ITEM 1. BUSINESS
GENERAL
J.B. Hunt Transport Services, Inc., together with its wholly- owned subsidiaries ("JBH" or the "Company") is a diversified transportation services and logistics company operating under the jurisdiction of the Interstate Commerce Commission ("ICC") and various state regulatory agencies. JBH is an Arkansas holding company incorporated on August 10, 1961. Through its subsidiaries JBH transports full-load containerizable freight throughout the continental United States and portions of Canada and Mexico. The Company also provides logistics and transportation-related services which may utilize JBH equipment and employees or may employ equipment and services provided by unrelated third parties in the transportation industry.
JBH has various operating authorities granted by the ICC and state regulatory agencies. The Company may transport any type of freight (except certain types of explosives) from any point in the continental United States to any other point in another state, over any route selected by the Company. The Company also has certain intrastate authorities, allowing pick-up and delivery within those states. Federal legislation was enacted effective January 1, 1995 which preempted each state's right to limit entry into intrastate operations. A wide range of products are transported including automotive parts, department store merchandise, paper and paper products, plastics, chemicals and manufacturing materials and supplies.
JBH was granted certain Canadian authority initially in 1988 and currently transports freight to and from all points in the continental United States to Quebec, British Columbia and Ontario. Transportation services are also provided between certain Canadian provinces. The Company has provided transportation services to and from Mexico since 1989 through interchange operations with various Mexican motor carriers. A joint venture agreement with Transportacion Maritima Mexicana, the largest transportation company in Mexico, was signed in 1992.
In 1990, JBH initiated intermodal operations with the Atchison, Topeka and Santa Fe Railway Company. In accordance with this agreement, freight may be transported by rail utilizing traditional trailer-on-flatcar (TOFC) or container-on-flatcar (COFC) medium. Since this initial agreement with Santa Fe, intermodal operations have been expanded to include arrangements with twelve railroads. A number of these rail routes allow the utilization of a newly-designed container which can be double-stacked to provide improved productivity. Substantially all of the freight carried under these rail arrangements is guaranteed space on trains and receives preferential loading and unloading at rail facilities.
The Company also offers related full truckload transportation services. Flatbed and special (hazardous) commodities operations were commenced in 1991. A Texas intrastate operation was also acquired in 1991. A growing number of shippers are interested in logistics and dedicated equipment services, whereby all transportation requirements can be outsourced and provided by one management and services company. JBH organized a logistics services unit in 1992 and a dedicated equipment operation in 1993.
MARKETING AND OPERATIONS
The truckload market has traditionally been a lower price, lower service market when compared to the less-than-truckload (LTL) segment. The Company has opted to provide a premium service and charge compensating rates rather than compete primarily on the basis of price.
The Company's business is well diversified and no one customer accounted for more than 6% of revenues during 1994 or 1993. Marketing efforts include significant focus on the diversified group of "Fortune 500" customers. A broad geographic dispersion and a good balance in the type of industries served allow JBH some protection from major seasonal fluctuations. However, consistent with the T/L industry in general, freight is typically stronger in the second half of the year with peak months being August, September and October. In addition, demand for services is usually strong at the end of the first two calendar quarters (i.e., March and June). Revenue is also affected by bad weather and holidays, since revenue is directly related to available working days of shippers.
The Company markets door-to-door T/L service through its nationwide marketing network. Services involving intermodal transportation mediums are billed by JBH and all inquiries, claims and other customer contact are handled by the Company. In late 1994, the Company reorganized its dry van and intermodal operations into five geographically based regions.
PERSONNEL
At December 31, 1994, JBH employed 11,837 people, including 8,667 drivers. The transportation industry and the Company have experienced shortages of qualified drivers from time to time. The Company has developed an extensive program to attract, train and retain drivers.
Both experienced and non-experienced drivers are trained in all phases of Company policies and operations, as well as defensive driving, safety techniques and fuel efficient operation of equipment. During 1992, three distinct driving designations (local, regional or zone and over-the road) were identified in order to get drivers home more frequently and provide specific support for intermodal and regional operations. Drivers are compensated based upon miles driven, a specified rate per week, or a combination of both. Additional compensation may be earned based upon fuel economy and other performance criteria. The Company also employed approximately 1000 mechanics as of December 31, 1994. In the opinion of management, the Company's relationship with all of its employees is excellent.
REVENUE EQUIPMENT
At December 31, 1994, JBH owned 7,412 tractors, 8,636 trailers and 14,051 specially designed containers. The average age of the tractor and trailing equipment fleet was approximately two years. In late 1992, the Company announced the development of a new multi-purpose container which can be placed on a chassis for transportation over-the-road by truck and also moved by rail or ship. The container and chassis combination may be transported by rail (TOFC) or the container can be separated from the chassis and double-stacked (COFC) on the rail for improved productivity. The Company intends to continue the conversion of a significant portion of its dry van trailer fleet to these containers.
A periodic maintenance program is strictly enforced for all revenue equipment based upon the specific type and use of the equipment. JBH believes that modern, late-model, clean equipment differentiates quality service in the marketplace. A professional maintenance program minimizes downtime, increases utilization and enhances the trade-in value of used equipment.
COMPETITION
JBH is the largest publicly-held T/L carrier in the United States. It competes primarily with other irregular route, T/L common carriers. LTL common carriers and private carriers generally provide limited competition. JBH is one of a few carriers offering nationwide logistics management and dedicated revenue equipment services. Although a number of carriers may provide competition on a regional basis, only a limited number of companies represent competition in all markets. The extensive rail network developed in conjunction with the various railroads also allows the Company the opportunity to differentiate its services in the marketplace.
REGULATION
The Company is a motor common carrier regulated by the ICC. The ICC generally governs activities such as authority to engage in interstate motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions and periodic financial reporting.
Motor carrier operations are subject to safety requirements prescribed by the United States Department of Transportation (DOT) governing interstate operation. Such matters as weight and dimensions of equipment and commercial driver's licensing are also subject to federal and state regulations. A federal requirement that all drivers obtain a commercial driver's license became effective in April 1992.
The federal Motor Carrier Act of 1980 was the start of a program to increase competition among motor carriers and limit the level of regulation in the industry (sometimes referred to as "deregulation"). The Motor Carrier Act of 1980 enabled applicants to obtain ICC operating authority more easily and allows interstate motor carriers, such as the Company, to change their rates by a certain percentage per year without ICC approval. The new law also allowed for the removal of many route and commodity restrictions regarding the transportation of freight. As a result of the Motor Carrier Act of 1980, the Company was able to obtain unlimited authority to carry general commodities throughout the 48 contiguous states. Effective January 1, 1995, the federal government issued guidelines which allow motor carriers more flexibility in intrastate operations. Although this reduced level of state regulation may increase the level of competition in some regions, the Company believes it will ultimately benefit from this legislation.
ITEM 2.

ITEM 2. PROPERTIES
The Company's corporate headquarters are in Lowell, Arkansas. A 150,000-square-foot building was constructed and occupied in September 1990. The building is situated on a 127-acre tract of land.
In addition to the corporate headquarters, the Company owns a separate 62-acre tract in Lowell, Arkansas with four separate buildings totaling 21,000 square feet of office space and 90,000 square feet of maintenance and warehouse space. These buildings serve as the Lowell operations terminal, tractor and trailer maintenance facilities and additional administrative offices.
