567,543 310,354 (83,431) – – – – – – (50,000) – 310,354 (83,431) 20,090 (50,000) 29,715 (35,202) – 32,791 (2,411) $ 1,671 $ 207,073 $ 1,985,213 $ (1,402,097) $ 791,860 – – – – – – – – 21,950 – 32,354 342,382 (52,811) – – – – – 21,950 (114,723) – 342,382 (52,811) (114,723) 32,354 (34,782) – 26,222 (8,560) $ 1,671 $ 226,595 $ 2,274,784 $ (1,490,598) $ 1,012,452 – – – – – – – – 16,645 – 35,333 374,792 (93,604) – – – – – – (125,000) – 374,792 (93,604) 16,645 (125,000) 35,333 (30,932) – 14,837 (16,095) Balances at December 31, 2014 $ 1,671 $ 247,641 $ 2,555,972 $ (1,600,761) $ 1,204,523 See Notes to Consolidated Financial Statements. t r o p e R l a u n n A 4 1 0 2 72 J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2014, 2013 and 2012 (in thousands) Cash flows from operating activities: Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Share-based compensation Gain on sale of revenue equipment and other Provision for deferred income taxes Changes in operating assets and liabilities: Trade accounts receivable Income taxes receivable or payable Other assets Trade accounts payable Claims accruals Accrued payroll and other accrued expenses Net cash provided by operating activities Cash flows from investing activities: Additions to property and equipment Proceeds from sale of equipment Change in other assets Net cash used in investing activities Cash flows from financing activities: Proceeds from issuances of long-term debt Payments on long-term debt Proceeds from revolving lines of credit and other Payments on revolving lines of credit and other Purchase of treasury stock Stock option exercises and other Stock repurchased for payroll taxes Tax benefit of stock options exercised Dividends paid Net cash provided by/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosure of cash flow information: Cash paid during the year for: Interest Income taxes See Notes to Consolidated Financial Statements. 2014 2013 2012 $ 374,792 $ 342,382 $ 310,354 294,496 35,333 (6,342) 79,343 (85,276) (72,291) (29,793) 15,284 28,498 12,735 646,779 (808,569) 148,859 29 (659,681) 499,642 (250,000) 2,092,193 (2,110,749) (125,000) 7,324 (23,419) 16,645 (93,604) 13,032 130 5,831 $ 5,961 253,380 32,354 (5,334) 48,076 (102,508) (5,381) (23,254) 11,530 20,779 2,327 574,351 (493,431) 50,927 (37) (442,541) – (100,000) 1,933,753 (1,811,177) (114,723) 9,403 (17,963) 21,950 (52,811) (131,568) 242 5,589 $ 5,831 229,166 29,715 (16,845) 20,795 (54,532) 11,868 (4,826) 15,097 5,078 2,174 548,044 (439,494) 69,815 85 (369,594) – (50,000) 1,605,674 (1,618,233) (50,000) 11,240 (13,651) 20,090 (83,431) (178,311) 139 5,450 $ 5,589 $ 26,685 $ 192,955 $ 24,722 $ 141,968 $ 27,070 $ 132,096 2 0 1 4 A n n u a l R e p o r t 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business J.B. Hunt Transport Services, Inc. is one of the largest surface transportation and delivery service companies in North America. We operate four distinct, but complementary, business segments and provide a wide range of general and speciﬁcally tailored freight and logistics services to our customers. We generate revenues from the actual movement of freight from shippers to consignees, customized labor and delivery services, and serving as a logistics provider by offering or arranging for others to provide the transportation service. Unless otherwise indicated by the context, “we,” “us,” “our” and “JBHT” refer to J.B. Hunt Transport Services, Inc. and its consolidated subsidiaries. 2. Summary of Signiﬁcant Accounting Policies Basis of Consolidation Our Consolidated Financial Statements include all of our wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. J.B. Hunt Transport Services, Inc. is a parent-level holding company with no signiﬁcant assets or operations. J.B. Hunt Transport, Inc. is a wholly owned subsidiary of J.B. Hunt Transport Services, Inc. and is the primary operating subsidiary. All other subsidiaries of J.B. Hunt Transport Services, Inc. are minor. Use of Estimates The Consolidated Financial Statements contained in this report have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these statements requires us to make estimates and assumptions that directly affect the amounts reported in such statements and accompanying notes. We evaluate these estimates on an ongoing basis utilizing historical experience, consulting with experts and using other methods we consider reasonable in the particular circumstances. Nevertheless, our actual results may differ signiﬁcantly from our estimates. We believe certain accounting policies and estimates are of more signiﬁcance in our ﬁnancial statement preparation process than others. We believe the most critical accounting policies and estimates include the economic useful lives and salvage values of our assets, provisions for uncollectible accounts receivable, estimates of exposures under our insurance and claims policies, and estimates for taxes. To the extent that actual, ﬁnal outcomes are different from our estimates, or that additional facts and circumstances cause us to revise our estimates, our earnings during that accounting period will be affected. Cash and Cash Equivalents Cash in excess of current operating requirements is invested in short-term, highly liquid investments. We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Accounts