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 .
2015
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
2015 Compensation
Summary Compensation
Grants of Plan-Based Awards
Outstanding Equity Awards at Calendar year-end
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
Sexual Orientation Nondiscrimination Policy
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2015 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
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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
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TO THE STOCKHOLDERS OF J.B. HUNT TRANSPORT SERVICES, INC.
We are very pleased with the accomplishments of 2015, especially in realizing our long-held belief in the power of our complementary services. We
not only benefit from our diversified and balanced portfolio financially, but as importantly, we are learning how to use our blend of offerings to differentiate
J.B. Hunt as a complex Supply Chain Management company for our customers. Given the strength and size of our largest segment, the JBHT Intermodal
franchise, it can be a task to make up shortfalls in this business unit. Actually, that is exactly what we did in 2015. We will elaborate more later in this
letter. As in recent years, we again faced a number of uncontrollable obstacles and headwinds in 2015, a recurring theme in the U.S. economy. Rather
than spending time on issues beyond our control, we will discuss how our efforts were focused on things we can influence to accomplish our bottom-line
goals and deliver, in many categories, another record setting year in 2015.
As we do every year, we recognize and thank our hard-working employees. So that we do not allow this recognition to become a passive or overly
generic placeholder, let us elaborate on our thoughts here. Every day in every part of the company, more than 21,500 of the most dedicated people in the
transportation industry work with a passion and commitment to serve our customers and each other. Each of them helps to deliver on our promises that
we will be safe and strive to create real value for our customers and our stockholders. Our culture encourages innovation and we embrace the challenges
we face by listening to our customers’ needs driving forward with expanding services built on a growing foundation of industry-leading technology. So
far, this combination of core principles has been at the center of our growth and sustainability. Every day, the good people of J.B. Hunt are working hard
to build a bigger, stronger and better company. We are very proud of them.
2015 Financial Results
We set records in several important financial categories again in 2015. In fact, we achieved all of our primary goals with the exception of our total
revenue targets. Here we should acknowledge the impact that fuel has on all businesses and consider the underlying revenue trends excluding the effects
of fuel. While we did not fully achieve our objectives in this category, we did grow the company’s revenue excluding fuel surcharge by a respectable 9%.
We increased operating income by 13% and earnings per share by 16% with EBITDA exceeding $1 billion in 2015. All of these metrics are new records
that met or exceeded our plans for the year.
Some interesting statistics show a more comprehensive picture of the company’s financial performance over the past several years. Starting in 2010
through 2015, we have invested $2.7 billion in net capital expenditures, generated over $4.7 billion in EBITDA, delivered more than $1.9 billion in net
earnings, paid out just under $450 million in regular dividends and repurchased over $1 billion in common stock.
At year’s end, we owned 12,500 tractors, 29,247 trailers, 78,986 containers, and 68,076 chassis. We owned or leased 42 terminal facilities, 89 Final
Mile Services cross-dock locations, 34 ICS branch sales offices, and other support locations across the USA, Canada and Mexico.
Important Developments in 2015
As mentioned, our strategy in 2015 focused on being intentional in areas of the company that we had more control over. A good example of this
is an initiative called Elevation. This program is designed to pull together some of our very brightest people on cross-functional teams to gather, process
and prioritize ideas and input from all across the company. We generated nearly 5,000 new ideas ranging from cost improvements to enhanced services.
After testing for viability and real value, the final ideas were submitted to a steering committee consisting of our entire executive leadership team. In all,
we approved well over 400 ideas, which we will implement over the next two years. We plan to continue using this approach to build on the culture of
gathering ideas and getting input from all of our people.
In 2015, we said goodbye to our good friend and Chief Information Officer, Kay Lewis. She served the company well in many roles during her career
and made a lasting impact on both our technology culture and our people. Kay has earned great respect in the business community across the country
for many aspects of her leadership and contributions to our company and the industry. We wish her the very best in her well-deserved retirement. We
will all miss her. Taking her role as our new Chief Information Officer and Executive Vice President of Technology and Engineering is Stuart Scott. Stuart
comes to us with a strong leadership background at General Electric, Microsoft, Webvan and Sealy. We are excited to have Stuart with us and have high
expectations for our strategic direction under his capable leadership.
We embarked on an effort late in 2014 that gained momentum in 2015 known as the J.B. Hunt Experience. Our focus centers on enhancing
the experience had by anyone who works for, sells to or buys from the company. Our priority during the initial phase has been on our driver force in
hopes of improving the hiring and retention of these essential employees. Extensive focus on selection and recruiting, on boarding, manager training,
communications, driver input, terminal renovations, mobile development and other ideas have driven us to our current state. Going forward, we will
continue the efforts on our driver group and add a meaningful component of Customer Experience focus.
The Enterprise
We report publicly on four segments: Intermodal, Dedicated Contract Services, Integrated Capacity Solutions and Truckload. However, our
strategic approach to the markets we serve utilizes a much more integrated approach than just selling each segment individually. Contained in each of
these segments are a number of transportation solutions developed to meet the changing demands of our customers. We have spent several years refining
our customer interaction framework and we see growth opportunities in all of these offerings.
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Our sales and marketing teams receive extensive training on the full range of services in each segment and are well-equipped to develop
comprehensive client relationships. All of our top-tier customers use at least three of our four segments regularly and many use all four. The primary
goal of our approach is to gain access to as much information as possible about each customer’s supply-chain needs, then use our complementary service
offerings to build intelligent solutions that are hard for our competitors to duplicate. These more deeply integrated relationships help us retain business
and grow with our customers as their businesses evolve.
The Supply-Chain Management Businesses
Supply chain management encompasses the movement and storage of raw materials, work-in-process inventory, and finished goods from point of
origin to point of consumption. Point of origin can include a manufacturing location, a port or crossing of international import, or a warehouse/distribution
center where product is introduced for movement to a place where it can ultimately be consolidated with other inventory, sold and consumed. Our
services range from the largest privately owned fleet of intermodal containers in North America and all supporting assets, like chassis and dray equipment,
to a final-mile-services network with 89 cross-dock locations. Between the point of origin and the point of consumption, many activities can occur that
we are well-positioned to handle and manage. Any type of movement – including truckload, less than truckload, bulk, parcel refrigerated, flatbed and
specialized equipment – is available through a combination of our segments.
Our research supports a meaningful number of loads currently moving on the highway systems that are convertible to Intermodal with both our
existing base of larger shippers and with a high number of mid-size and smaller shippers we have targeted. We hold a positive view on the potential this
data presents to continue our organic growth trajectory in Intermodal. Our railroad partners made great progress in 2015 improving their respective
infrastructure and service levels. The incremental nature of intermodal load volume will drive continued service and capacity improvements by our rail
partners as they look to reprioritize a changing commodity dynamic in their more traditional business lines. This business serves the introductory and
consolidation portions of Supply-Chain Management for our customers.
Dedicated Contract Services focuses on long-term agreements for the exclusive use of a combination of assets and people that provide an extremely
high level of service and reliability. Typically, DCS provides value in the later stages of Supply-Chain Management as inventory moves to the point
of purchase and the point of consumption. Customers place a higher priority on the transportation services required as they move closer to the end
consumer. Our retention rates in this business are very good and we see expansion possibilities in the conversion of more customer-owned and -operated
private fleets. Additionally, we offer a contract-based final-mile/home-delivery system for big and bulky inventories and believe with the continued
growth of e-commerce and online purchasing, these markets will grow in the coming years.
The pairing of our Truckload segment and the Integrated Capacity Solutions segment emphasizes a wide range of highway-centric services. These
include asset-based truckload capacity with dropped trailer pools, non-asset-based brokerage services for all types of highway equipment including dry
van, temperature-controlled, flatbed, bulk, less than truckload, oversize loads and a variety of managed services for customers of all sizes. We are especially
proud of our Truckload group for completing a difficult turnaround and returning to a fully sustainable and functional performance level in all categories.
Although excellent work in our rate quality was accomplished during 2015 across all segments, the business plan in JBI was not entirely achieved,
missing on the top and bottom line. Fortunately, as mentioned, DCS and JBT outperformed their plans, more than offsetting the shortfall in Intermodal.
This is where we experience the power of our collective portfolio of services complementing the overall needs of our customers and our stockholders.
We expect JBI will return to historical performance and delivering its plans and, at the same time, we are encouraged by the performance of DCS, JBT
and ICS and by the power of our portfolio. We will continue our focus on building services that fit together to present highly complex, scalable and
differentiated solutions to our customers’ Supply-Chain Management challenges.
A Final Word
Since going public in 1983, we have built on each prior year’s successes and failures to be a better company. 2016 will be no exception as we press
ahead in the “new economy” and make our way forward. Our businesses are all financially healthy and running at improving levels of service. This is a
unique situation, and we plan to take full advantage of our position. Our challenge lies in finding new customers to serve and in continuing to expand our
offerings to meet their needs. We thank our employees for believing in our vision and strategy and for supporting it with their commitment every day. We
exist because our customers trust us to deliver on our promises. And to our stockholders, we understand our duty to you and we take it quite seriously.
John N. Roberts, III
President & Chief Executive Officer
Kirk Thompson
Chairman of the Board
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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 21, 2016
____________________________________________________________________________
The Annual Meeting of Stockholders of J.B. Hunt Transport Services, Inc. (the “Company”) will be held April 21, 2016, 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 2016 calendar year
(3) To consider a stockholder proposal regarding sexual orientation nondiscrimination policy
(4) To transact such other business as may properly come before the Annual Meeting or any adjournments thereof
Only stockholders of record on February 16, 2016, will be entitled to vote at the meeting or any adjournments thereof. The stock transfer books
will not be closed.
The 2015 Annual Report to Stockholders is included in this publication.
By Order of the Board of Directors
DAVID G. MEE
Corporate Secretary
Lowell, Arkansas
March 10, 2016
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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 2016 Annual Meeting of Stockholders (the “Annual Meeting”). The Proxy Statement and the related
proxy card are being distributed on or about March 10, 2016.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE STOCKHOLDERS MEETING
TO BE HELD APRIL 21, 2016
This Proxy Statement and our 2015 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
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When And Where Is The Annual Meeting?
Date:
Time:
Location:
Thursday, April 21, 2016
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, and Kirk Thompson as directors to hold office for a
term of one year, expiring at the close of the Annual Meeting of Stockholders in 2017.
• 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 2016 calendar year.
• Consider and vote upon a stockholder proposal to amend the Company’s equal employment opportunity policy to explicitly prohibit
discrimination based on sexual orientation, gender identity or gender expression and to take substantial action to implement the policy.
• Transact such other business as may properly come before the Annual Meeting or any adjournments thereof.
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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 16, 2016, 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 112,774,244 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.