A summary of the Company's principal facilities follows:
The Company owns all of the above listed facilities except Chicago which is leased. In addition to the above facilities, the Company leases several small offices and/or trailer parking yards in various locations throughout the country.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The Company maintains excess insurance above its self-insured levels which covers extraordinary liability resulting from such claims. Adverse results in one or more of these cases would not have a material adverse effect on the financial position of the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1994 Annual Stockholders' Meeting was held on May 12, 1994. At that meeting, the following matters were submitted to a vote of security holders:
1. To elect ten (10) directors and to fix the number of directors for the ensuing year at ten (10).
2. To ratify the appointment of KPMG Peat Marwick LLP as the Company's independent public accountants for the next fiscal year.
No matters were submitted during the fourth quarter of 1994 to a vote of security holders.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded in the over-the-counter market under the symbol "JBHT". The following table sets forth, for the calendar periods indicated, the range of high and low sales prices for the Company's common stock as reported by the National Association of Securities Dealers Automated Quotations National Market System ("NASDAQ").
On February 28, 1995, the high and low sales prices for the Company's common stock as reported by the NASDAQ were $19.50 and $19.25, respectively. As of February 28, 1995, the Company had 2,032 stockholders of record.
DIVIDEND POLICY
On January 25, 1995, the Board of Directors declared a quarterly dividend of $.05 per share, payable to shareholders of record on February 2, 1995. Although it is the present intention of the Board of Directors to continue quarterly dividends, payment of future dividends will depend upon the Company's financial condition, results of operations and other factors deemed relevant by the Board of Directors. The Company declared and paid cash dividends of $.20 per share in 1994 and $.20 per share in 1993.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts)
PERCENTAGE OF OPERATING REVENUE
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following should be read in conjunction with the Selected Financial Data and the Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements which appear elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth the change in amounts and percentage change between years of certain revenue, expense and operating items.
(Dollars in thousands, except tractor data)
The following table sets forth certain industry operating data of the Company.
OPERATING REVENUES
Operating revenues increased 18% from 1993 to 1994 and 12% from 1992 to 1993. These increases in revenue were primarily due to continued growth of intermodal dry van volume, expansion of specialized carrier operations and modest increases in base truck freight rates. The average number of tractors in the fleet increased only 3% in 1994 and 7% in 1993. Due to the Company's strategy of providing diversified transportation services including intermodal and full-service logistics management, revenue growth is no longer directly related to size of the tractor fleet. The $187 million increase in revenue from 1993 to 1994 included $89 million from logistics and dedicated contract services, $71 million of dry van volume and $27 million from other specialized carrier operations. The increase in 1994 dry van revenue includes intermodal revenue and an approximate 4% increase in truck freight rates. The $109 million increase in revenue from 1992 to 1993 included $43 million from dry van volume, $38 million of logistics and dedicated contract services and $28 million from other specialized carrier operations. The 1993 dry van revenue increase includes intermodal and an approximate 2% increase in truck freight rates.
Revenue growth during 1994 and 1993 continued to reflect a focus on utilizing intermodal transportation services. Intermodal operations at December 31, 1994 include arrangements with twelve different railroads across the United States and portions of Canada and Mexico. Intermodal revenue increased 37% in 1994 and 66% in 1993, including incremental freight and some conversion of freight previously transported entirely by truck.
Increased operating revenues also reflect growth of logistics management and dedicated contract services. Customers continue to request customized transportation solutions to their distribution needs. Since 1992, the Company has offered customers the ability to outsource their total freight distribution process. Revenue from these logistics and dedicated contract services has more than doubled in each of the years 1994 and 1993.
OPERATING EXPENSES
Salaries, wages and employee benefits expense increased 9% from 1993 to 1994, reflecting primarily additional staffing in the logistics and dedicated contract services areas. The increase of 7% in 1993 was in proportion to the size of the fleet. Purchased transportation expense increased significantly during 1994 and 1993, reflecting the growth of intermodal and third- party transportation services. Fuel and fuel tax expense remained reasonably constant during 1994 and 1993 in relation to slight changes in the cost per gallon of fuel. Depreciation expense increased 33% in 1994 due to significantly lower gains on the disposition of revenue equipment and an 18% increase in the number of trailers and containers in the fleet. The decrease in depreciation expense in 1993 was primarily due to the amount of gains on equipment dispositions during that year.
Operating supplies and expenses increased 13% in 1994. This increase was due to increased spending for tractor and trailer repairs. The increase in operating supplies and expenses during 1993 was in relative proportion to the size of the tractor fleet. Insurance and claims expense decreased in both 1994 and 1993. The Company has continued to focus on reducing accident frequency and severity since late 1992. Operating taxes and licenses decreased during 1994 due to the growth of intermodal volume and the utilization of third-party services and certain credits recognized during the year. The 12% increase in 1993 reflects the size of the tractor fleet and rate increases enacted by various state regulatory agencies.
The significant increase in general and administrative expenses during 1994 is primarily due to higher levels of driver advertising and recruitment cost. The Company experienced a shortage of qualified drivers during the first half of 1994. Communication and utilities expense increased 21% during 1994, primarily due to increased volume of loads and revenue. In addition, certain satellite transmission charges related to on- board tractor communication devices commenced during 1994. The decrease of communication and utilities expense in 1993 was primarily due to certain rate reductions and credits.
Interest expense increased significantly during 1994 and 1993, primarily due to higher levels of debt associated with the acquisition of new containers and chassis and slightly higher interest rates.
The effective income tax rate was 38% in 1994 and 41% in 1993. The higher effective rate in 1993 was due to the increase in the federal tax rate on both current and deferred income taxes which was effective retroactive to January 1, 1993.
LIQUIDITY AND CAPITAL RESOURCES
In 1992, the Company committed to increased levels of capital spending on new technology including custom-designed on board tractor communication devices and multi-purpose container and chassis equipment. As of December 31, 1994, more than 14,000 of the newly designed containers were in service. Net capital expenditures were $219 million in 1994, $197 million in 1993 and $249 million in 1992, compared to $113 million in 1991. These expenditures were funded with proceeds from long-term debt, a secondary offering of common stock in 1992 and cash generated from operations.
The Company is authorized to issue up to $250 million in notes, $183 million of which was outstanding at December 31, 1994. A shelf registration statement for an aggregate principal amount of $250 million of debt securities was filed in 1993. At December 31, 1994, $100 million of 6.25% unsecured notes were outstanding in connection with this registration statement. The Company received approximately $56 million from a secondary offering of common stock in 1992. In addition, the Company had approximately $125 million of uncommitted lines of credit, none of which were outstanding at December 31, 1994.
With more than 70% of the dry van fleet converted to the new container equipment, the level of capital spending should decline during 1995. As of December 31, 1994, the Company had committed to purchase approximately $160 million of revenue and service equipment (net cost after expected proceeds from the sale or trade-in allowances of $15 million). The Company expects to fund future capital expenditures from cash provided by operating activities and proceeds from long-term debt.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in note 1(b) to the consolidated financial statements, the Company changed its method of accounting for the cost of tires in service during 1992.
KPMG Peat Marwick LLP February 7, 1995
MANAGEMENT'S REPORT
Management is responsible for the financial statements and other information contained in its annual report. The financial statements have been prepared in accordance with appropriate, generally accepted accounting principles, and the other information presented is consistent with the financial statements. In preparing these financial statements, it is necessary to make informed judgments and estimates regarding the expected effects of certain events and transactions that are currently being reported.