Receivable and Allowance Our trade accounts receivable includes accounts receivable reduced by an allowance for uncollectible accounts and revenue adjustments. Receivables are recorded at amounts billed to customers when loads are delivered or services are performed. The allowance for uncollectible accounts and revenue adjustments is based on historical experience, as well as any known trends or uncertainties related to customer billing and account collectability. The adequacy of our allowance is reviewed quarterly. Balances are charged against the allowance when it is determined the receivable will not be recovered. The allowance for uncollectible accounts and revenue adjustments was $9.5 million and $8.1 million at December 31, 2014 and 2013, respectively. Inventory Our inventories consist primarily of revenue equipment parts, tires, supplies, and fuel and are valued using the lower of average cost or market. Investments in Marketable Equity Securities Our investments consist of marketable equity securities stated at fair value and are designated as either trading securities or available-for- sale securities at the time of purchase based upon the intended holding period. Changes in the fair value of our trading securities are recognized currently in “general and administrative expenses, net of asset dispositions” in our Consolidated Statements of Earnings. Changes in the fair value of our available-for-sale securities are recognized in “accumulated other comprehensive income” on our Consolidated Balance Sheets, unless we determine that an unrealized loss is other-than-temporary. If we determine that an unrealized loss is other-than-temporary, we recognize the loss in earnings. Cost basis is determined using average cost. At December 31, 2014 and 2013, we had no available-for-sale securities. See Note 8, Employee Beneﬁt Plans, for a discussion of our trading securities. t r o p e R l a u n n A 4 1 0 2 74 Property and Equipment Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives of 4 to 10 years for tractors, 7 to 20 years for trailing equipment, 10 to 40 years for structures and improvements, and 3 to 10 years for furniture and ofﬁce equipment. Salvage values are typically 10% to 30% of original cost for tractors and trailing equipment and reﬂect any agreements with tractor suppliers for residual or trade-in values for certain new equipment. We capitalize 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. Gains and losses on the sale or other disposition of equipment are recognized at the time of the disposition and are classiﬁed in general and administrative expenses, net of asset dispositions. Revenue Recognition We recognize revenue based on relative transit time in each reporting period and as other services are provided, with expenses recognized as incurred. Accordingly, a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period. We record revenues on the gross basis at amounts charged to our customers because we are the primary obligor, we are a principal in the transaction, we invoice our customers and retain all credit risks, and we maintain discretion over pricing. Additionally, we are responsible for selection of third-party transportation providers to the extent used to satisfy customer freight requirements. Derivative Instruments We periodically utilize derivative instruments to manage exposure to changes in interest rates. At inception of a derivative contract, we document relationships between derivative instruments and hedged items, as well as our risk-management objective and strategy for undertaking various derivative transactions, and assess hedge effectiveness. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively. Income Taxes Income taxes are accounted for under the 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 and operating loss and tax credit carry forwards. 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 as income or expense in the period that includes the enactment date. We record valuation allowances for deferred tax assets to the extent we believe these assets are not more likely than not to be realized through the reversal of existing taxable temporary differences, projected future taxable income, or tax-planning strategies. We record a liability for unrecognized tax beneﬁts when the beneﬁts of tax positions taken on a tax return are not more likely than not to be sustained upon audit. Interest and penalties related to uncertain tax positions are classiﬁed as interest expense in the Consolidated Financial Statements. Earnings Per Share We compute basic earnings per share by dividing net earnings available to common stockholders by the actual weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reﬂect the potential dilution that could occur if holders of unvested restricted and performance share units or options exercised or converted their holdings into common stock. Outstanding unvested restricted share units and stock options represent the dilutive effects on weighted average shares. A reconciliation of the number of shares used in computing basic and diluted earnings per share is shown below (in thousands): Weighted average shares outstanding – basic Effect of common stock equivalents Weighted average