UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[Mark one]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-14690
WERNER ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0648386
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14507 FRONTIER ROAD
POST OFFICE BOX 45308
OMAHA, NEBRASKA 68145-0308
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (402) 895-6640
_________________________________
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 is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer X Accelerated filer Non-accelerated filer
--- --- ---
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
As of July 27, 2007, 72,848,612 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the Three Months Ended
June 30, 2007 and 2006 3
Consolidated Statements of Income for the Six Months Ended
June 30, 2007 and 2006 4
Consolidated Condensed Balance Sheets as of June 30, 2007 and
December 31, 2006 5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2007 and 2006 6
Notes to Consolidated Financial Statements as of June 30, 2007 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 27
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits 30
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The interim consolidated financial statements contained herein reflect
all adjustments, which in the opinion of management are necessary for a fair
statement of the financial condition, results of operations, and cash flows
for the periods presented. The interim consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements.
Operating results for the three-month and six-month periods ended June
30, 2007, are not necessarily indicative of the results that may be expected
for the year ending December 31, 2007. In the opinion of management, the
information set forth in the accompanying consolidated condensed balance
sheets is fairly stated in all material respects in relation to the
consolidated balance sheets from which it has been derived.
These interim consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 2006.
2
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(In thousands, except per share amounts) June 30
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 531,286 $ 528,889
---------------------------
Operating expenses:
Salaries, wages and benefits 150,335 149,743
Fuel 99,918 102,812
Supplies and maintenance 40,077 38,982
Taxes and licenses 29,317 27,905
Insurance and claims 23,922 21,613
Depreciation 41,629 41,072
Rent and purchased transportation 108,903 101,335
Communications and utilities 5,182 4,827
Other (6,383) (5,751)
---------------------------
Total operating expenses 492,900 482,538
---------------------------
Operating income 38,386 46,351
---------------------------
Other expense (income):
Interest expense 1,057 4
Interest income (923) (1,221)
Other 46 85
---------------------------
Total other expense (income) 180 (1,132)
---------------------------
Income before income taxes 38,206 47,483
Income taxes 15,952 19,462
---------------------------
Net income $ 22,254 $ 28,021
===========================
Earnings per share:
Basic $ .30 $ .36
===========================
Diluted $ .30 $ .35
===========================
Dividends declared per share $ .050 $ .045
===========================
Weighted-average common shares outstanding:
Basic 73,395 78,236
===========================
Diluted 74,748 79,689
===========================
3
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
(In thousands, except per share amounts) June 30
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
(Unaudited)
Operating revenues $ 1,035,199 $ 1,020,811
---------------------------
Operating expenses:
Salaries, wages and benefits 300,856 296,356
Fuel 189,003 191,458
Supplies and maintenance 79,668 76,774
Taxes and licenses 59,480 57,374
Insurance and claims 48,127 40,808
Depreciation 84,186 82,173
Rent and purchased transportation 209,118 189,354
Communications and utilities 10,274 9,722
Other (11,165) (6,381)
---------------------------
Total operating expenses 969,547 937,638
---------------------------
Operating income 65,652 83,173
---------------------------
Other expense (income):
Interest expense 2,393 277
Interest income (1,974) (2,216)
Other 118 126
---------------------------
Total other expense (income) 537 (1,813)
---------------------------
Income before income taxes 65,115 84,986
Income taxes 27,193 34,936
---------------------------
Net income $ 37,922 $ 50,050
===========================
Earnings per share:
Basic $ .51 $ .63
===========================
Diluted $ .50 $ .62
===========================
Dividends declared per share $ .095 $ .085
===========================
Weighted-average common shares outstanding:
Basic 74,080 78,837
===========================
Diluted 75,477 80,324
===========================
4
WERNER ENTERPRISES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts) June 30 December 31
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 32,897 $ 31,613
Accounts receivable, trade, less allowance of
$9,381 and $9,417, respectively 223,747 232,794
Other receivables 13,890 17,933
Inventories and supplies 10,862 10,850
Prepaid taxes, licenses and permits 8,217 18,457
Current deferred income taxes 27,440 25,251
Other current assets 19,904 24,143
---------------------------
Total current assets 336,957 361,041
---------------------------
Property and equipment 1,662,218 1,687,220
Less - accumulated depreciation 610,540 590,880
---------------------------
Property and equipment, net 1,051,678 1,096,340
---------------------------
Other non-current assets 19,488 20,792
---------------------------
$ 1,408,123 $ 1,478,173
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,487 $ 75,821
Current portion of long-term debt 30,000 -
Insurance and claims accruals 82,609 73,782
Accrued payroll 23,786 21,344
Other current liabilities 18,683 19,963
---------------------------
Total current liabilities 221,565 190,910
---------------------------
Long-term debt, net of current portion 20,000 100,000
Other long-term liabilities 6,897 999
Insurance and claims accruals, net of current
portion 101,000 99,500
Deferred income taxes 207,030 216,413
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 200,000,000
shares authorized; 80,533,536 shares issued;
72,947,352 and 75,339,297 shares
outstanding, respectively 805 805
Paid-in capital 102,429 105,193
Retained earnings 893,084 862,403
Accumulated other comprehensive income (loss) 106 (207)
Treasury stock, at cost; 7,586,184 and
5,194,239 shares, respectively (144,793) (97,843)
---------------------------
Total stockholders' equity 851,631 870,351
---------------------------
$ 1,408,123 $ 1,478,173
===========================
5
WERNER ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
(In thousands) June 30
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net income $ 37,922 $ 50,050
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 84,186 82,173
Deferred income taxes (6,502) 2,697
Gain on disposal of property and equipment (13,779) (15,958)
Stock based compensation 794 1,312
Other long-term assets 1,688 68
Insurance claims accruals, net of current
portion 1,500 2,500
Other long-term liabilities 560 219
Changes in certain working capital items:
Accounts receivable, net 9,047 6,720
Other current assets 18,510 10,969
Accounts payable (9,334) 10,886
Other current liabilities 9,732 (4,521)
---------------------------
Net cash provided by operating activities 134,324 147,115
---------------------------
Cash flows from investing activities:
Additions to property and equipment (87,125) (129,893)
Retirements of property and equipment 57,750 88,058
Decrease in notes receivable 3,246 2,561
---------------------------
Net cash used in investing activities (26,129) (39,274)
---------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 10,000 -
Repayments of long-term debt (60,000) -
Repayments of short-term debt - (60,000)
Dividends on common stock (6,716) (6,328)
Repurchases of common stock (58,123) (39,477)
Stock options exercised 4,870 3,112
Excess tax benefits from exercise of stock
options 2,745 2,089
---------------------------
Net cash used in financing activities (107,224) (100,604)
---------------------------
Effect of exchange rate fluctuations on cash 313 (1,010)
Net increase in cash and cash equivalents 1,284 6,227
Cash and cash equivalents, beginning of period 31,613 36,583
---------------------------
Cash and cash equivalents, end of period $ 32,897 $ 42,810
===========================
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 3,061 $ 388
Income taxes $ 30,865 $ 34,370
Supplemental schedule of non-cash investing
activities:
Notes receivable issued upon sale of revenue
equipment $ 3,630 $ 3,526
6
WERNER ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Comprehensive Income
Other than its net income, the Company's only other source of
comprehensive income (loss) is foreign currency translation adjustments.
Other comprehensive income (loss) from foreign currency translation
adjustments was $892 and ($712) (in thousands) for the three-month periods
and $313 and ($1,010) (in thousands) for the six-month periods ended June
30, 2007 and 2006, respectively.
(2) Long-Term Debt
Long-term debt consisted of the following (in thousands):
June 30 December 31
------------- -------------
2007 2006
------------- -------------
Notes payable to banks under committed
credit facilities $ 50,000 $ 100,000
Less current maturities 30,000 -
------------- -------------
Long-term debt, net $ 20,000 $ 100,000
============= =============
The notes payable to banks under committed credit facilities bear
variable interest (5.7% at June 30, 2007) based on the London Interbank
Offered Rate ("LIBOR") and mature at various dates from May 2008 to May
2011. As of June 30, 2007, the Company has an additional $175.0 million of
available credit under these credit facilities with two banks which is
further reduced by $37.1 million in letters of credit the Company maintains.
Subsequent to June 30, 2007, the Company repaid $10.0 million on these notes
shown as current maturities above. Each of the debt agreements include,
among other things, two financial covenants that the Company (1) not exceed
a maximum ratio of total debt to total capitalization and (2) not exceed a
maximum ratio of total funded debt to earnings before interest, income
taxes, depreciation, amortization and rentals payable as defined in the
credit facility. The Company was in compliance with these covenants at June
30, 2007.