To meet its financial reporting responsibilities, management depends upon systems of internal controls which are intended to provide reasonable assurance, in relationship to reasonable cost, that assets are safeguarded, that transactions are executed in accordance with management's authorization and that the transactions are properly recorded so as to permit preparation of financial statements in accordance with generally accepted accounting principles. Management seeks to provide reasonable assurance that the objectives of internal accounting control are met by prudent selection of personnel, adoption of appropriate policies, effective communication to personnel and establishment of an effective system of authorization.
The Board of Directors performs an oversight role with respect to management's financial reporting responsibilities. To ensure effective discharge of its responsibilities, the Board of Directors has established an audit committee. The majority of the committee members are nonemployees of the Company and its subsidiaries. The audit committee has met and reviewed accounting issues, financial reporting and audit matters, including those pertaining to the effectiveness of the Company's systems of internal control.
The consolidated financial statements have been audited by KPMG Peat Marwick LLP. As part of their audit of the Company's financial statements, our independent accountants considered the Company's system of internal control structure to the extent they deemed necessary to determine the nature, timing and extent of their audit tests. These auditing procedures are intended to provide a reasonable level of assurance that the financial statements are fairly stated in all material respects.
Kirk Thompson Jerry W. Walton President and Chief Executive Officer Executive Vice President, Finance and Chief Financial Officer March 17, 1995
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
See accompanying notes to consolidated financial statements.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
See accompanying notes to consolidated financial statements
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
See accompanying notes to consolidated financial statements
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS)
See accompanying notes to consolidated financial statements.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements December 31, 1994, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
J. B. Hunt Transport Services, Inc., together with its wholly-owned subsidiaries ("Company"), is a diversified transportation services and logistics company operating under the jurisdiction of the Interstate Commerce Commission ("ICC") and various state regulatory agencies.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(B) TIRES IN SERVICE
Prior to 1992, the cost of tires placed in service, including replacement tires, was capitalized and amortized on the straight-line method over their estimated useful life. Effective January 1, 1992, the Company began capitalizing tires placed in service on new revenue equipment as a part of the equipment cost. Replacement tires are expensed at the time they are placed in service. This new method of accounting for tires placed in service is consistent with frequent industry practice. Due to the increasing percentage of freight transported on rail cars (intermodal), this method, in the opinion of management, provides a better matching of tire costs with revenues. This change increased net earnings for 1992 by $1,310,000 ($.04 per share). The cumulative impact of $1,825,000 ($.05 per share) to retroactively apply the new method has also been credited to earnings for 1992. This accounting change resulted in the reduction of prepaid tires by $21,541,000, an increase in net revenue equipment of $24,415,000 and an increase in deferred income taxes of $1,049,000. The proforma amounts shown on the consolidated statements of earnings have been adjusted for the effect of retroactive application on expenses and the related income taxes.
(C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives of 5 to 10 years for revenue and service equipment, 10 to 25 years for structures and improvements, and 3 to 10 years for furniture and office equipment. Gains on dispositions of revenue equipment are offset against depreciation expense.
On April 1, 1993, the Company changed the estimated salvage value for some of its revenue and service equipment. The effect upon 1993 net earnings was an increase of approximately $2,639,000 ($.07 per share).
(D) REVENUE RECOGNITION
The Company recognizes revenue based on relative transit time in each reporting period with expenses recognized as incurred as permitted by the Emerging Issues Task Force of the Financial Accounting Standards Board.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(E) INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Effective January 1, 1992, the Company adopted Statement 109. The effect of this change in the method of accounting for income taxes in the 1992 consolidated statement of earnings is not significant.
(F) EARNINGS PER SHARE
Earnings per share have been computed based on the weighted average number of shares outstanding during each year (38,559,528 in 1994; 38,276,109 in 1993; and 35,785,692 in 1992). Shares issuable under employee stock options are excluded from the weighted average number of shares as their effect is not dilutive.
On January 15, 1992, the Company announced a three-for-two stock split in the form of a 50% stock dividend payable on March 13, 1992, from authorized and unissued shares to stockholders of record on February 19, 1992. All references in the consolidated financial statements with regard to number of shares of common stock and the per share amounts have been retroactively restated to reflect this stock dividend.
(G) CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the Company's large number of customers and the diverse range of industries which they represent. As of December 31, 1994, the Company had no significant concentrations of credit risk.
(H) DERIVATIVES
The differential paid or received on interest rate swap agreements is accrued as interest rates change and is charged or credited to interest expense over the life of the agreements. Any gains or losses realized upon the termination of an interest rate swap agreement are deferred and amortized over the remaining life of the original term as a charge or credit to interest expense.
The differential paid or received on fuel swap agreements is accrued as fuel prices change and is charged or credited to fuel expense on a monthly basis.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) LONG-TERM DEBT
Long-term debt consists of (in thousands):
Under its commercial paper note program, the Company is authorized to issue up to $250 million in notes. These notes are supported by two credit agreements, which aggregate $250 million, with a group of banks, of which $125 million expires March 31, 1995 and $125 million expires March 31, 1997. The effective rate on the commercial note program was 5.90% and 3.51% for the years ended December 31, 1994 and 1993, respectively.
The 6.25% senior notes are payable at maturity on September 1, 2003, the 7.75% senior notes are payable in five equal annual installments beginning October 31, 1992, the 7.84% senior notes are payable in five equal annual installments beginning March 31, 1995, and the 7.80% senior subordinated notes are payable in five equal annual installments beginning October 30, 2000.
Under the terms of the credit agreements and the note agreements, the Company is required to maintain certain financial covenants including leverage tests, minimum tangible net worth levels and other financial ratios.
The Company has approximately $125 million of uncommitted lines of credit none of which were outstanding at December 31, 1994. These lines are with various domestic and international banks and are due on demand. Interest on borrowings is generally tied to the banks' prevailing base rates or other alternative market rates. No commitment or facility fees are paid on these lines of credit and the obligations are typically evidenced by unsecured demand notes.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The Company restructured the credit facilities supporting its commercial paper note program by establishing two credit agreements during 1994 in order to reduce administrative expenses. Accordingly, current maturities of long-term debt at December 31, 1994 consist of outstanding commercial paper associated with the revolving credit agreement which expires March 31, 1995 and two installments of the senior notes. The aggregate annual maturities of long-term debt for each of the five years ending December 31 are as follows (in thousands): 1995, $68,075; 1996, $9,243; 1997, $130,000; 1998, $5,000; and 1999, $5,000.
(3) CAPITAL STOCK
The Company maintains a Management Incentive Plan ("Plan") that provides various vehicles to compensate key employees with Company common stock. Under the Plan, the Company is authorized to award, in aggregate, not more than 3,000,000 shares. At December 31, 1994 there were approximately 70,000 shares available for granting under the Plan. The Company has utilized three such vehicles to award stock or grant options to purchase the Company's common stock: restricted stock awards, restricted options and nonstatutory stock options.
Restricted stock awards are granted to key employees subject to restrictions regarding transferability and assignment. Shares of Company common stock are issued to the key employees and held by the Company until each employee becomes vested in the award. Vesting of the awards generally occurs over a four year period of time from the award date. Termination of the employee for any reason other than death, disability or certain cases of retirement causes the unvested portion of the award to be forfeited.
Key employees were granted restricted options to purchase stock. The option price is 50% of the fair market value of the stock at the date of grant. Vesting of the award generally occurs over a four year period beginning on the grant date. Failure to exercise a vested option within 210 days after vesting or termination of the employee for any reason other than death or disability will cause unexercised and nonvested options to be forfeited.