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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
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 are
submitting the proposal to solicit the opinion of our stockholders.
• Vote on a stockholder proposal to amend the Company’s equal employment opportunity policy to explicitly prohibit discrimination based on
sexual orientation, gender identity or gender expression and to take substantial action to implement the policy.
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 5,062,065 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 2016 calendar year
• AGAINST the stockholder proposal to amend the Company’s equal employment opportunity policy to explicitly prohibit discrimination based
on sexual orientation, gender identity or gender expression and to take substantial action to implement the policy.
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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 20, 2016 (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 sexual orientation nondiscrimination policy 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.
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 2016 calendar year,
(3) AGAINST the stockholder proposal to amend the Company’s equal employment opportunity policy to explicitly prohibit discrimination
based on sexual orientation, gender identity or gender expression and to take substantial action to implement the policy, and
(4) in accordance with the proxy holders’ best judgment as to any other business that properly comes before the Annual Meeting.
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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 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 2015, the Company retained Broadridge, an independent proxy solicitation firm, to assist in soliciting proxies from stockholders. Broadridge
received a fee of approximately $58,000 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 2016 are expected
to be comparable to those paid in 2015.
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 2017 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 2017 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 10, 2016, 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 21, 2016.
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 2016 calendar year, and
(3) AGAINST the stockholder proposal to amend the Company’s equal employment opportunity policy to explicitly prohibit discrimination
based on sexual orientation, gender identity or gender expression and to take substantial action to implement the policy.
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.
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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
PROPOSALS TO BE VOTED AT THE ANNUAL MEETING
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
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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, and Kirk Thompson as directors to hold office for a term of one year, expiring at the close
of the 2017 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.”
One of our directors, John A. White, will retire from the Board upon the expiration of his current term at the 2016 Annual Meeting. The Board
has not nominated a candidate to replace him at this time. 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 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. 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 2017
Douglas G. Duncan
Mr. Duncan, 65, 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 Benchmark Electronics, Inc. and served on the Board of Directors of Brambles LTD.
Francesca M. Edwardson
Ms. Edwardson, 58, was elected to the Board in 2011. She serves on the Company’s Executive Compensation Committee and
the Nominating and Corporate Governance Committee. She retired as the Chief Executive Officer of the American Red Cross of
Chicago and Northern Illinois, a business unit of the American Red Cross, in 2016, a position she held since 2005. 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, holding degrees in economics and law. She
serves on the Board of Directors of Duluth Holdings, Inc., where she chairs the Compensation Committee, and also serves on the
Boards of Trustees for Rush University Medical Center and the Lincoln Park Zoo.
Wayne Garrison
Mr. Garrison, 63, 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.
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Sharilyn S. Gasaway
Mrs. Gasaway, 47, 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, 65, 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.
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Bryan Hunt
Mr. Hunt, 57, 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.
Coleman H. Peterson
Mr. Peterson, 67, 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.
John N. Roberts, III
Mr. Roberts, 51, 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. Mr. Roberts
also serves on the Board of Directors and the Audit Committee of the Federal Reserve Bank of St. Louis.
James L. Robo
Mr. Robo, 53, 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, 62, 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.
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.
For 2015, through the Company’s 2016 Annual Meeting, compensation for nonemployee directors serving on the Board, was as follows:
• 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
At the Executive Compensation Committee’s (the “Committee”) meeting on October 21, 2015, 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 April 21, 2016.
• an annual retainer of $200,000 paid in Company stock, cash or any combination thereof
• an annual retainer of $25,000, paid in cash, to the Audit Committee Chairman
• an annual retainer of $15,000, paid in cash, to the Executive Compensation Committee Chairman
• an annual retainer of $10,000, paid in cash, to the Nominating and Corporate Governance Committee Chairman
• an annual retainer of $20,000, paid in cash, to each member of the Audit Committee
• an annual retainer of $15,000, paid in cash, to each member of the Executive Compensation Committee
• an annual retainer of $10,000, paid in cash, to each member of the Nominating and Corporate Governance Committee
• reimbursement of expenses to attend Board and Committee meetings
Nonemployee Board of Director Compensation Paid in Calendar year 2015
Fees
Paid
in Cash
($)
Board Member
Douglas G. Duncan
196,000
Francesca M. Edwardson 29,000
173,000
Wayne Garrison
79,750
Sharilyn S. Gasaway
36,500
Gary C. George
18,000
Bryan Hunt
42,500
Coleman H. Peterson
61,000
James L. Robo
49,000
John A. White
Fees
Paid
in Stock
($)
–
155,000
–
116,250
155,000
155,000
155,000
155,000
155,000
Restricted Share
or Stock Option
Awards ($)
–
–
–
–
–
–
–
–
–
Non-Equity
Incentive Plan
Compensation ($)
–
–
–
–
–
–
–
–
–
(1) Reimbursement of expenses to attend Board and Committee meetings
Change in Pension
Value and
Nonqualified
Deferred
All Other
Compensation Compensation
Earnings ($)
–
–
–
–
–
–
–
–
–
($) (1)
3,785
4,341
–
–
–
–
6,144
9,384
1,604
Total ($)
199,785
188,341
173,000
196,000
191,500
173,000
203,644
225,384
205,604
Each nonemployee member of the Board had the choice of receiving his or her annual retainer of $155,000 in Company stock, cash or any
combination thereof. Those directors choosing to receive their full retainer in Company stock received 1,897 shares based on the $81.69 closing market
price on July 23, 2015. Sharilyn S. Gasaway elected to receive a portion of her retainer in stock, totaling 1,423 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 2015.
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EXECUTIVE OFFICERS OF THE COMPANY
Kevin Bracy, 45, joined the Company in 1998 as a Financial Analyst and currently serves as Vice President, Treasurer and Assistant Secretary.
Craig Harper, 58, 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, 53, joined the Company in 1984 as a Management Trainee and currently serves as Executive Vice President and President of
Dedicated Contract Services.
John Kuhlow, 45, 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, 57, 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, 55, 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.
Stuart Scott, 49, joined the Company on January 1, 2016 as Executive Vice President and Chief Information Officer. Prior to joining the Company,
he served as Chief Information Officer (“CIO”) at Tempur-Sealy International, CIO at Microsoft, and CIO for various General Electric businesses.
Shelley Simpson, 44, 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.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company’s common stock as of February 16, 2016, 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
Nicholas Hobbs
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
12,064
2,420,917
17,262
40,980
65,306
68,469
80,816
120,963
31,845
299,511
36,967
66,484
80,346
43,891
Number of Shares
Beneficially Owned
Indirectly (2)
2,600
–
–
275
1,454,310 (4)
168
–
41,442
–
–
70,000 (5)
–
41,215
–
–
Percent
of Class (%) (3)
*
*
2.1
*
1.3
*
*
*
*
*
*
*
*
*
*
All executive officers and directors as a group (19)
3,452,055
1,610,010
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 for which the director or executive officer is the trustee
(c) options that are currently exercisable or will become exercisable within 60 days from February 16, 2016
(d) pledged shares as shown below:
David G. Mee
John N. Roberts, III
Kirk Thompson
All other executive officers and directors as a group
62,500
160,000
40,000
9,500
(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 for which the director or executive officer’s spouse is the trustee
(d) in a spouse’s retirement account
(3) Calculated on the basis of 112,774,244 shares of common stock outstanding of the Company on February 16, 2016.
(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 40,320 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.
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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 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
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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.
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 2017 Annual Meeting of Stockholders,
director candidates must be submitted to the Company’s Corporate Secretary by November 10, 2016. 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.
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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.
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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
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.
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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 2015 calendar year. All directors attended all of the Board meetings and committee meetings
on which each served during 2015. All members of the Board attended the 2015 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 2015:
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 2015
Audit
X
X
Chair
X
8
Compensation
X
X
Chair
X
4
Corporate
Governance
X
X
X
Chair
X
X
X
2
On January 28, 2016, the Corporate Governance Committee recommended, and the Board approved, the same committee assignments as 2015
for 2016, with the exception of the appointment of Sharilyn S. Gasaway to the Executive Compensation Committee effective upon her re-election
to the Board at the Company’s 2016 Annual Meeting. John A. White will retire from the Board upon the expiration of his current term at the 2016
Annual Meeting.
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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 2015, the Audit Committee met eight times. All members attended each of the Audit
Committee meetings. 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.
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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 four times in 2015. 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,
• review and approve all related-party transactions (as required by law, NASDAQ rules, or SEC regulations), 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 two times during 2015. 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.
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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.
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.
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 2015. The first earned
$333,775 and the second earned $164,093 in 2015 compensation. Shelley Simpson’s husband was employed by the Company in calendar year 2015 and
earned $543,065 in 2015 compensation.
In the ordinary course of business, the Company has entered into a contractual service agreement with George’s, Inc., which is considered a related
party. The customer agreement consists primarily of a fleet of tractors and specialty trailers delivering feed and live poultry to and from processing plants
located in Cassville, Missouri, as well as other agreed-upon services on an as-needed basis. Gary C. George is Chairman of George’s, Inc. Mr. George was
not involved in the establishment of this service agreement, nor did he solicit the Company’s services on behalf of George’s, Inc. Total revenue earned
in calendar year 2015 under this service agreement was $5.2 million. Services provided under this contract 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.
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In October 2015, in the ordinary course of business, the Company entered into an agreement with 5431 Pinnacle Point LLC for the lease of office
space located in Rogers, Arkansas. Bryan Hunt, a director of the Company, has a 50% ownership interest in 5431 Pinnacle Point LLC. The lease has
a term of 24 months and an annual base rent of $216,000. The Company paid $67,355 under this lease agreement during calendar year 2015 and
considers this a transaction carried out at arm’s length in the ordinary course of business and consistent with the same terms as those of unrelated parties
for comparable lease agreements.
In August 2010, the Company made a gift of $5 million 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 the hospital, 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 2015 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.
Involvement in Certain Legal Proceedings
On February 1, 2016, one of our directors, Bryan Hunt, entered into an order with the Circuit Court of Benton County, Arkansas, to divert for
six months a case brought against him in June 2015 by the State of Arkansas for alleged aggravated assault, a felony offense. Mr. Hunt pleaded not
guilty to the charges. The charges relate to an incident in which Mr. Hunt’s vehicle was hit by a motorist who fled the scene, and as Mr. Hunt pursued
the motorist, the two vehicles were involved in a subsequent accident where Mr. Hunt is alleged to have used his vehicle to block the other motorist
from leaving the scene. Under the diversion order, Mr. Hunt must not commit any further violations of the law during the diversion period and must
pay restitution to the City of Rogers, Arkansas, for a street light damaged in the incident. If Mr. Hunt complies with these conditions, the case will be
dismissed. If Mr. Hunt fails to comply, the State may resume prosecution of the allegations.