(3) Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48 ("FIN
48"), Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a
result of the adoption of FIN 48, the Company recognized an additional $0.3
million net liability for unrecognized tax benefits, which was accounted for
as a reduction to retained earnings. After recognizing the additional
liability, the Company had a total gross liability for unrecognized tax
benefits of $5.3 million as of the adoption date, which is included in other
long-term liabilities. If recognized, $3.4 million of unrecognized tax
benefits would impact the Company's effective tax rate. Interest of $1.4
million has been reflected as a component of the total liability. It is the
Company's policy to recognize as additional income tax expense the items of
interest and penalties directly related to income taxes.
For the three-month and six-month periods ended June 30, 2007, there
were no material changes to the total amount of unrecognized tax benefits.
The Company does not expect any significant increases or decreases for
uncertain tax positions during the next 12 months, except for the potential
outcome of the matter discussed in Note 4.
7
The Company files income tax returns in the U.S. and various states as
well as several foreign jurisdictions. The Company has tax returns, subject
to examination, primarily for tax returns filed during 2003 through 2007 in
addition to returns filed during 1999 through 2002 due to an extension of
the statute of limitations.
(4) Commitments and Contingencies
As of June 30, 2007, the Company has commitments for net capital
expenditures of approximately $19.8 million.
During first quarter 2006, in connection with an audit of the Company's
federal income tax returns for the years 1999 to 2002, the Company received
a notice from the Internal Revenue Service ("IRS") proposing to disallow a
significant tax deduction. This deduction is a timing difference between
financial reporting and tax reporting and, if the Company did not ultimately
prevail, would result in interest charges, which the Company records as a
component of income tax expense in the Company's financial statements. This
timing difference deduction reversed in the Company's 2004 income tax
return. The Company filed a protest in this matter in April 2006, which is
currently under review by an IRS appeals officer. The initial conference
with the appeals officer occurred in March 2007. The Company and its tax
advisors believe the Company has a strong position and, therefore, at this
time the Company has not recorded an accrual for interest for this issue in
the financial statements. It is possible the Company may not ultimately
prevail in its position, which may have a material impact on the Company's
financial condition. The Company estimates the accrued interest, net of
taxes, if the Company would not prevail in its position with the IRS to be
no more than $6.5 million as of June 30, 2007.
(5) Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. The
difference between basic and diluted earnings per share for all periods
presented is due to the common stock equivalents that are assumed to be
issued upon the exercise of stock options. The computation of basic and
diluted earnings per share is shown below (in thousands, except per share
amounts).
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2007 2006 2007 2006
---------------------- ----------------------
Net income $ 22,254 $ 28,021 $ 37,922 $ 50,050
====================== ======================
Weighted-average common
shares outstanding 73,395 78,236 74,080 78,837
Common stock equivalents 1,353 1,453 1,397 1,487
---------------------- ----------------------
Shares used in computing
diluted earnings per share 74,748 79,689 75,477 80,324
====================== ======================
Basic earnings per share $ .30 $ .36 $ .51 $ .63
====================== ======================
Diluted earnings per share $ .30 $ .35 $ .50 $ .62
====================== ======================
8
Options to purchase shares of common stock which were outstanding
during the periods indicated above, but were excluded from the computation
of diluted earnings per share because the option purchase price was greater
than the average market price of the common shares, were:
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
2007 2006 2007 2006
---------------------------- ----------------------------
Number of options 29,500 24,500 29,500 5,000
Range of option purchase
prices $19.26-$20.36 $19.84-$20.36 $19.26-$20.36 $20.36
(6) Stock Based Compensation
At the May 8, 2007 Annual Meeting of Stockholders, the stockholders
approved and adopted an amended and restated plan and renamed the amended
plan the "Werner Enterprises, Inc. Equity Plan" (the "Equity Plan"),
pursuant to which it will be able to grant shares of restricted stock and
grant awards of stock options and stock appreciation rights to employees and
non-employee directors. A copy of the Equity Plan is filed as an exhibit to
this 10-Q and is incorporated by reference to the Company's Current Report
on Form 8-K dated May 8, 2007.
The Equity Plan provides for grants of nonqualified stock options,
restricted stock and stock appreciation rights. Options are granted at
prices equal to the market value of the common stock on the date the option
is granted. The Board or Compensation Committee will set the vesting
conditions of the award. Option awards currently outstanding become
exercisable in installments from eighteen to seventy-two months after the
date of grant. The options are exercisable over a period not to exceed ten
years and one day from the date of grant. The maximum number of shares of
common stock that may be awarded under the Equity Plan is 20,000,000 shares.
The maximum aggregate number of shares that may be awarded to any one person
under the Equity Plan is 2,562,500. At June 30, 2007, 8,892,657 shares were
available for granting additional awards.
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 (revised 2004), Share-Based Payment
("No. 123R") using a modified version of the prospective transition method.
Under this transition method, compensation cost is recognized on or after
the required effective date for the portion of outstanding awards for which
the requisite service has not yet been rendered, based on the grant-date
fair value of those awards calculated under SFAS No. 123 for either
recognition or pro forma disclosures. Stock-based employee compensation
expense was $0.4 million and $0.6 million for the three-month periods and
$0.8 million and $1.3 million for the six-month periods ended June 30, 2007
and 2006, respectively, and is included in salaries, wages and benefits
within the consolidated statements of income. The total income tax benefit
recognized in the income statement for stock-based compensation arrangements
was $0.1 million and $0.2 million for the three-month periods and $0.3
million and $0.5 million for the six-month periods ended June 30, 2007 and
2006, respectively. There was no cumulative effect of initially adopting
SFAS No. 123R.
9
The following table summarizes Stock Option Plan activity for the six
months ended June 30, 2007:
Weighted
Average
Number Weighted Remaining Aggregate
of Average Contractual Intrinsic
Options Exercise Term Value
(in 000's) Price ($) (Years) (in 000's)
---------------------------------------------------
Outstanding at beginning of period 4,565 $ 11.03
Options granted - $ -
Options exercised (608) $ 8.01
Options forfeited - $ -
Options expired (2) $ 8.65
-----------
Outstanding at end of period 3,955 $ 11.49 4.65 $ 34,231
===========
Exercisable at end of period 2,906 $ 9.97 3.88 $ 29,584
===========
The Company granted no stock options during the three-month and six-
month periods ended June 30, 2007 and granted 5,000 options during the
three-month and six-month periods ended June 30, 2006. The fair value of
stock options granted was estimated using a Black-Scholes valuation model
with the following assumptions:
Six Months
Ended
June 30
---------------
2006
---------------
Risk-free interest rate 4.7%
Expected dividend yield 0.88%
Expected volatility 36%
Expected term (in years) 4.9
Grant date fair value $7.37
The risk-free interest rate assumption was based on average 5-year U.S.
Treasury note yields. The expected volatility was based on historical daily
price changes of the Company's stock since June 2001. The expected term was
the average number of years that the Company estimated these options will be
outstanding. The Company considers groups of employees that have similar
historical exercise behavior separately for valuation purposes.
The total intrinsic value of share options exercised was $6.0 million
and $0.4 million for the three-month periods and $6.7 million and $5.1
million for the six-month periods ended June 30, 2007 and 2006,
respectively. As of June 30, 2007, the total unrecognized compensation cost
related to nonvested stock option awards was approximately $1.8 million and
is expected to be recognized over a weighted average period of 1.2 years.
Although the Company does not a have a formal policy for issuing shares
upon exercise of stock options, such shares are generally issued from
treasury stock. From time to time, the Company has repurchased shares of
its common stock, the timing and amount of which depends on market and other
factors. Historically, the shares acquired under these regular repurchase
programs have provided sufficient quantities of stock for issuance upon
exercise of stock options. Based on current treasury stock levels, the
Company does not expect the need to repurchase additional shares
specifically for stock option exercises during 2007.
10
(7) Segment Information
The Company has two reportable segments - Truckload Transportation
Services and Value Added Services ("VAS"). The Truckload Transportation
Services segment consists of six operating fleets that have been aggregated
since they have similar economic characteristics and meet the other
aggregation criteria of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Dedicated Services fleet provides
truckload services required by a specific customer, generally for a
distribution center or manufacturing facility. The medium-to-long-haul Van
fleet transports a variety of consumer, nondurable products and other
commodities in truckload quantities over irregular routes using dry van
trailers. The Regional short-haul fleet provides comparable truckload van
service within five geographic regions. The Expedited fleet provides time-
sensitive truckload services utilizing driver teams. The Flatbed and
Temperature-Controlled fleets provide truckload services for products with
specialized trailers. Revenues for the Truckload Transportation Services
segment include non-trucking revenues of $2.3 million and $2.8 million for
the three-month periods and $5.4 million and $5.6 million for the six-month
periods ended June 30, 2007 and 2006, respectively, which consist primarily
of the portion of shipments delivered to or from Mexico where the Company
utilizes a third-party capacity provider.
The VAS segment, which generates the majority of the Company's non-
trucking revenues, provides truck brokerage, freight management (single-
source logistics), intermodal, and international services.