The plan provides that nonstatutory stock options may be granted to key employees for the purchase of Company common stock for 100% of the fair market value at the grant date. The options generally vest over a ten year period and are forfeited if the employee terminates for any reason.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
A summary of the restricted and nonstatutory options to purchase Company common stock follows:
On January 25, 1995, the Company's Board of Directors declared a cash dividend of $.05 per share payable on February 17, 1995 to shareholders of record on February 2, 1995.
(4) INCOME TAXES
As discussed in note 1(e), the Company adopted Statement 109 as of January 1, 1992. There was no significant impact upon earnings as a result of this change in accounting for income taxes. Total income tax expense for the years ended December 31, 1994, 1993 and 1992 was allocated as follows (in thousands):
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Income tax expense attributable to earnings before income taxes and cumulative effect of change in accounting method consists of (in thousands):
The following is a reconciliation between the effective income tax rate and the applicable statutory Federal income tax rate for each of the three fiscal years in the period ended December 31, 1994:
The significant components of deferred income tax expense attributable to earnings before income taxes and cumulative effect of change in accounting method are as follows (in thousands):
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are presented below (in thousands):
The Company believes its substantiated history of profitability and taxable income, its taxes paid within the three- year carryback period and its utilization of tax planning sufficiently supports the value of the deferred tax assets. Accordingly, the Company has not recorded a valuation allowance on its books as all deferred tax assets are more than likely to be recovered.
Included in other prepaid expenses are refundable income taxes of $386,000 and $428,000 at December 31, 1994 and 1993, respectively.
(5) EMPLOYEE BENEFIT PLANS
The Company maintains bonus compensation programs for certain of its employees. Bonuses earned under the programs are based on attainment of profit objectives established by the Company's Board of Directors. Bonuses expensed under the programs for 1994, 1993 and 1992 were $4,900,000, $2,600,000 and $7,400,000, respectively.
The Company maintains a defined contribution employee retirement plan, which includes a 401(k) option, under which employees are eligible to participate after they complete one year of service. Company contributions to the plan each year are made at the discretionary amount determined by the Company's Board of Directors. For the year ended December 31, 1994, 1993 and 1992, total Company contributions to the plan, including matching 401(k) contributions were $1,950,000, $1,900,000 and $1,850,000, respectively.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND TEMPORARY INVESTMENTS, ACCOUNTS RECEIVABLE, AND TRADE ACCOUNTS PAYABLE
The carrying amount approximates fair value because of the short maturity of these instruments.
LONG-TERM DEBT
The carrying amount of the commercial paper debt approximates the fair value because of the short maturity of the commercial paper instruments.
The fair value of the fixed rate debt is presented as the present value of future cash flows discounted using the Company's current borrowing rate for notes of comparable maturity. The calculation arrives at a theoretical amount the Company would pay a creditworthy third party to assume its fixed rate obligations and not the termination value of these obligations. Consistent with market practices, such termination values may include various prepayment and termination fees that the Company would contractually be required to pay if it retired the debt early.
INTEREST RATE SWAP AGREEMENTS
The fair values of interest rate swap agreements are obtained from dealer quotes. These values represent the estimated amount the Company would pay to terminate such agreements, taking into consideration current interest rates and the creditworthiness of the counterparties.
The estimated fair values of the Company's financial instruments are summarized as follows (in thousands):
(7) RELATED PARTY TRANSACTIONS
The Company advances premiums on a life insurance policy on the joint lives of Mr. and Mrs. J.B. Hunt. The Company has advanced $3,280,000 on this policy which, along with related accrued interest thereon of approximately $416,000, is included in other assets at December 31, 1994. All premiums paid by the Company, along with accrued interest thereon, are reimbursable from a trust which is the owner and beneficiary of the policy.
J. B. HUNT TRANSPORT SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(8) COMMITMENTS AND CONTINGENCIES
The Company has committed to purchase approximately $160 million of revenue and service equipment (net cost, after expected proceeds from sale or trade-in allowances of $15 million).
The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Based on the present knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a material adverse effect on the financial condition of the Company.
(9) DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements are used to reduce the potential impact of changes in interest rates on the Company's debt portfolio. At December 31, 1994, an interest rate swap agreement with an aggregate notional amount of $20 million was outstanding. The estimated fair value of the swap at December 31, 1994 was a liability of approximately $2.0 million. This value was determined from a dealer quotation and represents the estimated amount the Company would pay to terminate the agreement. Included in other current liabilities are deferred swap gains of $0.8 million at December 31, 1994 and $1.1 million at December 31, 1993.
The Company uses fuel swap agreements to hedge anticipated purchases of diesel fuel. Under these agreements, the Company receives or makes payments on the differential between a contractual index price and the actual average index during such period.
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Operating results by quarter for the years ended December 31, 1994 and 1993 are as follows (in thousands, except per share data):
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months prior to December 31, 1994, involving a change of accountants or disagreements on accounting and financial disclosure.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for Items 10, 11 and 12 is hereby incorporated by reference from the Notice and Proxy Statement For Annual Stockholders' Meeting set forth under sections entitled "Proposal One Election of Directors", "Board Committees", "Executive Officers", "Voting Securities and Security Ownership of Management and Principal Stockholders", "Executive Compensation and Other Information", "1995 Performance Based Compensation" and "Proposal Two Proposal to Approve the Adoption of The Executive Performance Bonus Plan", "Proposal Three Proposal to Approve the Management Incentive Plan", and "Proposal Four Ratification of Appointment of Auditors".
The Proxy Statement had not yet been mailed to stockholders and was not available as of March 17, 1995. It will be filed no later than April 30, 1995.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14.

ITEM 14. EXHIBITS
The following documents are filed as part of this report: (a) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report ("Exhibit Index").
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant had duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lowell, Arkansas, on the 17th day of March, 1995.
J.B.HUNT TRANSPORT SERVICES, INC. (Registrant)
By: /s/ Kirk Thompson ------------------------------------- Kirk Thompson President and Chief Executive Officer
By: /s/ Jerry W. Walton ------------------------------------- Jerry W. Walton Executive Vice President Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ John A. Cooper, Jr. Member of the Board March 17, 1995 ------------------------------ John A. Cooper, Jr. of Directors
/s/ Fred K. Darragh, Jr. Member of the Board March 17, 1995 ------------------------------ Fred K. Darragh, Jr. of Directors
/s/ Wayne Garrison Member of the Board March 17, 1995 ------------------------------ Wayne Garrison of Directors
/s/ Gene George Member of the Board March 17, 1995 ------------------------------ Gene George of Directors
/s/ Thomas L. Hardeman Member of the Board March 17, 1995 ------------------------------ Thomas L. Hardeman of Directors
/s/ J. Bryan Hunt, Jr. Member of the Board March 17, 1995 ------------------------------ J. Bryan Hunt, Jr. of Directors (Vice Chairman)
/s/ J.B. Hunt Member of the Board March 17, 1995 ------------------------------ J.B. Hunt of Directors (Chairman)
/s/ Johnelle Hunt Member of the Board March 17, 1995 ------------------------------ Johnelle Hunt of Directors (Corporate Secretary)
/s/ Lloyd E. Peterson Member of the Board March 17, 1995 ------------------------------ Lloyd E. Peterson of Directors
/s/ Kirk Thompson Member of the Board March 17, 1995 ------------------------------ Kirk Thompson of Directors (President and Chief Executive Officer)
EXHIBIT INDEX


ITEM 1. BUSINESS
Krupp Realty Limited Partnership-V (the "Partnership") was formed on June 16, 1983 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Krupp Corporation (a Massachusetts corporation) and The Krupp Company Limited Partnership-II (a Massachusetts limited partnership) are the General Partners of the Partnership. The Partnership has issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II. On September 6, 1983, the Partnership, pursuant to a sales agent agreement, commenced the marketing and sale of units of Investor Limited Partner Interest ("Units") for $1,000 per unit, 35,200 of which were sold. For further details, see Note A to Financial Statements included in Appendix A to this report.