shares outstanding – diluted Concentrations of Credit Risk 2014 117,000 1,445 118,445 Years ended December 31, 2013 117,449 1,955 119,404 2012 117,572 2,450 120,022 Financial instruments, which potentially subject us to concentrations of credit risk, include trade receivables. For the years ended December 31, 2014, 2013, and 2012, our top 10 customers, based on revenue, accounted for approximately 28%, 29%, and 30%, respectively, of our total revenue. Our top 10 customers, based on revenue, accounted for approximately 29% and 28% of our total trade accounts receivable at December 31, 2014 and 2013, respectively. We had no individual customers with revenues greater than 10% of total revenues. Share-based Compensation We have share-based compensation plans covering certain employees, including ofﬁcers and directors. We account for share-based compensation utilizing the fair value recognition provisions of current accounting standards for share-based payments. We currently utilize restricted share units, performance share units, and nonstatutory stock options. Issuances of our stock upon restricted share unit and performance share unit vesting or share option exercise are made from treasury stock. Our restricted share unit and performance share unit awards may include both graded-vesting and cliff-vesting awards and therefore vest in increments during the requisite service period or at the end of the requisite service period, as appropriate for each type of vesting. We recognize compensation expense on a straight-line basis over the requisite service periods within each award. 75 2 0 1 4 A n n u a l R e p o r t Claims Accruals We purchase insurance coverage for a portion of expenses related to employee injuries, vehicular collisions, accidents, and cargo damage. We are substantially self-insured for loss of and damage to our owned and leased revenue equipment. Certain insurance arrangements include a level of self-insurance (deductible) coverage applicable to each claim. We have umbrella policies to limit our exposure to catastrophic claim costs. The amounts of self-insurance change from time to time based on measurement dates, policy expiration dates, and claim type. For 2012 through 2014, we were self-insured for $500,000 per occurrence for personal injury and property damage. For 2012, we were fully insured for substantially all workers’ compensation claims, while for 2013 and 2014, we were self-insured for $100,000 per workers’ compensation claim. We have policies in place for 2015 with substantially the same terms as our 2014 policies for personal injury, workers’ compensation, and cargo and property damage. Our claims accrual policy for all self-insured claims is to recognize a liability at the time of the incident based on our analysis of the nature and severity of the claims and analyses provided by third-party claims administrators, as well as legal, economic, and regulatory factors. Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated cost of each claim. The ultimate cost of a claim develops over time as additional information regarding the nature, timing, and extent of damages claimed becomes available. Accordingly, we use an actuarial method to develop current claim information to derive an estimate of our ultimate claim liability. This process involves the use of loss-development factors based on our historical claims experience and includes a contractual premium adjustment factor, if applicable. In doing so, the recorded liability considers future claims growth and, if applicable, conversion to fully insured status and provides an allowance for incurred-but-not-reported claims. We do not discount our estimated losses. At December 31, 2014 and 2013, we had an accrual of approximately $88 million and $59 million, respectively, for estimated claims. In addition, we are required to pay certain advanced deposits and monthly premiums. At December 31, 2014 and 2013, we had an aggregate prepaid insurance asset of approximately $68 million and $49 million, respectively, which represented prefunded premiums. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which supersedes virtually all existing revenue recognition guidance. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reﬂects the consideration the entity expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash ﬂows arising from customer contracts, including signiﬁcant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulﬁll a contract. The provisions of ASU 2014-09 are effective for interim and annual periods beginning after December 15, 2016, and we have the option of using either a full retrospective or a modiﬁed retrospective approach when adopting this new standard. We are currently evaluating the alternative transition methods and the potential effects of the adoption of this update on our ﬁnancial statements. 