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, 2015.
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.
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Name and Address
Johnelle Hunt
3333 Pinnacle Hills Parkway
Rogers, AR 72756
FMR LLC
245 Summer Street
Boston, MA 02210
Vanguard Group, Inc.
100 Vanguard Blvd.
Malvern, PA 19355
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
19,353,421
Percent of
Class
17.0%
12,587,783
11.0%
8,426,289
6,697,881
5,749,602
7.4%
5.8%
5.0%
Information relating to Johnelle Hunt is based on the stockholder’s Form 5, filed with the SEC on February 16, 2016. Information pertaining to the
ownership of FMR LLC, Vanguard Group, Inc., T. Rowe Price Associates, Inc., and BlackRock, Inc. are based on the organization’s Schedule 13G filed
with the SEC on February 12, 2016, February 10, 2016, February 11, 2016, and January 28, 2016, respectively. The Company makes no representation
as to the accuracy of the information reported in such beneficial ownership reports.
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REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The 2015 Executive Compensation Committee (the “Compensation Committee”) was 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 Statement.
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 2016, 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 2015, 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 $101,000 for the consulting engagement and provides no other services to the Company.
The Compensation Committee met four times in 2015 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 2015.
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 report 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.
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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.
2015 Executive Compensation Committee
Coleman H. Peterson, Chairman
Francesca M. Edwardson
Gary C. George
John A. White
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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 2015. 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
• Terrence D. Matthews – Executive Vice President and President of Intermodal
• Kirk Thompson – Chairman of the Board
• Shelley Simpson – Executive Vice President, Chief Marketing Officer and President of Integrated Capacity Solutions and Truckload
• Nicholas Hobbs – Executive Vice President and President of Dedicated Contract Services
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 13 transportation and logistics companies in the national marketplace.
This peer group was updated in 2015 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.
Avis Budget Group, Inc.
CSX Corporation
Hub Group, Inc.
Norfolk Southern Corporation
UTI Worldwide, Inc.
CH Robinson Worldwide, Inc.
Expeditors Int’l of Washington, Inc.
Kansas City Southern
Ryder System, Inc.
CON-Way, Inc.
Hertz Global Holdings, Inc.
Landstar System, Inc.
Swift Transportation Company
The Compensation Committee has decided that the appropriate comparative total compensation target should be at the 50th percentile of the
respective peer groups.
In 2015, the Compensation Committee concluded that a representative peer group for the role of the Executive Chairman/Non-CEO position of
the Company could not be compiled. Therefore, the Committee used its best business judgment to determine the compensation of the Chairman of
the Board, which the Committee concluded was more reflective of his role within the daily management of the Company.
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 at 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.
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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 2015. 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 7.5 million shares are available for future options and other awards.
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 380 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
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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 2015, 419,801 grants were made on
October 21, and 82,814 grants were made on October 22, 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.
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.
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 2015, 160,574 grants of “qualified performance-based compensation” restricted share units were made
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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 2015, the following NEO
compensation paid was not deductible by the Company:
John N. Roberts, III
Terrence D. Matthews
Kirk Thompson
$ 1,844,763
1,557,807
4,652,775
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.
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 21 and October 22, 2015, 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.
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.
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2015 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.
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 2015, 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 2015
executive compensation.
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.
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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.
For 2015, the established matrix consisted of EPS ranging from $3.10 to $4.35, translating to annual bonus payout percentages ranging from
5% to 170% of an executive’s base salary. The 2015 quarterly and annual bonus payout targets compared with actual reported EPS and actual payout
percentages were as follows:
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Period
1Q 15
2Q 15
3Q 15
Annual
Minimum
0.58
0.81
0.84
3.10
EPS
Target
0.67
0.92
0.96
3.55
Reported EPS
0.78
0.88
0.99
3.66
Actual earned bonus amounts by quarter for each NEO:
Bonus Payout % of Salary
Target
3.4
3.4
3.4
27.0
Minimum
0.6
0.6
0.6
5.0
Actual
15.0
2.5
3.1
30.0
John N. Roberts, III
David G. Mee
Terrence D. Matthews
Kirk Thompson (1)
Shelley Simpson
Nicholas Hobbs
1Q 15
$112,500
67,500
67,500
–
60,000
56,250
2Q 15
$18,750
11,250
11,250
–
10,000
9,375
3Q 15
$23,438
14,063
14,063
–
12,500
11,719
4Q 15
$70,312
42,187
42,187
–
37,500
35,156
Total
Annual
$225,000
135,000
135,000
–
120,000
112,500
(1) 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 550,717 performance-based and time-vested restricted share
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units were granted in 2015. Approximately 29% of the total share units granted were performance-based restricted share units to the NEOs, and
approximately 31% 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 2015:
• 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 2015, 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
Terrence D. Matthews
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
58,457
24,300
14,580
24,357
19,440
19,440
The 2015 NEO awards shown above are performance-based restricted share units. These grants vest from three to five years annually, beginning
July 15, 2016, 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.
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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.
SUMMARY COMPENSATION
The following table summarizes the total compensation earned by or paid to the Chief Executive Officer, Chief Financial Officer and the next
four most highly compensated executive officers of the Company who served in such capacities as of December 31, 2015, for services rendered to the
Company. These six officers are referred to as the NEOs in this Proxy Statement.
Name and
Principal
Position
John N. Roberts, III
President
and CEO
Year
2015
2014
2013
2015
David G. Mee
EVP, Finance
2014
& Administration 2013
and CFO
Terrence D. Matthews 2015
2014
EVP and
President
2013
of Intermodal
Salary
($) (1)
796,132
695,000
642,692
476,846
437,845
401,077
Share
Units
($) (2)
4,342,186
3,465,876
3,244,500
1,809,378
1,143,300
2,152,800
478,946
442,589
408,436
1,085,627
762,200
3,229,200
2015
2014
2013
2015
2014
448,077
450,000
492,308
1,809,238
1,636,672
1,658,300
429,808
371,635
1,447,502
1,143,300
Kirk Thompson
Chairman of
the Board
Shelley Simpson
EVP, CMO and
President of
ICS & Truckload
Nicholas Hobbs
EVP and President
of Dedicated
Contract Services
Non-Equity
Incentive
Plan
Compensation
($) (1)
225,000
157,550
146,050
Option
Awards
($) (2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
135,000
99,935
90,850
135,000
101,200
92,000
–
–
–
120,000
80,500
Deferred
All Other
Compensation Compensation
($)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
($)
19,053
28,044
25,001
16,078
17,654
18,061
19,590
19,438
26,315
12,650
5,003
9,453
17,793
24,391
Total ($)
5,382,371
4,346,470
4,058,243
2,437,302
1,698,734
2,662,788
1,719,163
1,325,427
3,755,951
2,269,965
2,091,675
2,160,061
2,015,103
1,619,826
14,998
1,978,846
2015
403,846
1,447,502
–
112,500
(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. The position of Chairman of the Board is currently 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
performance metrics established by the Compensation Committee at the time of grant. No stock options were granted during 2015, 2014 or 2013.
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Components of All Other Compensation for Calendar year 2015
Name
John N. Roberts, III
David G. Mee
Terrence D. Matthews
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
Components of Perquisites for Calendar year 2015
Perquisites
and Other
Personal Benefits
($)
19,053
10,716
11,640
10,000
9,843
10,235
Company
Contributions
to 401(k) Plan
($)
–
5,362
7,950
2,650
7,950
4,763
Name
John N. Roberts, III
David G. Mee
Terrence D. Matthews
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
Personal Use
of Company Plane
($) (1)
–
–
–
–
–
Legal and
Accounting
Fees
($)
8,780
–
1,245
10,000
1,770
2,675
Club
Dues
($)
10,273
10,716
10,395
–
8,073
7,560
Total
($)
19,053
16,078
19,590
12,650
17,793
14,998
Total
Perquisites
and Other
Personal
Benefits ($)
19,053
10,716
11,640
10,000
9,843
10,235
(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.
Messrs. Roberts, Mee and Matthews, and Ms. Simpson had such imputed income in 2015. 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 31 of this Proxy Statement.
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Grants of Plan-Based Awards
The following table reflects estimated possible payouts under equity and non-equity incentive plans to the NEOs during 2015. 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 29 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.
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)
(#)
(#)
($)
($)
10/22/2015
4,688
202,500
1,275,000
11,691
58,457
58,457
10/21/2015
2,813
121,500
765,000
3,110
24,300
24,300
10/21/2015
2,813
121,500
765,000
4,860
14,580
14,580
Name
John. N.
Roberts, III
David G.
Mee
Terrence D.
Matthews
Kirk
Thompson (4) 10/22/2015
–
–
–
24,357
24,357
24,357
Shelley
Simpson
Nicholas
Hobbs
10/21/2015
2,500
108,000
680,000
3,888
19,440
19,440
10/21/2015
2,344
101,250
637,500
3,888
19,440
19,440
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
74.28
74.46
74.46
74.28
74.46
74.46
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cash bonus pool. The actual awards earned are reported in the Summary Compensation Table shown on page 31 of this Proxy Statement.
(2) This column reflects the number of performance-based restricted share units that were granted to the NEOs in 2015.
(3) The fair value of the awards was based on a 3.5% discount from the Company’s closing stock price of $77.16 on October 21, 2015, or $76.98 on October
22, 2015. The discount represents the present value of expected dividends to be paid on the Company’s common stock, using the current dividend rate and the
risk-free interest rate, over the vesting period. The Company believes that this discount is appropriate to value the performance-based restricted share units, as
the units do not collect or accrue dividends until the awards vest and are settled with Company stock.
(4) The position of Chairman of the Board is not eligible to participate in the Company’s EPS bonus plan.
33
Outstanding Equity Awards at Calendar year-end
As of December 31, 2015, there were no outstanding stock options held by the NEOs. The following table sets forth information concerning
restricted share units held by the NEOs as of December 31, 2015.