The Partnership considers itself to be engaged only in the industry segment of investment in real estate. The Partnership invested the net proceeds from the offering in leveraged real estate. The Partnership originally invested in four multi-family apartment complexes (Century II, Marine Terrace, Fieldcrest Apartments, Park Place Tower Apartments "Park Place") and a joint venture in Lakeview Towers with Krupp Realty Limited Partnership-IV, an affiliated limited partnership. The aggregate purchase price of the properties was approximately $67 million and the Partnership originally funded approximately $2.3 million to the joint venture.
In 1992, the Partnership sold one of its apartment complexes, Fieldcrest Apartments, and received a distribution of proceeds from the sale of Lakeview Towers.
The Partnership's real estate investments are subject to some material seasonal fluctuations resulting from changes in utility consumption and seasonal maintenance expenditures. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's real estate investments are located, real estate tax rates, operating expenses, energy costs, government regulations and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse effect on the Partnership's operations, and no adverse effect therefrom is now anticipated in the future.
The Partnership's investments in real estate are also subject to such risks as (i) competition from existing and future projects held by other owners in the locations of the Partnership's properties, (ii) fluctuations in rental income due to changes in occupancy levels, (iii) possible adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic and local conditions, such as competitive over-building, increases in unemployment, or adverse changes in real estate zoning laws, (v) the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (vi) other circumstances over which the Partnership may have little or no control.
As of December 31, 1994, there were 54 full and part-time on-site personnel employed by the Partnership.
ITEM 2.

ITEM 2. PROPERTIES
As of December 31, 1994, the Partnership has leveraged investments in three apartment complexes having an aggregate of 1,556 units. One of the complexes has an additional 20,000 square feet of leasable commercial space.
A summary of the Partnership's real estate investments is presented below. Schedule III included in Appendix A to this report contains additional detailed information with respect to individual properties.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Partnership is a defendant in a class action suit related to the practice of giving discounts for the early or timely payments of rent at Park Place. The central issue of the complaint was whether the operative lease, by allowing tenants a discount, of typically $30, if rent was paid on or before the first day of the month, violated a Chicago municipal ordinance relating to late fee charges. The ordinance in question limited late fee charges to $10 per month if the rent was more than 5 days late. The allegation was that, notwithstanding the stated rental rate and printed discount, the practice represented an unlawful means of exacting late fee charges. In addition to seeking damages for any "forfeited" discounts, plaintiffs seek statutory damages of two months rent per lease violation plus reasonable attorneys' fees. To be eligible for such punitive damages plaintiffs must prove that defendants deliberately used a provision prohibited by the ordinance. During 1994, the Court ruled in favor of the Defendants, and accepted the Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The Plaintiffs have filed an appeal with the Appellate Court of Illinois, First District, which is pending.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None. PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The transfer of Units is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop.
The number of Investor Limited Partners as of December 31, 1994 was approximately 2,400.
One of the objectives of the Partnership is to generate cash available for distribution. The General Partners discontinued distributions during 1990 due to insufficient operating cash flow. The Partnership will resume distributions when the properties generate sustainable cash flow in excess of operating and capital improvement needs to provide for such distributions. However, during 1993, the Partnership distributed an amount equal to the withholding required for a Partners' tax of $27,888 in the state of Maryland arising from the sale of Fieldcrest Apartments. This amount was paid to the state of Maryland for the benefit of all Partners.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be used in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Supplementary Data, which are included in Items 7 and 8 of this report, respectively.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's ability to generate cash adequate to meet its needs is dependent primarily upon the successful operations of its real estate investments. Such ability is also dependent upon the future availability of bank borrowing sources as current debt matures. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, debt service, capital improvements and expenses. Cash flow, if any, as calculated under Section 8.2(a) of the Partnership Agreement ("Cash Flow"), will then be available for distribution to the Partners. The General Partners discontinued distributions during 1990 due to insufficient operating cash flow. The Partnership will resume distributions when the properties generate sustainable cash flow in excess of operating and capital improvement needs.
The Partnership's major capital improvement project, the repair of Park Place's building facade, is approximately 95% complete as of December 31, 1994. The Partnership anticipates that the restoration project will be completed in early 1995, and will greatly enhance the appearance of the property. This improvement, along with extensive interior improvements, is being funded from established reserves and is expected to result in both increased rents and increased occupancy.
Prior to Park Place's refinancing on September 15, 1993, management suspended payment of property management fees and expense reimbursements to an affiliate. At December 31, 1994, past due fees and reimbursements totalled approximately $1,300,000. Subsequent to the refinancing, the Partnership resumed current payments of property management fees and expense reimbursements and expects to generate sufficient cash flow to begin to repay the accrued obligation.
Currently, the Partnership is researching refinancing options for Marine Terrace.
Cash Flow
Shown below, as required by the Partnership Agreement, is the calculation of Cash Flow for the year ended December 31, 1994:
Operations
The following discussion relates to the operations of the Partnership and its properties (Park Place, Marine Terrace, Century II and Fieldcrest) for the years ended December 31, 1994, 1993 and 1992, or portion thereof.
1994 compared to 1993
The slight increase in rental revenue is primarily due to an increase in rental rates at Park Place and Marine Terrace, and increased occupancy at Century II, offset by decreased occupancy at Marine Terrace. Interest income decreased due to funds previously invested in short-term investments being used for the refinancing of Park Place's mortgage during the third quarter of 1993 and a decrease in interest earned on construction escrows.
Operating expenses decreased due to savings in parking garage expenses as a result of management subcontracting the parking garage operations at Park Place. Additionally, a portion of this decrease resulted from a rate reduction in electric costs by the local utility company. These savings were partially offset by an increase in maintenance expense, primarily for the painting of the interior units and the installation of window dressings at Park Place. Real estate taxes decreased at Park Place due to a prior year revaluation by the taxing authority. However, real estate taxes are expected to increase upon the completion of the building facade repair.
As a result of the refinancing of Park Place's first mortgage from an interest rate of 10.75% to 6.75% per annum during the third quarter of 1993, interest expense decreased by $1,456,000 for the year ended December 31, 1994, as compared to the same period in 1993. The decrease in depreciation and amortization is primarily due to a mortgage premium paid and fully amortizing deferred mortgage costs in 1993 related to the mortgage loan held prior to Park Place's refinanced mortgage.
1993 compared to 1992
The results of operations of the Partnership are not comparable due to the sales of Lakeview Towers and Fieldcrest Apartments in the third quarter of 1992. Rental revenues increased by $203,000, net of $748,000 revenue generated by Fieldcrest Apartments in 1992. The primary reason for the increase in rental revenue is due to increase occupancy at Park Place and Marine Terrace, offset by an increase in vacancies at Century II. The vacancies at Century II were primarily due to a softening in the rental marketplace because of significant layoffs in the area and first time home buyers taking advantage of lower interest
Continued
rates. Interest income increased by $60,000 primarily due to the Partnership's investment in commercial paper and interest earned on the $1,400,000 Park Place escrow.