3. Financing Arrangements Outstanding borrowings under our current ﬁnancing arrangements consist of the following (in millions): Senior revolving line of credit Senior term loan Senior notes, net of unamortized discount Less current portion of long-term debt Total long-term debt December 31, 2014 $ 183.0 – 750.5 (250.0) $ 683.5 2013 $ 208.7 150.0 349.7 (250.0) $ 458.4 Aggregate maturities of long-term debt subsequent to December 31, 2014, are as follows: $249.9 million in 2015, $183.0 million in 2016, $250.9 million in 2019, and $249.7 million thereafter. Senior Revolving Line of Credit At December 31, 2014, we were authorized to borrow up to $500 million under a senior revolving line of credit, which is supported by a credit agreement with a group of banks and expires in August 2016. This senior credit facility allows us to request an increase in the total commitment by up to $250 million and to request a one-year extension of the maturity date. The applicable interest rate under this agreement is based on either the Prime Rate, the Federal Funds Rate or LIBOR, depending upon the speciﬁc type of borrowing, plus an applicable margin based on our credit rating and other fees. At December 31, 2014, we had $183.0 million outstanding at an average interest rate of 1.12% under this agreement. Senior Term Loan Our senior term loan matured in March 2014. The entire outstanding balance was paid in full at maturity. t r o p e R l a u n n A 4 1 0 2 76 Senior Notes In April 2014, we paid in full, with accrued interest and make whole amount, the $100 million outstanding balance of our 6.08% senior notes, which were scheduled to mature in July 2014. Our remaining senior notes consist of three separate issuances. The ﬁrst issuance is $250 million of 3.375% senior notes, which mature in September 2015, with interest payments due semiannually in March and September of each year. The second and third issuances are $250 million of 2.40% senior notes due March 2019 and $250 million of 3.85% senior notes due March 2024, respectively, both of which were issued in March 2014 by J.B. Hunt Transport Services, Inc., a parent-level holding company with no signiﬁcant assets or operations. The notes are guaranteed on a full and unconditional basis by a wholly owned subsidiary. All other subsidiaries of the parent are minor. We registered these offerings and the sale of the notes under the Securities Act of 1933, pursuant to a shelf registration statement ﬁled in February 2014. Interest payments under both notes are due semiannually in March and September of each year, beginning September 2014. All notes are unsecured obligations and rank equally with our existing and future senior unsecured debt. We may redeem for cash some or all of the notes based on a redemption price set forth in the note indenture. See Note 4, Derivative Financial Instruments, for terms of an interest rate swap entered into on the $250 million of 2.40% senior notes due March 2019. Our ﬁnancing arrangements require us to maintain certain covenants and ﬁnancial ratios. We were in compliance with all covenants and ﬁnancial ratios at December 31, 2014. 4. Derivative Financial Instruments In March 2014, we entered into a receive ﬁxed-rate and pay variable-rate interest rate swap agreement with a notional amount of $250 million simultaneously with the issuance of our $250 million of 2.40% senior notes due March 2019, to effectively convert this ﬁxed rate debt to a variable rate. The applicable interest rate under this agreement is based on LIBOR plus an established margin, resulting in an interest rate of 1.09% at December 31, 2014. The swap expires March 15, 2019, when the related senior notes are due. The fair value of this swap is recorded in other assets in our Consolidated Balance Sheet at December 31, 2014. See Note 9, Fair Value Measurements, for disclosure of fair value. This derivative meets the required criteria to be designated as a fair value hedge, and as the speciﬁc terms and notional amount of this derivative instrument match those of the ﬁxed-rate debt being hedged, this derivative instrument is assumed to perfectly hedge the related debt against changes in fair value due to changes in the benchmark interest rate. Accordingly, any change in the fair value of the interest rate swap to be recorded in earnings is offset by a corresponding change in the fair value of the related debt. 5. Capital Stock We have one class of preferred stock and one class of common stock. We had no outstanding shares of preferred stock at December 31, 2014 or 2013. Holders of shares of common stock are entitled to receive dividends when and if declared by the Board of Directors and are entitled to one vote per share on all matters submitted to a vote of the stockholders. At December 31, 2014, we had 2.5 million shares of common stock to be issued upon the exercise or vesting of equity awards and 8.0 million shares reserved for future issuance pursuant to share-based payment plans. During calendar year 2014, we purchased approximately 1,605,000 shares, or $125.0 million, of our common stock in accordance with plans authorized by our Board. At December 31, 2014, we had $213.2 million available under an authorized plan to purchase our common stock. 