Name
John N. Roberts, III
Number of
Shares or Units
of Stock That Have
Not Vested (#) (1)
Market Value of
Shares or Units
of Stock That Have
Not Vested ($) (2)
David G. Mee
10,000
733,600
Equity Incentive Plan
Awards: Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#) (1)
45,000
18,000
27,000
36,378
58,457
Equity Incentive
Plan Awards:
Market Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested ($) (2)
3,301,200
1,320,480
1,980,720
2,668,690
4,288,406
3,000
3,125
26,000
12,000
24,300
18,000
3,125
41,000
6,667
14,580
12,000
15,200
13,800
17,179
24,357
220,080
229,250
1,907,360
880,320
1,782,648
1,320,480
229,250
3,007,760
489,091
1,069,589
880,320
1,115,072
1,012,368
1,260,251
1,786,830
12,000
19,440
880,320
1,426,118
19,440
1,426,118
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Terrence D. Matthews
Kirk Thompson
10,000
733,600
Shelley Simpson
Nicholas Hobbs
1,200
18,000
3,125
26,000
1,200
2,000
15,000
3,000
3,125
26,000
12,000
88,032
1,320,480
229,250
1,907,360
88,032
146,720
1,100,400
220,080
229,250
1,907,360
880,320
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
David G. Mee
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
Shares Vesting
10,000
10,000
1,200
3,000
3,000
3,000
3,000
3,000
3,000
1,200
1,000
1,000
3,000
3,000
3,000
3,000
3,000
3,000
3,125
Vesting Date
7/15/16
7/15/16
7/15/16
7/15/16
7/15/17
7/15/18
7/15/19
7/15/20
7/15/21
7/15/16
7/15/16
7/15/17
7/15/16
7/15/17
7/15/18
7/15/19
7/15/20
7/15/16
7/15/16
Shares Vesting
Vesting Date
3,125
2,000
2,000
2,000
6,666
6,667
6,667
2,000
2,000
2,000
6,666
6,667
6,667
3,000
3,000
3,000
3,000
7/15/16
7/15/16
7/15/17
7/15/18
7/15/21
7/15/22
7/15/23
7/15/16
7/15/17
7/15/18
7/15/21
7/15/22
7/15/23
7/15/16
7/15/17
7/15/18
7/15/19
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Performance-Based Awards
John N. Roberts, III
David G. Mee
Terrence D. Matthews
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
Shares Vesting Vesting Date
Shares Vesting Vesting Date
15,000
15,000
15,000
9,000
9,000
9,000
9,000
9,000
9,094
3,000
3,125
2,000
2,000
2,000
10,000
10,000
3,000
3,000
3,000
3,000
3,000
3,000
3,000
3,125
19,500
12,000
7,600
7,600
4,600
4,600
4,600
3,000
3,000
3,000
3,000
3,888
3,888
3,888
3,888
7/15/16
7/15/17
7/15/18
7/15/16
7/15/17
7/15/16
7/15/17
7/15/18
7/15/16
7/15/16
7/15/16
7/15/16
7/15/17
7/15/18
7/15/20
7/15/21
7/15/16
7/15/16
7/15/17
7/15/18
7/15/19
7/15/20
7/15/21
7/15/16
7/15/16
7/15/16
7/15/16
7/15/17
7/15/16
7/15/17
7/15/18
7/15/16
7/15/17
7/15/18
7/15/19
7/15/16
7/15/16
7/15/17
7/15/18
9,094
9,095
9,095
11,691
11,691
11,691
11,692
11,692
3,000
3,000
3,000
3,110
6,026
6,026
6,027
3,111
19,500
2,000
3,333
3,334
4,860
4,860
4,860
4,294
4,295
4,295
4,295
24,357
3,888
3,888
3,888
3,888
3,888
3,888
7/15/17
7/15/18
7/15/19
7/15/16
7/15/17
7/15/18
7/15/19
7/15/20
7/15/17
7/15/18
7/15/19
7/15/16
7/15/17
7/15/18
7/15/19
7/15/20
7/15/17
7/15/18
7/15/16
7/15/17
7/15/16
7/15/17
7/15/18
7/15/16
7/15/17
7/15/18
7/15/19
7/15/20
7/15/17
7/15/18
7/15/19
7/15/20
7/15/19
7/15/20
(2) Values are based on the last closing market price of $73.36 on December 31, 2015.
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Restricted Share Units Vested
Name
John N. Roberts, III
Total
David G. Mee
Total
Terrence D. Matthews
Total
Kirk Thompson
Total
Shelley Simpson
Total
Nicholas Hobbs
Total
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Number of Shares
Acquired on
Vesting
(#)
5,100
990
15,000
15,000
9,000
9,000
9,094
63,184
3,300
990
17,000
10,000
7,000
3,000
3,125
2,000
3,000
49,415
4,200
990
17,000
3,600
3,000
3,125
2,000
3,333
37,248
17,500
10,000
23,000
12,000
12,000
7,600
4,600
4,294
90,994
1,800
1,200
3,400
3,000
3,125
2,000
3,000
17,525
1,650
1,200
1,000
3,880
3,000
3,125
2,000
3,000
18,855
Value
Realized on
Vesting
($) (1) (2)
431,460
83,754
1,269,000
1,269,000
761,400
761,400
769,352
5,345,366
279,180
83,754
1,438,200
846,000
592,200
253,800
264,375
169,200
253,800
4,180,509
355,320
83,754
1,438,200
304,560
253,800
264,375
169,200
281,972
3,151,181
1,480,500
846,000
1,945,800
1,015,200
1,015,200
642,960
389,160
363,272
7,698,092
152,280
101,520
287,640
253,800
264,375
169,200
253,800
1,482,615
139,590
101,520
84,600
328,248
253,800
264,375
169,200
253,800
1,595,133
(1) Value realized on the acquired shares shown above is gross earnings. Values are earned over multiple years. The receipt of vested shares in calendar year 2015
should not be interpreted to mean that all value was earned in the year the shares were received. Each executive retained a portion of the available vested shares
as shown below:
John N. Roberts, III
David G. Mee
Terrence D. Matthews
35,158
26,508
31,156
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
52,455
9,750
9,735
(2) Values represent the fair market value of the underlying common stock on the date of vesting.
37
Components of Nonqualified Deferred Compensation for Calendar year 2015
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 $13,569,119 as of December 31, 2015, and $13,515,042 as of December 31, 2014.
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 $13,569,119 as of
December 31, 2015, and $13,515,042 as of December 31, 2014.
Name
John N. Roberts, III
David G. Mee
Terrence D. Matthews
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
Executive
Contributions
in 2015
($) (1)
–
–
226,923
85,192
–
–
Registrant
Contributions
in 2015
($)
–
–
–
–
–
–
Aggregate
Earnings
in 2015
($)
–
–
(7,754)
10,325
–
–
Aggregate
Withdrawals and
Distributions
($)
–
–
–
–
–
–
Aggregate
Balance
at 2015
($) (1)
–
–
3,123,274
1,137,070
–
–
(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, 2015, were $177,500 for Mr. Thompson and $657,924 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
restricted share units and are valued using the last closing market price of $73.36 on December 31, 2015.
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John N. Roberts, III
David G. Mee
Terrence D. Matthews
Kirk Thompson
Shelley Simpson
Nicholas Hobbs
$ 13,559,496
5,753,258
6,116,170
6,788,441
5,851,560
5,998,280
38
REPORT OF THE AUDIT COMMITTEE
The Audit Committee
The 2015 Audit Committee was 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 the full 2015 calendar year. 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 2015, 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 2015 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, 2015, as filed with the SEC.
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J.B. Hunt Transport Services, Inc.
2015 Audit Committee Members
James L. Robo, Chairman
Douglas G. Duncan
Sharilyn S. Gasaway
John A. White
39
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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 2016 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 2016 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 2016 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 2016 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 2016 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 2015, 2014, and 2013 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 2015, 2014, and 2013 calendar years,
respectively:
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees
2015 ($)
1,060,000
34,000
–
–
2014 ($)
1,035,000
288,275
10,667
–
2013 ($)
975,000
32,000
48,766
–
(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 2015, 2014, and 2013.
40
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 that make it 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 SEXUAL ORIENTATION
NONDISCRIMINATION POLICY
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. Trillium Asset Management, LLC on behalf of the Conny Lindley Revocable Living Trust, at Two
Financial Center, 60 South Street, Suite 1100, Boston, MA 02111, is the proponent of the following stockholder proposal and has advised us that the
Conny Lindley Revocable Living Trust 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 2016 Annual Meeting.
RESOLVED: Stockholders request that the Company amend its written equal employment opportunity policy
to explicitly prohibit discrimination based on sexual orientation, gender identity or gender expression and to
take substantial action to implement the policy.
Supporting Statement
The Company does not explicitly prohibit discrimination based on sexual orientation, gender identity or gender expression in its written
employment policy.
According to the Human Rights Campaign Foundation’s 2014 survey, 61 percent of Fortune 500 companies prohibit discrimination based on
sexual orientation, gender identity or expression, a historic high.
We believe that corporations that prohibit discrimination on the basis of gender identity or gender expression have a competitive advantage in
recruiting and retaining employees from the widest talent pool.
According to an analysis of surveys conducted by the Williams Institute at the UCLA School of Law, 16 to 60 percent of lesbian, gay, bisexual and
transgender (“LGBT”) people report experiencing employment discrimination. Ninety percent of transgender individuals have encountered some form
of harassment or mistreatment in the workplace.
Public opinion polls consistently find more than three-quarters of people in the United States support equal rights in the workplace. In a 2011
nationwide survey conducted by Greenberg Quinlan Rosner Research, the vast majority (79 percent) of the 900 respondents supported protecting
LGBT people from discrimination in employment.
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Although federal law does not provide sexual orientation and gender identity employment discrimination protection, seventeen states, the District
of Columbia, and more than 114 cities and counties have laws prohibiting employment discrimination based on gender identity or expression.
In July 2014, the White House signed an amendment to an existing Executive Order covering companies that are federal contractors. The
Executive Order explicitly prohibits federal contractors from discriminating on the basis of sexual orientation or gender identity. In issuing the order
the President stated, “Equality in the workplace is not only the right thing to do, it turns out to be good business. That’s why a majority of Fortune 500
companies already have nondiscrimination policies in place.”
We are concerned the Company may be lagging behind peers with comprehensive equal employment opportunity policies. According to the
Human Rights Campaign, many companies in the transportation services space, such as CSX, Union Pacific, United Parcel Service, and FedEx Corp.
explicitly prohibit discrimination based on sexual orientation, gender identity or gender expression in their written policies.
We believe employment discrimination on the basis of sexual orientation, gender identity or gender expression diminishes employee morale
and productivity. Because state and local laws are not comprehensive with respect to prohibiting employment discrimination, the Company would
benefit from a comprehensive, consistent, corporate-wide policy to enhance efforts to prevent discrimination, resolve complaints internally, access
employees from the broadest talent pool, and ensure a respectful and supportive atmosphere for all employees. We believe the Company will enhance
its competitive edge by joining the growing ranks of companies guaranteeing equal opportunity for all employees.
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Board of Directors Statement in Opposition to the Stockholder Proposal
The Board of Directors believes this stockholder proposal is unnecessary and that the Company’s current policy and practice more than achieve
the objectives of this proposal. The Board of Directors therefore unanimously recommends voting against this proposal.
As an equal opportunity employer, the Company is firmly committed to operating its business in full compliance with applicable employment laws
and providing each of our employees with a workplace free from unlawful discrimination or harassment of any kind.