In comparing 1993 to 1992, recurring operating expenses increased by $103,000, less Fieldcrest expenses of $331,000. Maintenance expenses decreased by $130,000 primarily due to the sale of Fieldcrest. Real estate taxes were lower in 1992 due to an abatement of the 1992 and 1991 taxes at Park Place and Marine Terrace totalling $601,000, recorded in 1992. Interest expense decreased by $168,000 resulting from the sale of Fieldcrest in 1992 and the refinancing of Park Place's mortgage in 1993. In conjunction with the refinancing, the Partnership wrote off the mortgage premium and deferred costs of the original Park Place loan totalling $1,190,000.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of the Partnership and is the general partner of The Krupp Company Limited Partnership-II, which is the other General Partner of the Partnership, is as follows: Position with Name and Age The Krupp Corporation
Douglas Krupp (48) Co-Chairman of the Board
George Krupp (50) Co-Chairman of the Board
Laurence Gerber (38) President
Marianne Pritchard (45) Treasurer Ross V. Keeler (46) Executive Vice President
Frank Apeseche (37) Executive Vice President
Douglas Krupp has been Co-Chairman of The Berkshire Group (formerly The Krupp Companies) since its formation in 1966. He has been primarily responsible for overseeing the acquisition, disposition and financing of properties by the entities sponsored by The Berkshire Group and their affiliates. In addition, since 1987 Mr. Krupp has been responsible for founding and overseeing through the start-up phase certain new business ventures including the healthcare and construction businesses of The Berkshire Group. He is a graduate of Bryant College in Rhode Island. In 1989, he received an honorary Doctor of Science in Business Administration degree from Bryant College and he also serves as a Trustee of Bryant College. Douglas Krupp is the brother of George Krupp.
Continued
George Krupp has been Co-Chairman of The Berkshire Group since its formation in 1966. His efforts over the years have encompassed the broad spectrum of The Berkshire Group's activities including responsibility for the real estate operations of The Berkshire Group through mid-1991, and he continues to be involved in strategic planning. He attended the University of Pennsylvania prior to joining his brother, Douglas Krupp, in the real estate business in 1966. Mr. Krupp currently serves as Chairman of the Board and a Trustee of Krupp Government Income Trust and Krupp Government Income Trust II, and Chairman of the Board and a director of Berkshire Realty Company, Inc.
Laurence Gerber has been President and Chief Executive Officer of The Berkshire Group since 1991. He previously served from 1987 to 1991 as President of Berkshire Financial Company with overall responsibility for marketing, mortgage banking, product development and corporate financing, and also worked on strategic planning. Prior to that, he served as Executive Vice President, Acquisitions and, prior to that, as Senior Vice President and Chief Planning Officer since joining the firm in January 1984. Before joining the firm, Mr. Gerber was a management consultant with Bain & Co. headquartered in Boston, since July 1982. Prior to that, he was a Senior Tax Accountant with Arthur Andersen & Co., an international accounting and consulting firm, in New York. He has a B.S. degree in economics with high honors from the University of Pennsylvania Wharton School and an M.B.A. degree with High Distinction from Harvard Business School. He is a Certified Public Accountant. Mr. Gerber serves as President and a Trustee of Krupp Government Income Trust and Krupp Government Income Trust II, and as President and a director of Berkshire Realty Company, Inc.
Marianne Pritchard, Treasurer of The Krupp Corporation and Senior Vice-President, has been Chief Financial and Accounting Officer of Berkshire Realty Affiliates since rejoining The Berkshire Group in August, 1991. Prior to rejoining The Berkshire Group, she was Vice President and Controller for Liberty Real Estate Group, a subsidiary of Liberty Mutual Insurance Company from July 1989 to August 1991. Prior to Liberty, Ms. Pritchard held the position of Controller/Treasurer of Berkshire Mortgage Finance from April 1987 to July 1989. Prior to that, Ms. Pritchard was Senior Audit Manager with Deloitte and Touche, an international accounting and consulting firm. She is a Certified Public Accountant and received her B.B.A. degree in Accounting from the University of Texas.
Ross V. Keeler is President of Berkshire Investment Advisors and an Executive Vice-President of The Berkshire Group. Prior to joining The Berkshire Group in November 1984, he served as Executive Vice President of Marketing and a member of the Board of Directors at First Capital Companies, a national syndicator of real estate investments. Prior to that, Mr. Keeler served as President of State Financial Corporation, a company which originated specialized leases on major equipment for municipalities. He received a B.S. degree in finance with honors from the University of Florida and received an M.B.A. degree with scholastic honors from the University of Southern California.
Frank Apeseche was appointed Executive Vice President and Chief Financial Officer of The Berkshire Group on January 1, 1993. He oversees strategic planning, tax planning, corporate finance and product development for The Berkshire Group. Before joining the firm in 1986, Mr. Apeseche was a manager at Arthur Andersen & Co., an international accounting and consulting firm. Mr. Apeseche holds a B.A. degree with High Distinction from Cornell University and an M.B.A. degree with honors from the University of Michigan.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1994, no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's 35,200 outstanding Units. On that date, the General Partners or their affiliates owned 116 Units (.33% of the total outstanding) of the Partnership in addition to their General and Original Limited Partner Interests.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note E of Notes To Financial Statements included in Appendix A to this report.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page to this Report.
2. Financial statement schedule - see Index to Financial Statements and Schedule included under Item 8, Appendix A, on page to this Report. All other schedules are omitted as they are not applicable, not required or the information is provided in the financial statements or the notes thereto.
(b) Exhibits:
Number and Description Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601 of Regulation S-K.