The Company generates other revenues related to third-party equipment
maintenance, equipment leasing, and other business activities. None of these
operations meet the quantitative threshold reporting requirements of SFAS
No. 131. As a result, these operations are grouped in "Other" in the tables
below. "Corporate" includes revenues and expenses that are incidental to
the activities of the Company and are not attributable to any of its
operating segments. The Company does not prepare separate balance sheets by
segment and, as a result, assets are not separately identifiable by segment.
The Company has no significant intersegment sales or expense transactions
that would result in adjustments necessary to eliminate amounts between the
Company's segments.
11
The following tables summarize the Company's segment information (in
thousands of dollars):
Revenues
--------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2007 2006 2007 2006
---------------------- ----------------------
Truckload Transportation Services $ 451,069 $ 456,920 $ 880,876 $ 889,917
Value Added Services 75,849 68,807 145,726 124,978
Other 3,795 2,418 7,397 4,280
Corporate 573 744 1,200 1,636
---------------------- ----------------------
Total $ 531,286 $ 528,889 $1,035,199 $1,020,811
====================== ======================
Operating Income
----------------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2007 2006 2007 2006
---------------------- ----------------------
Truckload Transportation Services $ 34,632 $ 44,043 $ 58,408 $ 79,126
Value Added Services 3,457 2,365 6,397 3,876
Other 814 167 1,643 630
Corporate (517) (224) (796) (459)
---------------------- ----------------------
Total $ 38,386 $ 46,351 $ 65,652 $ 83,173
====================== ======================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains historical information, as well as forward-looking
statements that are based on information currently available to the
Company's management. The forward-looking statements in this report,
including those made in this Item 2, "Management's Discussion and Analysis
of Financial Condition and Results of Operations", are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995, as amended. The Company believes the assumptions underlying these
forward-looking statements are reasonable based on information currently
available; however, any of the assumptions could be inaccurate, and
therefore, actual results may differ materially from those anticipated in
the forward-looking statements as a result of certain risks and
uncertainties. These risks include, but are not limited to, those discussed
in Item 1A, "Risk Factors", of the Company's Annual Report on Form 10-K for
the year ended December 31, 2006. Caution should be taken not to place
undue reliance on forward-looking statements made herein, since the
statements speak only as of the date they are made. The Company undertakes
no obligation to publicly release any revisions to any forward-looking
statements contained herein to reflect events or circumstances after the
date of this report or to reflect the occurrence of unanticipated events.
Overview:
The Company operates in the truckload sector of the trucking industry,
with a focus on transporting consumer nondurable products that ship more
consistently throughout the year. The Company's success depends on its
ability to efficiently manage its resources in the delivery of truckload
transportation and logistics services to its customers. Resource
requirements vary with customer demand, which may be subject to seasonal or
general economic conditions. The Company's ability to adapt to changes in
customer transportation requirements is a key element in efficiently
deploying resources and in making capital investments in tractors and
trailers. Although the Company's business volume is not highly
12
concentrated, the Company may also be affected by the financial failure of
its customers or a loss of a customer's business from time-to-time.
Operating revenues consist of trucking revenues generated by the six
operating fleets in the Truckload Transportation Services segment
(dedicated, medium-to-long-haul van, regional short-haul, expedited,
flatbed, and temperature-controlled) and non-trucking revenues generated
primarily by the Company's VAS segment. The Company's Truckload
Transportation Services segment ("truckload segment") also includes a small
amount of non-trucking revenues, which consist primarily of the portion of
shipments delivered to or from Mexico where it utilizes a third-party
capacity provider. Non-trucking revenues reported in the operating
statistics table include those revenues generated by the VAS segment, as
well as the non-trucking revenues generated by the truckload segment.
Trucking revenues accounted for approximately 84% of total operating
revenues in second quarter 2007, and non-trucking and other operating
revenues accounted for approximately 16%.
Trucking services typically generate revenue on a per-mile basis.
Other sources of trucking revenue include fuel surcharges and accessorial
revenue such as stop charges, loading/unloading charges, and equipment
detention charges. Because fuel surcharge revenues fluctuate in response to
changes in the cost of fuel, these revenues are identified separately within
the operating statistics table and are excluded from the statistics to
provide a more meaningful comparison between periods. Non-trucking revenues
generated by a fleet whose operations are part of the truckload segment are
included in non-trucking revenues in the operating statistics table so that
the revenue statistics in the table are calculated using only the revenues
generated by company-owned and owner-operator trucks. The key statistics
used to evaluate trucking revenues, excluding fuel surcharges, are average
revenues per tractor per week, the per-mile rates charged to customers, the
average monthly miles generated per tractor, the average percentage of empty
miles, the average trip length, and the average number of tractors in
service. General economic conditions, seasonal freight patterns in the
trucking industry, and industry capacity are key factors that impact these
statistics.
The Company's most significant resource requirements are company
drivers, owner-operators, tractors, trailers, and related costs of operating
its equipment (such as fuel and related fuel taxes, driver pay, insurance,
and supplies and maintenance). The Company has historically been successful
mitigating its risk to increases in fuel prices by recovering additional
fuel surcharges from its customers that recoup a majority of the increased
fuel costs; however, there is no assurance that current recovery levels will
continue in future periods. The Company's financial results are also
affected by availability of company drivers and owner-operators and the
market for new and used revenue equipment. Because the Company is self-
insured for a significant portion of cargo, personal injury, and property
damage claims on its revenue equipment and for workers' compensation
benefits for its employees (supplemented by premium-based coverage above
certain dollar levels), financial results may also be affected by driver
safety, medical costs, weather, the legal and regulatory environment, and
the costs of insurance coverage to protect against catastrophic losses.
A common industry measure used to evaluate the profitability of the
Company and its trucking operating fleets is the operating ratio (operating
expenses expressed as a percentage of operating revenues). The most
significant variable expenses that impact the trucking operation are driver
salaries and benefits, payments to owner-operators (included in rent and
purchased transportation expense), fuel, fuel taxes (included in taxes and
licenses expense), supplies and maintenance, and insurance and claims.
These expenses generally vary based on the number of miles generated. As
such, the Company also evaluates these costs on a per-mile basis to adjust
for the impact on the percentage of total operating revenues caused by
changes in fuel surcharge revenues, per-mile rates charged to customers, and
non-trucking revenues. As discussed further in the comparison of operating
results for second quarter 2007 to second quarter 2006, several industry-
wide issues, including a softer freight market, changing fuel prices, and a
challenging driver recruiting and retention market, could cause costs to
increase in future periods. The Company's main fixed costs include
depreciation expense for tractors and trailers and equipment licensing fees
(included in taxes and licenses expense). Depreciation expense has been
affected by the new engine emission standards that became effective in
13
October 2002 (phase 1) for all newly purchased trucks, which have increased
truck purchase costs. In addition, beginning in January 2007, a new set of
more stringent engine emissions standards mandated by the Environmental
Protection Agency ("EPA") became effective for all newly manufactured
trucks. The Company expects that the engines produced under the 2007
standards will be less fuel-efficient and have a higher cost than the
current engines. The trucking operations require substantial cash
expenditures for the purchase of tractors and trailers. In 2005 and 2006,
the Company accelerated its normal three-year replacement cycle for company-
owned tractors. These purchases were funded by net cash from operations and
financing available under the Company's existing credit facilities, as
management deemed necessary. The Company's new truck fleet will allow it to
delay purchases of trucks with the 2007 engines.
Non-trucking services provided by the Company, primarily through its
VAS division, include truck brokerage, freight management (single-source
logistics), intermodal, and international, as discussed further on page 18.
Unlike the Company's trucking operations, the non-trucking operations are
less asset-intensive and are instead dependent upon qualified employees,
information systems, and the services of qualified third-party capacity
providers. The most significant expense item related to these non-trucking
services is the cost of transportation paid by the Company to third-party
capacity providers, which is recorded as rent and purchased transportation
expense. Other expenses include salaries, wages and benefits and computer
hardware and software depreciation. The Company evaluates the non-trucking
operations by reviewing the gross margin percentage (revenues less rent and
purchased transportation expense expressed as a percentage of revenues) and
the operating income percentage. The operating income percentage for the
non-trucking business is lower than those of the trucking operations, but
the return on assets is substantially higher.
14
Results of Operations:
The following table sets forth certain industry data regarding the
freight revenues and operations of the Company for the periods indicated.