Indeed, the Company’s EEO Harassment and Discrimination Policy states as follows:
“Harassment of J.B. Hunt personnel, sexual or otherwise, will not be tolerated at J.B. Hunt from anyone, including supervisors,
co-workers, managers, vendors, clients or customers. All J.B. Hunt Directors, Officers, and Employees are responsible for
discouraging harassment in the workplace. We discourage any behavior whatsoever that can be construed to be in poor taste
and/or offensive. J.B. Hunt is committed to investigating all complaints thoroughly and promptly. All complaints and their terms
of resolutions are kept as confidential as possible. Should an investigation confirm the occurrence of harassment, J.B. Hunt will
take prompt disciplinary action. We reserve the right to take disciplinary action for behavior that interferes in any way with any
individual’s ability to perform their job duties. Retaliation against those who reported harassment is forbidden.
J.B. Hunt will not tolerate discrimination in employment on the basis of race, sex, age, religion, protected veteran’s status, color,
national origin, disability or other legally protected status. J.B. Hunt is committed to equal opportunity in all aspects of employment,
including hiring, promotion, training, compensation, termination, and disciplinary action.”
The Company’s existing policy protects employees against discriminatory practices that are prohibited by existing federal law. Additionally,
the Company’s policy provides protections beyond the basic legal requirements to extend equal opportunity in employment, promotion, training,
compensation, termination and disciplinary action. The policy expressly dictates that the Company will not tolerate any harassment, sexual or otherwise,
by not only the Company’s employees, but also vendors, clients and customers. Indeed, the Company’s policy discourages any behavior whatsoever that
can be construed to be in poor taste and/or offensive.
The stockholder proposal resolution implies that additional action is necessary to implement the resolution. The Company disagrees. The
Company has not received indications from its employees that discrimination on the basis of sexual orientation, gender identity or gender expression is
practiced within the Company, nor has the Company received notice from its employees, vendors, clients or customers that the Company’s employment
policies or practices jeopardize its relationship with any of them.
Thus it is the opinion of the Board of Directors that this stockholder resolution is both unwarranted and unnecessary.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE
AGAINST
PROPOSAL NUMBER THREE
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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
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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, 2015
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
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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. [ X ]
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 91,793,241 shares of the registrant’s $0.01 par value common stock held by non-affiliates as of June 30, 2015, was $7.5 billion
(based upon $82.09 per share).
As of February 16, 2016, the number of outstanding shares of the registrant’s common stock was 112,774,244.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Notice and Proxy Statement for the Annual Meeting of Stockholders, to be held April 21, 2016, are incorporated by reference
in Part III of this Form 10-K.
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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, rail service delays, 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, 2015,
our consolidated revenue totaled $6.2 billion, after the elimination of intersegment business. Of this total, 59% was generated by our JBI business
segment, 24% by DCS, 11% by ICS, and 6% by JBT. For the year ended December 31, 2014, JBI represented 60%, DCS 22%, ICS 12%, and JBT 6% of
our consolidated revenue. For the year ended December 31, 2013, JBI represented 62%, DCS 22%, ICS 9%, and JBT 7% 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.
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.
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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 78,957 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 68,076 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 4,276 company-owned tractors, 805 independent contractor trucks, and 5,172 company drivers.
At December 31, 2015, the total JBI employee count was 5,838. Revenue for the JBI segment in 2015 was $3.66 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, 2015, this segment operated 6,762 company-owned trucks, 436 customer-owned trucks, and 10 independent contractor trucks.
DCS also operates 15,020 owned pieces of trailing equipment and 6,652 customer-owned trailers. The DCS segment employed 9,948 people, including
8,256 drivers, at December 31, 2015. DCS revenue for 2015 was $1.45 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 34 remote sales offices or branches, as well as on-site logistics personnel working in direct contact with
customers.
At December 31, 2015, the ICS segment employed 670 people, with a carrier base of approximately 45,700. ICS revenue for 2015 was $699 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, 2015, the JBT segment operated 1,462 company-owned tractors and employed 1,847 people, 1,615 of whom were drivers. At
December 31, 2015, we had 687 independent contractors operating in the JBT segment. JBT revenue for 2015 was $386 million.
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.
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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, 2015, we had
21,562 employees, which consisted of 15,043 company drivers, 5,397 office personnel, and 1,122 maintenance technicians. We also had arrangements
with approximately 1,502 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, 2015, our company-owned tractor and truck fleet consisted of 12,500 units. In addition, we had 1,502 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, 2015, the average age of our combined tractor fleet was 1.9 years, while our containers averaged 5.6 years of
age and our trailers averaged 8.6 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 2013, the remaining provisions of the FMCSA’s amendment to the hours-of-service (HOS) safety requirements for commercial truck drivers
became effective, 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 December 2015, the FMCSA published a Final Rule requiring logging drivers to complete their logs using an Electronic Logging Device
(ELD). Since the issuance of the initial proposal of this rule change, we have successfully implemented a plan to replace any legacy on-board recording
equipment within our fleets. At December 31, 2015, we had replaced approximately 96% of this equipment and anticipate replacing the remaining
equipment within the mandated timetable. We do not anticipate a negative impact on our operations.
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 first quarter
of 2016. 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.
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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 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. In addition to general U.S. economic trends, and to a lesser extent global economic trends, these factors include interference
with or termination of our relationships with certain railroads; rail service delays; 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; volatile financial credit markets; 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
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, 2015, 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 2016 with substantially the same
terms as our 2015 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.
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, 2015, our top 10 customers, based on revenue, accounted for approximately 29% 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.
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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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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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 42
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 34 leased or owned remote sales offices or branches in our ICS segment. We also own or lease multiple small facilities, 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
Other facilities, offices, and parking yards
Acreage
461
–
158
8
–
205
Maintenance Shop/
Cross-dock Facility
(square feet)
803,000
1,317,000
–
–
–
63,000
Office Space
(square feet)
197,000
120,000
262,000
40,000
59,000
71,000
ITEM 3. LEGAL PROCEEDINGS
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 where it is currently
pending. The overlapping claims in the remaining action 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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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, 2015, we were authorized to issue
up to 1 billion shares of our common stock, and 167.1 million shares were issued. We had 113.9 million and 116.6 million shares outstanding as of
December 31, 2015 and 2014, 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:
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividends Paid
$ 0.21
0.21
0.21
0.21
Dividends Paid
$ 0.20
0.20
0.20
0.20
High
$ 90.46
93.50
86.32
79.73
High
$ 79.89
78.07
79.79
85.54
Low
$ 77.50
82.06
70.92
69.69
Low
$ 69.33
71.45
71.73
71.00
On February 16, 2016, the high and low sales prices for our common stock as reported by NASDAQ were $75.99 and $73.89, respectively, and
we had 1,053 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. On January 28, 2016, we announced an increase in
our quarterly cash dividend from $0.21 to $0.22 per share, which will be paid February 26, 2016, to stockholders of record on February 12, 2016. 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, 2015:
Period
October 1 through October 31, 2015
November 1 through November 30, 2015
December 1 through December 31, 2015
Total
Number of
Common Shares
Purchased
–
672,500
–
672,500
Average Price Paid
Per Common Share
Purchased
$ –
74.42
–
$ 74.42
Total Number
of Shares
Purchased as
Part of a Publicly
Announced Plan (1)
–
672,500
–
672,500
Maximum Dollar
Amount of Shares
That May Yet
Be Purchased
Under the Plan
(in millions)
$ 501
451
451
$ 451
(1) On October 27, 2011, our Board of Directors authorized the purchase of up to $500 million of our common stock. On October 22, 2015, our Board of
Directors authorized an additional purchase of up to $500 million of our common stock.
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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 15 companies: Amerco, ArcBest Corporation,
Avis Budget Group Inc., C.H. Robinson Worldwide Inc., CSX Corporation, Expeditors International Of Washington Inc., Hertz Global Holdings Inc.,
Hub Group Inc., Kansas City Southern, Landstar System Inc., Norfolk Southern Corporation, Old Dominion Freight Line Inc., Ryder System Inc.,
Swift Transportation Company, and UTI Worldwide Inc. The peer group labeled “Current Peer Group” consists of 12 companies: Avis Budget Group
Inc., C.H. Robinson Worldwide Inc., CSX Corporation, Expeditors International Of Washington Inc., Hertz Global Holdings Inc., Hub Group Inc.,
Kansas City Southern, Landstar System Inc., Norfolk Southern Corporation, Ryder System Inc., Swift Transportation Company, 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, 2010, and tracks it through December 31, 2015. The stock price performance included in this graph is not
necessarily indicative of future stock price performance.
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
$250
$200
$150
$100
$50
$0
2010
2011
2012
2013
2014
2015
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,
2010
$ 100.00
100.00
100.00
100.00
2011
$ 111.74
102.11
99.68
99.51
2012
$ 149.94
118.45
100.94
99.43
2013
$ 195.31
156.82
146.52
142.17
2014
$ 215.08
178.29
173.24
166.23
2015
$ 189.21
180.75
131.29
122.04
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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)
2,009,423
$ 20.76(2)
7,521,753
(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.
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
2015
$ 6,188
716
427
3.69
3.66
0.84
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
48.4%
22.5
5.1
5.5
3.6
1.2
1.1
0.7
0.3
88.4
11.6
0.4
11.2
4.3
6.9%
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%
2015
1.61
$ 3,637
$ 1,300
$ –
$ 1,005
0.77
2014
1.12
$ 3,378
$ 1,205
$ 250
$ 934
0.78
2013
0.96
$ 2,819
$ 1,012
$ 250
$ 708
0.70
2012
1.10
$ 2,465
$ 792
$ 100
$ 685
0.87
2011
1.16
$ 2,262
$ 568
$ 50
$ 749
1.32
44%
44%
41%
46%
57%
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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 2016 with substantially the same terms as our 2015 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, 2015, we had an accrual of approximately $95 million for
estimated claims. In addition, we are required to pay certain advanced deposits and monthly premiums. At December 31, 2015, we had an aggregate
prepaid insurance asset of approximately $87 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, 2015.
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.
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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 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
2015 COMPARED WITH 2014
Consolidated Operating Revenues
Percentage of
Operating Revenues
2014
100.0%
2015
100.0%
2013
100.0%
Percentage Change
Between years
2015 vs. 2014
0.4%
2014 vs. 2013
10.4%
48.4
22.5
5.1
5.5
3.6
1.2
1.1
0.7
0.3
88.4
11.6
0.4
11.2
4.3
6.9%
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%
(2.9)
8.1
(31.0)
15.3
0.9
(9.1)
43.3
11.1
(1.1)
(1.1)
13.3
(5.4)
14.2
14.4
14.0%
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%
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Our total consolidated operating revenues were $6.19 billion in 2015, remaining relatively flat when compared to $6.17 billion in 2014. Overall
customer rate increases and load growth, and increased fleet counts in our JBI, DCS, and JBT segments, were offset by a 38.0% decrease in fuel
surcharge revenue to $671 million in 2015 when compared to $1.08 billion in 2014, due to decreases in the price of fuel during the year. If fuel surcharge
revenues were excluded from both years, our 2015 revenue increased 8.5% over 2014.