(4) Instruments defining the rights of security holders including indentures:
(4.1) Amended Agreement of Limited Partnership dated as of July 27, 1983 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-84645)].*
(4.2) Amended Certificate of Limited Partnership filed with the Massachusetts Secretary of State on December 16, 1983 [Exhibit 4.2 to Registrant's Report on Form 10-K for 1983 (File 2-84645)].*
(10) Material Contracts
Park Place Apartments
(10.1) Purchase and Sale Agreement dated April 24, 1984 between Douglas Krupp and Sheldon J. Mandell, Howard J. Mandell, Jerome W. Mandell and Norman Mandell [Exhibit 1 to Registrant's Report on Form 8-K dated May 4, 1984 (File No. 2-84645)].*
(10.2) Assignment of Beneficial Interest in Land Trust dated May 1, 1984 by Sheldon J. Mandell, Howard J. Mandell, Jerome W. Mandell and Norman Mandell to Krupp Realty Limited Partnership-V. [Exhibit 10.9 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.3) Addendum to Management Agreement between Krupp Realty Park Place - Chicago Limited Partnership and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM") [Exhibit 2 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0- 11985)].*
(10.4) Agreement of Limited Partnership of Krupp Realty Park Place -Chicago Limited Partnership dated March 15, 1989 [Exhibit 5 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.5) Assignment of General Partners interests in Krupp Realty Park Place - Chicago Limited Partnership by The Krupp Corporation to Krupp Realty Limited Partnership- V dated March 15, 1989 [Exhibit 6 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0- 11985)].*
(10.6) Written Consent of Directors of The Krupp Corporation dated April 18, 1989 assigning beneficial interest in Park Place Apartments to Krupp Realty Park Place - Chicago Limited Partnership [Exhibit 7 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.7) Management Agreement dated May 4, 1984 between Krupp Realty Limited Partnership-V, as Owner, and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM") [Exhibit 10.18 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.8) Loan Modification/Cancellation Agreement dated September 14, 1993 between South Chicago Bank, as Trustee, and Krupp Realty Park Place - Chicago Limited Partnership (File No. 0-11985).*
(10.9) Modification to mortgage note dated September 14, 1993 between South Chicago Bank, as Trustee, and Government National Mortgage Association (File No. 0-11985).*
(10.10) Modification of mortgage dated September 14, 1993 between South Chicago Bank, as Trustee, and Government National Mortgage Association (File No. 0-11985).*
(10.11) Regulatory Agreement for Multifamily Housing Projects dated September 14, 1993, between South Chicago Bank, as Trustee, and Krupp Realty Park Place - Chicago Limited Partnership (File No. 0- 11985).*
Marine Terrace Apartments
(10.12) Trust Agreement, dated February 15, 1983 between American National Bank and Trust Company of Chicago and Yitzhaz Persky [Exhibit 3 to Registrant's Report on Form 8-K dated August 8, 1984 (File No. 0-11985)].*
(10.13) Trustee's Certificate of Beneficial Ownership in Trust by Douglas Krupp dated May 4, 1984 [Exhibit 4 to Registrant's Report on Form 8-K dated August 8, 1984 (File No. 0-11985)].*
(10.14) Assignment of Interest in Trust Agreement by Douglas Krupp to Krupp Realty Limited Partnership-V dated August 8, 1984 [Exhibit 5 to Registrant's Report on Form 8-K dated August 8, 1984 (File No. 0-11985)].*
(10.15) Management Agreement dated August 8, 1984 between Krupp Realty Limited Partnership-V, as Owner, and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM") [Exhibit 10.28 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.16) Promissory Note, dated June 2, 1986, by American National Bank and Trust Company of Chicago, as Trustee, and Cohen Financial Corporation [Exhibit 19.1 to Registrant's Report on Form 10-Q for the quarter ended August 31, 1986 (File No. 0-11985)].*
(10.17) Mortgage dated June 2, 1986 by American National Bank and Trust Company of Chicago, as Trustee, and Cohen Financial Corporation [Exhibit 19.2 to Registrant's Report on Form 10-Q for the quarter ended August 31, 1986 (File No. 0-11985)].*
(10.18) Modification Agreement dated December 21, 1988 by American National Bank and Trust Company of Chicago, as Trustee, and Mutual Trust Life Insurance Company, as Mortgagee. [Exhibit 10.22 to the Registrant's Report on Form 10-K dated December 31, 1988 (File No. 0-11985)].*
(10.19) Amended and Restated Promissory Note, dated December 21, 1988, by American National Bank and Trust Company of Chicago, as Trustee, and Mutual Trust Life Insurance Company. [Exhibit 10.23 to the Registrant's Report on Form 10-K dated December 31, 1988 (File No. 0-11985)].*
Century II Apartments
(10.20) Agreement of Sale, dated September 18, 1984 between the Partners of Century III Associates and Douglas Krupp and related exhibits including Mortgage Notes and Related Mortgages [Exhibit 1 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].*
(10.21) Assignment of Partnership Interest in Century III Associates dated October 10, 1984 by the Partners of Century III Associates to The Krupp Company Limited Partnership-II, The Krupp Corporation and Krupp Realty Limited Partnership-V [Exhibit 2 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].*
(10.22) Fifth, Sixth and Seventh Amended and Restated Limited Partnership Agreement of Century III Associates Limited Partnership [Exhibit 3 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].*
(10.23) Assignment of Beneficial Interest in Century III Associates from The Krupp Company Limited Partnership-II and The Krupp Corporation to Krupp Realty Limited Partnership-V. [Exhibit 10.32 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.24) Management Agreement dated October 11, 1984 between Krupp Realty Limited Partnership-V, as Owner, and Krupp Asset Management Company, now known as Berkshire Property Management ("BPM") [Exhibit 10.33 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.25) Third Amended and Restated Promissory Note dated April 27, 1989 between Century III Associates Limited Partnership and Bankers United Life Assurance Company. [Exhibit 8 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.26) Third Amended and Restated Deed of Trust dated April 27, 1989 between Century III Associated Limited Partnership and Bankers United Life Assurance Company. [Exhibit 9 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
*Incorporated by reference
(c) Reports on Form 8-K
During the last quarter of the fiscal year ended December 31, 1994, the Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 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, on the 27th day of March, 1995.
KRUPP REALTY LIMITED PARTNERSHIP-V
By: The Krupp Corporation, a General Partner
By:
George Krupp, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 27th day of March, 1995.
Signatures Title(s)
/s/Douglas Krupp Co-Chairman (Principal Executive Officer) Douglas Krupp and Director of The Krupp Corporation, a General Partner.
/s/George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of The Krupp Corporation, a General Partner.
/s/Laurence Gerber President of The Krupp Corporation, a Laurence Gerber General Partner.
/s/Marianne Pritchard Treasurer of The Krupp Corporation, a Marianne Pritchard General Partner.
APPENDIX A
KRUPP REALTY LIMITED PARTNERSHIP-V
FINANCIAL STATEMENTS ITEM 8 OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1994
KRUPP REALTY LIMITED PARTNERSHIP-V
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Balance Sheets at December 31, 1994 and 1993
Statements of Operations for the years ended December 31, 1994, 1993 and 1992
Statements of Changes in Partners' Deficit for the years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements -
Schedule III - Real Estate and Accumulated Depreciation -
All other schedules are omitted as they are not applicable, not required, or the information is provided in the financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Krupp Realty Limited Partnership-V:
We have audited the financial statements and financial statement schedule of Krupp Realty Limited Partnership-V (the "Partnership") listed in the index on page of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Krupp Realty Limited Partnership-V as of December 31, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
Boston, Massachusetts COOPERS & LYBRAND L.L.P. January 31, 1995
KRUPP REALTY LIMITED PARTNERSHIP-V
The accompanying notes are an integral part of the financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V
STATEMENTS OF OPERATIONS For the Years Ended December 31, 1994, 1993 and 1992
The accompanying notes are an integral part of the financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1994, 1993 and 1992 _____________
The accompanying notes are an integral part of the financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1994, 1993 and 1992
The accompanying notes are an integral part of the financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Realty Limited Partnership-V (the "Partnership") was formed on June 16, 1983 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Partnership terminates on December 31, 2020, unless earlier terminated upon the sale of the last of the Partnership's properties or the occurrence of certain other events as set forth in the Partnership Agreement. The Partnership issued all of the General Partner Interests to two General Partners in exchange for capital contributions aggregating $1,000. The Krupp Corporation (a Massachusetts corporation) and The Krupp Company Limited Partnership-II (a Massachusetts limited partnership) are the General Partners of the Partnership. Except under certain limited circumstances upon termination of the Partnership, the General Partners are not required to make any additional capital contributions. The Partnership has also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II in exchange for a capital contribution of $4,000.
On September 6, 1983, the Partnership commenced the marketing and sale of units of Investor Limited Partner Interest ("Units") for $1,000 per unit. The public offering was closed on December 2, 1983 at which time a total of 35,200 Units had been sold for $35,200,000.
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note J).
Cash Equivalents
The Partnership includes all short-term investments with maturities of three months or less at the date of acquisition in cash and cash equivalents. The cash investments are recorded at cost, which approximates current market values.
Rental Revenues
Residential leases and the base rent under commercial leases require the payment of rent monthly in advance. Rental revenues are recorded on the accrual basis.