6. Share-based Compensation We maintain a Management Incentive Plan (the “Plan”) that provides various share-based ﬁnancial methods to compensate our key employees with shares of our common stock or common stock equivalents. Under the Plan, as amended, we have, from time to time, utilized restricted share units, performance share units, restricted options, and nonstatutory stock options to compensate our employees and directors. We currently are utilizing restricted and performance share units and nonstatutory stock options. Our restricted share units have various vesting schedules ranging from 3 to 10 years when awarded. These restricted share units do not contain rights to vote or receive dividends until the vesting date. Unvested restricted share units are forfeited if the employee terminates for any reason other than death, disability, or special circumstances as determined by the Compensation Committee. Restricted share units are valued based on the fair value of the award on the grant date, adjusted for dividend estimates based on grant date dividend rates. Our performance share units vest based on the passage of time (currently 4 to 10 years) and achievement of performance criteria. Performance share units do not contain rights to vote or receive dividends until the vesting date. Unvested performance share units are forfeited if the employee terminates for any reason other than death or disability. Performance shares are valued based on the fair value of the award on the grant date, adjusted for dividend estimates based on grant date dividend rates. Our nonstatutory stock options may be granted to key employees for the purchase of our common stock for 100% of the fair market value of the common stock at the grant date as awarded by the Compensation Committee. These options generally vest over a 10-year period and are forfeited immediately if the employee terminates for any reason other than death, disability or retirement after age 55. We did not grant any stock options during the years ended December 31, 2014 and 2013. An employee is allowed to surrender shares of common stock that the employee has owned for at least six months in full or partial payment of the option price of an option being exercised and/or to satisfy tax withholding obligations incident to the vesting of restricted share units, performance share units, or the exercise of an option. 2 0 1 4 A n n u a l R e p o r t 77 We account for our restricted share units, performance share units, and stock options in accordance with current accounting standards for share-based payments. These standards require the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in our Consolidated Financial Statements based on the grant date fair value of those awards. This cost is recognized over the period for which an employee is required to provide service in exchange for the award, subject to the attainment of performance metrics established for performance share units. Share-based compensation expense is recorded in salaries, wages, and employee beneﬁts in our Consolidated Statements of Earnings, along with other compensation expenses to employees. The following table summarizes the components of our share-based compensation program expense (in thousands): Restricted share units Pretax compensation expense Tax benefit Restricted share units, net of tax Performance share units Pretax compensation expense Tax benefit Performance share awards, net of tax Stock options Pretax compensation expense Tax benefit Stock option expense, net of tax 2014 Years ended December 31, 2013 2012 $ 27,256 10,360 $ 16,896 $ 7,882 2,996 $ 4,886 $ 195 74 $ 121 $ 25,606 9,769 $ 15,837 $ 5,941 2,266 $ 3,675 $ 807 308 $ 499 $ 24,393 9,391 $ 15,002 $ 4,298 1,655 $ 2,643 $ 1,024 394 $ 630 A summary of our restricted share units, performance share units, and nonstatutory stock options is as follows: t r o p e R l a u n n A 4 1 0 2 Restricted Share Units Unvested at December 31, 2011 Granted Vested Forfeited Unvested at December 31, 2012 Granted Vested Forfeited Unvested at December 31, 2013 Granted Vested Forfeited Unvested at December 31, 2014 Performance Share Units Unvested at December 31, 2011 Granted Vested Forfeited Unvested at December 31, 2012 Granted Vested Forfeited Unvested at December 31, 2013 Granted Vested Forfeited Unvested at December 31, 2014 78 Number of Shares 3,241,972 400,926 (769,087) (38,345) 2,835,466 522,062 (865,147) (70,951) 2,421,430 447,780 (808,914) (119,298) 1,940,998 Number of Shares 225,000 120,500 (36,000) – 309,500 160,500 (61,975) – 408,025 106,945 (81,075) – 433,895 Weighted Average Grant Date Fair Value $ 28.92 55.37 28.57 29.32 $ 32.75 71.50 31.92 36.67 $ 41.49 75.61 37.33 47.81 $ 51.74 Weighted Average Grant Date Fair Value $ 41.66 55.57 41.66 – $ 47.07 71.90 47.48 – $ 56.78 76.22 53.26 – $ 62.23 Stock Options Outstanding at December 31, 2011 Exercised Forfeited Outstanding at December 31, 2012 Exercised Forfeited Outstanding at December 31, 2013 Exercised Forfeited Outstanding at December 31, 2014 Exercisable Weighted Average Remaining Weighted Number of Shares Average Exercise Contractual Term Price $ 14.65 12.25 18.84 $ 16.63 14.77 19.89 $ 19.08 18.70 19.08 $ 20.40 $ 20.35 (in thousands) 1,899 (863) (5) 1,031 (585) (6) 440 (341) (1) 98 93 (in years) 3.01 – – 2.35 – – 1.67 – – 0.86 0.83 Aggregate Intrinsic Value (in millions) $ 57.8 36.8 – $ 44.4 34.0 – $ 25.6 19.9 – $ 6.3 $ 5.9 At December 31, 2014, we had $58.2 million and $16.8 million of total unrecognized compensation expense related to restricted share units and performance share units, respectively, that is expected to be recognized on a straight-line basis over the remaining weighted average vesting period of approximately 3.7 years for restricted share units and 2.7 years for performance share units. The aggregate intrinsic value of restricted and performance share units vested and options exercised during the years ended December 31, 2014, 2013, and 2012, was $88.5 million, $104.5 million, and $84.3 million, respectively. The aggregate intrinsic value of unvested restricted and performance share units was $200.1 million at December 31, 2014. The total fair value of shares vested for restricted share, performance share, and stock option plans during the years ended December 31, 2014, 2013, and 2012, was $37.5 million, $35.4 million, and $29.0 million, respectively. 