Consolidated Operating Expenses
Our 2015 consolidated operating expenses decreased 1.1% from 2014, while year-over-year revenue remained flat, resulting in a 2015 operating
ratio of 88.4% compared to 89.8% in 2014. Rents and purchased transportation costs decreased 2.9% in 2015, primarily the result of the lower fuel
component in the cost of services provided by third-party rail and truck carriers within JBI, DCS, and ICS segments. Salaries, wages and employee
benefit costs increased 8.1% in 2015 from 2014. 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.
Fuel and fuel taxes expense decreased 31.0% in 2015 compared with 2014, due to decreases in the price of fuel during 2015, 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,
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most also reflect a specified miles-per-gallon factor and require a certain minimum change in fuel costs to trigger 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 15.3% in 2015, 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 equipment
in JBT. Operating supplies and expenses increased 0.9%, driven primarily by increased toll rates and activity, partially offset by decreased general
equipment maintenance and repair costs. Insurance and claims expense decreased 9.1% in 2015, primarily due to decreased accident severity and
fewer incidents. General and administrative expenses increased 43.3% from 2014, due primarily to costs related to corporate-wide streamlining and
technology redevelopment efforts. Net gains from sale or disposal of assets were $1 million in 2015, compared with $6 million in 2014.
Net interest expense for 2015 decreased by 5.4% compared with 2014, primarily due to lower effective interest rates.
Our effective income tax rate was 38.10% in 2015 and 38.01% in 2014. The increase in 2015 was primarily related to an increase in state income
tax expense. We expect our effective income tax rate to be in the range of 38.00% to 38.10% for calendar year 2016.
Segments
We operated four business segments during calendar year 2015. 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
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Operating Income by Segment
Years Ended December 31,
(in millions)
2015
$ 3,665
1,451
699
386
6,201
(13)
$ 6,188
2014
$ 3,687
1,394
718
386
6,185
(20)
$ 6,165
2013
$ 3,456
1,231
537
391
5,615
(30)
$ 5,585
Years Ended December 31,
(in millions)
2015
$ 477
163
36
40
$ 716
2014
$ 461
117
30
24
$ 632
2013
$ 447
110
16
4
$ 577
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,
2015
2014
2013
1,772,808
1,652
$ 2,067
4,949
1,700,374
1,656
$ 2,169
4,502
1,593,511
1,694
$ 2,169
3,916
4,276
805
5,081
78,957
72,622
3,916
761
4,677
73,298
68,683
3,448
646
4,094
65,979
60,612
2,250,099
175
$ 4,028
7,012
2,101,707
177
$ 4,098
6,641
1,835,872
190
$ 4,109
5,865
6,762
10
436
7,208
21,672
22,391
6,425
7
448
6,880
20,516
20,927
5,805
10
592
6,407
19,062
19,229
542,947
$ 1,288
453,410
$ 1,584
388,987
$ 1,380
15.3%
670
45,700
13.0%
582
39,100
11.8%
503
34,600
366,297
448
163,115
193,856
78.9
$ 3,698
2,051
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
1,462
687
2,149
7,604
6,460
1,296
590
1,886
7,215
5,891
1,200
657
1,857
6,828
6,877
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JBI Segment
JBI segment revenue decreased 0.6% to $3.66 billion in 2015, from $3.69 billion in 2014, resulting from a decrease in revenue per load, which is
attributable to customer rate increases offset by lower fuel surcharges and freight mix. This decrease was partially offset by increases in load volume in
both our eastern and transcontinental networks. Excluding fuel surcharge, revenues increased 8.7% and revenue per load increased 4.4% in 2015 over
the prior year. Average length of haul remained relatively flat in 2015 when compared to 2014.
Operating income in our JBI segment increased to $477 million in 2015, from $461 million in 2014. This increase was primarily due to customer
rate increases, increased load volume, reduced reliance on outsourced dray carriers, lower insurance and cargo claim costs, and lower maintenance
costs, partially offset by increases in rail purchased transportation rates, higher equipment depreciation expense, higher driver procurement and
retention expenses, and $6.4 million in corporate-wide streamlining and technology redevelopment costs.
DCS Segment
DCS segment revenue increased 4.1% to $1.45 billion in 2015, from $1.39 billion in 2014. Productivity, defined as revenue per truck per week,
decreased 1.7% when compared to 2014, primarily from lower fuel surcharge revenue. Revenue, excluding fuel surcharges, increased 10.0% in 2015
compared to 2014, and productivity excluding fuel surcharge revenue increased 3.9% from 2014, primarily from customer rate increases and additional
activity at customer accounts. DCS ended 2015 with a net additional 328 revenue-producing trucks when compared to 2014.
Operating income increased to $163 million in 2015, compared with $117 million in 2014. The increase in operating income was primarily due to
increased revenue, improved asset utilization, less reliance on third-party carriers and lower maintenance costs, partially offset by increased equipment
depreciation expense, higher driver wage and recruiting costs, and $2.6 million in corporate-wide streamlining and technology redevelopment costs.
ICS Segment
ICS segment revenue decreased 2.6% to $699 million in 2015, from $718 million in 2014. This decrease in revenue was primarily due to
decreased revenue per load resulting from lower fuel prices, changes in freight mix, and less transactional customer demand, partially offset by an
increase in overall load volume. Contractual business was approximately 71% of the total load volume and 63% of the total revenue in the 2015,
compared to 63% of the total load volume and 55% of the total revenue in 2014.
Operating income increased to $36 million in 2015, compared to $30 million in 2014, primarily due to improved gross profit margin. ICS gross
profit margin increased to 15.3% for 2015 from 13.0% for 2014. Improvements in gross profit margin were offset by approximately $4.4 million in
corporate-wide streamlining and technology redevelopment costs and higher personnel costs as the total branch count increased to 34 from 29 at the
end of 2014. ICS’s carrier base increased 17%, and the employee count increased 15% when compared to 2014.
JBT Segment
JBT segment revenue remained flat at $386 million in 2015 when compared to 2014. Excluding fuel surcharges, revenue for 2015 increased 7.5%
compared to 2014, primarily due to increased truck count and core rate increases.
JBT segment had operating income of $40 million in 2015 compared with $24 million in 2014. Benefits from an increased truck count, core
rate increases, and improvements in equipment maintenance costs, insurance and claims costs, and fuel economy were partially offset by lower asset
utilization, higher driver wage and hiring costs, lower gains on equipment sales, increased equipment depreciation expense, increased driver and
independent contractor costs per mile, and corporate-wide streamlining and technology redevelopment costs.
2014 COMPARED WITH 2013
Consolidated Operating Revenues
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 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 fuel surcharge 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 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
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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 incidents 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.
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 fuel surcharge 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.
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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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $873 million in 2015 and $647 million in 2014. This increase in 2015 was primarily due to increased
earnings and the collection of trade and income taxes receivable, partially offset by the timing of the payments of trade payables and accrued expenses.
Net cash used in investing activities totaled $577 million in 2015, compared with $660 million in 2014. The decrease resulted primarily from a
reduction in equipment purchases, combined with an increase in proceeds from the sale of equipment in 2015, compared to 2014.
Net cash used in financing activities was $297 million in 2015, compared to net cash provided by financing activities of $13 million in 2014. This
change resulted primarily from an increase in treasury stock purchases and lower long-term debt issuances, net of long-term debt repayments, in 2015.
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 $0.15 per share quarterly dividend
in 2013, with the first quarter dividend being pulled forward and paid in fourth quarter 2012, a $0.20 per share quarterly dividend in 2014, and a $0.21
per share quarterly dividend in 2015. On January 28, 2016, we announced an increase in our quarterly cash dividend from $0.21 to $0.22 per share,
which will be paid February 26, 2016, to stockholders of record on February 12, 2016. 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.
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At December 31, 2015, 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 September 2020. 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, 2015, we had $150 million outstanding at an average interest rate of 1.39% under this agreement.
Our senior notes consist of three separate issuances. The first and second 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. The third issuance is $350 million of 3.30% senior notes due August 2022, issued in
August 2015. Interest payments under this note are due semiannually in February and August of each year, beginning February 2016. We may redeem
for cash some or all of these notes based on a redemption price set forth in the note indenture. We currently have interest rate swap agreements
which effectively convert our $250 million of 2.40% fixed-rate senior notes due March 2019 and our $350 million of 3.30% fixed-rate senior notes due
August 2022 to variable rates, resulting in interest rates of 1.36% and 1.72%, respectively, at December 31, 2015. The applicable interest rates under
these swap agreements are based on LIBOR plus an established margin.
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, 2015.
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 $463 million, net of proceeds from sales or trade-ins, during 2016 and 2017, 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, 2015, we had approximately $28.1 million of
obligations, primarily related to facility leases.
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Contractual Obligations and Commitments
The following table summarizes our expected obligations and commitments (in millions) as of December 31, 2015:
Operating leases
Long-term debt obligations
Interest payments on debt (1)
Commitments to acquire revenue equipment and facilities
Total
Total
$ 28.1
1,000.0
141.2
463.3
$ 1,632.6
2016
$ 13.5
–
21.1
455.4
$ 490.0
2017-2018
$ 12.6
–
42.3
7.9
$ 62.8
2019-2020
$ 1.8
400.0
36.0
–
$ 437.8
2021 and
thereafter
$ 0.2
600.0
41.8
–
$ 642.0
(1) Interest payments on debt are based on the debt balance and applicable rate at December 31, 2015.
We had standby letters of credit outstanding of approximately $4.4 million at December 31, 2015, that expire at various dates in 2016, 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 $36.0 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 interest rate swap agreements which effectively convert our $250 million of 2.40% fixed-rate
senior notes due March 2019 and our $350 million of 3.30% fixed-rate senior notes due August 2022 to variable rates. The applicable interest rates
under these swap agreements are 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
$7.5 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, 2015. 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, 2015, 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:
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Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Earnings for years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Stockholders’ Equity for years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Cash Flows for years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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, 2015. 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, 2015, our internal control over financial
reporting is effective based on those criteria.
The effectiveness of internal control over financial reporting as of December 31, 2015, 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, 2015, 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 21, 2016.
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 21, 2016.
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.
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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.
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 21, 2016.
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 21, 2016.
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 21, 2016.
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 21, 2016.
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 21, 2016.