Three Months Ended Six Months Ended
June 30 % June 30 %
---------------------- ----------------------
2007 2006 Change 2007 2006 Change
---------- ---------- ------ ---------- ---------- ------
Trucking revenues, net of
fuel surcharge (1) $375,169 $375,897 -0.2% $741,475 $744,153 -0.4%
Trucking fuel surcharge
revenues (1) 73,403 78,213 -6.1% 133,786 140,101 -4.5%
Non-trucking revenues,
including VAS (1) 78,184 71,569 9.2% 151,135 130,549 15.8%
Other operating revenues (1) 4,530 3,210 41.1% 8,803 6,008 46.5%
---------- ---------- ---------- ----------
Operating revenues (1) $531,286 $528,889 0.5% $1,035,199 $1,020,811 1.4%
========== ========== ========== ==========
Operating ratio
(consolidated) (2) 92.8% 91.2% 93.7% 91.9%
Average monthly miles
per tractor 10,078 9,938 1.4% 9,792 9,886 -1.0%
Average revenues per
total mile (3) $1.463 $1.463 0.0% $1.453 $1.456 -0.2%
Average revenues per
loaded mile (3) $1.685 $1.679 0.4% $1.680 $1.671 0.5%
Average percentage of
empty miles 13.19% 12.84% 2.7% 13.51% 12.87% 5.0%
Average trip length in
miles (loaded) 561 584 -3.9% 567 585 -3.1%
Total miles (loaded and
empty) (1) 256,486 256,852 -0.1% 510,200 511,169 -0.2%
Average tractors in service 8,483 8,615 -1.5% 8,684 8,618 0.8%
Average revenues per
tractor per week (3) $3,402 $3,356 1.4% $3,284 $3,321 -1.1%
Total tractors (at
quarter end)
Company 7,530 7,905 7,530 7,905
Owner-operator 820 805 820 805
---------- ---------- ---------- ----------
Total tractors 8,350 8,710 8,350 8,710
Total trailers (truck and
intermodal, at quarter end) 24,800 25,180 24,800 25,180
(1) Amounts in thousands.
(2) Operating expenses expressed as a percentage of operating revenues.
Operating ratio is a common measure in the trucking industry used to
evaluate profitability.
(3) Net of fuel surcharge revenues.
15
The following table sets forth the revenues, operating expenses, and
operating income for the truckload segment. Revenues for the truckload
segment include non-trucking revenues of $2.3 million and $2.8 million for
the three-month periods and $5.4 million and $5.6 million for the six-month
periods ended June 30, 2007 and 2006, respectively, as described on page 11.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
2007 2006 2007 2006
Truckload Transportation Services -------------- -------------- -------------- --------------
(amounts in 000's) $ % $ % $ % $ %
--------------------- -------------- -------------- -------------- --------------
Revenues $451,069 100.0 $456,920 100.0 $880,876 100.0 $889,917 100.0
Operating expenses 416,437 92.3 412,877 90.4 822,468 93.4 810,791 91.1
-------- -------- -------- --------
Operating income $ 34,632 7.7 $ 44,043 9.6 $ 58,408 6.6 $ 79,126 8.9
======== ======== ======== ========
Higher fuel prices and higher fuel surcharge collections have the
effect of increasing the Company's consolidated operating ratio and the
truckload segment's operating ratio when fuel surcharges are reported on a
gross basis as revenues versus netting against fuel expenses. Eliminating
fuel surcharge revenues, which are generally a more volatile source of
revenue, provides a more consistent basis for comparing the results of
operations from period to period. The following table calculates the
truckload segment's operating ratio as if fuel surcharges were excluded from
revenue and instead reported as a reduction of operating expenses.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
2007 2006 2007 2006
Truckload Transportation Services -------------- -------------- -------------- --------------
(amounts in 000's) $ % $ % $ % $ %
--------------------- -------------- -------------- -------------- --------------
Revenues $451,069 $456,920 $880,876 $889,917
Less: trucking fuel surcharge
revenues 73,403 78,213 133,786 140,101
-------- -------- -------- --------
Revenues, net of fuel surcharges 377,666 100.0 378,707 100.0 747,090 100.0 749,816 100.0
-------- -------- -------- --------
Operating expenses 416,437 412,877 822,468 810,791
Less: trucking fuel surcharge
revenues 73,403 78,213 133,786 140,101
-------- -------- -------- --------
Operating expenses, net of
fuel surcharges 343,034 90.8 334,664 88.4 688,682 92.2 670,690 89.4
-------- -------- -------- --------
Operating income $ 34,632 9.2 $ 44,043 11.6 $ 58,408 7.8 $ 79,126 10.6
======== ======== ======== ========
The following table sets forth the non-trucking revenues, rent and
purchased transportation and other operating expenses, and operating income
for the VAS segment. Other operating expenses for the VAS segment primarily
consist of salaries, wages and benefits expense. VAS also incurs smaller
expense amounts in the supplies and maintenance, depreciation, rent and
purchased transportation (excluding third-party transportation costs),
communications and utilities, and other operating expense categories.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
Value Added Services 2007 2006 2007 2006
-------------------- -------------- -------------- -------------- --------------
(amounts in 000's) $ % $ % $ % $ %
------------------ -------------- -------------- -------------- --------------
Revenues $ 75,849 100.0 $ 68,807 100.0 $145,726 100.0 $124,978 100.0
Rent and purchased
transportation expense 67,308 88.7 62,204 90.4 129,237 88.7 113,095 90.5
-------- -------- -------- --------
Gross margin 8,541 11.3 6,603 9.6 16,489 11.3 11,883 9.5
Other operating expenses 5,084 6.7 4,238 6.2 10,092 6.9 8,007 6.4
-------- -------- -------- --------
Operating income $ 3,457 4.6 $ 2,365 3.4 $ 6,397 4.4 $ 3,876 3.1
======== ======== ======== ========
16
Three Months Ended June 30, 2007 Compared to Three Months Ended June 30,
----------------------------------------------------------------------------
2006
----
Operating Revenues
Operating revenues increased 0.5% for the three months ended June 30,
2007, compared to the same period of the prior year. Excluding fuel
surcharge revenues, trucking revenues decreased 0.2% due primarily to a
1.5% decrease in the average number of tractors in service, as discussed
further below, offset by a 1.4% increase in average monthly miles per
tractor. The average percentage of empty miles increased to 13.2% in second
quarter 2007 from 12.8% in second quarter 2006. A significant portion of
the increase in the empty mile percentage is due to the softer freight
market. Average revenues per loaded mile increased by 0.4% which offset the
increase in the average percentage of empty miles as average revenues per
total mile was the same in second quarter 2007 compared to second quarter
2006.
Market conditions continued to be challenging during second quarter
2007 due to (1) the immense truck prebuy prompted by the changes to the
engine emission regulations that became effective for newly manufactured
engines beginning January 2007, which added 6% more trucks than are normally
produced in the years 2005 and 2006 (or 170,000 extra trucks) and (2) a
softer freight market due to weakness in the housing and automotive sectors,
inventory tightening, and moderating growth in the retail sector. Load
volumes for the Company's Van Network (comprised of the medium-to-long-haul
van, regional short-haul, and expedited operating fleets) were lower in
April and May 2007 than in the same months of the previous four years. Load
volumes in the first half of June 2007 improved meaningfully to levels
nearly as high as those during the first half of June 2006, and then
declined in the second half of June 2007 below levels in the second half of
June of the prior four years. Load volumes in second quarter 2007
progressively improved from April to May to June, which is a typical
seasonal pattern for second quarter.
Load volumes were softer for the Van Network during July 2007 compared
to July 2006, particularly in the latter half of the month of July 2007.
Prebook percentages of loads to trucks were comparable in July 2007 and July
2006, after considering the effect of the medium-to-long-haul Van fleet
reduction that was intitiated in mid-March 2007 and completed in June 2007.
The Company has historically served its partner customers by making
available a portion of its medium-to-long-haul Van fleet to meet their flex
and surge shipment needs, at contractually agreed terms and rates. This
fleet, which has the greatest exposure to the spot freight market, faced the
most operational challenges since August 2006. In mid-March 2007 the
Company began reducing its medium-to-long-haul Van fleet by 250 trucks to
better match freight and trucks and to improve profitability. By the latter
part of April 2007, this initial goal was achieved, and the Company had not
yet achieved the desired balance of trucks and freight. As a result, the
Company decided to further reduce its medium-to-long-haul Van fleet by an
additional 400 trucks, which was completed by the end of June 2007. The
Company was able to transfer a portion of its Van fleet trucks to other more
profitable fleets. The net impact to the total fleet was an approximate
500-truck reduction from mid-March 2007 to the end of June 2007. The
Company intends to meet its partner customers' flex and surge shipment needs
using the breadth and depth of the 5,000 qualified carriers managed by the
experienced Brokerage team.