7. Income Taxes Income tax expense attributable to earnings before income taxes consists of (in thousands): Current: Federal State and local Deferred: Federal State and local Total tax expense 2014 Years ended December 31, 2013 2012 $ 130,761 19,705 150,466 72,547 6,796 79,343 $ 229,809 $ 144,299 18,811 163,110 41,811 6,265 48,076 $ 211,186 $ 152,397 21,095 173,492 12,201 8,594 20,795 $ 194,287 Income tax expense attributable to earnings before income taxes differed from the amounts computed using the statutory federal income tax rate of 35% as follows (in thousands): Income tax at federal statutory rate State tax, net of federal effect Nondeductible meals and entertainment Change in effective state tax rate, net of federal benefit Change in valuation allowance Other, net Total tax expense 2014 $ 211,610 17,357 1,395 256 – (809) $ 229,809 Years ended December 31, 2013 $ 193,749 13,551 1,543 3,708 (755) (610) $ 211,186 2012 $ 176,624 16,191 1,568 126 – (222) $ 194,287 2 0 1 4 A n n u a l R e p o r t 79 Income taxes receivable was $79.8 million and $7.5 million at December 31, 2014 and 2013, respectively. These amounts have been included in other current assets in our Consolidated Balance Sheets. The tax effects of temporary differences that give rise to signiﬁcant portions of the deferred tax assets and deferred tax liabilities at December 31, 2014 and 2013, are presented below (in thousands): Deferred tax assets: Insurance accruals Allowance for doubtful accounts Compensation accrual Deferred compensation accrual Federal benefit of state uncertain tax positions Capital loss carry-forward Other Total gross deferred tax assets Valuation allowance Total deferred tax assets, net of valuation allowance Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation Prepaid permits and insurance, principally due to expensing for income tax purposes Other Total gross deferred tax liabilities Net deferred tax liability December 31, 2014 2013 $ 30,565 2,291 15,260 25,042 12,268 1,443 3,954 90,823 (1,994) 88,829 707,071 30,012 11,539 748,622 $ 659,793 $ 14,938 2,077 13,783 25,398 12,099 1,443 3,586 73,324 (1,994) 71,330 615,811 24,554 11,415 651,780 $ 580,450 t r o p e R l a u n n A 4 1 0 2 Guidance on accounting for uncertainty in income taxes prescribes recognition and measurement criteria and requires that we assess whether the beneﬁts of our tax positions taken are more likely than not of being sustained under tax audits. We have made adjustments to the balance of unrecognized tax beneﬁts, a component of other long-term liabilities on our Consolidated Balance Sheet, as follows (in millions): Beginning balance Additions based on tax positions related to the current year Additions/(reductions) based on tax positions taken in prior years Reductions due to settlements Reductions due to lapse of applicable statute of limitations Ending balance 2014 $ 29.7 8.2 0.4 (3.7) (3.0) $ 31.6 December 31, 2013 $ 25.8 7.0 (1.2) (0.1) (1.8) $ 29.7 2012 $ 17.4 7.1 4.2 – (2.9) $ 25.8 At December 31, 2014 and 2013, we had a total of $31.6 million and $29.7 million, respectively, in gross unrecognized tax beneﬁts. Of these amounts, $20.5 million and $19.3 million represent the amount of unrecognized tax beneﬁts that, if recognized, would impact our effective tax rate in 2014 and 2013, respectively. Interest and penalties related to income taxes are classiﬁed as interest expense in our Consolidated Financial Statements. The amount of accrued interest and penalties during the years ended December 31, 2014, 2013, and 2012, was $1.8 million, $1.9 million, and $1.1 million, respectively. Future changes to unrecognized tax beneﬁts will be recognized as income tax expense and interest expense, as appropriate. The total amount of accrued interest and penalties for such unrecognized tax beneﬁts at December 31, 2014 and 2013, was $3.5 million and $4.2 million, respectively. Tax years 2011 and forward remain subject to examination by federal tax jurisdictions, while tax years 2004 and forward remain open for state jurisdictions. 