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, 2013
December 31, 2014
December 31, 2015
Balance at
Beginning of
Year
$ 6.6
8.1
9.5
Charged to
Expense / Against
Revenue
$ 14.0
19.0
9.5
Write-Offs,
Net of
Recoveries
$ (12.5)
(17.6)
(9.1)
Balance at
End of
Year
$ 8.1
9.5
9.9
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”).
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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 23rd day of February, 2016.
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 23rd day
of February, 2016, on behalf of the registrant and in the capacities indicated.
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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
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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
Amended and Restated Bylaws of J.B. Hunt Transport Services, Inc. dated April 23, 2015 (incorporated by reference from Exhibit 3.1 of
the Company’s current report on Form 8-K, filed April 27, 2015)
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
Indenture (incorporated by reference from Exhibit 4.1 of the Company’s registration statement on Form S-3ASR, filed
September 14, 2010)
10.5
Second Supplemental Indenture (incorporated by reference from Exhibit 4.2 of the Company’s current report on Form 8-K, filed
March 6, 2014)
10.6
Third Supplemental Indenture (incorporated by reference from Exhibit 4.4 of the Company’s current report on Form 8-K, filed
March 6, 2014)
10.7
Fourth Supplemental Indenture (incorporated by reference from Exhibit 4.3 of the Company’s current report on Form 8-K, filed
August 6, 2015)
10.8
Credit Agreement and related documents (incorporated by reference from Exhibit 10.1 of the Company’s current report on Form 8-K,
filed October 2, 2015)
21.1
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
32.1
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
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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, 2015 and 2014
Consolidated Statements of Earnings for years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Stockholders’ Equity for years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Cash Flows for years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
PAGE
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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, 2015. 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, 2015, our internal control over financial reporting is effective based on those criteria.
The effectiveness of internal control over financial reporting as of December 31, 2015, 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)
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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, 2015
and 2014, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2015. 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, 2015 and 2014, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2015, 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, 2015, 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 23, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Rogers, Arkansas
February 23, 2016
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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, 2015, 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, 2015, 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, 2015 and 2014, and the related consolidated statements of
earnings, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015 of J.B. Hunt Transport Services, Inc.
and subsidiaries, and our report dated February 23, 2016 expressed an unqualified opinion thereon.
Rogers, Arkansas
February 23, 2016
/s/ Ernst & Young LLP
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J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents
Trade accounts receivable, net
Inventories
Prepaid licenses and permits
Prepaid insurance
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
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Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt
Trade accounts payable
Claims accruals
Accrued payroll
Other accrued expenses
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, 2015 and 2014, of which 113,947,780 shares
and 116,575,163 shares were outstanding at December 31, 2015 and 2014, respectively)
Additional paid-in capital
Retained earnings
Treasury stock, at cost (53,151,652 shares at December 31, 2015,
and 50,524,269 shares at December 31, 2014)
Total stockholders’ equity
2015
2014
$ 5,566
654,542
23,191
25,057
60,599
90,412
859,367
3,636,767
39,026
154,142
189,516
4,019,451
1,318,122
2,701,329
75,871
$ 3,636,567
$ –
340,332
104,220
59,420
28,445
532,417
1,005,026
58,552
740,220
2,336,215
$ 5,961
653,795
27,740
22,886
55,660
95,457
861,499
3,336,529
38,978
153,704
190,546
3,719,757
1,237,225
2,482,532
34,455
$ 3,378,486
$ 250,000
325,838
96,719
80,547
17,966
771,070
683,539
59,561
659,793
2,173,963
–
–
1,671
268,728
2,885,843
1,671
247,641
2,555,972
(1,855,890)
1,300,352
(1,600,761)
1,204,523
Total liabilities and stockholders’ equity
$ 3,636,567
$ 3,378,486
See Notes to Consolidated Financial Statements.
70
J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31, 2015, 2014 and 2013
(in thousands, except per share amounts)
Operating revenues, excluding fuel surcharge revenues
$ 5,516,282
$ 5,082,827
$ 4,527,238
2015
2014
2013
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.
671,364
6,187,646
2,994,586
1,394,239
313,034
339,613
220,597
73,689
72,522
43,084
20,588
5,471,952
715,694
86
25,577
690,203
262,968
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
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23,209
553,568
211,186
$ 427,235
$ 374,792
$ 342,382
115,677
117,000
117,449
$ 3.69
$ 3.20
$ 2.92
116,728
$ 3.66
$ 0.84
118,445
$ 3.16
$ 0.80
119,404
$ 2.87
$ 0.45
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J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2015, 2014 and 2013
(in thousands, except per share amounts)
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
Balances at December 31, 2014
Comprehensive income:
Net earnings
Cash dividend declared and paid ($0.84 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
$ 207,073
–
–
21,950
–
32,354
Retained
Earnings
$ 1,985,213
Treasury
Stock
$ (1,402,097)
Stockholders’
Equity
$ 791,860
342,382
(52,811)
–
–
–
–
–
–
(114,723)
–
342,382
(52,811)
21,950
(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)
$ 1,671
$ 247,641
$ 2,555,972
$ (1,600,761)
$ 1,204,523
–
–
–
–
–
–
–
–
12,877
–
37,228
427,235
(97,364)
–
–
–
–
–
–
(262,275)
–
427,235
(97,364)
12,877
(262,275)
37,228
(29,018)
–
7,146
(21,872)
Balances at December 31, 2015
$ 1,671
$ 268,728
$ 2,885,843
$ (1,855,890)
$ 1,300,352
See Notes to Consolidated Financial Statements.
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J.B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2015, 2014 and 2013
(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 current 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/(decrease) 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.
2015
2014
2013
$ 427,235
$ 374,792
$ 342,382
339,613
37,228
(1,281)
80,427
(747)
3,055
(17,735)
8,600
7,502
(10,589)
873,308
(725,122)
168,686
(20,096)
(576,532)
349,129
(250,000)
2,110,800
(2,138,466)
(262,275)
2,978
(24,850)
12,877
(97,364)
(297,171)
(395)
5,961
$ 5,566
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
$ 27,245
$ 163,304
$ 26,685
$ 192,955
$ 24,722
$ 141,968
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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 $9.9 million and $9.5 million at December 31, 2015
and 2014, 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, 2015 and 2014, we had no available-for-sale securities. See Note 8, Employee Benefit Plans, for a discussion of our
trading securities.
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
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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
2015
115,677
1,051
116,728
Years ended December 31,
2014
117,000
1,445
118,445
2013
117,449
1,955
119,404
Financial instruments, which potentially subject us to concentrations of credit risk, include trade receivables. For the years ended
December 31, 2015, 2014, and 2013, our top 10 customers, based on revenue, accounted for approximately 29%, 28%, and 29%, respectively, of
our total revenue. Our top 10 customers, based on revenue, accounted for approximately 27% and 29% of our total trade accounts receivable at
December 31, 2015 and 2014, 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.
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.
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The amounts of self-insurance change from time to time based on measurement dates, policy expiration dates, and claim type. For 2013
through 2015, we were self-insured for $500,000 per occurrence for personal injury and property damage and self-insured for $100,000 per workers’
compensation claim. We have policies in place for 2016 with substantially the same terms as our 2015 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, 2015 and 2014, we had an accrual of approximately
$95 million and $88 million, respectively, for estimated claims. In addition, we are required to pay certain advanced deposits and monthly premiums.
At December 31, 2015 and 2014, we had an aggregate prepaid insurance asset of approximately $87 million and $68 million, respectively, which
represented prefunded premiums.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) 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. We have the option of using either a full retrospective or a modified retrospective approach when adopting this new standard. In
August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective
date of ASU 2014-09 one year to interim and annual periods beginning after December 15, 2017. Early adoption is permitted after the original effective
date of December 15, 2016. We are currently evaluating the alternative transition methods and the potential effects of the adoption of this update on
our financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which
amends the current presentation of debt issuance costs in the financial statements. ASU 2015-03 requires that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts, instead of as an asset. The amendments are to be applied retrospectively and are effective for interim and annual periods beginning after
December 15, 2015, but early adoption is permitted. The adoption of the new guidance is not expected to have a material impact on our financial
statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities, which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01
requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the
impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment;
eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is
required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price
notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has
elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial
assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial
statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities.
The amendments are to be applied by means of a cumulative-effect adjustment to the balance sheet and are effective for interim and annual periods
beginning after December 15, 2017. With certain exceptions, early adoption is not permitted. The adoption of the new guidance is not expected to
have a material impact on our financial statements.
Accounting Pronouncements Adopted in 2015
In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, which amends the current
presentation of deferred taxes in the financial statements. ASU 2015-17 requires that deferred tax assets and deferred tax liabilities be presented in the
balance sheet as noncurrent, which simplifies the current guidance that requires entities to separately present these items as current and noncurrent
in the balance sheet. The amendments can be applied retrospectively or prospectively and are effective for interim and annual periods beginning after
December 15, 2016, but early adoption is permitted. We retroactively adopted ASU 2015-17 at December 31, 2015, and have reclassified all prior
periods to be consistent with the amendments outlined in the ASU. The impact of the prior period reclassification was an $18.6 million reduction of
current assets and working capital at December 31, 2014.
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3. Financing Arrangements
Outstanding borrowings under our current financing arrangements consist of the following (in millions):
Senior revolving line of credit
Senior notes, net of unamortized discount
Less current portion of long-term debt
Total long-term debt
December 31,
2015
$ 150.0
855.0
–
$ 1,005.0
2014
$ 183.0
750.5
(250.0)
$ 683.5
Aggregate maturities of long-term debt subsequent to December 31, 2015, are as follows: $252.3 million in 2019, $150.0 million in 2020, and
$602.7 million thereafter.
Senior Revolving Line of Credit
In September 2015, we replaced our $500 million senior revolving credit facility established in August 2011 with a new credit facility authorizing
us 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. This new senior
credit facility has a five-year term expiring in September 2020, and 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, 2015, we had $150 million outstanding at an average interest rate of 1.39% under this agreement.
Senior Notes
Our senior notes consist of three separate issuances. The first and second 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. The third issuance is $350 million of 3.30% senior notes due August 2022, issued in August 2015.
Interest payments under this note are due semiannually in February and August of each year, beginning February 2016. All three senior notes were
issued by J.B. Hunt Transport Services, Inc., a parent-level holding company with no significant assets or operations. The notes are guarantied 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. 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 interest rate swaps entered into on the $250 million of 2.40% senior notes
due March 2019 and the $350 million of 3.30% senior notes due August 2022. Our $250 million of 3.375% senior notes matured in September 2015.
The entire outstanding balance was paid in full at maturity.
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, 2015.
4. Derivative Financial Instruments
We periodically utilize derivative instruments for hedging and non-trading purposes to manage exposure to changes in interest rates and to
maintain an appropriate mix of fixed and variable-rate debt. 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.