Fuel surcharge revenues, which represent collections from customers for
the higher cost of fuel, decreased to $73.4 million in second quarter 2007
from $78.2 million in second quarter 2006. To lessen the effect of
fluctuating fuel prices on the Company's margins, the Company collects fuel
surcharge revenues from its customers. The Company's fuel surcharge
programs are designed to recoup the higher cost of fuel from customers when
fuel prices rise and provide customers with the benefit of lower costs when
fuel prices decline. The truckload industry's fuel surcharge standard is a
one-cent per mile increase in rate for every five-cent per gallon increase
in the Department of Energy ("DOE") weekly retail on-highway diesel prices
that are used for most fuel surcharge programs. As discussed further on
page 20, decreases in the DOE national average fuel price, changes to
17
customer fuel surcharge programs, and a change in the mix of customers
contributed to the decrease in fuel surcharge revenues even though costs per
gallon were essentially flat in both periods.
VAS revenues increased 10% to $75.8 million for the three months ended
June 30, 2007 from $68.8 million for the three months ended June 30, 2006.
VAS revenues are generated by the following VAS operating divisions: truck
brokerage, freight management (single-source logistics), intermodal, and
international. Brokerage continued to produce strong results with 33%
revenue growth and improved operating income as a percentage of revenues.
During the three-month period ended June 30, 2007, Brokerage generated
revenue at an annualized rate of $135 million. Freight Management
successfully distributed freight to other operating divisions and continues
to secure new customer business awards that are generating growth across all
Company business units. Intermodal revenues declined due to a more
difficult intermodal market, but produced significant operating income
improvement as the Company benefited from intermodal strategy changes that
it began implementing during the latter part of 2006. In addition, Freight
Management and Brokerage provided more freight for the truckload divisions
in second quarter 2007 compared to second quarter 2006. This freight is
included in truckload revenue and not included in VAS revenues.
Werner Global Logistics ("WGL") is actively assisting customers with
innovative global supply chain solutions. Business licenses have been
obtained; an experienced management team is fully staffed and trained in
Shanghai and Shenzen, China and in Omaha; and WGL has successfully managed
over 1,000 international container shipments to date. Customer development
efforts are actively in process, and WGL is expecting to be a positive
operating income contributor by the end of third quarter 2007. WGL
continues to produce several new and meaningful customer business awards.
WGL is a licensed U.S. NVOCC, U.S. Customs Broker, Class A Freight Forwarder
in China, licensed China NVOCC and a TSA approved Indirect Air Carrier.
Effective at the beginning of third quarter 2007, the Company and a
large VAS customer negotiated a structural change to their continuing
arrangement related to the use of third-party carriers that will affect the
reporting of VAS revenues and purchased transportation expenses for this
customer in future periods. Because of this structural change, the Company
will report future VAS revenues for this customer on a net basis (revenues
net of purchased transportation expense) rather than on a gross basis.
While the reported amount of VAS revenues and purchased transportation
expenses will be lower, it is expected that this change will have no impact
on the dollar amount of VAS gross margin or operating income. The amount of
these revenues and purchased transportation expenses averaged $18.7 million
per quarter over the last four quarters.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 92.8% for the three months ended June 30, 2007, compared to 91.2% for
the three months ended June 30, 2006. Expense items that impacted the
overall operating ratio are described on the following pages. The tables on
page 16 show the operating ratios and operating margins for the Company's
two reportable segments, Truckload Transportation Services and Value Added
Services.
18
The following table sets forth the cost per total mile of operating
expense items for the truckload segment for the periods indicated. The
Company evaluates operating costs for this segment on a per-mile basis,
which is a better measurement tool for comparing the results of operations
from period to period.
Three Months Ended Increase Six Months Ended Increase
June 30 (Decrease) June 30 (Decrease)
------------------ ----------------
2007 2006 per Mile 2007 2006 per Mile
------------------------------------------------------------
Salaries, wages and benefits $0.566 $0.567 $(0.001) $0.570 $0.565 $0.005
Fuel 0.388 0.398 (0.010) 0.368 0.372 (0.004)
Supplies and maintenance 0.147 0.144 0.003 0.148 0.144 0.004
Taxes and licenses 0.114 0.108 0.006 0.116 0.112 0.004
Insurance and claims 0.093 0.084 0.009 0.094 0.080 0.014
Depreciation 0.157 0.155 0.002 0.159 0.156 0.003
Rent and purchased transportation 0.162 0.152 0.010 0.156 0.148 0.008
Communications and utilities 0.020 0.018 0.002 0.020 0.019 0.001
Other (0.023) (0.019) (0.004) (0.019) (0.010) (0.009)
------------------------------------------------------------
Total $1.624 $1.607 $ 0.017 $1.612 $1.586 $0.026
============================================================
Owner-operator costs are included in rent and purchased transportation
expense. Owner-operator miles were a greater percentage of total miles at
12.4% in second quarter 2007 compared to 11.6% in second quarter 2006 due to
the van fleet reduction (as discussed on page 17). Owner-operators are
independent contractors who supply their own tractor and driver and are
responsible for their operating expenses including fuel, supplies and
maintenance, and fuel taxes. This increase in owner-operator miles as a
percentage of total miles shifted costs to the rent and purchased
transportation category from other expense categories. The Company
estimates that rent and purchased transportation expense for the truckload
segment was higher by approximately 1.0 cent per total mile due to this
increase, and other expense categories had offsetting decreases on a total-
mile basis, as follows: salaries, wages and benefits (0.4 cents), fuel (0.3
cents), depreciation (0.1 cent), supplies and maintenance (0.1 cent), and
taxes and licenses (0.1 cent).
The decrease in salaries, wages and benefits of 0.1 cent per mile for
the truckload segment is primarily due to lower driver pay per total mile
resulting from the decrease in the percentage of company truck miles versus
owner-operator miles (see above) and a decrease in state unemployment taxes
offset by an increase in student driver pay. Student pay increased as the
average number of student drivers being trained during second quarter 2007
was higher than in second quarter 2006. Salaries, wages and benefits for
non-drivers increased in second quarter 2007 compared to second quarter 2006
due to an increase in personnel to support the growth in the VAS segment.
The Company renewed its workers' compensation insurance coverage, and
for the policy year beginning April 2007, the Company continues to maintain
a self-insurance retention of $1.0 million per claim and is no longer
responsible for an annual aggregate amount of $1.0 million for claims above
$1.0 million and below $2.0 million. The Company's workers' compensation
insurance premiums for the policy year beginning April 1, 2007 are slightly
higher than the previous policy year, but the Company expects to realize
cost savings by eliminating its liability for the portion of claims that
occur between $1.0 million and $2.0 million.
The driver market remained challenging in second quarter 2007.
Normally in the spring and summer months, the driver market is difficult due
to outdoor jobs that become available with improving weather conditions.
The Company anticipates that the competition for qualified drivers will
continue to be high and cannot predict whether it will experience shortages
in the future. If such a shortage were to occur and additional increases in
19
driver pay rates were necessary to attract and retain drivers, the Company's
results of operations would be negatively impacted to the extent that
corresponding freight rate increases were not obtained.
Fuel decreased 1.0 cent per mile for the truckload segment despite
steady diesel fuel prices, due primarily to the decrease in the percentage
of company truck miles versus owner-operator miles, increasing percentages
of aerodynamic trucks to improve fuel miles per gallon, and lowering out of
route miles. Average fuel expense per gallon in second quarter 2007 was the
same as second quarter 2006. The DOE national average fuel price was three
cents per gallon lower in second quarter 2007 than second quarter 2006. The
DOE price, which is reported each Monday, establishes the fuel surcharge
rate per mile billable to the customer for shipments dispatched the
following week. The Company's actual fuel costs are based on supplier rack
fuel prices and can vary significantly from day-to-day, while the surcharge
revenue rate typically changes only once a week. As a result, there can be
significant variations between fuel costs and fuel surcharge revenues.
During second quarter 2007 compared to second quarter 2006, the effect of
the lower average DOE price per gallon compared to the flat fuel price per
gallon caused fuel surcharge revenues to decline more than fuel costs in
second quarter 2007 and resulted in a one-cent per share negative impact to
earnings per share. In addition, there was a shifting of revenues from fuel
surcharges to base rates due to (1) increased brokerage freight with all-in
base and surcharge rates during the first five months of 2007 and (2) a few
customers changing their fuel surcharge programs which had the effect of
lowering fuel surcharge revenues and increasing base rate revenues. The
industry-wide adoption of ultra-low sulfur diesel ("ULSD") fuel beginning in
fourth quarter 2006 resulted in an approximate 2% degradation of fuel mile
per gallon for all trucks, due to the lower energy content (btu) of ULSD.
Shortages of fuel, increases in fuel prices, or rationing of petroleum
products can have a materially adverse effect on the operations and
profitability of the Company. The Company is unable to predict whether fuel
price levels will continue to increase or decrease in the future or the
extent to which fuel surcharges will be collected from customers. As of
June 30, 2007, the Company had no derivative financial instruments to reduce
its exposure to fuel price fluctuations.
Supplies and maintenance for the truckload segment increased 0.3 cents
on a per-mile basis in second quarter 2007 due primarily to increases in
over-the-road tractor repairs.