8. Employee Beneﬁt Plans We maintain a deﬁned contribution employee retirement plan, which includes a 401(k) option, under which all employees are eligible to participate. We match a speciﬁed percentage of employee contributions, subject to certain limitations. For the years ended December 31, 2014, 2013, and 2012, our matching contributions to the plan were $11.6 million, $11.4 million, and $11.1 million, respectively. We have a nonqualiﬁed deferred compensation plan that allows eligible employees to defer a portion of their compensation. The compensation deferred under this plan is credited with earnings or losses on investments elected by plan participants. Each participant is fully vested in all deferred compensation and earnings; however, these amounts are subject to general creditor claims until actually distributed to the employee. A participant may elect to receive deferred amounts in one payment or in quarterly installments payable over a period of 2 to 25 years upon reaching age 55, having 15 years of service, or becoming disabled. Our total liability under this plan was $13.5 million as of December 31, 2014, and $12.7 million as of December 31, 2013. These amounts are included in other long-term liabilities in our Consolidated Balance Sheets. Participant withholdings are held by a trustee and invested in equity securities as directed by participants. These investments are classiﬁed as trading securities and recorded at fair value. Realized and unrealized gains and losses are recognized currently in earnings. The investments are included in other assets in our Consolidated Balance Sheets and totaled $13.5 million as of December 31, 2014, and $12.7 million as of December 31, 2013. 80 9. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Our assets and liabilities measured at fair value are based on the market approach valuation technique, which considers prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. This valuation method is based on either quoted market prices (Level 1) or inputs, other than the quoted prices in active markets, that are observable either directly or indirectly (Level 2). The following are assets and liabilities measured at fair value on a recurring basis at December 31, 2014 (in millions): Trading investments Interest rate swap Senior notes Asset/(Liability) Balance $ 13.5 $ 1.0 $ (250.9) Input Level 1 2 2 The estimated fair values at December 31, 2014, of the interest rate swap and related senior notes are based on the net present value of future cash ﬂows using the income method. Trading investments and the interest rate swap are classiﬁed in other assets in our Consolidated Balance Sheets and the senior notes are classiﬁed in long-term debt in our Consolidated Balance Sheets. Financial Instruments The carrying amount and estimated fair value at December 31, 2014, using the income method (Level 2), based on their net present value, discounted at our current borrowing rate, of our senior revolving line of credit and remaining senior notes not measured at fair value on a recurring basis, were $682.6 million and $704.3 million, respectively. The carrying amounts of all other instruments at December 31, 2014, approximate their fair value due to the short maturity of these instruments. 10. Commitments and Contingencies As of December 31, 2014, we had approximately $27.0 million of obligations remaining under operating lease arrangements related primarily to terminal and support facilities. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2014, are approximately $27.0 million, with payment streams as follows (in millions): 2015 – $10.5; 2016 – $8.2; 2017 – $5.4, 2018 – $2.4, and 2019 – $0.5. Total rent expense was $39.1 million in 2014, $33.2 million in 2013, and $27.5 million in 2012. At December 31, 2014, we had outstanding commitments of approximately $555 million, net of proceeds from sales or trade-ins during 2015, which is primarily related to the acquisition of containers, chassis, and tractors. During 2014, we issued ﬁnancial standby letters of credit as a guarantee of our performance under certain operating agreements and self- insurance arrangements. If we default on our commitments under the agreements or other arrangements, we are required to perform under these guarantees. The undiscounted maximum amount of our obligation to make future payments in the event of defaults is approximately $4.4 million as of December 31, 2014. We are a defendant in certain class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, and other items. During the ﬁrst half of 2014, the court in the lead class-action granted judgment in our favor with regard to all claims. The plaintiffs have appealed the case to the Ninth Circuit Court of Appeals and we are currently awaiting the appointment of a panel of judges. The overlapping claims in the remaining two actions have been stayed pending a decision in the lead class-action case. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from these lawsuits. We are involved in certain other claims and pending litigation arising from the normal conduct of business. Based on present knowledge of the facts and, in certain cases, opinions of outside counsel, we believe the resolution of these claims and pending litigation will not have a material adverse effect on our ﬁnancial condition, results of operations, or liquidity. 