Depreciation
Depreciation is provided for by the use of the straight-line method over estimated useful lives of the related assets as follows:
Buildings and improvements 5-25 years Appliances, carpeting and equipment 3-5 years
The Partnership recorded depreciation expense of $3,336,689, $3,165,916 and $3,277,353 for the years ended December 31, 1994, 1993 and 1992, respectively.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Investment in Krupp Realty Lakeview Limited Partnership
The Partnership's investment in Krupp Realty Lakeview Limited Partnership ("Joint Venture") was accounted for using the equity method under which the Partnership's equity investment in net earnings or losses of the Joint Venture were included currently in the Partnership's net earnings. Distributions received from the Joint Venture reduced the investment (see Note C).
Deferred Expenses
Costs of obtaining and recording mortgages on the properties are amortized over the term of the related mortgage notes using the straight-line method.
Income Taxes
The Partnership is not liable for federal or state income taxes as Partnership income or loss is allocated to the partners for income tax purposes. In the event that the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and the examination results in a change in the Partnership's taxable income or loss, such change will be reported to the partners.
Reclassifications
Certain prior year balances have been reclassified to conform with the current year financial statement presentation.
C. Disposition of Real Estate Investments
On August 5, 1992, the Partnership sold Fieldcrest Apartments for $3,900,000. Proceeds from the sale were used to repay the existing mortgage note on the property in the amount of $3,855,579. The property had a net book value of $4,282,597, which resulted in a loss of $399,316 for financial reporting purposes.
On August 28, 1992, Lakeview Towers, a property owned in a Joint Venture with an affiliate, was sold for $16,000,000. The sales price consisted of the assumption of the outstanding balance on the existing non- recourse first mortgage of $5,476,266 by the purchaser, with the balance of the sales price paid in cash. The Partnership received net proceeds of $5,190,234 from the sale and recognized a gain of $3,875,915 for financial reporting purposes.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS, Continued
D. Mortgage Notes Payable
Substantially all of the property owned by the Partnership is pledged as collateral for the mortgage notes outstanding at December 31, 1994 and 1993 which consisted of the following:
Park Place Tower Apartments
A non-recourse mortgage note of $33,000,000 dated September 15, 1993, by the U.S. Department of Housing and Urban Development ("HUD") payable in equal monthly installments of principal and interest of $212,783, based on a 31-year amortization. At maturity, all unpaid principal (approximately $1,457,000) and any accrued interest is due. The note may not be prepaid prior to October 1, 1998. In the event prepayment of principal occurs any time after this date, a prepayment premium shall be due, based on a declining premium rate of 5% to 0% of the outstanding principal balance over a period of 5 years. Under the terms of the loan, HUD restricts the distribution of funds to Surplus Cash, as defined.
Marine Terrace Apartments
A non-recourse first mortgage note of $4,515,560 is payable in equal monthly installments of $43,619 including principal and interest based on a 25-year amortization. At maturity, all unpaid principal (approximately $3,948,000) and any accrued interest is due. Prepayment is allowed, subject to certain premiums.
Century II Apartments
A non-recourse first mortgage note of $11,000,000. payable in equal monthly installments of $104,844, based on a 25-year amortization schedule. At maturity, all unpaid principal (approximately $10,077,000) and any accrued interest is due.
The aggregate scheduled principal amounts of long-term borrowings due during the five years ending December 31, 1999 are $584,950, $4,536,410, $569,802, $615,927 and $10,614,413.
During the years ended December 31, 1994, 1993 and 1992, the Partnership paid $3,792,109, $6,124,243 and $4,235,631 of interest on its mortgage notes, respectively.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS, Continued
E. Related Party Transactions
Commencing with the date of acquisition of each property, the Partnership entered into agreements under which property management fees are paid to an affiliate of the General Partners for services as management agent for the properties. Such agreements provide for management fees payable monthly at the rate of up to 5% of rentals and other operating income received. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the properties including accounting, computer, travel, insurance, legal and payroll, as well as the preparation and mailing of reports and other communications to the Limited Partners.
In addition to the amounts presented on the face of the Statement of Operations, during 1994, 1993 and 1992, costs of $14,083, $27,658 and $74,401, respectively, were accrued or paid to the General Partners or their affiliates. These costs related to refinancing the debt on the Partnership's properties.
Due to affiliates consists of the following as of December 31:
F. Legal Proceeding
The Partnership is a defendant in a class action suit related to the practice of giving discounts for the early or timely payments of rent at Park Place. The central issue of the complaint was whether the operative lease, by allowing tenants a discount, of typically $30, if rent was paid on or before the first day of the month, violated a Chicago municipal ordinance relating to late fee charges. The ordinance in question limited late fee charges to $10 per month if the rent was more than 5 days late. The allegation was that, notwithstanding the stated rental rate and printed discount, the practice represented an unlawful means of exacting late fee charges. In addition to seeking damages for any "forfeited" discounts, plaintiffs seek statutory damages of two months rent per lease violation plus reasonable attorneys' fees. To be eligible for such punitive damages plaintiffs must prove that defendants deliberately used a provision prohibited by the ordinance. During 1994, the Court ruled in favor of the Defendants, and accepted the Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The Plaintiffs have filed an appeal with the Appellate Court of Illinois, First District, which is pending. Although management believes that the defendants will prevail on the issue of statutory damages, the ultimate outcome of this litigation, including an estimate of any potential loss, cannot be presently determined and accordingly no provision for loss has been made in the accompanying financial statements.
G. Partners' Deficit
Under the terms of the Partnership Agreement, losses from operations are allocated 99% to the Investor Limited Partners and 1% to the General Partners and profits from operations are allocated 93% to the Investor Limited Partners, 6% to the Original Limited Partner and 1% to the General Partners until such
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS, Continued
G. Partners' Deficit - Continued
time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum cumulative return thereon and thereafter, 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners. Profit or loss from capital transactions are allocated in accordance with the Partnership Agreement.
Under the Partnership Agreement, cash distributions are generally made on the same basis as the allocations of profits described above. Distributions from a sale, exchange, or other disposition of a property or upon the termination of the Partnership are to be allocated differently than that described above.
As of December 31, 1994 the following cumulative partner contributions and allocations have been made since inception of the Partnership:
H. Distributions
During 1993, the Partnership distributed an amount equal to the withholding required for a Partners' tax of $27,888 in the state of Maryland arising from the sale of Fieldcrest Apartments. This amount was paid to the state of Maryland for the benefit of all Partners.
I. Future Base Rents Due Under Commercial Operating Leases
Future base rent receivable under commercial operating leases for the years 1995 through 1999 are as follows:
KRUPP REALTY LIMITED PARTNERSHIP-V
NOTES TO FINANCIAL STATEMENTS, Continued
J.Federal Income Taxes
For federal income tax purposes, the Partnership is depreciating its properties using the Accelerated Cost Recovery System ("ACRS") and the Modified Cost Recovery System ("MACRS") depending on which is applicable.
The reconciliation of the net loss reported in the accompanying Statement of Operations with the net loss to be reported in the Partnership's 1994 federal income tax return follows:
The allocation of the net loss for federal income tax purposes for 1994 is as follows:
During the years ended December 31, 1994, 1993 and 1992 the per Unit net income (loss) to the Investor Limited Partners for federal income tax purposes was ($40.62), ($111.61) and $77.45, respectively.
KRUPP REALTY LIMITED PARTNERSHIP-V
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1994
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
December 31, 1994
Note: The aggregate cost of the Partnership's real estate for federal income tax purposes is $73,325,592 and the aggregate accumulated depreciation for federal income tax purposes is $44,219,998.