Taxes and licenses for the truckload segment increased 0.6 cents per
total mile due to higher state sales tax credits recognized in second
quarter 2006.
Insurance and claims for the truckload segment increased 0.9 cents on a
per-mile basis due primarily to less favorable claims experience on higher-
dollar liability claims and on cargo claims in second quarter 2007 compared
to second quarter 2006. For the policy year that began August 1, 2006, the
Company is responsible for the first $2.0 million per claim with an annual
aggregate of $2.0 million for claims between $2.0 million and $3.0 million,
and the Company is fully insured (i.e., no aggregate) for claims between
$3.0 million and $5.0 million. For claims in excess of $5.0 million and
less than $10.0 million, the Company is responsible for the first $5.0
million of claims in the policy year. The Company maintains liability
insurance coverage with reputable insurance carriers substantially in excess
of the $10.0 million per claim. For the policy year beginning August 1,
2007, the Company will be responsible for the first $2.0 million per claim
with an annual aggregate of $8.0 million for claims between $2.0 million and
$5.0 million and an annual aggregate of $5.0 million for claims between $5.0
million and $10.0 million. The Company's liability insurance premiums for
the policy year beginning August 1, 2007 are slightly lower than the
previous policy year.
Rent and purchased transportation consists mainly of payments to third-
party capacity providers in the VAS and other non-trucking operations and
payments to owner-operators in the trucking operations. As shown in the VAS
statistics table on page 16, rent and purchased transportation expense for
the VAS segment increased in response to higher VAS revenues. These
expenses generally vary depending on changes in the volume of services
20
generated by the segment. VAS lowered its rent and purchased transportation
expense as a percentage of VAS revenues to 88.7% in second quarter 2007
compared to 90.4% in second quarter 2006.
Rent and purchased transportation for the truckload segment increased
1.0 cent per total mile in second quarter 2007 due primarily to the increase
in the percentage of owner-operator truck miles versus company truck miles
and an increase of the van and regional over-the-road owner-operators'
settlement rate by two cents per mile effective May 1, 2006, offset by
slightly lower reimbursements to owner-operators for fuel. The Company's
customer fuel surcharge programs do not differentiate between miles
generated by Company-owned trucks and miles generated by owner-operator
trucks; thus, the small decrease in owner-operator fuel reimbursements is
included with Company fuel expenses in calculating the per-share impact of
fuel prices on earnings.
The Company continues to experience difficulty attracting and retaining
owner-operator drivers due to the challenging operating conditions including
inflationary cost increases that are the responsibility of the owner-
operators. The number of owner-operators increased slightly to 820 as of
June 30, 2007 from a total of 805 as of June 30, 2006. The Company has
historically been able to add company-owned tractors and recruit additional
company drivers to offset any decreases in owner-operators. If a shortage
of owner-operators and company drivers were to occur and additional
increases in per mile settlement rates became necessary to attract and
retain owner-operators, the Company's results of operations would be
negatively impacted to the extent that corresponding freight rate increases
were not obtained.
Other operating expenses for the truckload segment decreased 0.4 cents
per mile in second quarter 2007. Gains on sales of assets (a reduction of
other operating expenses), primarily trucks and trailers, increased to $7.6
million in second quarter 2007 compared to $7.1 million in second quarter
2006. In second quarter 2007, the Company continued to sell its oldest van
trailers that are fully depreciated, replacing them with new trailers, and
expects to continue doing so throughout the remainder of 2007.
The Company's effective income tax rate (income taxes expressed as a
percentage of income before income taxes) was 41.8% for second quarter 2007
versus 41.0% for second quarter 2006.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
-------------------------------------------------------------------------
Operating Revenues
Operating revenues increased by 1.4% for the six months ended June 30,
2007, compared to the same period of the previous year. Excluding fuel
surcharge revenues, trucking revenues decreased 0.4%, due primarily to a
0.2% decrease in average revenues per total mile. VAS revenues increased by
$20.7 million (16.6%) due to ongoing growth in brokerage.
Operating Expenses
Operating expenses, expressed as a percentage of operating revenues,
were 93.7% for the six months ended June 30, 2007, compared to 91.9% for the
same period of the previous year. Expense items that impacted the overall
operating ratio are described below. The tables on page 16 show the
operating ratios and operating margins for the Company's two reportable
segments, Truckload Transportation Services and Value Added Services.
Owner-operator miles as a percentage of total miles increased to 12.1%
for the six months ended June 30, 2007, from 11.7% for the six months ended
June 30, 2006. This increase in owner-operator miles as a percentage of
total miles shifted costs to the rent and purchased transportation category
from other expense categories. The Company estimates that rent and
purchased transportation expense for the truckload segment was higher by
21
approximately 0.5 cents per total mile due to this increase, and other
expense categories had offsetting decreases on a total-mile basis, as
follows: salaries, wages and benefits (0.2 cents), fuel (0.2 cents), and
depreciation (0.1 cent).
Salaries, wages and benefits for non-drivers increased to support the
growth in the VAS segment. Salaries, wages and benefits for the truckload
segment increased 0.5 cents on a per-mile basis due to higher driver pay per
mile resulting from the increase in discretionary pay items and higher group
health insurance costs, offset by lower state unemployment tax expense and
workers' compensation costs. Fuel decreased 0.4 cents per total mile due
primarily to lower fuel expense per gallon and the decrease in the
percentage of company truck miles versus owner-operator miles (see above).
Supplies and maintenance increased 0.4 cents per total mile due to increases
in over-the-road tractor repairs. Taxes and licenses were 0.4 cents per
mile higher during the first six months of 2007 than the same period of 2006
due to increases in state fuel tax rates in 2007 and higher state sales tax
credits recognized by the Company in 2006. Insurance increased 1.4 cents on
a per-mile basis due primarily to an increase in the frequency and severity
of claims. Rent and purchased transportation for the truckload segment
increased 0.8 cents per total mile due primarily to an increase in the
number of owner-operator tractors and the corresponding increase in owner-
operator miles. Rent and purchased transportation expense for the VAS
segment increased in response to higher VAS revenues. Other operating
expenses decreased 0.9 cents per total mile as lower gains on sales of
assets in 2007 were offset by the additional $7.2 million of bad debt
expense recorded in first quarter 2006 related to the bankruptcy of one of
the Company's customers, APX Logistics, Inc. The Company's effective income
tax rate was 41.8% and 41.1% for the six months ended June 30, 2007 and
2006, respectively.
Liquidity and Capital Resources:
During the six months ended June 30, 2007, the Company generated cash
flow from operations of $134.3 million, a 8.7% decrease ($12.8 million) in
cash flow compared to the same six-month period a year ago. The decrease in
cash flow from operations is due primarily to a $7.8 million increase in
accounts payable for revenue equipment from December 2005 to June 2006
compared to a $15.6 million decrease in accounts payable for revenue
equipment from December 2006 to June 2007 as the Company is currently
delaying the purchase of trucks with 2007 engines and lower net income in
2007, offset partially by improved working capital changes in other current
assets and other current liabilities. Cash flow from operations enabled the
Company to make net capital expenditures, make net repayments of debt, and
repurchase common stock as discussed below.
Net cash used in investing activities for the six-month period ended
June 30, 2007 decreased by $13.1 million, from $39.3 million for the six-
month period ended June 30, 2006 to $26.1 million for the six-month period
ended June 30, 2007. Net property additions, primarily revenue equipment,
were $29.4 million for the six-month period ended June 30, 2007 versus $41.8
million during the same period of 2006. The decrease was due primarily to
the Company taking delivery of substantially fewer new trucks during the
first half of 2007 as it delays purchases of trucks with the 2007 engines.
The average age of the Company's truck fleet is 1.68 years at June 30, 2007
compared to 1.32 years as of June 30, 2006.
As of June 30, 2007, the Company has committed to property and
equipment purchases of approximately $19.8 million. The Company intends to
fund these net capital expenditures through cash flow from operations and
through financing available under its existing credit facilities, as
management deems necessary.
Net financing activities used $107.2 million and $100.6 million during
the six months ended June 30, 2007 and 2006, respectively. The $6.6 million
increase in cash used for financing activities was primarily the result of
an increase in $18.6 million of repurchases of the Company's common stock in
2007, offset by $10.0 million in lower repayments of debt (net of
borrowings) and an additional $2.4 million of proceeds and tax benefits from
the exercise of stock options in 2007. The Company paid dividends of $6.7
million in the six-month period ended June 30, 2007 and $6.3 million in the
22
six-month period ended June 30, 2006. The Company increased its quarterly
dividend rate by $.005 per share beginning with the dividend paid in July
2006 and by an additional $.005 per share beginning with the dividend paid
in July 2007. Financing activities also included common stock repurchases
of $58.1 million and $39.5 million in the six-month periods ended June 30,
2007 and 2006, respectively. From time to time, the Company has
repurchased, and may continue to repurchase, shares of its common stock.