We entered into receive fixed-rate and pay variable-rate interest rate swap agreements simultaneously with the issuance of our $250 million of
2.40% senior notes due March 2019 and $350 million of 3.30% senior notes due August 2022, to effectively convert this fixed-rate debt to variable-rate.
The notional amounts of these interest rate swap agreements equal those of the corresponding fixed-rate debt. The applicable interest rates under
these agreements is based on LIBOR plus an established margin, resulting in an interest rate of 1.36% for our $250 million of 2.40% senior notes and
1.72% for our $350 million of 3.30% senior notes at December 31, 2015. The swaps expire when the corresponding senior notes are due. The fair
values of these swaps are recorded in other assets in our Consolidated Balance Sheet at December 31, 2015. See Note 9, Fair Value Measurements,
for disclosure of fair value. These derivatives meet the required criteria to be designated as fair value hedges and as the specific terms and notional
amounts of these derivative instruments match those of the fixed-rate debt being hedged, these derivative instruments are 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 these interest
rate swaps recorded in earnings is offset by a corresponding change in the fair value of the related debt.
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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, 2015
or 2014. 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, 2015, we had 2.0 million shares of common stock to be issued
upon the exercise or vesting of equity awards and 7.5 million shares reserved for future issuance pursuant to share-based payment plans. During
calendar year 2015, we purchased approximately 3.3 million shares, or $262.3 million, of our common stock in accordance with plans authorized by our
Board. At December 31, 2015, we had $451.0 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 generally 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 (generally 3 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, 2015, 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.
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 that the cost of all share-based payments to employees, including grants of employee stock options,
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
2015
Years ended December 31,
2014
2013
$ 27,898
10,629
$ 17,269
$ 9,330
3,555
$ 5,775
$ –
–
$ –
$ 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
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A summary of our restricted share units, performance share units, and nonstatutory stock options is as follows:
Restricted Share Units
Unvested at December 31, 2012
Granted
Vested
Forfeited
Unvested at December 31, 2013
Granted
Vested
Forfeited
Unvested at December 31, 2014
Granted
Vested
Forfeited
Unvested at December 31, 2015
Performance Share Units
Unvested at December 31, 2012
Granted
Vested
Forfeited
Unvested at December 31, 2013
Granted
Vested
Forfeited
Unvested at December 31, 2014
Granted
Vested
Forfeited
Unvested at December 31, 2015
Stock Options
Outstanding at December 31, 2012
Exercised
Forfeited
Outstanding at December 31, 2013
Exercised
Forfeited
Outstanding at December 31, 2014
Exercised
Forfeited
Outstanding at December 31, 2015
Exercisable
Number of
Shares
2,835,466
522,062
(865,147)
(70,951)
2,421,430
447,780
(808,914)
(119,298)
1,940,998
390,143
(783,483)
(30,908)
1,516,750
Number
of Shares
309,500
160,500
(61,975)
–
408,025
106,945
(81,075)
–
433,895
160,574
(103,796)
–
490,673
Weighted Average
Remaining
Weighted
Number of Shares Average Exercise Contractual Term
Price
$ 16.63
14.77
19.89
$ 19.08
18.70
19.08
$ 20.40
20.35
24.27
$ 20.76
$ 20.76
(in thousands)
1,031
(585)
(6)
440
(341)
(1)
98
(95)
(1)
2
2
(in years)
2.35
–
–
1.67
–
–
0.86
–
–
0.05
0.05
Weighted
Average Grant
Date Fair Value
$ 32.75
71.50
31.92
36.67
$ 41.49
75.61
37.33
47.81
$ 51.74
74.86
39.45
54.89
$ 63.96
Weighted
Average Grant
Date Fair Value
$ 47.07
71.90
47.48
–
$ 56.78
76.22
53.26
–
$ 62.23
74.37
58.28
–
$ 67.04
Aggregate
Intrinsic Value
(in millions)
$ 44.4
34.0
–
$ 25.6
19.9
–
$ 6.3
5.8
–
$ 0.1
$ 0.1
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At December 31, 2015, we had $58.5 million and $19.4 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 3.6 years for restricted share units and 2.6 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, 2015, 2014,
and 2013, was $80.8 million, $88.5 million, and $104.5 million, respectively. The aggregate intrinsic value of unvested restricted and performance share
units was $147.3 million at December 31, 2015. The total fair value of shares vested for restricted share, performance share, and stock option plans
during the years ended December 31, 2015, 2014, and 2013, was $37.3 million, $37.5 million, and $35.4 million, respectively.
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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
2015
Years ended December 31,
2014
2013
$ 160,235
22,306
182,541
71,292
9,135
80,427
$ 262,968
$ 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
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
2015
$ 241,571
18,671
1,420
1,761
–
(455)
$ 262,968
Years ended December 31,
2014
$ 211,610
17,357
1,395
256
–
(809)
$ 229,809
2013
$ 193,749
13,551
1,543
3,708
(755)
(610)
$ 211,186
Income taxes receivable was $76.7 million and $79.8 million at December 31, 2015 and 2014, 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, 2015 and 2014, are presented below (in thousands):
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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,
2015
2014
$ 33,522
2,335
13,991
24,687
12,751
–
4,036
91,322
(552)
90,770
786,840
33,064
11,086
830,990
$ 740,220
$ 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
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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
2015
$ 31.6
9.4
(2.5)
(3.0)
(3.5)
$ 32.0
December 31,
2014
$ 29.7
8.2
0.4
(3.7)
(3.0)
$ 31.6
2013
$ 25.8
7.0
(1.2)
(0.1)
(1.8)
$ 29.7
At December 31, 2015 and 2014, we had a total of $32.0 million and $31.6 million, respectively, in gross unrecognized tax benefits. Of these
amounts, $20.8 million and $20.5 million represent the amount of unrecognized tax benefits that, if recognized, would impact our effective tax
rate in 2015 and 2014, 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 recognized during the years ended December 31, 2015, 2014, and 2013, was $1.9 million,
$1.8 million, and $1.9 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, 2015 and 2014, was $4.0 million
and $3.5 million, respectively.
Tax years 2012 and forward remain subject to examination by federal tax jurisdictions, while tax years 2005 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, 2015, 2014,
and 2013, our matching contributions to the plan were $14.7 million, $11.6 million, and $11.4 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 $13.6 million as of December 31, 2015, and $13.5 million as of
December 31, 2014. 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 $13.6 million as of December 31, 2015, and $13.5 million as of December 31, 2014.
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 valuation techniques which consider prices and other relevant information generated
by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices
(Level 1) or inputs, other than 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, 2015 (in millions):
Trading investments
Interest rate swap
Senior notes
Asset/(Liability)
Balance
$ 13.6
$ 6.1
$ (605.2)
Input Level
1
2
2
The fair value of trading investments has been measured using the market approach (Level 1) and reflect quoted market prices. The fair values
of interest rate swaps and corresponding senior notes have been measured using the income approach (Level 2), which include relevant interest rate
curve inputs. Trading investments and interest rate swaps 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, 2015, using the income approach (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 $399.8 million and $407.7 million, respectively.
The carrying amounts of all other instruments at December 31, 2015, approximate their fair value due to the short maturity of these instruments.
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10. Commitments and Contingencies
As of December 31, 2015, we had approximately $28.1 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, 2015, are approximately $28.1 million, with payment streams as follows (in millions): 2016 – $13.5; 2017 – $8.7;
2018 – $3.9, 2019 – $1.3, 2020 – $0.5, and thereafter – $0.2.
Total rent expense was $39.5 million in 2015, $39.1 million in 2014, and $33.2 million in 2013. At December 31, 2015, we had outstanding
commitments of approximately $463 million, net of proceeds from sales or trade-ins during 2016 and 2017, which is primarily related to the acquisition
of containers, chassis, and tractors.
During 2015, we issued financial standby letters of credit as a guaranty 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 guaranties.
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, 2015.
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 where it is currently
pending. The overlapping claims in the remaining action 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.
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):
JBI
DCS
ICS
JBT
Other (includes corporate)
Total
JBI
DCS
ICS
JBT
Total segment revenues
Intersegment eliminations
Total
Assets
(Excludes intercompany accounts)
December 31,
2014
$ 1,733
832
106
289
418
$ 3,378
2013
$ 1,611
721
78
164
245
$ 2,819
2015
$ 1,848
949
99
286
455
$ 3,637
Revenues
Years ended December 31,
2014
$ 3,687
1,394
718
386
6,185
(20)
$ 6,165
2013
$ 3,456
1,231
537
391
5,615
(30)
$ 5,585
2015
$ 3,665
1,451
699
386
6,201
(13)
$ 6,188
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JBI
DCS
ICS
JBT
Total
JBI
DCS
JBT
Other
Total
Operating Income
Years ended December 31,
2014
$ 461
117
30
24
$ 632
2013
$ 447
110
16
4
$ 577
2015
$ 477
163
36
40
$ 716
Depreciation and Amortization Expense
Years ended December 31,
2014
$ 130
117
32
15
$ 294
2013
$ 116
97
29
11
$ 253
2015
$ 148
133
42
17
$ 340
12. Quarterly Financial Information (Unaudited)
Operating results by quarter for the years ended December 31, 2015 and 2014 are as follows(in thousands, except per share data):
2015:
Operating revenues
Operating income
Net earnings
First
Second
Third
Fourth
Quarter
$ 1,440,180
$ 1,539,957
$ 1,586,494
$ 1,621,015
$ 155,220
$ 173,735
$ 193,846
$ 192,893
$ 91,932
$ 103,419
$ 115,139
$ 116,746
Basic earnings per share
$ 0.79
$ 0.89
$ 1.00
$ 1.02
Diluted earnings per share
$ 0.78
$ 0.88
$ 0.99
$ 1.01
2014:
Operating revenues
Operating income
Net earnings
$ 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
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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 21, 2016,
at the corporate headquarters of
J.B. Hunt Transport Services, Inc.,
Lowell, Arkansas, located on
Interstate 49 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 (retired)
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
Stuart Scott
Executive Vice President
and Chief Information Officer
Shelley Simpson
Executive Vice President, Chief Marketing Officer,
and President, Integrated Capacity Solutions and Truckload
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2015 Percent of Revenue by Industry
17%
15%
10%
23%
Specialty Retailers
Food
General Merchandise
Forest & Paper Products
Transportation
Electronics
Beverages
Other
Motor Vehicles & Parts
Building Materials
Soaps, Cosmetics
Chemicals
Metals
Pharmaceuticals
1%
7%
6%
5%
4%
4%
2%
2%
2%
2%
85
P.O. Box 130 • Lowell, Arkansas 72745
www.jbhunt.com