2 0 1 4 A n n u a l R e p o r t 81 11. Segment Information We have four reportable business segments – Intermodal (JBI), Dedicated Contract Services® (DCS), Integrated Capacity Solutions (ICS), and Truck (JBT) – which are based primarily on the services each segment provides. The JBI segment includes freight that is transported by rail over at least some portion of the movement and also includes certain repositioning truck freight moved by JBI equipment or third-party carriers, when such highway movement is intended to direct JBI equipment back toward intermodal operations. DCS segment business includes company- owned and customer-owned, DCS-operated revenue equipment and employee drivers assigned to a speciﬁc customer, trafﬁc lane, or service. DCS operations usually include formal, written longer-term agreements or contracts that govern services performed and applicable rates. ICS provides non-asset and asset-light transportation solutions to customers through relationships with third-party carriers and integration with JBHT-owned equipment. ICS services include ﬂatbed, refrigerated, and LTL, as well as a variety of dry-van and intermodal solutions. JBT business includes full-load, dry-van freight that is typically transported utilizing company-owned or company-controlled revenue equipment. This freight is typically transported over roads and highways and does not move by rail. All transactions between reporting segments are eliminated in consolidation. Our customers are geographically dispersed across the United States. A summary of certain segment information as of December 31 is presented below (in millions): Assets (Excludes intercompany accounts) December 31, 2013 $ 1,611 721 78 164 245 $ 2,819 2012 $ 1,443 586 55 185 196 $ 2,465 2014 $ 1,733 832 106 289 437 $ 3,397 Revenues Years ended December 31, 2013 $ 3,456 1,231 537 391 5,615 (30) $ 5,585 Operating Income Years ended December 31, 2013 $ 447 110 16 4 $ 577 2012 $ 3,071 1,080 456 484 5,091 (36) $ 5,055 2012 $ 375 116 16 23 $ 530 2014 $ 3,687 1,394 718 386 6,185 (20) $ 6,165 2014 $ 461 117 30 24 $ 632 Depreciation and Amortization Expense Years ended December 31, 2013 $ 116 97 29 11 $ 253 2012 $ 104 79 36 10 $ 229 2014 $ 130 117 32 15 $ 294 JBI DCS ICS JBT Other (includes corporate) Total JBI DCS ICS JBT Total segment revenues Intersegment eliminations Total JBI DCS ICS JBT Total JBI DCS JBT Other Total t r o p e R l a u n n A 4 1 0 2 82 12. Quarterly Financial Information (Unaudited) Operating results by quarter for the years ended December 31, 2014 and 2013 are as follows (in thousands, except per share data): 2014: Operating revenues Operating income Net earnings First Second Third Fourth Quarter $ 1,406,908 $ 1,547,867 $ 1,601,156 $ 1,609,511 $ 117,307 $ 159,230 $ 172,100 $ 182,905 $ 68,664 $ 93,408 $ 102,414 $ 110,306 Basic earnings per share $ 0.59 $ 0.80 $ 0.87 $ 0.94 Diluted earnings per share $ 0.58 $ 0.79 $ 0.87 $ 0.93 2013: Operating revenues Operating income Net earnings $ 1,291,587 $ 1,382,858 $ 1,435,850 $ 1,474,276 $ 125,039 $ 147,407 $ 150,729 $ 153,533 $ 73,349 $ 87,697 $ 89,472 $ 91,864 Basic earnings per share $ 0.62 $ 0.75 $ 0.76 $ 0.78 Diluted earnings per share $ 0.61 $ 0.73 $ 0.75 $ 0.77 2 0 1 4 A n n u a l R e p o r t 83 STOCKHOLDER INFORMATION Corporate Address J.B. Hunt Transport Services, Inc. 615 J.B. Hunt Corporate Drive Lowell, AR 72745 479-820-0000 Internet Address www.jbhunt.com Auditors Ernst & Young LLP Rogers, Arkansas Counsel Mitchell, Williams, Selig, Gates & Woodyard PLLC Little Rock, Arkansas Stock Exchange Listing J.B. Hunt Transport Services, Inc. Class A Common Stock is listed on NASDAQ National Market System Stock Symbol JBHT Stock Transfer Agent and Registrar Computershare Trust Company, N.A. 211 Quality Circle, Suite 210 College Station, TX 77845 877-498-8861 for Stockholder Inquiries www.computershare.com/investor Annual Meeting The Annual Meeting of Stockholders will be held at 10:00 a.m. CDT, on Thursday, April 23, 2015, at the corporate headquarters of J.B. Hunt Transport Services, Inc., Lowell, Arkansas, located on Interstate 540 at the Lowell Exit 78. BOARD OF DIRECTORS Kirk Thompson Chairman of the Board Douglas G. Duncan FedEx Freight Corporation (retired) Francesca M. Edwardson American Red Cross of Greater Chicago Wayne Garrison J.B. Hunt Transport Services, Inc. (retired) Sharilyn S. Gasaway Alltel Corp. (retired) Gary C. George George’s, Inc. J. Bryan Hunt, Jr. Hunt Auto Group Coleman H. Peterson Hollis Enterprises, LLC John N. Roberts, III President and Chief Executive Ofﬁcer James L. Robo NextEra Energy, Inc. Dr. John A. White Chancellor Emeritus and Distinguished Professor University of Arkansas OFFICERS Kirk Thompson Chairman of the Board, Director John N. Roberts, III President and Chief Executive Ofﬁcer, Director David G. Mee Executive Vice President, Finance and Administration, Chief Financial Ofﬁcer, and Corporate Secretary Craig Harper Executive Vice President Terrence D. Matthews Executive Vice President and President, Intermodal Nicholas Hobbs Executive Vice President and President, Dedicated Contract Services Kay Lewis Executive Vice President and Chief Information Ofﬁcer t r o p e R l a u n n A 4 1 0 2 Shelley Simpson Executive Vice President, Chief Marketing Ofﬁcer, and President, Integrated Capacity Solutions and Truckload 84 21% 17% 15% 2014 Percent of Revenue by Industry Specialty Retailers Food General Merchandise Forest & Paper Products Transportation Electronics Beverages Other Building Materials Motor Vehicles & Parts Chemicals Metals Soaps, Cosmetics Pharmaceuticals 1% 3% 3% 2% 2% 2% 10% 8% 6% 5% 5% 85 P.O. Box 130 • Lowell, Arkansas 72745 www.jbhunt.com

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