The timing and amount of such purchases depends on market and other factors.
As of June 30, 2007, the Company had purchased 3,791,200 shares pursuant to
its current repurchase authorization and had 2,208,800 shares remaining
available for repurchase.
Management believes the Company's financial position at June 30, 2007
is strong. As of June 30, 2007, the Company had $32.9 million of cash and
cash equivalents and $851.6 million of stockholders' equity. As of June 30,
2007, the Company had $225.0 million of available credit pursuant to credit
facilities, of which it had borrowed $50.0 million. The credit available
under these facilities is further reduced by the $37.1 million in letters of
credit the Company maintains. These letters of credit are primarily
required as security for insurance policies. Based on the Company's strong
financial position, management foresees no significant barriers to obtaining
sufficient financing, if necessary.
Off-Balance Sheet Arrangements:
As of June 30, 2007, the Company had no non-cancelable revenue
equipment operating leases, and had no other arrangements that meet the
definition of an off-balance sheet arrangement.
Regulations:
Effective October 1, 2005, all truckload carriers became subject to
revised hours of service ("HOS") regulations issued by the Federal Motor
Carrier Safety Administration ("FMCSA"). The most significant change for
the Company from the previous regulations is that drivers using the sleeper
berth provision must take at least eight consecutive hours in the sleeper
berth during their ten hours off-duty. Previously, drivers were allowed to
split their ten hour off-duty time in the sleeper berth into two periods,
provided neither period was less than two hours. This more restrictive
sleeper berth provision is requiring some drivers to plan their time better.
The greatest impact of these HOS changes was lower mileage productivity for
those customers with multiple-stop shipments or those shipments with pickup
or delivery delays. The Owner-Operator Independent Drivers Association
("OOIDA") filed a petition for review of the current HOS regulations with
the U.S. Court of Appeals for the District of Columbia, challenging several
issues, including the FMCSA justification for the 8-hour sleeper berth
requirements described above. Public Citizen, a consumer safety
organization, also filed a petition for review of the HOS regulations,
challenging an 11-hour daily drive time limit and the 34-hour restart
rule, which permits drivers who are off duty for 34 consecutive hours to
reset their 8-day, 70-hour clock to zero hours.
On December 4, 2006, a three-judge panel heard arguments on the
petitions for review, and on July 24, 2007, the U.S. Court of Appeals issued
its decision on the challenges made by OOIDA and Public Citizen to the
driver HOS rules issued in 2005 by FMCSA. The Court rejected the OOIDA
claims, including its challenge to the 8-hour sleeper berth requirements,
and ruled in favor of Public Citizen on the 11-hour daily driving limit rule
and the 34-hour restart rule.
The Court described its concerns as procedural and vacated only the 11-
hour daily driving limit and 34-hour restart provisions, leaving the rest of
the 2005 rule in place. FMCSA has 45 days to petition for reconsideration.
After that time, unless a stay is granted, the Court's mandate will issue
within seven (7) days and the daily driving limit would be reduced to 10
hours and the 34-hour restart provision eliminated. The flaws that the
Court found were procedural in nature and can be corrected by FMCSA should
it elect to do so. The American Trucking Associations ("ATA") has indicated
that it will work to provide support to FMCSA for re-adoption of the
23
11-hour daily driving limit and 34-hour restart, and in the meantime, will
seek a stay from the Court that would allow those provisions to stay in
place pending FMCSA's reevaluation.
If not reversed, both rule changes could have a negative impact on
mileage productivity for many carriers, since both rules can, in certain
circumstances, have the effect of restricting a driver's hours on duty. The
Company has begun the process of evaluating the impact of this ruling on its
operations and is preparing to make modifications to its electronic driver
hours of service system (paperless logs system) to implement the rules as
modified by the Court's ruling, should that become necessary.
On January 18, 2007, the Federal Motor Carrier Safety Administration
published a Notice of Proposed Rulemaking ("NPRM") in the Federal Register
on the use of Electronic On-Board Recorders ("EOBRs") by the trucking
industry for compliance with HOS rules. The intent of this proposed rule is
to improve highway safety by fostering development of new EOBR technology
for HOS compliance, encouraging its use by motor carriers through
incentives, and requiring its use by operators with serious and continuing
HOS compliance problems. Comments on the NPRM were to be received by April
18, 2007. Over eight years ago, the Company became the first, and only,
trucking company in the United States to receive authorization from the DOT
to use a global positioning system based paperless log system in place of
the paper logbooks traditionally used by truck drivers to track their daily
work activities. While the Company does not believe the rule, as proposed,
would have a significant effect on its operations and profitability, it will
continue to monitor future developments.
Beginning in January 2007, all newly manufactured truck engines must
comply with a new set of more stringent engine emission standards mandated
by the Environmental Protection Agency ("EPA"). Trucks manufactured with
these new engines are estimated to cost $5,000-$10,000 more per truck, have
slightly lower miles per gallon ("mpg"), and have higher maintenance costs.
To delay the cost impact of these new emission standards, the Company kept
its truck fleet new relative to historical company and industry standards.
The Company's capital expenditures for new trucks have been and are expected
to continue to be much lower in 2007. A new set of more stringent emissions
standards mandated by the EPA will become effective for newly manufactured
trucks beginning in January 2010.
Several states, counties and cities have enacted legislation or
ordinances restricting idling of trucks to short periods of time. This is
significant when it impacts the ability of the driver to idle the truck for
purposes of operating air conditioning and heating systems particularly
while in the sleeper berth. Many of the statutes or ordinances, recognizing
the need of the drivers to have a comfortable environment in which to sleep,
have made exceptions for those circumstances. California currently has such
an exemption, however, the sleeper berth exemption will no longer exist
after January 1, 2008. The Company is currently working on plans to address
this issue in California. California has also enacted restrictions on
Transport Refrigeration Units ("TRUs") emissions, which are scheduled to be
phased in over several years beginning year-end 2008. Although legal
challenges may be mounted, if the law becomes effective as scheduled it will
require companies to operate only compliant TRUs in California. There are
several alternatives for meeting these requirements which the Company is
currently evaluating.
Critical Accounting Policies:
The most significant accounting policies and estimates that affect our
financial statements include the following:
* Selections of estimated useful lives and salvage values for purposes
of depreciating tractors and trailers. Depreciable lives of tractors
and trailers range from 5 to 12 years. Estimates of salvage value
at the expected date of trade-in or sale (for example, three years
for tractors) are based on the expected market values of equipment
at the time of disposal. Although the Company's current replacement
cycle for tractors is three years, the Company calculates
depreciation expense for financial reporting purposes using a
24
five-year life and 25% salvage value. Depreciation expense
calculated in this manner continues at the same straight-line rate,
which approximates the continuing declining market value of the
tractors, in those instances in which a tractor is held beyond the
normal three-year age. Calculating depreciation expense using a
five-year life and 25% salvage value results in the same annual
depreciation rate (15% of cost per year) and the same net book value
at the normal three-year replacement date (55% of cost) as using a
three-year life and 55% salvage value. The Company continually
monitors the adequacy of the lives and salvage values used in
calculating depreciation expense and adjusts these assumptions
appropriately when warranted.
* The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of a long-lived asset may not be recoverable. An impairment loss
would be recognized if the carrying amount of the long-lived asset
is not recoverable, and it exceeds its fair value. For long-lived
assets classified as held and used, if the carrying value of the
long-lived asset exceeds the sum of the future net cash flows, it is
not recoverable. The Company does not separately identify assets by
operating segment, as tractors and trailers are routinely
transferred from one operating fleet to another. As a result, none
of the Company's long-lived assets have identifiable cash flows from
use that are largely independent of the cash flows of other assets
and liabilities. Thus, the asset group used to assess impairment
would include all assets and liabilities of the Company. Long-lived
assets classified as held for sale are reported at the lower of
their carrying amount or fair value less costs to sell.
* Estimates of accrued liabilities for insurance and claims for
liability and physical damage losses and workers' compensation. The
insurance and claims accruals (current and long-term) are recorded
at the estimated ultimate payment amounts and are based upon
individual case estimates, including negative development, and
estimates of incurred-but-not-reported losses based upon past
experience. The Company's self-insurance reserves are reviewed by
an actuary every six months.
* Policies for revenue recognition. Operating revenues (including fuel
surcharge revenues) and related direct costs are recorded when the
shipment is delivered. For shipments where a third-party capacity
provider (including owner-operator drivers under contract with the
Company) is utilized to provide some or all of the service and the
Company is the primary obligor in regards to the delivery of the
shipment, establishes customer pricing separately from carrier rate
negotiations, generally has discretion in carrier selection, and/or
has credit risk on the shipment, the Company records both revenues
for the dollar value of services billed by the Company to the
customer and rent and purchased transportation expense for the costs
of transportation paid by the Company to the third-party capacity
provider upon delivery of the shipment. In the absence of the
conditions listed above, the Company records revenues net of
expenses related to third-party capacity providers.
* Accounting for income taxes. Significant management judgment is
required to determine the provision for income taxes and to
determine whether deferred income taxes will be realized in full or
in part. Deferred income 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. When it is more likely that all or some
portion of specific deferred income tax assets will not be realized,
a valuation allowance must be established for the amount of deferred
income tax assets that are determined not to be realizable. A
valuation allowance for deferred income tax assets has not been
deemed to be necessary due to the Company's profitable operations.
Accordingly, if the facts or financial circumstances were to change,
thereby impacting the likelihood of realizing the deferred income
tax assets, judgment would need to be applied to determine the
amount of valuation allowance required in any given period.
25
Management periodically evaluates these estimates and policies as
events and circumstances change. There have been no changes to these
policies that occurred during the Company's most recent fiscal quarter.
Together with the effects of the matters discussed above, these factors may
significantly impact the Company's results of operations from period to
period.
Accounting Standards:
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles
("GAAP"), and expands disclosures about fair value measurements. The
provisions of SFAS No. 157 are effective as of the beginning of the first
fiscal year that begins after November 15, 2007. As of June 30, 2007,
management believes that SFAS No. 157 will not have a material effect on the
financial position, results of operations, and cash flows of the Company.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities-Including an amendment of
FASB Statement No. 115. This statement permits entities to choose to
measure many financial instruments and certain other items at fair value.
The provisions of SFAS No. 159 are effective as of the beginning of the
first fiscal year that begins after November 15, 2007. As of June 30, 2007,
management believes that SFAS No. 159 will not have a material effect on the
financial position, results of operations, and cash flows of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in commodity prices,
foreign currency exchange rates, and interest rates.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations
due to changes in the level of global oil production, refining capacity,
seasonality, weather, and other market factors. Historically, the Company
has been able to recover a significant portion of fuel price increases from
customers in the form of fuel surcharges. The Company has implemented
customer fuel surcharges programs with most of its revenue base to offset
most of the higher fuel cost per gallon. The Company cannot predict the
extent to which higher fuel price levels will continue in the future or the
extent to which fuel surcharges could be collected to offset such increases.
As of June 30, 2007, the Company had no derivative financial instruments to
reduce its exposure to fuel price fluctuations.
Foreign Currency Exchange Rate Risk
The Company conducts business in Mexico and Canada and has begun
operations in Asia. Foreign currency transaction gains and losses were not
material to the Company's results of operations for second quarter 2007 and
prior periods. To date, virtually all foreign revenues are denominated in
U.S. dollars, and the Company receives payment for foreign freight services
primarily in U.S. dollars to reduce direct foreign currency risk.
Accordingly, the Company is not currently subject to material foreign
currency exchange rate risks from the effects that exchange rate movements
of foreign currencies would have on the Company's future costs or on future
cash flows.
26
Interest Rate Risk
The Company had $50.0 million of debt outstanding at June 30, 2007.
The interest rates on the variable rate debt are based on the London
Interbank Offered Rate ("LIBOR"). Assuming this level of borrowings, a
hypothetical one-percentage point increase in the LIBOR interest rate would
increase the Company's annual interest expense by $500,000. The Company has
no derivative financial instruments to reduce its exposure to interest rate
increases.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures, as defined in
Exchange Act Rule 15d-15(e). The Company's disclosure controls and
procedures are designed to provide reasonable assurance of achieving the
desired control objectives. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in enabling the Company to
record, process, summarize and report information required to be included in
the Company's periodic SEC filings within the required time period.
Management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, concluded
that there have been no changes in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
The Company has confidence in its internal controls and procedures.
Nevertheless, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that the internal
controls or disclosure procedures and controls will prevent all errors or
intentional fraud. An internal control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of such internal controls are met. Further, the design of an
internal control system must reflect the fact that there are resource
constraints, and the benefits of controls must be relative to their costs.
Because of the inherent limitations in all internal control systems, no
evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been
detected.
27
PART II
OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On April 17, 2006, the Company announced that its Board of Directors
approved an increase to its authorization for common stock repurchases of
6,000,000 shares. As of June 30, 2007, the Company had purchased 3,791,200
shares pursuant to this authorization and had 2,208,800 shares remaining
available for repurchase. The Company may purchase shares from time to time
depending on market, economic, and other factors. The authorization will
continue unless withdrawn by the Board of Directors.
The following table summarizes the Company's common stock repurchases
during the second quarter of 2007 made pursuant to this authorization. No
shares were purchased during the quarter other than through this program,
and all purchases were made by or on behalf of the Company and not by any
"affiliated purchaser", as defined by Rule 10b-18 of the Securities Exchange
Act of 1934.
Issuer Purchases of Equity Securities
Maximum Number
(or Approximate
Total Number of Dollar Value) of
Shares (or Units) Shares (or Units) that
Total Number of Purchased as Part of May Yet Be
Shares (or Units) Average Price Paid Publicly Announced Purchased Under the
Period Purchased per Share (or Unit) Plans or Programs Plans or Programs
---------------------------------------------------------------------------------------
April 1-30, 2007 502,300 $19.23 502,300 3,206,500
May 1-31, 2007 604,900 $18.95 604,900 2,601,600
June 1-30, 2007 392,800 $19.03 392,800 2,208,800
--------------------- ---------------------
Total 1,500,000 $19.06 1,500,000 2,208,800
===================== =====================
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Werner Enterprises, Inc. was held
on May 8, 2007 for the purpose of electing two directors for three-year
terms, adopting an amended and restated Equity Plan, and approving three
proposed amendments to the Company's Articles of Incorporation. Proxies for
the meeting were solicited pursuant to Regulation 14A of the Securities
Exchange Act of 1934. There was no solicitation in opposition to
management's nominees, and all such nominees were elected. Of the
73,900,461 shares entitled to vote, stockholders representing 72,297,798
shares (97.8%) were present in person or by proxy. The voting tabulation
was as follows:
Shares Shares
Voted Voted
"FOR" "ABSTAIN"
---------- ---------
Gerald H. Timmerman 68,216,571 4,081,227
Kenneth M. Bird 69,106,935 3,190,863
28
Clarence L. Werner, Gary L. Werner, Gregory L. Werner, Michael L.
Steinbach, Patrick J. Jung, and Duane K. Sather continued as directors after
the meeting.
The stockholders approved the adoption of an amended and restated
Equity Plan. The voting tabulation was as follows:
Shares Voted Shares Voted Shares Voted Broker
"FOR" "AGAINST" "ABSTAIN" Non-Votes
------------ ------------ ------------ ---------
Amended and Restated Equity Plan 51,808,593 15,194,068 53,665 5,241,472
The stockholders approved the amendment to Article III of the Company's
Articles of Incorporation regarding the Company's purpose and conduct of
business. The voting tabulation was as follows:
Shares Voted Shares Voted Shares Voted
"FOR" "AGAINST" "ABSTAIN"
------------ ------------ ------------
Articles of Incorporation Amendment 71,326,904 78,640 892,254
The stockholders approved the amendment to Article VIII of the
Company's Articles of Incorporation regarding indemnification provisions.
The voting tabulation was as follows:
Shares Voted Shares Voted Shares Voted
"FOR" "AGAINST" "ABSTAIN"
------------ ------------ ------------
Articles of Incorporation Amendment 70,376,209 1,878,022 43,567
The stockholders approved the amendment to Article VIII, Section A of
the Company's Articles of Incorporation regarding greater limitation on
liabilities of directors. The voting tabulation was as follows:
Shares Voted Shares Voted Shares Voted
"FOR" "AGAINST" "ABSTAIN"
------------ ------------ ------------
Articles of Incorporation Amendment 70,947,766 1,304,109 45,923
29
Item 6. Exhibits.
Index of Exhibits
Exhibit 3(i) Restated Articles of Incorporation (filed herewith)
Exhibit 3(ii) Revised and Restated By-Laws (filed herewith)
Exhibit 10.1 Werner Enterprises, Inc. Equity Plan (Incorporated by
reference to Exhibit 99.1 to the Company's report on Form 8-K dated
May 8, 2007)
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification (filed herewith)
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification (filed herewith)
Exhibit 32.1 Section 1350 Certification (filed herewith)
Exhibit 32.2 Section 1350 Certification (filed herewith)
30
SIGNATURES
Pursuant to the requirements 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.
WERNER ENTERPRISES, INC.
Date: August 2, 2007 By: /s/ John J. Steele
-------------------- ---------------------------------------
John J. Steele
Executive Vice President, Treasurer and
Chief Financial Officer
Date: August 2, 2007 By: /s/ James L. Johnson
-------------------- ---------------------------------------
James L. Johnson
Senior Vice President, Controller and
Corporate Secretary
31